AVL.V - AVALON VENTURES Message Board

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Gold/Mining/Energy : AVL.V - AVALON VENTURES

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To: D McP. who wrote (1275)	7/10/1999 8:10:00 PM
From: Elizabeth Andrews	Read Replies (1) of 1474

I've had some time read the last news release with care. It is a jumble of ideas and numbers. I think it says that the mines revenue at 200,000 tons per year will be about C$19 million with costs of about C$7.5 million. This means that the value of a ton of the product is about US$240 and the mine at startup should produce C$11.5 million of cash flow or about C$0.58 per share before any more share issuances to finance the final feasibility and mine. Given these numbers and please correct me if they are wrong, the DCF calculation seems low as the project appears more robust than declared. This is especially true if all the blue sky like lower mining costs, more products implying more revenue from the same cost base, and less stripping all of which can only increase the forecast return. It is however, an after tax calculation so it is probably conservative. Maybe the company could publish an IRR? Or, look at it from and EBITDA perspective which is becoming very popular down here as it more truly reflects a projects ability to generate cash. The other thing they didn't mention was the interest rate assumptions on the debt/equity model. The main problem with the news release for me is that there are so many possible products, grades, prices, cost variables that the word "average" keeps coming up and that word in my view has uncertain meanings. The DCF using the "averages" suggests that the stock is only worth C$1.80 so why am I paying C$1.25 for such a small upside? The capital cost also seems high in that it is a 500 ton per day mill that costs over C$75,000 per ton to build. Is the metallurgy that complex and risky? How many times does the raw ore have to be processed to get a marketable product. Now, if you read between the lines and imagine a bit I can make a case for the company buying that mill they mentioned that was near them and getting it running as a pilot plant which would allow them to produce at least one product and develop their market. If they could demonstrate good delivery of a good product in a growing market then the raising of the C$42 million for the plant wouldn't seem so formidable as it currently does. I mean it is an unproven product in a small market. How are they going to raise C$42 million without proving the whole project works on a small scale first? Oh well I guess I'll hold on to my shares but I hope it isn't another 10 years off.

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