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Gold/Mining/Energy : AVL.V - AVALON VENTURES -- Ignore unavailable to you. Want to Upgrade?

To: RMF who wrote (702)	4/13/1998 6:13:00 PM
From: Pete Mimmack	Respond to of 1474

Micap - Thanks for the quick comeback. Good points on this mine being relatively cheap, but I think "relative" is the key word. Hopefully we can get a more informed opinion. Interesting idea on a buy-out. At the moment, my feeling is that this property is going to be profitable enough that we don't want to sell out, at least no time soon. Maybe it will play like Francisco is doing, continuing to expand their known reserves, waiting for POG to rebound so they can get a good price. It sounds as if Avalon could do a lot more drilling before they know the true value of the property. Pete

To: RMF who wrote (702)	4/13/1998 6:17:00 PM
From: Gary K	Read Replies (1) \| Respond to of 1474

To All , Any suggestions on the lack of investor interest? I hope we do not have to wait as long as it takes to get the cash register receipts in for the petalite.

To: RMF who wrote (702)	4/14/1998 3:32:00 PM
From: DRT	Read Replies (1) \| Respond to of 1474

FYI. This is the initial `back-of-envelope' valuation that I came up with: 1. PETALITE PRICE ASSUMPTION - The quoted price of petalite is $270 (U.S.). To penetrate the current market (i.e. petalite and spodumene users) and expand use of petalite among glassware and ceramics producers, it appears that the market study assumed a price discount of 20% of the $175 price previously indicated by the company. The assumed price = US$140/t represents almost a 50% discount to the market price (conservative assumption?/to say the least). Assume: AVL's petalite price = US$175/t - ($175 x 20%) = US$140/t 2. PETALITE NETBACK VALUATION - Definition: Netback = selling price - transportation costs. The previously indicated cost of transportation is $40/t. Compared to other minerals that are bulk transported to the U.S., these transportation costs are excessively high (conservative assumption?/ to say the least). Petalite Netback = US$140/t - $40 = US$100/t (i.e. Market study: Netback on 58,000t petalite = US$5.8 million = US$100/t) 3. TOTAL PRODUCTION COSTS - It is estimated that mining and processing of the ore (petalite, feldspar and tantalum) will cost US$30/t of concentrate. Net cashflow from petalite = US$100/t - $30 = US$70/t. 4. PRODUCTION CREDITS - The production cost of feldspar and tantalum is included in the petalite production costs, as both are by-products of the petalite concentrate. Feldspar credit per tonne of petalite concentrate produced: Fc = US$2.7 million/58.000t petalite = US$47/t Tantalum credit per tonne of petalite concentrate produced: Tc = US$1.0 million/58,000t petalite = US$17/t 5. FINANCING: - To simplify the calculation, I will assume 100% debt financing of $30 million on a continuing basis (initial start-up + capital expansion/improvements over time). This overstates the financing costs as they should decline over time. - Note: The financing could be any combination of debt and equity; the total requirements could be offset somewhat by Federal $ available for regional development; if not acquired outright/a property JV re. development - Cabot Corp, Corning, or H.C. Starck is a real possibility. Financing costs: US$30 million @ 8% = $US2.4 million annually. 6. ANNUAL NET CASHFLOW FROM PRODUCTION: PETALITE, FELDSPAR and TANTALUM Net annual cashflow = (58,000t x (US$70 + $47 + $17/t)) - financing costs = (58,000t x US$134/t) - US$2.4 million = US$5.4 million or CDN$7.8 million 7. PRE-TAX EARNINGS PER SHARE - Note: no taxes will be paid in the initial years of production because of deductions related to capital cost allowances, deferred exploration and development expenses, financing costs, etc. Earnings per share (US$) = US$5.4 million/20 million shares or CDN$7.8 million/20 million shares = US$0.27/share or CDN$0.39/share NOTE: Over time, corporate taxes could be offset by increased sales resulting from AVL's marketing efforts (U.S. and Europe), R&D efforts, improved production efficiencies, etc. 8. SHARE PRICE VALUATION - If you look at the price-earnings ratios for this sector, 8 times earnings to 11 times earnings seems appropriate (conservative?/to say the least). This would imply a share valuation of: US$2.16 - US$2.97 or CDN$3.12 - CDN$4.29. If you prefer a discounted cashflow estimate, the lower end of the range should be considered the minimum valuation according to my estimates. - Add the value of other properties (Wolf, Dubenski, etc. as of Jan 1/98) and I would estimate that AVL's share valuation is in the order of US$3-4 or CDN$4-5. - Considering these conservative assumptions, the exploration potential of Separation Rapids, the drill indicated potential of Wolf Mt. (news pending) and Dubenski, not to mention the value of management experience (i.e. goodwill in the company), a CDN$5-$8 target seems reasonable. The timeframe in which we get there will likely be dictated by drill results (Wolf, Separation Rapids, Dubenski, etc.), or corporate developments (property JV with user, takeover bid, new acquisitions, etc.). What matters is - there is a MARKET and its an ECONOMIC deposit. The long-term value is in the cashflow that it will generate for subsequent property development, exploration drilling, acquisitions, etc! DRT