Future Earnings per Share and P/E ratio:
Let's say total cost per tonne to mine, transport pay taxes, etc to sell the potash is $175 per tonne (using Wellington's most recent estimate for operating costs at $75 per tonne and all other costs at $100 per tonne - this would include costs such as transportation, taxes, etc). To speculate a little, lets say potash price is really low, $300 a tonne. Also, lets say Allana only produce 1 million tonne per year (likely scenario is that they will produce 2 million tonnes per year which means their overall per tonne costs will be lower). Lets also say Allana has 350 million shares outstanding at time mine goes into production (current number of shares outstanding is 145 million and most of the mine financing will be done through debt and not equity financing) and after first year of production, the stock is trading at $5 per share.
Math:
OPEX = $75 per tonne
All other costs = $100 per tonne
Potash Price = $300 per tonne
Mine Production = 1 million tonnes per year
Net Earnings = 300 - 75 - 100 = $125 Million
Shares outstanding = 350 million shares
Market Cap = $5 * 350 million = 1.75 billion
EPS = Net Earnings/Shares outstanding = 125/350 = 36 cents per share
P/E ratio = stock price/EPS = 5/0.36 = 13.9 times
To put in perspective, Potash Corp has a P/E ratio of 34.5 times, Intrepid Potash has a P/E ratio of 80.3 times.
So as you can see, $5 for the stock after 1 year of production is way too low. It should be more like $10 which would give it a P/E ratio of 10/0.36 = 27.78 which is still lower than Potash corp and way lower than Intrepid.
That's why I said, if you hold until production that is scheduled for 2013, one year later you can expect your shares to be trading at least $10 - this would be the worst case scenario with potash prices at only $300 per tonne. If you have the patience to wait 3 years, you will get more than a 10 bagger from current level in this stock.
