aim Resources

Needs to be recalculated for new data, I think they shouldn't use today's zinc price for NPV (as this looks over life of mine) but an average of prices over the last few years. This would give something more like $1000-1100 /tonne. I would like to see a calculation with these numbers instead as that would give a more realistic lower bound.


plainz - 28 Sep'05 - 08:25 - 199 of 201 edit

A quick calculation:

Amount of ore =6.7million tonnes
%zinc=16%
AMount of zinc = 1 million tonnes

Likely recoverable over 15 year lifespan of mine= 1/3
=.33million tonnes

Amount recoverable per year= 0.33/15=0.022

Cost of extraction (excluding capital costs) = $1000 (based on having to import techincal workers and machines, and expensive transportation, utilities)

Price of zinc = about $1300 (based on 27 month seller - lme.co.uk)

Profit per tonne = $300

22,000 tonnes year * 300 = $6.6 million profit/year

Profit = £3.5million sterling

P/e of 6, as uncertain region, Market Cap circa £20 million.

I.e. share price of 4.5 pence

Assumptions:

Zinc price stays high
That only a third is recoverable over 15 years- but not unreasonable
Ignoring silver
Expensive to extract and transport zinc
No tax payable
Cost of building zinc mine not included
No share dilution due to obtaining financing


plainz - 28 Sep'05 - 22:15 - 200 of 201 edit

Sent an email to directors asking a few questions but no reply. Usually with small caps such as these they are pretty good in replying. Has anyone else had interaction with them?


plainz - 28 Sep'05 - 22:35 - 201 of 201 edit

On the note of the previous assumptions say they they mine at $700 NOT $1000 a tonne then would double profit, therefore fair share price 9p.

Other positives could be increase in zinc price, if zinc increase to steady $1500/ tonne. Then with reduced mining costs to $700/ tonne would make fair share price of circa 12p.

Other positives p/e say 8 then with both above assumptions fair price of 16p.

If they recover 1/2 of resource rather than 1/3 then increase by 50%, ie fair share price of 24p. Then a 10 bagger at these prices.

I think it's unlikely they'll debt finance the mine, I expect the BFS to be positive (we already have an RNS that it fundamentally is) so they will need to make an institutional placing or a rights issue. The rights issue would have to be heavily subsidised so getting institutions to take on some of the politcal risk might be prudent, if they were prepared to do it. I know projects for oil in central sudan being refused, so maybe this isn't a possibility. To be honest it is down to the risk placed on the county, but at present this is rated as very high.

So by thought experiment the obvious route is a call to high risk investors, such as a mining hedge fund (like RAB) or otherwise it'll be a call on investors. If they call on investors for such a large issue ( I think they $35million to finance mine) then will be heavily discounted. Maybe 1p a share, but 4 for each one you own. Therefore the share price will fall to 1.5p or so. Might be worth waiting for such an eventuality before investing therefore (when LGEN had a raising it was at circa 49p when share price circa a pound, and their progress was guaranteed).