the tech wreck

Though for the week -

I really see major similarities between the Tech Wreck and the current Mining boom/bust.

Leading up the Y2k tech companies were way over priced so we all come up with new ways of valuing them. The one that comes to mind is 4X Revenue - that's right not 4 X NPAT or even 4x EBITDA but 4x revenue, of course the whole bubble burst....or did it. Go back to the bust in mid 2000, 95% of the prentnders fell over but the the point I want to note is that the ones that have survived, their sp from mid 2000 to 2002-5 rallied significantly ten times even more. Not in every case but you get the gist, a lot of money was made buying after the wreck.

Now we move to the mining boom - Oh yes that's right we have over priced companies so we need new ways of valuing them. One that comes to mind is 10% of the in ground value. WE had people (and on Hotcopper) valuing on this basis, companies like Compass Resources were valued at ten bucks (someone had it at a AUD102 sp value because Compass had a 100 billion dollar resource. Costs to extract,project development and NPVs were forgotten about. Now we have the bust.......

The pretenders will fall over or stay as penny dreadfuls but I see the survivors (ones that have a sensible biz models)being rerated significantly over the next 2-3 years.

Hopefully ERH is one of them.


Spozzie