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Gold/Mining/Energy : ABER RESOURCES -- Ignore unavailable to you. Want to Upgrade?

To: IngotWeTrust who wrote (1991)	1/1/2004 1:07:21 AM
From: George J. Tromp	Respond to of 2006

Happy New Year Gold Tutor! May the Indian Goods keep flowing, and the diamonds keep glistening. A blast from the past! August 2000 Harold, I posted the following earlier this year. It would seem to indicate to me after a 2 year ramp up full production would be on the low side, revenues of 359.1Mil dollars .If one looks at the low end of production or 399.Mil based on the high side of production. Given the fact today diamond prices have increased approx 8%, one could probably plug in about 387.2 mil on 6.3Mil carats/annum or 430Mil per annum based on full rampup of 7million carats. Abers share of revenue would be 40% which translates to approx 144Mil using the low end of production at todays diamond prices, or 160Mil using the high end of rampup production. If one assumes 58US operating cost per ton (see Canadian conversion) Abers share operating costs would approximate 23US per ton based on annual prod of either 6.3Mil carat/annum or 7.0Mil one could assume their operating costs to be approx. 34.5Mil US based on 1.5mil ton per year production generating 7.0Mil carats/annum. So one is left with the following scenario, and really the value is contingent on the form of financing whether it be entirely share equity or debt. Obviously debt is the preferred method. Assuming cash on hand totals 221 milUS , Abers share of CAPEX would amount to approx 480C OR 330US for the project, with cash on hand that leave approx 109Mil US. If equity financing is issued it would add approx 18Mil shares @6.00US if the financing were to occur today, giving a total share float then of 73Mil shares indicating that earnings of approx 125MilUS per year after complete full rampup of 7.0Mil carats per year. As an inert asset holder becomes a producer, share price will float with diamond prices, so it is difficult at best to predict diamond prices into the full ramp up year, but given say a share float of 75Mil shares I would anticipate earnings per share to be approx 1.66US per share using the 7.0Mil/carats per year and assuming a share float increase of 18Mil shares at todays prices. One advantage is if the company issues shares at higher prices, then one might see less dilution. On the other hand, if debt leverage of 110Mil is used to complete the financing, one could see a very rapid payback enhancing earnings per share. My choice would be debt financing. Based on 1.66 per share earnings with a float of 75mil shares would advance a market cap on this model assuming a P.E ratio of 22 (See Diamet Minerals) a future price of 36US per share. Of course models are models, variables being full ramp up production of 7.0Mil carats/year, operating costs of 23US per ton, stable diamond prices, and a PE ratio of 22. Obviously being a world class producer, the market may be willing to pay more particularly if diamond prices hold or increase. As the project comes on line the shares will become sensitive to diamond prices, based on a recovering Asian economy and stable US GDP, I anticipate Diamond prices remaining or increasing in Abers Diamond niche that being US market penetration considering 45% or so of world wide diamond value is marketed in the US. The Tiffanies alliance assures a buying US public and overseas exposure as well. The preceeding article uses CAPEX costs of 1.2BilC, operating costs of 85C, available funding of cash on hand 221US, and remaining share of Abers financing assuming future share issuance. If debt is used to strictly supply the remaing monies, I would suspect a very rapid payback offsetting future full ramp up earnings by about 18Months assuming amoritization would be front end loaded into Year 1 of full ramp up prodution. In reality it may be 2 years. Hope this helps Harold, the markets are nimble and Jack must be quick, but I have high hopes Aber will have a big stick. Royalties are owed to Repadre Capital of around 1% as I recall on revenues not earnings in the project. Regards George ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ As of April 2000, there are 56.2 Mil shares fully diluted. Year ending Jan 31, 2000 cash and equivalents amounted to 118Mil, money market instruments of 78Mil combined asset value of 199.5Mil, and they are generating about 8Mil in interest. Taking those numbers of about 207Mil, the cash shortfall would be approx. 125Mil currently. Several options could occur. 1. Financing if it were to occur today would require about 15Mil shares at 8.25US 2. Financing if it were to occur at 10US would require 12.5Mil shares issued 3. Fianancing if it were to occur at 12US would require 10Mil shares issued. So the ultimate share float could be anywhere from 67Mil to to 72Mil. The higher the share float the less the earnings per share, and less potential. Each of the 3 scenarios would alter the earnings positively from the previous posting. However, the Snap Lake project will be moving into MEASURED CATEGORY vs the inferred status it now enjoys, that being said it should be more incentive for the stock price and a future financing to occur at elevated prices currently above the quoted market values today. I stand by the 36US long term target as Aber evolves into a producer based on a PE ratio of 22 due to their marketing agreements with Tiffanies and ready markets into the US. Obviously the company is a candiate for takeover, but I suspect at this stage having completed permitting, cash on hand, and a robust diamond market, that anyone deciding to make a pitch will have to have some serious cash to offer as Rio Tinto will defend its turf. Regards