The reason I ask the question of ed is because he has been banging on about the native title issue for two years now, with very little said of any other risks to get to production. Personally I don't think the BSP itself is much of a risk (i.e. I am very confident we will get it) and I think there are other far more important things to consider further down the line (funding, selldown, binding agreements, mine construction, operations etc). Of course we can't get to any of these until we have a permit, so the delays so far have been very painful, but the chances of actually being denied the said permit are extremely low in my view. If there were any major issues related tyo native title and local tribes then this would be public knowledge by now. Ed asks the question "why".... The fact that no one can answer this is an answer of itself - i.e. there is nothing of note going on and therefore the delays should be nothing to worry about.
I totally agree that the execution to date has been diabolical...... But that is why the stock is at 40c! Keep in mind that the stock was $1.50 earlier this year (with no permit) and $2 two years ago (with no permit), so I wonder what you all think the business is worth WITH a permit? Maybe these prices overvalued the business, but no one was saying that then so I can only assume that you all thought it was fair or undervalued at those levels. To be honest, if the business was handled correctly and targets met in 2015 then it is my view that stock would be trading at $2.50-3 right now, which would reflect a reasonable value given a conservative DCF and remaining risks to get the project to production.
Sometimes the market gets obsessed with one thing and one thing alone, without recognizing the big picture. In this case the permit seems to be everything and the business is worthless without it (or so one would think looking at the price action). I think this is slightly dramatic and people selling now have lost sight of the bigger picture - i.e. what the business will be worth in 12 months (maybe sooner) when it is fully permitted, funded (this is an entirely separate discussion) and (hopefully) pulling anthracite out of the ground in a very small scale mine. Unless of course these people actually think there is a huge risk that a permit is not granted, but that argument doesn't really make sense to me. Even if you assume there is a 50% chance that the company will not get a permit and you value the business at 10c without one (i.e. salvage value for the land, existing cash in bank etc), then at current prices you are saying that it is only worth 70c WITH a permit. If this is the case, then why on earth did you own the stock at $1.30 in June? If however your assumptions are more realistic regarding the permit (i.e >80%), then the current sp becomes even more ridiculous - at current prices you are actually only valuing the business at 47c WITH a permit (0.80x0.47 + 0.2x0.1 = current market price of 39c). Can you see where I am going with this? All you need to do is calculate the odds of getting a permit, then the odds of selling down a stake in the mine then the actual price of the sell-down to come up with soime sort of value for the business in 2016 (note that even this value with undervalue the entire business because it just represents a valuation for the GHN mine and excludes the rest of Groundghog as well as all the other tenements owned by Atrum). Calculate all of that and you'll come up with a price double, triple or quadruple the current sp, with plenty of potential from there once production is reached. That's a pretty sizable margin for error if your assumptions on BSP or sell-down are too optimistic.
To say that management has been rubbish, execution poor and delays constant is just to state the obvious. All of it is kind of irrelevant anyway, without a reference to price - there is a price at which you should buy any asset and a price at which you should sell any asset. There is no such thing as a buy or a sell at any price, so listing the issues within a business is meaningless, without reference to a price or valuation as a result of these issues. With regard to ATrum, I genuinely cannot reconcile the current sp with any measure of value. I totally understand why we are trading here and that is one of the characteristics of a retail dominated stock (namely, that price moves tend to go so far past reasonable levels as to seem crazy), but equally I have little doubt we will be trading a long way above this price very soon.
If you have a long enough investment horizon then there is no conceivable way you could possibly see Atrum as anything but a sensational risk/reward at current levels, at least in my view. But hey, I'm happy to hear any well constructed argument that illustrates why 40c is actually a fair price.
ATU Price at posting:
38.5¢ Sentiment: Buy Disclosure: Held
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