O4 has released a scoping study for its Lake Way Sulphate of Potash (SOP) project with excellent project economics. The project has a pre-financing post-tax NPV8 of $381m and an IRR of 27% with a 3.2 year payback and the capex is expected to be $237m. Argonaut has developed a post financing DCF model for Lake Way which assumes a 60:40 debt-equity funding solution. A pre-financing Lake Wells DCF model has also been developed based on the 2016 Scoping study. The Lake Way valuation has been risked at 80%, and the Lake Wells valuation has been risked at 30% to reflect where these projects are in their development lifecycles. We maintain our Speculative Buy recommendation on SO4 with a price target of $1.15 p/share.
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