Standard valuation measures don’t work well for assets not yet in production. Earnings based multiples need EBITDAs and NPATs to work with, and if you don’t have them, you have to fall back on other methods.
Also, there’s always an amount of guess work to derive a plausible revenue line (assumed mix of grades, recoveries, processing, production, and more, depending on the commodity), to which you may subsequently apply a multiple (or go down the path of a full DCF) to derive your valuation.
However, surely some part of the enthusiasm for CHN (Chalice) and palladium more broadly, is just a function of the same price surge that’s affected all commodities.
Until production phase, pre-earnings (or even pre-revenue stocks) are somewhat analogous to concept stocks, and if you get the concept right, might do very well.
But the share price trajectory below does seem to be skyrocketing on the back of the same general macro phenomena (the reopening meeting COVID impact supply constraints)…
…which gets conflated with the idiosyncratic demand and supply dynamic of the producer (outlined below).
Somewhat tongue-in-cheek, we’d note that often, for small cap miners, receiving the index inclusion acts as a “kiss of death” from a market timing perspective, and the stock would appear to be meaningfully down from that momentous occasion.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.