2007 peak

I am comparing 2007 vs 2011.

In 2007 our price was trading at around $3.60 (adjusted to today's shares on issue). In 2011 it's just $0.97. That's roughly 4 times cheaper, but how do the earnings compare?

2007 production was 27,600 tonnes with $390m gross profit.

In 2011 our production is projected to be 33,000 to 37,000 tonnes. Lets use 35,000 as our assumption. It's ~27% higher than 2007.

Assuming nickel averages $10/lb AUD for 2011 and costs average $5/lb. With 35,000 tonnes of production and 60% as Minara's share, that is $231m gross profit.

$231m is 59% of $390m, so our share price should therefor be 59% of $3.60 at the end of the year, or $2.12.

Maybe other people feel my assumptions and estimates are too optimistic, so the share price is trading at just $0.97. But my thought is this - either in 2007 MRE was overvalued, or in early 2011 it's undervalued.

I guess we have less of a safety net now though, when we have higher production and a slimmer margin. A fall in nickel price will hurt us more now that it would have in 2007. Ie a fall in nickel price of 10% in 2007 would cut our profit margin by ~14%, a fall in nickel price of 10% in 2011 would cut our profit margin by ~20%... However the potential upside to our profit margin is greater too.

To account for this magnified price risk, I guess the SP to be worth more like $1.50 rather than $2.12.

Can anybody guess at the potential or likely upside or downside in the nickel price? Is pig iron capping the price? Is there a floor under the price?