I spent some time today looking at the 2007 annual report, plus...

I spent some time today looking at the 2007 annual report, plus thinking about the 2008 year, taking into account the most recent production estimates after the gas supply problem.

I've focussed on the nickel production, assuming cobalt will be similar numbers to 2007, give or take.

2007
Nickel volume: 27,585 tonnes (Minara owns 60% of this)
Nickel revenue: $735.3 mil
Average nickel revenue per tonne on these numbers: $44,427
Total after tax profit (all activity): $272.4 mil
Profit per share: $0.583
Dividends paid per share: $0.40
% of after tax profit distributed as dividend: 68%
Average share price was $6.76; high of $9.53 and low of $4.60 during the year. Obviously the SP is pretty volatile and moves around in line with the daily nickel price; production wobbles have also driven SP fluctuations.

The 2007 result included the shut down for statutory maintenance which reduced the production output (compared to 31,524 tonnes in 2006).

2008
The current production estimates are between 31,000 and 35,000 tonnes for 2008; this includes the estimated impact of the current gas supply problem.

The SP has tracked down with the nickel price since the beginning of the year; from the 19th of May the nickel price has come off from around US$26k per tonne to US$22k on the 30th of May. Over this time the share price tracked down from around $6.00 to $4.74.

In percentage terms the SP fell further than the nickel price so this is a bit of a question mark; however I guess it depends on what the longer term view is on the nickel price and also whether there is a view that even the previous production targets were unlikely to be met. Unfortunately, production volume reliability has been a long term problem for Minara.

Looking at the numbers though, you’d have to say that the real issue for 2008 is more around the medium term nickel price rather than the reduced production volumes which (based on the forward estimates) will still exceed last year by between 11% and 21%.

As I have posted previously, Glencore have been busily buying at around the $6.00 mark quite recently and I’d have a reasonable amount of confidence in their view on the forward nickel price. The only thing that has really changed since mid April when Glencore last notified buys at just under $6.00 is that the nickel price has come off by around 8% (at Fridays price) and we have the gas supply issue and subsequent production downgrade. The all ords has risen and pulled back to the same level over this time also, OK so it’s all gotten a bit jittery again in the market generally since then.

However without further knowledge of any other issues, like lurking cost blows outs or the like I can’t see that there is anything here to justify a share price fall of 40% from around $6.00 to $3.61 on Friday.

This should be no brainer operation with no debt, cash in the bank and a ready market.

Nickel pricing and A$ are issues and as I said earlier, reliability has not been Minara’s biggest selling point in the past, but these are not “surprise issues” as far as the recent SP history goes.

If I’m missing something I’d like someone to put me straight, but in the mean time my thoughts are to keep accumulating.