Howy: The $100/oz cost that CL just quoted comes to $25/ton of head ore. This is definitely lower than I think they can do, but CL is an honorable man, and I would not doubt his sources or motives. I have repeated my calculations, therefore, with the following assumptions:
Cost per head ore $25/ton (needs verification)
Concentration .25 oz/ton (needs a DB authentication)
Production 10,000 ton/day (needs capital expenditure)
Number of days per year production 300
Number of shares 20,000,000 (it might still be nice to know how the 10,000 ton/day facility will be funded and how many shares we end up with at the end of that process).
Ownership 70% (go to 80% if delivery of 10,000 oz of gold by April 1997 feasible)
Selling price per ounce of gold $330
Tax rate 40% At these rates the future earnings per share (zero overhead etc. no depreciation, all costs included in the $25/ton of head ore) are $3.6 justifying today, IMHO no more than $36/share, a far cry from $500.
I do, however doubt that the cost per ton can be so close to other leaching processes, since we have to grind the ore to 400 mesh, and use a high temperature leaching process, which must be more than twice as costly as standard leaching (if it was not, we have been taught on this thread that every 10 degrees increase in leaching temperature double the leaching rates, and at this rate it would be foolish not to do high temperature leachings in other leaching processes and quadruple processing rate for only twice the cost if we use only a 20 degrees higher temperature leaching process). I will not even discuss anymore the case of complete dissolution of the quartz or not, since now CL says no hydroxides are involved (and I repeat, but CL is an honorable man), while two months ago he told me that a "complex hydroxide" is involved, so I do not know and make no assumptions relative to unknowns (but ...).
Of course, someone should comment that $330/ounce of gold is too high, since this is what a refiner would get in the open market and he would want some 10% profit or thereabout. Also, this should be considered negative hype, since gold is already on its way up to 400.
You may want to compare the "future earnings per share" at other production costs, I have done it for $50/ton and for $75/ton, which without any additional information, should be at least considered, you get for $50/ton, $2 earning per share and for $75/ton, $.46/share. These yields, in my "evaluation book" 20 and 4.6 $/share respectively.
Now you have a simple model. As an investor, I would take some discounts to such models valuations to be compensated for investments risks. For instance, CL mentioned that the April deadline in no longer looming since IPMCF is renegotiating a new agreement. Interesting little fact, is it positive for the stock or negative for the stock.
Well, if you are a "positive hyper" your angle is, you see there is no chance of loosing the concession they are laready negotiating a new deal. You can also say, the looming cancelation of the agreement due to lack of performance was depressing the stock, and now that, this deadline is no longer looming, the share will rocket (it is already up $75 on the Canadian markets, on 17,000, what awesome volume).
If you take the "negative hyper" point of view, you would say, the whole thing depends on a positive outcome to these negotiations, Gewalt, they are loosing the concession, and so on. Take your pick.
I know that if I was on Phoenix' side of the negotiating table, I would squeeze whatever concessions that I can (particularly if Phoenix knows by now how great a property they had), so maybe the 70% is no longer that secure. In Arakis case, everyone though that their share would not go under 50%, but they got barely half that, could something similar happen here? What leverage does IPMCF have in these negotiations?
Of course, raising such questions is irresponsible negative hype. Therefore, I'll stop right here.
Of course, I am not buying at these prices, since I still think that a conservative estimate of the true value is no more than $2 to $4 per share. But, what I do with my money, is my business.
Zeev |
