I understand why your watching from the sidelines. There has been a huge sell-down in the last six months.
However, this year's revenue promises to be spectacular.
For the Year Ended 30 Sep 08 they reported revenues of $32 million, with a gross profit of $10 million and other expenses resulting in a net loss of half a million.
The quantity of Ore Shipped from Los Santos will be many times larger this year as this is its first full year of operations. Based on the quarterly reports, last year they only shipped 171 tonnes. The tungsten concentrate price then was probably around US$13,000 per tonne as it has been high for a number of years. At an exchange rate of around US$0.95 that means Los Santos probably produced revenues of roughly $23.4 million.
Since then, tungsten prices have fallen by about 20% and the AUD now buys USD$0.75. However, Los Santos has already shipped 304 tonnes of concentrate this year.
304 tonnes x $10,400 / 0.75 = $42,154,67 for the first half.
If they repeat the performance for the second half, revenues will shoot well over $80 million.
Throw in the Canadian Minerals division and the 40% stake in Pajingo Gold Mine and you're looking at about $100 million in revenues.
Here's my (conservative) target Income Statement for the Financial Year ended 30 Sep 2009 (figures are in millions):
Revenues $100
Cost of Sales $70 [based on Last Year's margin] ------------ Gross Profit $30
Other Costs $10 [same as Last Year's costs]
Income Tax Expense $3 [company has deferred Tax Assets of $3.5, so hopefully this won't result in any payment of cash] ------------ Net Profit $7
With 76 million shares outstanding this makes an EPS of $0.092
Interstingly, my very rough estimate is less than one cent higher than the EPS estimated by ABN AMRO analysts.
As for the question of the HSKG liability, that doesn't fall due until April 2011. By then, they'll had all three operations at full tilt for 2.5 years. Their quality assets mean they'll probably be able to get a line of credit from a bank.
I hold both HSK shares and HSKG notes. Heemskirk is the best buy on the ASX right now. Proven assets, solid cashflow, projected PE of 6-1 and diversified projects amongst industrial minerals and precious metals. What else can you ask for?
HSK Price at posting:
52.0¢ Sentiment: Buy Disclosure: Held
