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

To: Braincramp who wrote (253)	2/23/2002 7:45:35 PM
From: KyrosL	Read Replies (2) \| Respond to of 903

So far we have not witnessed any fire sales in the US. It seems that everybody is first trying to get rid of their overseas assets. Mirant sold Bewag at more than a $200 million profit, realizing net cash of $1 billion plus and a debt reduction of $550 million. A prescient move that was initiated well before the current troubles were apparent in the market. The stock sale, again done presciently at a price almost double the current price, yielded another $750 million. All indications are that Mirant will be a survivor, even if current depressed power market conditions persist for years. Compare that to CPN, or, even worse, AES, who is trying to sell its Latin American assets and has just put its UK plant for sale: biz.yahoo.com Now, you are saying that plants sold at fire sale prices will reduce power prices because the buyers will have a lower cost base. This is not how markets work. Prices are determined by supply and demand. Change of ownership of a plant does not create any more supply. The demand remains the same too. The new owners will simply make more money than the old owners. On the other hand, the low prices and the availability of ready-built plants for sale has put an abrupt halt to the exuberant expansion of US power capacity -- not very good news for GE. This bodes well for the IPP survivors: there will be less future supply, and power demand is almost always increasing, even during recessions. The current situation in the US power industry is simply a commodity cycle trough. It's just novel because people are not used to view electric power as a commodity. The Enron situation has accelerated the trough considerably, thus creating unique opportunities, IMO. The key is picking a survivor. Kyros

To: Braincramp who wrote (253)	2/23/2002 10:22:04 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 903

The reality is that if your assets are worth 50% less in todays market than they where a year ago, what your book value stated at that time will not amount to one plugged nickel. Why would you think book value of fixed assets meant a thing? So, if current market conditions require that Mirant has to sell assets, at a loss, we will see how long they stay as a going concern. Why would you think MIR would need to sell assets at a loss? As the collateral evaporates because of the downturn in the market they will be forced into a corner by the banks. Why would you think that the "market value" (liquidation value, presumably) of MIR's fixed assets could in any way enable banks to force MIR into a corner? The next thing that you need to realize is that as assets are being sold off at discount prices, the companies buying these assets will be able to generate power at far less of a cost. Depreciation and interest, the costs directly affected by the cost of assets, are a relatively small part of the operating costs of an IPP. For MIR in Q4, these costs came to 3.4% of revenues. Why would you think that even fire sale prices would enable a new owner to have a significant competitive advantage? One does not need a "Masters in Business" to figure this stuff out. Perhaps if you weren't suffering from brain cramps, you could too.