EZM -$6.00+ Estimated impact of new zinc production
I have been wanting to do this myself but didn't find time, copied from yahoo.
" Estimated CU production in 2006 at Neves Corvo 200,000,000 lbs.
36% hedged at $1.60 = $115,000,000
64% unhedged. at ???? I'll say $2.75 = $352,000,000 (this may well be higher given that copper is almost at $3.50/lb right now!
Total Revenue = $467,000,000
Cost per pound for copper….
In their original conference call they said that they expected this to improve further.
However, this may have been before oil was at $72 a barrel. So I shall assume their costs stay the same. Note that this cost somehow takes into account credits for zinc and silver that they also produce. I have no idea how to get to that number. Hopefully, the increase in these metal prices will more than outweigh the increased costs for fuel. This cost does include the smelter operations if I am not mistaken. $.76 /lbs x 200,000,000 = $152,000,000 in operating costs
Hence we have operating profit of $315,000,000 FOR COPPER
Now onto the Zinc.
NEVES CORVO:
If I recall correctly they said that they will produce 25,000 tons of zinc at Neves Corvo this year. Production starting in July.
25,000 metric tons x 2200 lbs = . 55,000,000 lbs of zinc produced at Neves Corvo in 2006.
How much will it cost per pound? Who knows…. And its hard to guess. This is because of how they do credits with other metals. The new press release for the production at the Aljustrel mine says that it will cost $0.46 a pound. However, this is with credits for silver and lead. I will just guess..and lets say it costs $0.80 cents a pound straight up for zinc at Neves Corvo. If anyone knows better please advise. Maybe we could borrow a figure from another miner just for the purpose of estimation.
Zinc is trading at $1.50 on Kitco as I type this. From everything I read there is supposed to be a real supply crunch in 2007 and 2008 for zinc. So unless there is a terrible disaster in the world economy, I think the price should remain at this level.
The numbers: 50,000,000 x $1.50 = $75,000,000 in operating revenue for zinc, 50,000,000 x $.80 = $40,000,000 in operating costs for zinc, $35,000,000 operating profit for Neves Corvo Zinc.
Aljustrel
Aljustrel says that they will ramp up to produce 170,000,000 lbs of zinc a year at a cost of $0.46 a pound. Using the same $1.50 number for price this means we get an operating profit of $176,000,000 for Aljustrel zinc.
OVERHEAD
Now subtract the nasty expense stuff mostly just copying 2005 income statement numbers. Assume expenses go up 25% from 2005 given the new operations and undertakings. However, they do have a one time tax charge of $34,000,000 to pay in 2006. So say expenses are $70,000,000 which is roughly 25% more than 2005.
THE BREAKDOWN PER SHARE
Total Operating Profits: $526,000,000
Earnings before taxes (Operating Profit Less Overhead and Admn): $456,000,000
Income tax is at 27% - income after tax = 332,880,000 / shares outstanding of 523,613,000 = .635 profit per share.
So at current prices of $2.70 that's a forward P/E of about 4.25
If you put the P/E at 10 you should have a share price of $6.30
Of course this analysis is quite rudamentary and I would be happy for anyone to attack it. I was especially weak with the expenses but I tried to be conservative. I simply don't know what would be reoccurring costs.
Their 2005 income statement is on page 28 of their annual report if you want to look at the numbers yourself."
