The most recent technical report for the Donkin Coal Mine released in 2012 indicated that the mine would produce 2.75 million tonnes of coal per year and sell 75% as coking coal to be exported internationally at an average long-term price of US$156.7 per tonne while selling 25% to the local power plant as thermal coal at US$122.20 per tonne for an average sales price of US$148.085 per tonne. Based on these numbers, Donkin would generate annual revenue of US$407.1 million (CAD$529.37 million).
Morien Resources (TSXV: MOX)'s royalty is worth 2% of the first 500,000 tonnes of quarterly coal production and 4% of all quarterly coal production of above 500,000 tonnes. Average annual production of 2.75 million tonnes equals 687,500 tonnes per quarter, which would result in MOX's royalty averaging 2.545% over the long-term.
Therefore, based on average annual revenue of CAD$529.37 million and an average royalty of 2.545%, MOX would earn an average of CAD$13.475 million in annual royalties. Because royalty companies don't pay any operating/capital expenditures, they typically trade for 10X revenue. This would value MOX at CAD$134.75 million or $2.66 per share.
Currently, Hampton Roads coking coal (the best estimate of what MOX's coking coal will sell for) is priced at US$347.50 per tonne. If we discount 25% of Donkin's annual production by 22% to reflect a lower price for the portion to be sold locally as thermal coal, Donkin will most likely sell its coal today at an average of US$328.39 per tonne. At current coal prices, Donkin is likely to generate annual revenue of US$903.07 million (CAD$1.174 billion). This would result in MOX generating annual royalties of CAD$29.88 million, which means a valuation of 10X revenue would value MOX at CAD$298.783 million or $5.91 per share.
However, based on ICE Newcastle Coal Futures, which have a current spot price of US$390 per tonne... coal futures are in backwardation and June 2026 coal futures are priced at US$235.75 per tonne for a 39.55% discount below today's spot prices. If we discount today's estimated Donkin average coal sales price of $328.39 per tonne by 39.55%, we get a long-term average Donkin coal sales price of US$198.51 per tonne. This means Donkin would generate annual revenue of US$545.9 million (CAD$709.67 million). This would result in MOX generating annual royalties of CAD$18.06 million, which means a valuation of 10X revenue would value MOX at CAD$180.61 million or $3.57 per share.
Depending on if we go by Donkin's 2012 technical report coal prices, current coal prices, or a discounted coal price based on the backwardation of futures contracts that expire four years from now, MOX's fair value is either $2.66 per share, $5.91 per share, or $3.57 per share, respectively.
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