a calm and considered perspective

I sense quite a bit of despair and generally, doom and gloom from lots of shareholders who are understandably disappointed with the performance in the SP basically brought about by foul ups relating to the Perkoa project and pending court case not to mention general market conditions (falling zinc price and US Subprime issues).

I fully sympathies with those shareholders (especially those that bought in at +30c on good faith) who feel they have been mislead and let down by management and off the back of this discover that a major shareholder North Sound are commencing court proceedings against AIM, and suggestions that suspected wrong doing has taken place by AIM management.

In summary, it doesn’t appear to be a pretty picture. Delays to Perkoa project. Questions marks about the integrity of some of the management, a pending court case with a major shareholder, no permanent MD in place yet, MF moved to a Non-Exec role, why? Could things get any worse I hear you ask?

To attempt to draw some perspective from all of this, I ask myself the question, Is this really as bad as everyone is making it out to be? Why do I dismiss Elgaes’s seemingly good argument that all we have is a swimming pool and not a sole on the board that is capable of driving the Perkoa project to a completion?

Is this another Bre-X and should I just write off my AIM shares?

The simple answer is of course not! Have the large institutional investors baled out yet? No, not even North Sound!

So what else brings me to believe that AIM is still a good investment right now?

For these very good reasons.

1. Consider a worst-case scenario. Perkoa project never gets fully developed (I consider this highly unlikely) then were does that leave a shareholder buying in at present prices. Not an ideal scenario but one worth considering.

- Mokopane is a JORC compliant project with a capital expenditure so far approx AUD$6 million spent. Mark florry is quoted as saying that they value Mokopane at 5 to 6 times capex and that neighbouring miners have already been making interested inquiries. Now lets say, allowing for Mark Florry’s effervescent personality that I value mokopane at 3 times Capital expenditure, so valuing it at AUD$18 million.
- Mumbwa is a little more difficult to put a valuation on but I will attempt to and at the same time be fairly conservative. Ok, AIM has almost completed their end of the bargain as regard the agreement in place with BHP Biliton. Once all the I’s are dotted and t’s are crossed we will have spent approximately USD$3 million and earned a 70% equity share with BHP the option of clawing back a further 50% from AIM if BHP decide to develop the project, leaving AIM with the remaining 20%. If AIM decides to relinquish their right to the 70% equity share they retain a 2% royalty for life of mine. My honest opinion is that AIM will NOT participate in a joint venture with BHP on the grounds that since it came to light that AIM do not have a free carried 20% interest (another Management blunder), AIM would not be able to raise the funds to support such a huge project, an estimated USD$1.5 billion capital expenditure. Lets just say that we end up with a JORC compliant project and lets just say for the sake of it I value it very conservatively at 3 times capital expenditure, approx USD$9 million or say AUD$10 million.
- AIM have USD$69 million cash in hand, lets say $AUD76 million.
- Just for the hell of it I’ll value Perkoa at AUD$Zero. We all know they’ve spend USD$40 dollars on it so far but I’ll disregard any valuation for Perkoa.
- On the basis of the estimated figures I crudely value the company at approximately AUD$104 million that when divided by 893,924,058, which is approximately the total number of shares currently in issue, it gives a value per share of approximately AUD11.5C per share.

I told you I would be extremely conservative!

2. Lets look at an ideal scenario. Consider a fully operational Perkoa mine, it is certainly not beyond the realms of possibility with the right management in place (I believe we already have some good people working for us but we may be carrying a little dead wood now) and the required funding. The entire infrastructure is in place to get this thing built with the necessary funding. So what are the potential numbers here (I know lots of you will have seen similar numbers before, buts its nice to consider them once more)? And I guarantee that these numbers come from a very reliable source.

Life of Mine = 9 years
Production costs = US$93 per ton of zinc ore.
Treatment Charges = Approx US$300 per ton of concentrate
Transportation costs = US$176 per ton of concentrate
Measure and Indicated = 6.3 million tons

Zinc in the ground = US$3,999,578,774
Mine Operating costs = US$585,900,000
Treatment Costs = US$519,945,241
Transportation costs = US$303,350,943
Total Operating Costs = US$1,409,196,184
Pre-Tax Profit = US$2,590,382,590
Operating Profit Margin for Life of mine = 65%
Net Pre-Tax Profit per year = US$287,820,288

In summary, the potential rewards for shareholders could be huge even with a reduced mine life (still struggling to work out how an original 12 year mine life – 2 years to allow for increase in production = 9 years, oh well my math is what it use to be). Timing is of course crucial and it is not without risk. But we are talking about a very high grade JORC compliant zinc deposit in North Africa, which does not come around too often. Hopefully, when the next round of Perkoa assay results come in the mine life will be pushed up considerably, which would be great news for shareholders!

3. What is the story on the off-take agreements? Whoever said that the smelters were the ones holding all the cards? From what I can tell it’s the other way around. AIM is the company that owns the high grade zinc and AIM will be the one that selects which company it chooses to sell its zinc to and no the other way around as some shareholders seem to believe.


4. Oh no, that horrible court case! This could mean that certain Management are found guilty of misleading/misinforming shareholders and claiming right to performance shares not stipulated under the conditions of the performance right plan.

firstly, as regards performance share, I posted some information some days ago now which contained a link to an NS document dated 26 November 2007 that showed 3 questions that NS had submitted prior to the AGM which I suspect had not been answered sufficiently well enough (if at all) by the AIM board at the AGM which is why I suspect NS are commencing court proceedings.

Here’s the link again so you can view the document in full.

http://www.postitfree.org/general-chat/116556-aim-resources-attachment.html#post214778

Here’s a quick summary of the questions.

1. Seeking clarification of the conditions with which performance rights could be exercised and specifically the condition that stipulated that performance rights could only be executed ‘Once first ore has been mined from the Perkoa Zinc project’.
2. Delays on zinc production, specifically interested in delays by Project Manager, DRA.
3. Seeking reasons for problems associated with the Box cut. The remedial actions required to restore the box cut and the associated costs and finally an expected fix date for the repairs.

I suspect the majority of these questions have been satisfactorily answered by the resent update from AIM. But I fully anticipate NS to continue their court proceedings in relation to performance rights and anything else that hasn’t been answered sufficiently well enough (and why shouldn’t they its their right as a shareholder).

I have done a thorough investigation in relation to the performance rights and there are certainly questions to be asked surrounding this.

- In relation to the 14 million performance rights exercised that were issued with an expiry of 30 November 2007, 6 million of these performance rights (the other 8 were exercised by MF and SR, 4 million each) cannot be traced to anyone in the company. I have contacted the company regarding this and they are going to investigate it further and will get back to me. I’ll inform everyone on this board what I find out.
- How can any performance right be exercised if the ‘vesting conditions’ on which the performance rights were originally issued have not been met (i.e. extracting of first ore)? This is one of the key questions that NS want answering.

Bottom line regarding exercising of performance rights is that if you refer to point 8 of the performance rights plan approved by shareholders 18 Nov 2005, you will read this.

Point 8 of the Performance Right Plan. The Board has certain discretions under the Performance Rights Plan. In particular the board may amend the rules of the plan or waive performance or other vesting conditions.

In other word they are completely covered as regards any changes they decide to make without notification regarding ‘vesting conditions’ or anything else for that matter relating to the performance right plan.

I for one will be delighted if any wrongdoing is proved to have occurred and those involved are weeded out of the company. Long term this can only be good for the company. NS’s actions are ultimately for the good of all shareholders whether they are proved right or wrong. Who knows, we may even get some shares back.

So, finally what is my intention as regards to my Aim Holding?

Well, it’s the same as it’s always been. I still believe this is a very good investment long term or short term (3-6 months) if you are that way inclined. I see the fall in SP as an opportunity to accumulate cheaply. I intend to keep adding to my holding on any weakness in the share price. I will have some more funds available next week and will adding quite a few more and in fact I will be more than happy if the SP slips a little lower before then. In the meantime, I will be kicking back and relaxing, maybe playing a little golf and checking back on the SP every once and a while. But I won’t be worrying too much or having any sleepless nights while I am buying in at these levels. It’s a no-brainer to me.

As always DYOR.

Good luck to all holders but to be honest I don’t think I will need it.

DC

PS. Elgaes feel free to respond with all your usually drivel, I will pay it no notice whatsoever.