NOTE: This project is purely to apply concepts that I have learned from courses and certifications completed and not a formal, independent analyst opinion of any kind.
Find the model here. Any feedback is welcome.
Overview
Taking the recent redo of the AIC Mines three statement model, I’ve tacked on a discounted cash flow analysis onto the end of it to get some more reps in on DCFs. This one uses a perpetuity growth rate terminal value again. I have also incorporated mid year discounting into this one as an iteration from the last DCF project.
Please note this does not utilise a life of mine model, I’m either using growth rates and ratios based on historical financials or making up certain assumptions to have numbers to play with.
Takeaways
- Disclaiming again, purely mechanical in exercise…
- For the three statement model I tried to project mainly based on trends inherent in the past three years of financial statements. Extrapolating this out into a DCF results in negative unlevered free cash flows for the first two years driven by additions to fixed assets. I realised this was because for property, plant and equipment I projected this based on a capital asset turnover ratio. Revenue has been increasing, my high level understanding without digging too deep will be due to the price of copper. In that case using a turnover ratio will be inflating fixed assets, or rather over forecasting increases. This results in net outflows to be discounted back.
- The third projected year is net cash inflow for unlevered free cash flows, though. Being purely a mechanical exercise I’ve just been using an average growth rate based on the forecast unlevered free cash flows (i.e., year on year % averaged) as the forecast growth rate in determining the terminal value. In this instance being purely mechanical there’s a big swing from negative cash flows to positive cash flows, averaging out at a high positive growth rate arithmetically. Feeding this through the calculation results in a negative terminal cash flow as the growth rate is higher than the assumed WACC of 8% (pulled out of a hat, no significance behind this assumption).
- However, I did a data table sensitivity analysis and assumed a more reasonable growth rate of 2.0% (reasonable as in roughly long term GDP growth, etc, etc) with steps of 0.5%, and similarly for the WACC of 8% with the same steps, and the estimated equity values per share are quite close to the actual price. Note that the 2.0% growth rate and 8.0% WACC lands on AUD$0.58 per share which is actually its close price on 16 January 2026, the Friday before I prepared this.
- Also noting that I realised in preparing this one that in the prior DCF project (#006) I used the net debt projected in the final year rather than the net debt as per the latest financials (as proxy for the valuation date). Not quite correct. Took the latest FS net debt for this one.