Revisiting Valuation Estimates....
Dealing only with Mica, the company has intimated they will have a production capability of around 22,000,000 pound of mica per year. This is before any expansion of processing beyond this 1st phase. Sales of this tonnage might result in prices per pound of $1 to $14.
Since they won't be selling the by-products (feldspar, quartz, lithium, etc.) right off the bat, I would assume a gross profit margin of 40-70% would be a reasonable estimate for the mica sales. They intimated 15mill profit on 22 mill pounds at $1 at the Phoenix meeting (68%).
These models shape up on 22,000,000 lbs sold and aprox 30,000,000 shares outstanding:
Avg price per lb $5 mgn 40% eps $1.47
Avg price per lb $5 mgn 70% eps $2.57
Avg price per lb $1 mgn 40% eps $ .29
Avg price per lb $1 mgn 70% eps $ .51
Mining entities comparable with AZCO: Amcol(ACO) valued at P/E 16. Zemex (ZMX) is valued at P/E 9. Applying this range to the eps estimates above, I get:
Avg price per lb $5 mgn 40% eps $1.47 PE9=13.23/sh PE16=23.52/sh
Avg price per lb $5 mgn 70% eps $2.57 PE9=23.13/sh PE16=41.12/sh
Avg price per lb $1 mgn 40% eps $ .29 PE9=2.61/sh PE16=4.64/sh
Avg price per lb $1 mgn 70% eps $ .51 PE9=4.59/sh PE16=8.16/sh
If you are conservative and believe AZCO will only get $1 a pound which would mean virtually no sales of high aspect, higher grade mica, then the stock price estimate of 2.61 to 8.16 might apply.
If you feel they will sell high aspect, higher grade mica at good prices, then perhaps a share price closer to the $5 a pound estimate is in order. While they may not be producing $30,000/ton Mica at the first, there is evidence to suggest they can and will do so. For every ton they sell at this price vs. 10 tons sold at the $2000/ton price, the average is 30,000+20,000/11 or 4500 a ton or 2.25/lb, so it seems that somewhere in between$1/lb and $5/lb is a reasonable estimate. Averaging the price and the margin and the PE estimates yields an estimate of 15.13/share.
Either way, when AZCO announces sales numbers each quarter, we will not have any details about what amount was sold at what price. Contracts are keenly private and would lend too much info to the competition. We will see revenue numbers and expense numbers and profit overall. I feel this is a pretty good picture of the range we might expect. As the by-products are sold, then the overall picture could well be even brighter. The creation of the flotation plant will enable these sales when it is feasible. Perhaps that could happen in 2000? Either way, the mica alone may be a bonanza if these numbers are near correct.
Please do your own DD and offer any data you can that will further refine my logic up or down. I always mean my posts as a catalyst for conversation. Looking forward to your input, additions and/or corrections.
BHunt
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