MOUNTAIN COMPOSITES KIBOL - Business valuation

Business valuation

This project is offered to a potential buyer of the rights to use the technology for obtaining fiber from rocks.

Continuous fiber from GP (NVG) - a new type of fillers of composite materials, a close analogue of which both in its consumer properties and in the method of production is glass fiber.

Single-stage production and unlimited raw material base are the most significant advantages of this technology over existing ones in the field of composite materials production. NVG, being structural analogues of fiberglass products, surpass it in technical and physical-mechanical properties and significantly expand the scope of application of these materials. In addition, NVG is considered by consumers as a substitute for high-modulus magnesium-aluminum-borosilicate fibers in composite materials.

The capacity of the world market of fiberglass products (10 million tons), the relative cheapness of obtaining NVG against the background of its technical and physical-mechanical properties-all this determines the prospects of the new product presented on the world market.

Methods for obtaining NVG are patented in Russia, Germany, Great Britain, Austria, the USA, Canada, Japan, China, and Ukraine. Under the license and development of the company "Kibol" in Russia, Sudogda, Vladimir region., JSC "Sudogodskoe steklovolokno" was created industrial production of basalt fiber, roving, fabrics with a total capacity of 500 tons / year. The products manufactured in Sudogda have been tested in many countries around the world and have received positive feedback on the technological properties of basalt composite materials.

The author of the technology for obtaining continuous fiber from GP-Kibol Viktor Fedorovich, Candidate of Technical Sciences, specialist in the field of creation, research and production of fibers from rocks. In 1995, he was awarded a Gold Medal at the World Salon of Inventions, Scientific Developments and Industrial Innovations "Brussels-Eureka 95", for the development of "A method for producing basalt fiber".

The proposed scheme for the sale of rights to use the technology is two-stage:

Stage 1-sale of the European call option for the purchase of a license with a term of 0.5 years.

Stage 2 - the sale of a license.

In our opinion, the cost base for estimating the cost of the license should be the net present value / HPV/ of the business, which is created by the technology for producing continuous basalt fiber.

ASSESSMENT OF THE COST OF THE RIGHTS TO USE THE "METHOD FOR OBTAINING BASALT FIBER" IN RUSSIA.

The value of the exclusive rights to use the patented "Method for obtaining basalt fiber" on the territory of Russia is estimated.

These exclusive rights provide for the use of the method for an unlimited period of time and an unlimited volume of production and sale of products, as well as an unlimited right to resell licenses on the territory of Russia.

The following basic assumptions are taken as the basis for the assessment : continuous basalt fiber is at least as good as glass fiber in terms of its main characteristics, with a global market capacity of 10 million tons;

- the cost of a unit of production from basalt raw materials is lower than the cost of a unit of fiberglass products;

- taking into account the growth prospects, by the 7th year of the project, Russia is creating capacities for the production of continuous basalt fiber in the amount of = 130 thousand tons / year;
- the production of fiberglass products is a traditional type of business, so according to the laws of the market at present, this type of business creates close to zero economic profit, and therefore close to zero net present value. Therefore, the net present value of the business being evaluated is the incremental net present value compared to the corresponding business valuation parameter for fiberglass products.

The value of the rights is estimated as a 30% share of the net present value of the business created on the basis of the "Basalt Fiber Production Method" in Russia, taking into account the growth prospects.

The net present value of the business, taking into account the growth prospects in the expected scenario, is $ 64.1 million, therefore the present value of the rights, as a 30% share of the net present value of the business, is $ 19.2 million.

THE COST OF THE RIGHTS TO USE THE "METHOD OF OBTAINING BASALT FIBER" (unlimited term of transfer of the right)

Share of the cost of rights in the net present value of the business, %	10	30	50
Net present value of the business with a volume of output of 10,000 tons / year, $ thousand.	14 050	14 050	14 050
The present value of rights with a limited issue volume of 10,000 tons / year, $ thousand.	1 405	4215	7 025
Net present value of the business, adjusted for growth prospects, $ ths.	64 100	64 100	64 100
The present value of the rights without limitation of the issue volume, $ thousand.	6410	19 230	32 050
Lump-sum payment for the purchase of rights with a limited volume of issue of 10,000 tons / year, $ thousand.	703	2 108	3 513
Lump sum payment for the purchase of the right without limitation of the issue volume, $ thousand.	3 205	9 615	16 025
Royalty payment period, years	10	10	10
Royalties for the purchase of rights with a limited issue volume of 10,000 tons / year, $ thousand/year	160	485	810
Royalty on the purchase of rights without limitation of the volume of issue, $ thousand / year	740	2 215	3 690
The cost of the option to purchase rights with a limited issue volume of 10,000 tons / year, $ thousand.	170	520	865
The exercise price of the option to purchase rights with a limited issue volume of 10,000 tons / year, $ thousand	1 405	4 215	7 025
The cost of the option to purchase rights without limiting the volume of the issue, $ thousand	1 825	5 475	9 125
Exercise price of the option to purchase rights without limitation of the issue volume, $ thousand	6 410	19 230	32 050
Option exercise period, years	1	1	1

THE MAIN ECONOMIC INDICATORS OF THE PROJECT OF CREATING A BUSINESS IN RUSSIA BASED ON THE "METHOD OF OBTAINING BASALT FIBER»

	The expected scenario	Optimistic scenario	Basic scenario	Pessimistic scenario
Average price per unit of production,$ / ton	2 750	3 000	2 750	2 500
Unit cost,$ / ton	1 000	800	1 000	1 200
Net profit at the output volume of 10,000 tons / year, $ thousand.	12 250	15 400	12 250	9 100
Investments for the creation of capacities in the amount of 10,000 tons / year, $ thousand.	27 500	25 000	27 500	30 000
The present value of investments for the creation of capacities in the amount of 10,000 tons / year,$thousand.	22 100	20 800	22 100	23 400
The present value of the business with the volume of output of 10,000 tons / year, $ thousand.	36 150	50 000	36 000	25 000
Net present value of the business with a volume of output of 10,000 tons / year, $ thousand.	14 050	29 200	13 900	1 600
Capacity for the production of continuous basalt fiber, taking into account the growth prospects, thousand tons / year	130	310	130	20
The present value of the business, taking into account the growth prospects, $ thousand.	222 900	670 000	208 000	44 500
The present value of the investment, taking into account the growth prospects, $ thousand.	158 800	410 000	151 300	42 600
Net present value of the business, adjusted for growth prospects, $ ths.	64 100	260 000	56 700	1 900

Profit-expense scheme
(scenario for the lower limit of the price of fiberglass 1.07 dollars per pound)