Bad things happen when management touts the case for lower prices.
"In a conference call today, LionOre CEO Colin Steyn confronted shareholder restiveness, alluding to differences of opinion over the future of nickel prices.
“Based on short-term shortages, it's easy to understand these prices can be sustainable in the short term,” he said. “I think what we've advocated and stressed here is that they're not sustainable in the long term.”
He said that higher prices could cause “value destruction” if demand among the producers of stainless steel slows. Nickel is a main constituent in the production of steel.
The Xstrata bid removes “the nickel price and implementation risk of the industry as we see it today ... and provides the certainty of cash, which is obviously fundamental at a time when we believe that nickel prices are at unprecedented historical highs,” said Steyn."
Forgotten is the fact that management wants to sell. Where is the analysis of what even two years of production and sales at current price levels would do for the balance sheet, earnings and the share price?
This attitude that prices can't be sustained and therefore base case prices must be absurdly low, or, as in this case, the company sold at a low premium should be challenged. When one sells one house does one sell it at a discount because prices are probably too high and can't be sustained? Does one run an ad saying the base case for this house is only $50,000 because that's what houses sold for for the last 20 years?
Will management at CZZ or any company really work to get the best deal or avoid poorly conceived hedging programs, when they are already predisposed to buy the lower price arguments? Ranger Oil is gone. The Seaman brothers were brilliant. They hedged away their oil at $16. Anyone think that while ni prices will fluctuate they may never again see $2 or even 5 dollars? Perhaps, just because $5 is no longer worth $5?
Where are the managements that want to take advantage of the higher prices not by selling out to those who do, but rather by seeking ways to increase production? Or if the future for ni prices is to go sharply back down, why is Xstrata buying? |
