MZI RESOURCES LTD (ASX:MZI) - Ann: Quarterly Activities Report - June 2018, page-49 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Originally posted by daveyjones ↑

Thanks for the recent product market intel Dr Fouad which bodes well for future product prices. Thanks also for your previous reply (post #35009330 18 Aug 18) appreciate all the good work digging back into the historic financials.
I’ve been thinking more about the probability question and I agree each investor has to decide from here if the chance of success outweighs the chance of failure. And I agree it is a subjective judgement about the future of the MZI business but I still think it means making an explicit (or implicit) probability call.

Say assuming if/when operations are 'stable and normalised' and debts are satisfactorily restructured (at reasonable rates and terms for the long run) the future value might be around .45c. Very roughly this equates to 100kt p.a. product sold at AIS margin of $350/t to give an EBITDA around $35m x (say) 8 multiple = $280m less $170m debts =$110m/246m shares.
The payoff would be around .37c (.45 -.08) for 'the win'. and -.08c for 'the bet' being approx. price today.

If we say the likelihood of the business successfully achieving the turn-around is 60% (3 in 5 chance) and therefore to fail is 40% this would imply a positive ‘expected value’ of .19c. That suggests its a bet worth taking. (.37c x 60% = .22c) less (.08c x 40% = .03) = .19c

Of course this boils down a very complex situation, with many known (and maybe unknown) variables. But perhaps it is reasonable given the recent evidence (prices improving, processes optimising, improved recoveries) and a careful and methodical problem solving approach now underway?

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Hi Daveyjones, thanks for your kind words. Your quantitative probabilistic method is interesting, it reminds of the method presented by Nicolas Nassim Taleb in his famous book "fooled by randomness". Of course the challenge is that any "number" put on "probability of success/failure" would be subjective and therefore the end result "take the bet or not take the bet" would differ from one person to another depending on his initial (always biased ?) assumptions about "risk of failure/probability of success" so here we are on square 1 again. That is why the way i see it is that these "binary investments" a la MZI are best to be played from a qualitative analysis point of view.