matrix report target 3.92

This was released last month, but is still relevent to ALB today. Note that it has a target price of 185 Pounds = A$ 3.92.

http://albidon.com/investor-centre/documents/MatrixCorporateCapital_July08Note.pdf

Executive Summary
Albidon produced its first metal concentrate from the Munali operation in Zambia
on 1 July 2008 – officially marking the company’s transition from developer to
producer. The Munali project has been in construction since 2006 and has come
in on time and on budget, making it one of the few mining projects in the world to
have achieved such a feat. The company’s share price reached a high of 219p in
late May 2008 on the back of takeover speculation, but the lack of any offer, a
correction in the nickel (Ni) price and a general sell-off in mining stocks in early
July has seen the share price come off 33% in recent weeks. We think the stock
is oversold, with the market failing to fully appreciate either its potential as a
defensive exposure to the mid-cap mining and metals space or the options that
are now presented by its pending cash flow. Given the reduced risk associated
with the recent commissioning and the growth options available, we would expect
Albidon to outperform its AIM mining peers if and when markets recover.
We are initiating coverage of Albidon with a Buy rating and a price target of 185p,
(some 37% above the current share price) with potential for further uplift past
250p as full production is bedded down in Q1 2009, operating costs are stabilised
and the market possibly re-rates the stock alongside its more established peers.
All major construction and underground development has been completed,
greatly reducing the residual risk associated with final commissioning of the plant
and mine. The underground contractor, Byrnecut, has been operating in the
Enterprise mine for over 12 months and has in that time exceeded all performance
targets. We see the final remaining hurdles as being associated with fine tuning
of the milling and concentrating process, and given the performance to date we
do not anticipate any major problems – we have however allowed for a gradual
ramp-up for full production to be bedded down.
We therefore regard Albidon as having effectively made the jump to producer
status, and therefore amenable to being valued against other Ni-producing peers
on a PE basis. The company remains one of the few miners to have entered
production recently, lifting it out of the exploration and pre-production pack. In our
view, this affords the company some defensive credentials in the current market.
On a DCF basis, we calculate an NPV (10% discount rate) valuation of 185p.
However, we believe this undervalues the company on several fronts. First, an
NPV valuation is based upon a finite mine life rather than considering the
company as a going concern. Our modelling suggests EPS of only 3.7p for 2008,
but increasing sharply to 28p for 2009 at current Ni prices – implying a forward
PE of only 4.8x at the current share price. Other Ni-producing stocks in Australia
tend to trade nearer to 10x earnings, despite having a similar or lesser resource
base. This is an indication of the Australian market’s willingness to value mining
companies with finite resource bases on the assumption that resources and mine
life will be extended. We take the view that once production has been bedded
down, and once mining costs have become more accurately defined, the market
may begin to feel Albidon deserves similar treatment.