net debt load 4 142 000 000 = huge risk

Righto, trading over for the week, so homework time....

No doubt Ill piss people off because im not a BUY BUY BUY all the way from the high, or a BUY BUY BUY guy just because its sitting here at 11.18

This week NCM short term traders did particularly well but even they backed off on Friday, the short term traders got some big ranges but the trend continues to grind lower

.....six months ago if the POG AUD dropped 62AUD in five trading sessions there would have been a lot more blood,,,

starting the week at 1160ish ,dropping to 10.87 and somehow getting back to nearly 1150 before reality of risk set in and it finished the week at 11.18..

Anyhoo, much to a few bulls anger this week I posted more updates on the reality of the current financial operational performance of NCM......

My simpleton model came out with .49EPS (2M produced) and 56EPS (2.3M) produced,,,but that assumed NCM actually reaches its own forecast of cost reductions for the FY 14 year of 1200aud (down from FY 1283) and absolutely no mining problems......

The model comes out with PE 22.8-19.8 on the basis of 1388AUD gold , 1200aud costs being reached and current prices, oil, fx ,silver, copper

So I thought Id go out to find what the big guys are forecasting,

Well this is what I found from Thompson Rueters

take the average of two of those forward EPS forecasts and you get 20.10

So as a Bear Im happy with my own numbers and view that a company that is NOT CASHFLOW group POSITIVE is very very expensive at 11.18,,,,,and I think its super expensive when you consider the same consensus producing these numbers still have and average target on NCM of $28.76! (26.88usd)considering no DIV, negative group cashflow, flat production and after 2BLN in additional debt , and current Gold prices

Here is a note I found from Zolmax on current consensus dated 3 Oct 2013,,,,,,,,

I know many will say, who cares about brokers,,,,,fine, just pointing it out, EPS 46, PE high,,but price targets still way above price reality so they must be resisting the input of actual Gold prices and other metrics......at some stage quite a few broker analysts will have to capitulate to recognise current situation and expect downgrades to come sometime soon, ,,,,,,,the longer they sit at those absurd 12 month targets levels the less cred they have imo, less cred makes it harder for the house to sell stock

So , DEBT,,,,,with so many ppl wondering how the USA is going to repay its debt,,,,(they have the FED to print money,,,) Im still wondering how NCM is going to do it..........

As at 30/6/2013 NCM net DEBT was 4,142,000,000............and increase of $1,976,000,000 in 365DAYS!

and what did the company get,,,,,,,,a repayment of previous debt and a ramp up,,,,,,,,,,,,shareholders expected a ramp up,,,,not a ramp with a point .0001 degree incline

BUT PRODUCTION GUIDANCE FY 2014 is 2-2.3m OZ,,basically the same as what was expected last year before they once again lowered guidance.......so the extra debt which was then invested has produced............NOTHING really, other than increasing the liabilities on the balance sheet, imagine investing that much cash in your business for no real increase in profit, no increase in return in the form of DIVS........this is one reason why I suggest you think very carefully before putting your money in as a long investment............NCM is once again a great demonstration of how to be a CAPITAL killer

(do yourself a favour, go pull up all the old capital raising prospectus from 2007, have alook at what they needed capital for and how much ncm was producing,,,seems they have got a lot of capital , but not much of an increase in production,,,and a expodential increase in shares on issue)

That is a huge debt load for a company that is currently group cashflow negative and a reason why Moody's downgraded them to just above junk, a further reason why no DIV should be expected anytime in the future if these prices continue imo....

The board are "comfortable" with the gearing being 100PC (approx.) higher than its target but whilst it is making some gross margin at the moment (excluding deductions for sensitivities).................its not growing to justify high trading PE, I think its current PE is a joke

Current Funding / debt is massive,,,,and if any of the bankers aren't nervous then they are in a deeper sleep than management IMO........that funding is also costing more in interest with the AUD above parity at the time of borrowing , more interest, less money left for equity holders........

FYI,,,current debt/ funding details 30/6/2013

hence why NET financing costs of A109M were 68M HIGHER than the year before,,,,thats a big bite out of current shrinking profits



Imagine if your a member of a banking syndicate and you gave a loan to a big business of 250000000, and the client was 1675000000 into the line of credit as of the 30/6/2013, and they were cashflow negative by their own forecasts in OCTober,,,,,,,you'd be paying very close attention wouldn't you, praying for a price turnaround or suggesting they raise capital to repay you, don't want to leave these things before the due date imo

ANyhoo, I think its time they conceded and raised some money before the costs become too high,,,,profits are still there but falling as margins decrease, but the debts are still there requiring interest each month and at current production levels and gold prices, the DEBT load, which is huge needs to be addressed,,,,,,the board are "comfortable", but IMo there is a HUGE risk to current equity holders and part of the reason the selling continues

So conclusion of my week end bear cave ramblings, if you want to pay 11.18 for the current business performance, future forecasts and debt loads don't be surprised if suddenly they raise capital and the SP gets crushed to address the enormous debt load.....in my mind, they should have done it ages ago, but hindsight is always good, but a falling price and being "comfortable" is not going to make the situation go away or any less painful.......they have no choice in my view,,they are a price taker and the longer they play chicken with the market ,,the greater the risk

Anyoo food for thought, but as many have told me, they don't give a ++++ what I think.......that's OK,,,just a long time bear sending another warning into cyberspace whist eating bull spread on toast.............

either start producing huge amounts of GOLD and huge cashflow and profits or its inevitable imo that the debt load will require forced attention,


Would I buy it?,,,yes, at much lower prices
when they raise capital,
clear the balance sheet debt (AGAIN!)
get rid of CEO, Chairman and any board member there at Lihir takeover,
close all mines that are cashflow negative and get back to basics,,,,,,,,,building cash from existing high life mines


but that will ever happen?,,when they are "comfortable" with the deb/ gearing in the face of these shrinking margins and the company's operational performance,,,,,,,,,,NOT likely imo.....they are to busy paying bonuses for their work taking over Lihir, whist taking a few billion writedown on the other side

PS

POG AUD 1388! that's a TINY 100AUD margin based on FY 2013 all in costs to service the current TRUCKLOAD of DEBT that has given no real boost to future forecast production......

seriously - huge risks right on the balance sheet IMV,,,,,Ill stick with buying puts from the bear cave