Good Comments TeeVee, Russett and russwinter.
First a comment and then an article.
russ - can you simplify this for me "My SWAG: big premium munch candidate by the end of the year." I imagine SWAG is "supper wild assed guess".
stockhouse.com.
The following is from the S.A. Finance Week Magazine via the SUF website
Is Messina heading for a hat trick?
I accept that some of what follows might be somewhat repetitious. However, I do so to reinforce an important investment lesson. The tutorial concerns the efficacy of the relative strength theorem – buy the leaders rather than the laggards – with the past year’s performance of platinum shares providing an excellent example.
At end-2000, the only JSE Securities Exchange category to have registered advances of worthwhile magnitude was the platinum sector. Thus, in the 12 months to end-December 2000, AngloPlat had added 76%, Barplat 86%, East Dagga 494%, Gencor 61%, Implats 45%, KPM 114%, Lonmin 68%, Messina 51% and Northam 92%.
That’s as full a house as you’re ever likely to see - so full, in fact, that while surveying the outlook for 2001 platinum shares would probably not have featured on your shopping list. “Too expensive. They’ve run too far. This year it’s the turn of another sector.”
Wrong. Now, 12 months later, it’s apparent that AngloPlat dominated the JSE winners in 2001 at 40%, Gencor at 66%, Implats at 55%, Lonmin at 71% and Messina at 155%.
If ever there was proof that relative strength really works, this is it.
The tricky part is individual share selection. The indication right now is that you should be buying Messina for 2002 on the basis of its first-placed 155% improvement in 2001. Problem is, East Dagga (the 2000 leader) added only 6% in 2001.
The East Dagga lesson says that before arriving at a firm conclusion it’s necessary to discover what the fundamentals say. They indicate that:
* Canada’s Southern Era had acquired 70,4% of Messina by May 2000;
* Capital invested to date totals US$50m;
* The remaining capital of $50m required to bring the Messina platinum mine into full production has been fully funded;
* Initial production began in August 2001, a year ahead of the scheduled date, with full production scheduled for first-quarter 2003;
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* During its first phase the mine is slated to produce 160 000 oz of platinum group metals a year (to a relatively shallow depth of 575 m) over a 17-year project life; and
* The second phase feasibility commenced in September 2001 and is expected to be completed by mid-2002.
The foregoing is what’s known as dispensing with the basics. What follows is what’s known as the nitty-gritty. A month ago, Messina took a group of mining analysts on an on-site visit, during which they were treated to an overview of where Messina is headed. I share with you some of those insights.
Operating cost over the life of the mine based on a rand/dollar exchange rate of R9,46 is projected at $196/oz, with revenue estimated at $378/oz for a profit margin of $183.
From 2001 onwards, an internal rate of return of 42% was anticipated to yield a net present value of $81m. Which doesn’t mean a heck of a lot until reduced to a per share basis at an exchange rate of your choice.
When Messina compiled its analyst presentation, R9,46 was required to buy one US dollar. If, for the sake of severe conservatism, one applies this rate then the net present value is equivalent to R59/share - more than 65% in excess of the ruling share price.
Anticipated annual profit after tax is R223m, equivalent to R17,20/share for a forward price:earnings multiple of 2,1 at a share price of R35,50.
Now that’s a whole bunch of numbers which, correctly interpreted, impart an exciting gloss to Messina. They certainly help to justify the share’s powerful two-year performance and, more instructively, point to the likelihood of ongoing positive action.
The devil’s advocate would at this point express serious reservations about the outlook for platinum group metal prices. He would suggest that – no matter how conservative the assumptions – a substantial discount should be applied to cater for a PGM market slump, given especially the poor global economic growth predictions currently doing the rounds.
We burst this bubble of scepticism by pointing out that Messina has negotiated floor prices for platinum and palladium with a leading US vehicle manufacturer. And the floor price for platinum is at around the current price, while that for palladium is somewhat above the current price. Messina has acquired protection ahead of protection being required.
Nor is the company dependent solely on PGMs. For one thing, gold, nickel and copper are important by-products of the Merensky and UG2 reefs about to be exploited at, remember, relatively shallow depths.
For another, the company’s Klipspringer Diamond 50-50 joint venture with De Beers is half way to full production of 180 000 carats/year at a selling price of $100/carat.
Further, Messina has every intention of increasing its current lease area such that the available resource could increase from the current 300 000t/month to 450 000t/month.
A particular attraction is Messina’s strong rand hedge qualities, which should be viewed in the light of the present exchange rate versus the rate applied in arriving at the projections.
So is it to be three years in a row for Messina? Answer no at your peril – since both the technical and fundamental indicators are pointing in the right direction.
SNAPCRACKLE |
