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Gold/Mining/Energy : Mirant Corporation (MIR) -- Ignore unavailable to you. Want to Upgrade?

To: clearheart who wrote (104)	2/4/2002 12:15:57 AM
From: Oeconomicus	Read Replies (1) \| Respond to of 903

OK, let's examine the "merits". jim_p says: Most have huge capital commitments at a time when assess to capital is almost gone. He obviously didn't listen to the Thursday conf call or read MIR's Wednesday press release. If he had, he'd know that MIR does not require "assess", or even access, to the capital markets to fund itself over the next five years. He goes on to say: On top of that, potential losses from both CA and ENE have not been recognized from what I can see. These are big numbers which in some cases exceed their capital. Well, assuming he meant California, MIR has reserved $295 million against the $361 million of California receivables. As for Enron, MIR disclosed previously that their exposure to Enron totals $111 million on a pre-tax basis. In Q4, they wrote off 90% of that, resulting in a $66 million after-tax charge, and they also took charges for expected legal costs associated with Enron. Lastly, exposure to Enron didn't come even remotely close to MIR's capital. In fact, it barely exceeded 1% of MIR's $6.3 billion of equity capital. Hell, it wasn't even 10% of the NEW equity capital they raised in December. He goes on to worry about consolidation in the sector. Um... Isn't consolidation usually seen as a positive for stocks in the consolidating industry? Next, he uses the old trick of siting "anonymous authority", his sources in Houston, who opine that Calpine won't survive and that Mirant "is not much better off." Cheap tactic of one with a weak argument. Finally, we have the claim about derivatives making up more that 100% of the income last qtr. Since we don't know, and he does not know, about Q4, let's assume he was talking about Q3. In Q3, MIR's derivatives gains totaled $229 million pre-tax. Since pre-tax operating income was $457 million in Q3, then the number was only about 50%. YTD derivatives gains at 9/30 were only $29 million out of $988 million of operating income. Now, if he was talking about unrealized mark-to-market income in Q4, they totaled $77 million ($54 million for the year). Net income for Q4, after adding back the Enron charge and deducting the Chilean investment gain, was $93 million ($683 million for the year). Of course, none of that really matters because >90% of MIR's profitability was attributable to MIR's own assets. Derivatives gains and losses are the result of hedging activities, a necessary and prudent activity for anyone in this business, as jim_p would know if he were really an expert on the energy business, be it oil & gas or electricity. BTW, one would have a derivatives gain if he sold gas futures to hedge his own gas production, the price of gas declined before settlement, and he then closed out the futures position at a gain while selling his actual gas at the lower spot price. His margin on the gas sale would decline as a result of the falling price, but the futures gain would offset the loss in margins. Had prices risen instead, he would show a derivatives loss and fatter margins on the sale. The point is that he locked in his price up front by hedging. All his profits still result from his production of gas and the portion attributable to the derivative position is irrelevant. So, do you still think his arguments have any merits? Bob