proper valuation less than 25 a share, page-2

Thanks for the post. Lets look at your numbers for a sec..

Firstly, the resource is 10 Billion tonnes at 16.9 zinc equivalent. Mining over 10 years (slower than the 6 years they predict), that is more like 170,000. Let go low at 150,000 (equivalent).

Secondly, your net profit margin is way too low IMHO. Last Financial Year, Zinifex's profit margin was about 35%. At the start of the financial year, the zinc price was about 50c pound until about Christmas, then it rose to about $1.50 by June. The average sell price during the year could be NO better than about 80c pound. (Have a look at Kitco.com).

So, if their sell was 80c and their margin was 35%, at most, their cost is 50c. That gives Zinifex a profit margin more like 75% not 35%.

Lets allow TRO a cost mining per pound of 70c a pound(Remember it sold for 50c pound at the start of the year, and there was a mine on site producing in 1999 when Zinc was less than 40c pound).

So........

150,000 tonnes * 1.90 zinc price USD * 2200 (converting pounds to tonnes) * 1.35 (currency conversion)= 846 million REVENUE

now use a net profit margin (net profit/revenue) of 60% (70c cost on a $1.90 sale is actually 63%, so lets round down) and we get $507.6 million

507.6 million divided by 80 million shares = $6.34 per share EPS for 1 year.

Next you talk about a dillution of shares where the original shares are only worth 25%. This is WAY overkill... I think being extremely generous with share dilution, would allow them to double (at most) not quadruple... (Remember, permit is already there, so is the infrastructure)

This then makes it 507.6 million divided by 160 million shares = $3.17 per share EPS for 1 year.

Using your PE or 7, that gives a share price of over $22.

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I'm going to run your method again (but I will not be so worse case IMHO)

Lets believe the company can mine in 6 years not 10 (and they have further resources to keep going, as TRO and yourself stated). This would bring yearly output up to 250,000 tonnes (still low using a factor of the 150,000 not the 170,000 - ie 150,000/6 times 10).

250,000 tonnes * 1.90 zinc price USD * 2200 (converting pounds to tonnes) * 1.35 (currency conversion) = 1410 million REVENUE

now lets use a cost of 50c pound (still allows for a non profitable mine only 9 months ago) then net profit margin (net profit/revenue) is 73.6% and we get a profit of $1037 million.

Allow for a more realistic dilution, say 50% more shares, then that make 120 Million shares.

This then makes it 1037 million divided by 120 million shares = $8.64 per share EPS for 1 year.

Using your PE or 7, that gives a share price of over $60.

You said "but previous valuation of $25 are ludicrous given that theyre based on revenues only!". No, they were done on profit, not Revenue. Re-read them. They allow for a profit of $4 Billion from a $10 Billion resource.

Your method, actually allows for a share price between $22 and $60 at current share prices. This does not factor in any upside in the Zinc price, whch will probably happen with the forecast Zinc shortages.

Not only is $25 not ludicrous, it's LOW IMHO. What's the current cost of entry???