Does NPV include sustaining capex and NAV?

[scorpioncapital]

I've seen several NPV tables at say 5% and not sure if these calculations include

 

a) sustaining capex of the project and

b) has added the net asset value of the company at present (e.g. assets minus liabilities).

c) the initial capital cost of the project.

 

If it includes a) & c) and not b), you would have to add the NAV to the sum total of future cash flows?

 

 

[kevin4u2]

I've seen several NPV tables at say 5% and not sure if these calculations include

 

a) sustaining capex of the project and

b) has added the net asset value of the company at present (e.g. assets minus liabilities).

c) the initial capital cost of the project.

 

If it includes a) & c) and not b), you would have to add the NAV to the sum total of future cash flows?

 

What industry are you referring to?  Any NPV table should define the cash flow stream and the assumptions involved. 

 

The 5% is the discount rate.  The NPV is the net present value of the cash flow stream.  If you want "Net" asset value, deduct the liabilities. 

 

 

[beerbaron]

I've seen several NPV tables at say 5% and not sure if these calculations include

 

a) sustaining capex of the project and

b) has added the net asset value of the company at present (e.g. assets minus liabilities).

c) the initial capital cost of the project.

 

If it includes a) & c) and not b), you would have to add the NAV to the sum total of future cash flows?

 

What industry are you referring to?  Any NPV table should define the cash flow stream and the assumptions involved. 

 

The 5% is the discount rate.  The NPV is the net present value of the cash flow stream.  If you want "Net" asset value, deduct the liabilities.

 

Of course an NPV has a, b and c. All cash inflows and outflows are taken into account in an NPV. This is the only theoretical model that makes sense. Too bad it's impossible to use for most companies.

 

BeerBaron

[scorpioncapital]

I'm looking at gold mining. A company is about 30% below NAV @ 5%. Not sure if this is enough of a discount, but rates are unlikely to go above 5% for quite some time.

[DavidVY]

Careful with net-asset values for gold-mines. It could easily be a melting ice-cube.

 

I'd be more concerned with production cost (cash-cost) per ounce. Even that # should be taken with a grain of salt.

[Hielko]

I'm looking at gold mining. A company is about 30% below NAV @ 5%. Not sure if this is enough of a discount, but rates are unlikely to go above 5% for quite some time.

Using a 5% discount rate on a gold miner is way too low.

[ItsAValueTrap]

I've seen several NPV tables at say 5% and not sure if these calculations include

 

a) sustaining capex of the project and

b) has added the net asset value of the company at present (e.g. assets minus liabilities).

c) the initial capital cost of the project.

 

If it includes a) & c) and not b), you would have to add the NAV to the sum total of future cash flows?

 

NPV estimates are inflated all the time.  Some examples:

- Consolidated Thompson / the Bloom Lake mine

- Canada Lithium  Positive NPV in the technical report.  The company is currently in some sort of bankruptcy or something because it turns out the mine didn't have cash flow once it opened.

 

And regulators won't protect you from these shenanigans.

[scorpioncapital]

Can NPV values every be underestimated?

[kevin4u2]

I'm looking at gold mining. A company is about 30% below NAV @ 5%. Not sure if this is enough of a discount, but rates are unlikely to go above 5% for quite some time.

 

5% is way too low. Discount rates should reflect all of the risks. Interest rates are only one factor. There are so many inherent assumption in calculating the npv, be sure to understand the fine print. My hurdle is 15%. You can rarely find opportunities at that level, but occasionally the market is stupid.

 

The single biggest factor is the forward commodity prices that are assumed. The second is production assumptions. You can even get one correct and if the other goes south, and you can lose big.

[ItsAValueTrap]

Can NPV values every be underestimated?

 

For various reasons, yes. 

 

Example: They might find more ore.  A lot of the time, mining companies hold off on deep underground exploration drilling until a deep shaft is sunk (so the drilling distance is a lot less).  When you drill very long holes, the $/ft goes up a lot and the drillhole will curve off course.

 

2- Perhaps you are missing the point.  If you grossly inflate a technical report, it is extremely unlikely that regulators will do anything.  At worse, they say that another technical report must be done.  I don't know of anybody that received a slap on the wrist for inflating a technical report.  There are wonderful opportunities for fraud by hiring engineers that will write an inflated technical report.  Using a 15% discount rate likely will not protect you.