USSIF .24 MUST READ:
Posted by: downsideup Date: Thursday, May 13, 2010 4:47:18 PM
In reply to: downsideup who wrote msg# 1603 Post # of 1604
A rough hack at it...
In 2009 they had costs of $12 and silver sold for maybe $14.50 while they produced 2.42 million ounces, including and ignoring the copper and lead contributions... so, call the $4.1 million they earned a margin of $1.70 times 2.42 million oz...
Using the rounded numbers from 2009, give it a larger company P/E of 20 vs a smaller company P/E of 30 on earnings of $0.02, and call that a solid $0.40 to $0.60 with a duplicate performance.
The projections for 2010 have them doing 3.5 million vs 2.4 million ounces, with the costs lower, or not higher, and prices higher.
Call it a cost of $12 (which is probably high) and a silver price of $17 (probably low) for 3.5 million ounces produced... which makes the margin widen linearly from $1.70 to $3.70... times 3.5 million ounces... or $0.05 a share times 20 or 30, for a low side target of $1 to $1.50 "soon"... as in, within the year.
The market is just now waking up to the realities... so those numbers could easily trend a bit higher with P/E expansion... as the market shifts from looking backwards at performance after the fact, to anticipation of future performance with an expanded forward P/E.
In Q3 they finish the refurbishment of the Galena and can begin to increase production even more and will begin tapping into some higher grade ores again... giving a cushion in the WAG re capacity, production and yield... and shifting the numbers a bit higher with any big increase in yield in ounces per ton.
If the price of silver averages a bit more ? Looks like each $1 added on to the average price of silver, other things being equal (which they may not be, if copper and lead price move higher) adds around $0.015 to earnings... so silver at $19 makes earnings of $0.08 vs $0.05... silver at $20 makes earnings of $0.095 and silver at $30 makes it $0.25 a share... a P/E of 20 driving a share price of $5, with P/E of 30 putting it at $7.50.
For now, it looks like the trade is still "single fear" based... not yet considering the future risks of inflation as much as the near term risks in collapse of currencies...
Farther out, as a raging precious metals bull market evolves... two things tend to occur in tandem... along with a shift to fear of inflation...
First, prices for metals might tend to go parabolic at some point, so that the silliness of gold at $10,000 and silver at $300 to $500 isn't impossible. Of course, the expectation then is that the dollars being used in making the price in comparison to current dollars aren't worth what they used to be... so the upside in real terms isn't nearly what that looks like it would be were the dollar values fixed.
Second, the price multiple for miners tends to expand pretty dramatically as the bull market progresses. Last time around, the street had no problem with P/Es that surpassed 90...
Not overly useful to do the math on those potentials now...
The dynamic in the market today is worth noting... for the Euro centric element of failing confidence in the Euro. Pundits projecting parity with the dollar are speaking louder... and European suppliers of physical are running out of silver now, and not just gold. That has prices moving higher in TANDEM with a stronger dollar just now... at the SAME TIME that there is noise being made about investigations of manipulations in the metals markets... in London.
BOTH of those things could dramatically accelerate the timing in the opportunity. They also each might provide the spark that burns the larger markets to the ground, again... or... the reality of the dollar as a dominant reserve currency and the timing issues... could have the collapse of the metal market manipulations be PAIRED WITH a (relatively) stronger dollar.
That might mean the event horizon is closer than many expect... and it might mean that dollar denominated returns might be much higher than otherwise would be the case... given the current weakness isn't close yet to being universal.
Soros' former trading partner busy buying the mine next door ? Hmmm. The scope of the resources in the Silver Valley are not a question...
I'd still rather focus on plays that have, and thus can leverage, near term profits into larger future value ? Haven't even considered, yet, what they'll DO with the money they make ?
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