To correct a few inaccuracies in what you are assuming:
1. PEM does not have $77m in cash. $25m is locked away in performance bonds and $10m will have to be paid back this quarter. So their free cash for operations is some where around $42m
2. PEM is not profitable. The current Zinc price is $0.769 cents per pound - PEM's net cash cost is $1.01 (which includes the magic hedging gains) so for every pound PEM produces at the moment they lose $0.241 cents. Considering they produce 198.4m pounds (90,000 tonnes) this equates to $47.8m negative cash flow for the next 12 months
3. Note given the above information, how much net cash do they have again?
4. They get no significant credits from their lead production as they have sold forward their entire 09 production (around 30,000 tonnes) at a hideous price - $1748 AUD a tonne - Lead is currently $2250 AUD a tonne
5. CBH has cash of $125m, yes they have the convertible notes of $200m but they don't have to be paid back until May 2012 which is a long time in commodity markets.
6. Toho is a strategic shareholder with deep pockets who owns 30% They also own around 25% of the notes. They need CBH for concentrate supply so would be willing to inject funds via debt or equity to keep CBH going, having done so a number of times in the past.
7. What large supportive shareholder does PEM have? Oh that's right Korea Zinc - didn't they sell out at $4.30 a year ago? - Who else is going to pump money into PEM now?
8. Given the last statement, and given it will be impossible for PEM to borrow from the banks, a hugely dilutive equity issue to keep the whole show running or receivership appears likely. The only real solution would be a big increase in the Zinc price (and a massive fall in the AUD) in about the next 6 months (unlikely IMHO)
9. CBH has just come out and said they have got Endeavor working at break even at these metal prices - PEM can only dream of been in this position.
10. Beltana has no value at this Zinc level as well considering its costs are at around $0.85.
11. CBH has 10 years of reserves at Endeavor, PEM would be lucky to have 3 - 4 at broken hill (and considerably less if they have to focus on the high grade stuff - wait for the operational update this month) Nothing like selling the good bits at the bottom of the cycle.
12. The only value for PEM is the Mt Oxide but why buy it now, just wait for the receivership.
I'm more than willing to be proven wrong by PEM followers, just so long as you can logically point out any flaws in my reasoning.
Kind regards
J.
PS PEM and CBH have both been sh*te investments but I think CBH due to its supportive shareholder, cash in the bank, capex previously spent, long mine life (10 yrs at endeavor) should be around for when things pick up in a year or so
PEM Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
