The downtrend as been in place since the second supplementary targets statement (23/1) where they announced the current and target c1 cash costs, 4.28 and1.92 respectively
I don't think this is a coincidence. The 4 dollar cash costs can be dismissed as normal ramp up costs.
But the 1.92 figure is a mid term target that needs to be used to re-evaluate the company. I think the BFS c1 costs were closer to 1.28, so it's a significant change.
It's very easy to see the impact... 35,000mt x (3.00-1.92) = 83m
Versus BFS expectations 35,000mt x (3.00-1.28) = 133m
Those earnings can be halved (at least) to account for tax, paying down debt and other costs. So very quickly 83m is looking a lot more like 40m npat or less.
Is a 300-400m MC reasonable for a company that earns 40m npat? It seems a bit cheap to me. But...
There is a risk the 1.92 cash costs are more permanent. Costs are increasing globally so it's a reasonable assumption. If that's the case management will need to speed up expansion plans and depending on timing the costs will need to be funded with debt or a cr.
My theory is that the sell off is mostly a reflection of the higher c1 cash costs which is putting pressure on management to invest more capital to expand the mine to 50,000mt pa.
What I'm not clear on is how much it will cost to expand capacity to 50,000mt. It's one of many potential holes in the theory.
On top of this I think the debt for bond swap is adding momentum to the sell off as any level of uncertainty does and the traders are having a field day with it.
My guess is that the share price will improve as management address each of the following: - complete the debt for bond swap - improve the c1 cash costs - confirm expansion plans
Again, this is just a theory and time will be the judge.
(I have used 3 dollars for the copper price to account for hedging and a more realistic long term price.)
DML Price at posting:
56.5¢ Sentiment: None Disclosure: Not Held
