Around the Traps ... with THE FERRET
09:29, Friday, 4 March 2005
Sydney - Friday - March 4: (RWE Australian Business News) -
**************************
You often get companies complaining about their low share
price.
But when a company argues against a sharemarket's higher
valuation then that's the classic man-bites-dog story.
It's happened with PORTMAN MINING (PMM), which is recommending
a $3.85-a-share takeover bid from Cleveland-Cliffs.
The sharemarket, and particularly CSFB, reckon the shares are
worth more given the white hot iron ore sector.
However, the argument provides some interesting lessons for
investors about sharemarket valuations and broker research ... and some
pointers for the future for mining stocks generally.
Portman's acting chairman, Michael Perrott, says CSFB has
overstated the earnings per share outlook for the company.
"Obviously, it is difficult to make predictions about future
profitability and Portman has not published any earnings forecasts," he
said.
"Future earnings will depend on a range of factors including,
of course, iron ore prices and exchange rates.
"In particular, Portman believes that CSFB's valuation appears
to have understated our likely operating costs."
Mr Perrott said the company was incurring higher operating
costs in the recently opened Northern Tenements, where the majority of
its future production would come from, and this made reference to
historical averages as a guide to future operating costs unsafe.
"In addition, as we said in our supplementary target's
statement last week, the whole mining sector is facing significant cost
pressures and we expect these pressures to translate over time into
higher operating costs," he said.
(Investors please note .... the man said the "WHOLE MINING
SECTOR IS FACING SIGNIFICANT COST PRESSURES").
Anyway, Mr Perrott said that CSFB's estimated EPS for 2005 of
70.2c fell to 51c after applying Portman's cost projections, which is a
difference of 37 per cent.
The 2006 figure of 118.2c falls to 92c, a difference of 29 per
cent, and 2007 from 104.5c to 76c, a difference of 37 per cent.
Seems that an EPS calculation, and therefore a forward p/e
projection, is an art rather than a science.
*****
VIEW RESOURCES (VRE) put another focus on the spectre of rising
costs in mining.
It has its detailed feasibility study in respect of the
recommencement of mining and processing operations at Bronzewing.
The feasibility study shows that the Cockburn and Central pits
generate a positive cash flow from a scheduled 136,000 ounces of gold,
but do not currently meet View's internal financial hurdles.
All aspects of the feasibility study were in line with previous
project estimates except for mining contractor costs, which were about
30 per cent higher than previous estimates (representing an increase of
approximately $50 million over four years).
The increases reflect the across-the-board industry increases
in contract earthmoving rates and chronic shortage of skilled mining
labour and key mining consumables and equipment.
One of the key factors in assessing the immediate restart of
mining activities was the inability to secure operational guarantees
from contractors in respect of labour, explosive and machinery supply.
As a result, View has decided that the recommencement of mining
at Bronzewing will be deferred until market conditions improve and/or
further resources have been defined to support appropriate internal
rates of return.
View shares fell 6.5c to as low as 31c before closing at 33c.
*****
AUSTRALIS AQUACULTURE (AAQ) yesterday signed five-year
exclusive supply agreements with three of Australia's biggest
barramundi hatcheries, giving Australis exclusive rights to buy
fingerlings and strengthening the company's position as the biggest
exporter of fingerlings to the US.
"The importance of these agreements can't be overstated,"
Australis managing director Stewart Graham said.
Yeah, sure, just the usual fisherman hype, we thought.
But he wasn't kidding.
Australis shares soared 14c to 69c before closing at 66c.
*****
Australis Aquaculture was listed on August 4 after a float at
25c a share and investors were a bit stunned mullet when the price fell
to 24.5c.
However, it immediately took off, hitting 65c five days later
and stirring memories of SAM'S SEAFOODS's (SSS) early days on the
bourse.
What is it about these fish stocks that gets the punters so
excited?
Sam's opened its stock exchange account at $1.12 in December
2001 and rose relentlessly to reach $5.14 in November 2002.
Ferret wrote at the time he was non-plussed as to how the rise
could be so sharp.
It's a different story these days.
Sam's shares plumbed $1.09 on February 9 ahead of the February
28, last-day announcement that December half-year net profit had
plunged 99.8 per cent to $47,000.
However, not to worry ... the company said in a "Business
Update" that day, which curiously failed to mention the half-year
profit plunge, the "fundamental dynamics of our business have been
purposely and positively changed to focus on future market channels and
growth strategies".
It said directors and management had "enthusiastically and
positively embraced change" and that as a company it was "committed
wholeheartedly to our diversification and vertical integration
strategies which will ensure we achieve our documented milestone
objectives to become the premier national seafood distributor and
undisputed market leader".
It was, it said, "meticulously following a concise and measured
strategy".
It's hard not to be impressed.
Even the market has restored the price to $1.36, up 1c
yesterday.
(Comments and complaints to [email protected] - no requests
for advice please.)
ENDS
Copyright © 2005 RWE Australian Business News. All rights reserved.
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