realistic fair value

Since stock markets tends to look forward I have always used a one year calculation as an "indication" of value.
I usually relook at my assumptions each quarter as the results appear.

On HC some people are being optimistic. It is easy to take an assumed Basket px and subtract an assumed COP and obtain earnings.

But that is forgeting costs of, Admin, Dep & Amort and Interest payments.

It is difficult to get an accurate value for each of these (even though we have the Cashflow & Q Report since the costs are mixed in differently) but my current best guesses for the next year are as follows:

Admin 36m
D&A 11m
Interest 20m (Sojitz 14.2m & Mt Kellet 6.1m)

The bsk px is down again this week at $32
If we say that LYC achieves 80% of this then we have 26$/kg

If we take EN's advice of a ramp up to full phase 1 production (11ktpa) at end june, then the next 12 mos from now give us 9625 tons of production.

We then need an assumption on the average COP.
Macquarie in jan 2013 used $19/kg for FY 14. That seems reasonable to me.

The two really critical figers (as pointed out many times by Ausheds and others) is the realised bsk px & COP

If we run all the above numbers we get an EPS of $0
yes exactly ZERO for the next 12 months.

If we now add in all of phase two with ramp up in 2013 Q3
we get an EPS of only $0.22 Frankly I am doubtful that phase 2 will be fully sold - I hope I am wrong !

Now if we get to full prouction of 22ktpa AND COP comes down to $14/kg (as LYC predicts) then we get an EPS of $0.9

Clearly if the world economy comes good, inventories come down, REO px is up, cop down etc then we have all sorts of possible "blue sky"

But at the moment - unfortunately the current share price is not at all unreasonable.