Thats very logical Foyt and In spite of the market being irrational it does seem to recognise that profits are what makes a good investment.
HGO is a good example of Institutions being forced to Jump on board a company with a falling share price because market cap determines who is in S&P indices not profitability.
For those with free time on their hands and an interest in HGO history.
HGO was admitted to the all ordinaries in March 2010.
* the share price was $3.71 in January of that year. With circa 60m shares post consolidation numbers MC was circa $220m
* they had just sold Eastern Star gas for $172m which generated a one off profit of $94.2m which allowed them to declare profit of $55.6m in stead of a massive loss. Glad I wasn't driven by a covenant to invest.
By the time HGO was admitted to the top 300 in March 2012 the share price had dropped to less than $1.50 and with 100m shares the MC was circa $150m. The Institutions were forced to buy and pushed the share price up to more than $2. HGO were admitted to the top 300 inspite of loosing $8.5m in the FY ending 31/01/2012.
HGO was removed from the top 300 in Sept 13 when the share price was 60 cents. With 130m shares on issue the market cap was circa $78m. By March 15 it had dropped to 33 cents. With 150m shares the market cap was $50m and HGO was removed from the all ordinaries index. The exodus of the institutions coupled with a falling copper price and resulting cash flow crises drove the share price down to 3 cents by June 16.
Lets hope this time around HGO is admitted to the S&P All Ordinaries, The S&P 300 and the S&P 200 because the share price is going up and not because the shareholders are weeping over their losses and being diluted to hell by massive CRs.
and for the Dreamers amongst us.
I'm hoping to repeat a version of my experience with SBM
SBM was trading at 9cents in late 2014. The profits they were earning in WA were being gobbled up by a dud mine in the Solomon Islands. Getting rid of it was a no brainer and the new MD realising that gave the Mines Minister of Solomon Islands $1m to take it, complete with rehab obligations, off their hands.
They were back in profit and the share price recovered.
Can HGO's share price look like this as the copper price peaks in the next few years?
Starting from 3 cents we only need to get to $1.60 to do as well.
A market cap of $1.6b sounds like absolute fantasy.
How could that come about.
EMR's latest IPO gives an indication of what value Institutions are putting on gold and copper mines with decent LOM's at this point in time.
With plenty of cash very likely to be generated for exploration and an abundance of drill targets under lease Lachlan might just find a pile of resources to put a few years of mine life on the table.
To get to a MC of $1.6b at a 4.8 multiple we would need an EBITDA of $333m
If Lachlan can bring mining cost in at $65 and find enough resources for a reserve grade of 1.6% cu equivalent and have enough stopes working concurrently to keep the plant full processing 2.5mtpa I'm getting an EBITDA of $330m at a price of $5.5. Wouldn't that be grand.
