the long road to recovery

I think we will get there over the course of this year. There are a number of challenges ahead for AIM which are:

1) NPV of the project – a NPV of USD 56.2 Million really makes the project appear to be a bit more than shaky on the basis that an amount of around USD 60 Million is required to bring the project to fruition (hard to justify spending a dollar to make a dollar). The resource at Perkoa really needs to be increased by quite a bit in order to increase the NPV of the project. The VTEM will go some way (hopefully) towards identifying some new target areas to drill and upgrade the resource however I’d be surprised if the VTEM results were received within the next month or two. Even if they are received in the next couple of months, follow up drilling could be slow in occurring given the problems with obtaining drill rigs in Africa – and even if drilling happens quickly the assay results will take quite a while also. Realistically an enhancement of NPV due to resource upgrade is unlikely to be achieved within the next six to nine months.

What worries me quite a bit is that the constant ranting by AIM about the deposit typically occurring in clusters and how it now appears to be the case that there is no cluster. Frankly this is a major concern because all of a sudden the easiest method of improving the NPV of the project is gone (I hope that this is not the case however the drill results released recently would suggest otherwise).

NPV could be potentially enhanced through either (1) cutting costs which will be difficult given the geographical location of the mine and the oil cost implications for the mine (2) increasing zinc price which is not showing much in the way of signs of life – having said that a number of operations will end up having to close down sooner rather than later if the zinc price languishes around these levels (lets hope that doesn’t mean we will mothball the project) and (3) operational rationalisation.

Enhancement of the NPV of the project is absolutely critical and frankly I think it can certainly be done – there is however risk associated with achieving this.

2) Resolution of the NS litigation – I am somewhat surprised that litigation appears to be proceeding given that MF has left the building. Any costs incurred by AIM will only serve to weaken the position of the company and conceivably leave a carcass for the lawyers to pick the eyes out of. I believe that there will be a resolution on this point at some stage in the near future as despite the negative comments from MF and his ‘I have no idea what they are up to’ attitude, NS would be most interested in deriving value from this project.

3) Culture within the company – one thing that seems to be fairly clear from the comments on this forum is that we long term holders have been hoodwinked by MF. It’s easy to blame him for being a BS artist (which we now all know he was) however as shareholders we wanted to believe the hype because the story sounded like a no brainer. Goes to show that there is no such thing as a free lunch. Having said that I get the impression that the current management are genuinely keen to clean the slate and establish some accountability to shareholders. We have already seen evidence of this in the release of the drill results. BC could have sat on these results and eventually shareholders would have forgotten about them. By releasing these results the share price has copped a hiding however it has shown that there is a preparedness on the behalf of the management to provide good AND bad news.

The key things that will re-affirm the accountability of the management will be (1) formal confirmation that the decline has started. There was a brief mention of this in the announcement dated 8th April where ‘and the milestone of commencing the underground decline before 1 May 2008, has been achieved’ however clarification of the state of play on the ground at Perkoa will be good (2) formalisation of the financing of the project. Reality is that any further dilution will effectively kill the share price and MUST be avoided at all costs. I would favour either smelter or zinc trading company financing OR bank financing. What we must realise is that the spreads which will be applicable on debt funding will be substantial given credit markets and the low NPV of the project – however I believe that financing is achievable (3) swift resolution of the litigation with NS and (4) regular updates showing that the mine is really progressing (as opposed to MF style vague references to progression).

I think this company will come good however investor confidence needs to be improved and we as shareholders will have to accept that this confidence will only come with conservative and dependable management. I personally would trade the rootin tootin approach of MF for a slower and more reliable approach from the board even if it means that the price slowly grinds higher instead of shooting through the roof and then falling into a heap.

One last point I will make is on MF. I certainly hope that he doesn’t try to land another gig within Australia for his own sake as I think his name is effectively mud after the quagmire he left this company in.

Anyone got any thoughts on the above?