low ball fmg valuation

Here is my best effort at a rough floor valuation for FMG based on the following:

1) 55 mtpa in FY 08-09 and 80 mtpa by end of 10
2) Conservative margin per tonne: $40-50
Based upon:
FMG contract prices based on BHP/RIO negotiated FOB price (c $85 for fines;$130 for lump) minus Cost of production (Charlie Aitken has a figure as low as $25/t)

Gives:

EBIT of 3200-4000m

3) Allowing $200m interest on <$2b of interest bearing debt
4) Minus 2000m for expansion to 80mtpa fully funded from 2010 cashflow
5) The full 30% corporate taxation (ie disregarding already booked offset losses)

Gives:

2010 NPAT of 1000-1800m
and 2011 NPAT of 2100-2650m

6) Allowing for vesting of 293 million 'four year of service employment bonus shares' and existing 2.8b shares on issue;
7) Discounting EPS by 4% to account for Leucadia's right to revenue until 2019

Gives:

EPS for 2010 of 21.5 - 38 cps
and EPS for 2011 of 64.5 - 81 cps


Placing the company on a low PE of 8, and discounting back 2011 earnings by 10 p/a%, still gives a SP of almost $5.