should pem buy back shares with hedge fund, page-22

James, that is one nice long reply....

I'll try and hit the main points.... :-)

1. Yes, they have "free" cash of about $42M, but today, they have $77M cash. This is a moving target every day. If they sell machinery (just like CBH announced), they will have more cash, and buy stuff, they will have less. The point about there cash, is them trading less than asset value. The $25M in performance bonds is still an asset.

2. You are confusing the spot price with their sell price (including hedges). They have a cash cost of $0.95 Zinc after Lead/Silver sales (and Lead/Silver Hedges). They still have their Zinc hedges, which last quarter meant their sell price for Zinc of $1.04.

Their average sell price for Zinc is not 77c a pound. They sell a combination of Contract Price, Spot Price, US Dollar, AUS dollar, Lead and Silver credits, Hedged and unhedged. Taking the spot price is being over simplistic. Last quarter, their sell price was $1.04 after Lead/Silver Credits, with cash costs of $1.01 after lead/silver credits. Read the latest quarterly. This is a cash surplus of 3c a pound, not your magic -24c a pound.

Also, you need to remember that you have taken the recent currency movements against the current hedges, but not taken into account the recent metal delinces increasing the value of their metal hedges. The "$80M in the money" was at metal prices at higher value than that of today. You need to do your maths at a set date.... not metal hedges at 30/6/08, and metal prices at 14/8/08. It doesn't work that way. You should know that.

Yes, the Lead/Silver hedges effect the credits passed on to Cash costs, but the Zinc hedges effect the sell price. As 2/3 the tonnage is Zinc, that was what I was refering to. The Zinc sell price including hedges was $1.04 in the last quarter (higher than cash costs).

* You stated "Are you been a little deceptive (and a touch hypocritical perhaps) by not including above the hideous 09 Lead forwards".... you already included them in your calcs.... I was pointing out the ones you missed... I didn't need to state something you had already stated (in reply to your maths).

* You stated "At todays prices with Zinc at $1685, Lead at $1974, and the AUD/USD at $0.887, the hedge book is currently in the money by $67.58m." This is incorrect. As staed, the $80M in money hedges was at higher metal prices. Do your sums again.

5. It doesn't matter that the debt CBH has is due in 4 years. It is still debt, and no hiding the fact they are currently -$75M when you do the cash - debt exercise. PEM are currently +$77M cash. PEM don't need to spend $100M's on a mine, like CBH have to with RASP.

6. PEM don't need to have someone to wipe up after their mistakes, they have cold hard cash in the bank.

7. Why would PEM take a bank loan? Again, they have cash. If they need money, they could either sell their hedges and ride the spot price, or they will sell their copper tenements....

10. Err hello..... they have already spent money mining the ore. i.e spent money out of previous cash flow. Already paid for the mining component. ALREADY PAID FOR. IF they sell it today, it costs them about 60c to ship it and refine it... leaves 17c profit per pound... or about $15M dollars at a CURRENT spot price of 77c. Yes, they would overall lose, but they have ALREADY PAID for it to be mined.

11. You need to do more research... that is already over 10 years at high grades. And the new open pits are a high grades as well.

12. Yes, but CBH's copper is not near Xtrata and ABY (both are running out of Ore)... again, more research...

I think you are kidding yourself re the merger. PEM is cash positive after debt, and CBH is cash negative. Open your eyes.... debt is debt no matter when it is due....

I hope my comments have resolved your hedging mystery, Zinc/Lead prices were much higher than today, and today the hedges are worth much more than $80M...

"eagerly await your reply (especially if you could explain the PEM hedging discrepancy - because you can be damn sure if it was $116m in the money, the company would have let us know about it!"

Here is the link to your missing hedge numbers.....
Page 7.

http://imagesignal.comsec.com.au/asxdata/20080423/pdf/00834696.pdf