Dikoloti has 28,700t of JORC Nickel in the ground but none of the valuations of DML that I have seen have attempted to include a value for this resource. At $26,588 per tonne I know it is a significant resource worth $763m if dug up. I would like to try and place a value on it so it can be included, giving a more comprehensive (and realistic) valuation for DML.
Unfortunately I have no knowledge of the Nickel industry so any assistance would be greatly appreciated. Looking for a figure on cash cost I could only find one company, Panoramic, who mention $5.00/lb for production cost and Im going to take a punt and reckon profit might be double that for copper (which I figure being about $2.50/lb). So $5.00 for extraction, $5.00 profit margin and with nickel currently selling for $12.00/lb that suggests to me its probably worth something like $2.00/lb to buy JORC Nickel. Please correct me if you know better.
So at @ 2.00/lb Dikolotis 28,700t (63.25m lbs) is worth around $126.5m. Divide by the number of shares (435.88m) and we get a value of about 29c per share.
Boseto (many thanks to various posters for input last week) production of 36,000t of Copper Equivalent pa (which starts mid 2012) equates to 79,366,414 lbs pa, @ $4.00 per lb would create annual revenue of $303.35m. With extraction cost of $1.25/lb this gives us a profit of $218.26m. If we apply a PE of x 4 (very conservative) we get a stock market value of $873m for the company. Divide this by the number of shares in the company (435.88m) and we get a projected share value of $2.00. Valuation for mid 2012:
Dikoloti, 29c + Boseto, $2.00 = $2.29
Keep in mind that this valuation assigns no value to any other DML assets except Boseto and Dikoloti. If all goes well and Ophion (which currently has a 75 hole drill program underway) develops into another Boseto we would be looking at ($2.00 x 2) + .29 = $4.29 per share in 2 - 2.5 years. Dont discount the possibility of finding more Bosetos as exploration progresses. We also have the possibility that when Zeta underground starts up (2013?) Zeta open cut may not reduce its production, hence overall production could rise by 50% to 54,000t pa which would have a significant effect on the SP. Plus we have further value accruing in other DML assets which now include14,400km2 of manganese prospects (assessment to commence H1). With 5 drill rigs operating at Boseto and 3 in Dikoloti exploration is happening bigtime (total drilling capacity of about 500m/day) and there will be inevitable JORC upgrades further down the track.
DML Price at posting:
$1.18 Sentiment: LT Buy Disclosure: Held
