profitability update

Nikel is now up to ~$12.65/lb USD, or ~$12.46/lb AUD. Our costs are ~$5/lb AUD, leaving $7.46/lb AUD gross profit margin today. For a full year average though we could use a more safe estimate of $11/lb AUD minus $5/lb costs leaving $6/lb AUD gross profit margin.

Our 60% share of 35,000 tonnes of prduction is 46,300,000 lbs.

Projecting based on today's price would make $345m gross profit. Or projecting based on $11/lb would make $278m gross profit.

Let me compare Gross Profit to NPAT from 2005, 2006 and 2007.

2005: 67m gross, 43m NPAT (NPAT is 64% of gross)
2006: 439m gross, 339m NPAT (NPAT is 77% of gross)
2007: 390m gross, 272m NPAT (NPAT is 70% of gross)

So if we had $345m gross profit, NPAT would likely be 68% of that or $235m.

If we had $278m gross profit, NPAT would likely be 67% of that or $186m.

Market cap is $1.06b. Assuming 66% dividend payout ratio that would be 11.5% dividend yield at $11/lb AUD nickel price. Another positive, 20% of the market cap is cash reserves.

A 11.5% dividend yield suggests good value, plus they should continue to grow as they do have projects in progress and the money to complete them. The main risks are nickel price faling or the AUD/USD reaching $1.10, $1.20, $1.30.

Note: I am just re-analysing my investment out loud. I am quite confident in my investment in MRE and consider it a better investment than most. But after the recent rises it has lost some of the potential upside, so I am considering re-weighting towards HDF, GDO or OAK which I believe to have more upside in the next 12 months compared to MRE at $0.91.

I will re-analyse the other three options before making any decision. I like HDF around these prices, I like OAK sub-30c, I like GDO sub-30c.