An alternative way of estimating likely earnings this year to...

An alternative way of estimating likely earnings this year to looking at AIC.

If we assume tin output of 10000 tonnes (50% ours) which is the Area 5 project aim. Could be less as still being completed.

So output is 5000 tonnes compared with sales of 4537 last year and so up 10%.

I attempt 12 month estimate even though this financial year is actually only 6 months.

Assume tin price of $A30000 (below the current spot price).

Gives revenue of $150 million.

Operating costs last year of $98.3 million. Area 5 is supposed to lower per unit costs, but energy, labour and higher output will raise total costs.

To be conservative assume costs rise 15% to $113 million, plus $4 million admin (interest costs should reduce).

Net profit is then $37 million given tax losses. Very rough of course given both the uncertainty on tin prices and on costs.

That gives a PE of 6.5.

If you deduct cash of $120 million at 30 June then profit to enterprise value is only 3.25.

We were profitable even at the tin pirce low point. Tin prices have recovered a little and if China got its act together there is considerable upside.

I would say the problem is a PE of 6-7 is low but not unreasonable, particularly as no tax is currently being paid and the uncertainty on the tin price.

The problem is the market does not really see any immediate benefit from the $120 million cash holding.

Yes it provides protection if tin prices fall, but how will shareholders benefit in future when we have no certainty about how it will be spent or when the benefits will accrue?

I can see why investors therefore tend to focus on the PE and ignore the cash.

The share price will repond to the tin price, but a buy back is one way to provide an immediate benefit to shareholders from the cash holding and is better than unfranked dividends. It would in my view cause a re-rating in the share price.