my humble predictions for stb, page-7

Hi,

Lets assume that we do have at least 500 Mt of JORC resource and not dwell on the resource size anymore. We need to look at the production picture and possibilities.

I think we can either go alone or involve a major partner (lets say BHP). My simple calculations say that in both cases the shareprice should be able to reach at least $30 when the production begins.

CAse 1 - Go alone

Assumtions. - Open PIT at 3.00 Million tonne /annum
Capital costs - Say approx $750 Million

As we dont know or speculate about future potash prices, I have taken the simple route that existing producers must be making at least $25 / tonne

Lets calculate costs of existing producers
Underground mine say at $1.5 Billion (producing 3 Million tonnes)

So our cost advantage per tonne is around $25 (we have at least $750 million less debt at say 10% per annum thus saving $75 Million compared to existing producers)

Then we have at least $20 / tonne transport advantage lets take it only $15 / tonne

We have other advantages like wages etc but just ignore these

So we have $25 + $15 + $25 = $65 /tonne prifit or $195 m for 3 mill per annum production.

I don't know tax but lets say 30% and we are left with $136.5 Million profit

Based on our 60% share (Gov has 40% share after buy back in for 30% but I have ignored any value paid for this buy back in)

Based on a p/e of 30 (our mine will last at least 60 years or so), we get a value of 136*30*.6= 2457 Million or approx $24.57 per share.

I have only assumed a profit of $25/tonne for existing producers ( I reckon this is close to $80 to $100 at present).

Risks : Securing of Capital, country risk, management risk, execution risk - you name it and we have all the risks.


Case 2: - Bring in a heavy weight partner say BHP

as the government has to stump up for their 30% share (I don't think the gov has got any mullah!), the company can devise the following formulae (only after the pre feasibility and company valye close to 1.0 Billion already)

STB - 50% (give 10% to BHP)

Gov - 20% (give 20% to BHP for it to stump cash)

BHP - 30% (put up $300 Million cash on table)

Note that we have given up 10% to pay for government contribution but this can pay dividends in long run regarding political risks and other concessions.

So now we need only say $450 million for mine

the equation becomes like this

Margin now = $35 + $15 + $25 = $75 /tonne

Annual profit = $225 Million

After tax = $225 * .7 = $157.5 Million

on a p/e ratio of 30 = 157.5 *30 = $4725 million

Our Sahre value = $4725*.5/100 = $23.65


Risk : We have considerably reduced project risk, execution risk, management risk as well as political risk while still keeping the value approx same. The project will come on stream much quicker and BHP may get the gloating rights for its failed takeover of Potash corp.

To me this looks like a win win situation all around. The above share price has been calculated on the assumption that existing producers only make $25 / tonne profit - this I think is the understatement.

So my view is that hang on to your shares as upside is quite considerable

What are yopur thoughts ? Any feedback (+ or -) is quite welcome.