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Sheffield Resources (Australia): Thunderbird Mineral Sands Project Cost of Capital
內容大綱
In early October 2022, the ASX-listed mineral exploration company Sheffield Resources announced its final investment decision to proceed with the Thunderbird mineral sands project, its only project under development. Olivia Montalbano’s investment banking firm had decided to provide coverage of Sheffield’s stock and asked her to determine a fair value estimate. The investor’s bankable feasibility study (BFS) provided an estimate of $1.84 per share, but the stock price was only $0.47. What troubled Montalbano was that the BFS employed a real discount rate of 8%, which seemed low, given typical mining project risk. Montalbano’s immediate task was to develop her own estimate of the project’s cost of capital.
學習目標
This case has been designed for use in corporate finance and valuation courses/modules at both the undergraduate and graduate levels. Students should have prior familiarity with estimating the weighted average cost of capital (WACC). After working through the case and assignment questions, students will be able to do the following:<ul><li>Estimate the project cost of capital using the pure play approach.</li><li>Estimate the project cost of equity, based on comparable firm’s betas, which requires students to apply the Hamada equation to un-lever the comparable company’s equity betas and re-lever it with the project capital structure to determine an appropriate asset beta.</li><li>Apply the Fisher equation to convert a nominal interest rate to a real interest rate.</li><li>Understand the difference between the project cost of capital and the company’s WACC.</li></ul>