interesting ayn valuation...

I was sent this email today...it's not my work but thought it was on the money and worth posting here.

"ANALYSIS
Before the reconstruction and administration AYN had approx 511m shares on issue and around $10m in financial Debt (convertible notes). The mine was commissioned in 2007. During that time 2007/2008 the share price ranged from 18c to 40c. So the effective Enterprise Value range was $102m to $214m. The silver price at the time was around US$13.5 to $14/oz with a sharp very short term spike to US$20.50 in Jan 2008 before collapsing to US$8.50 in October/November 2008.

Whilst acknowledging the problems encountered with the old management that lead to administration and subsequent recapitalisation, it serves as a useful yardstick of potential valuation if the issues of the past can be resolved and Silver can be produced at sub $10/oz.
Given that the silver price is US$19/oz, the probability of being able to produce silver profitably is much better than it was due to higher margins. The plant and equipment is also on site and the pads have silver in them.

Currently there are 600m shares on issue and 150m options on issue, so fully diluted there is 750m shares on issue with around $6m in cash (assume options are all exercise and cash comes in). At current levels this represents an EV of around $35.25m. It is likely that a further capital raising will be required before the company recommences production, I estimate $5m to $10m. Given that the silver price continues to rise and the higher probability that the company will be able to produce silver profitability, the issues of the past then in my view it is fair to assume a risk value of 50% from the company's previous EV range. If that was the case, one could argue that a current reasonable EV Target range could be $51m to $107m or around 7c to 14cps now.

The risk value will reduce as the new management can PROVE to the market the following things;
1. That the problems with the grind size in the plant can be rectified
2. Verify the ore body and the log the exploration information left by the previous management
3. Drill the high priority exploration ground
4. Outline a clear path to re commission and production
5. Continued accent in the silver bullion price

I estimate that within the next Quarter (March 2010) that those questions will get answered and as a result the valuation will improve and an ultimate target of $0.30 could be achievable".

I think the assumptions in this guy's email are reasonable and think 8-10c is just around the corner, especially if the silver price hovers around these levels.

I trust this email provides some good insight...ronmac.