sent to asx ##

In a report released to the ASX today titled 'FINAL REPORT OF AN INDEPENDENT TECHNICAL REVIEW AND VALUATION OF THE SALAR DEL RINCÓN ASSET AND

OPINION ON THE MARKET VALUE OF ADMIRALTY RESOURCES NL' , Dr Carlos Sorentino (the author) made the following statement (as show underlined and in italics below...) on page 13 of the report under the heading 'Project Maret Value'.

In light of the glaring inaccuracies in this section of the report i ask you to in the very least request a correction from the company and the author. Such inaccurate (and potentionally deceptive) statements mislead the ASX and all it's participants, and in my view can not be tolerated.





"The Price Earning Ratio, P/E, is the latest closing price of a stock divided by the last 12 months average after tax earnings per share. The P/E Ratio expresses the rate of return to equity: for example, a P/E of 8 represents a company that is yielding 1/8 = 12.5% per year on invested funds."



Wrong. The P/E Ratio does NOT express the rate of return to equity. It expresses the net earnings of a company in relation to it's market capitalisation. Additionally a P/E of 8 ONLY represents a company that is yielding 1/8 = 12.5% per year on invested funds IF by conincidence the company's market capitalisation is equal to the value of it's invested funds - which is almost never the case. Thus, this statement is also wrong and misleading.





"In the case of a mature stock, that is to say, a stock that has achieved a steady state rate of return, the price, P, expressed as the sum of the discounted earnings, will be equal to the earnings, E, divided the discounting rate, R, used to calculated the price:

P = E/R or, equivalently, P/E = 1/R

which permits to calculate the value of the stock in terms of a desired rate of return."



We can accept this statement provided earning, E represents the earnings for one (1) year.





"Since the sum of the after-tax earning is the Net Present Value of the stream of after-tax earnings, the fair market value of the stock can be expressed as this Net Present value multiplied by the P/E ratio."



Wrong. How can the sum of after tax earnings equal the discounted (i.e., NPV) value of the same stream of after tax earnings ? It's only possible if a discount rate of 0%(zero) is used, which is less than the risk free rate of return! Totally flawed logic is used through these few paragraphs to justify multiplying the NPV of the project by an earnings multiple...which results in an seriously inflated and erronerous valuation of the company.