I do hold position with Mercator Minerals (symbol ML on TSX: ML.TO) and considering that it’s made an impressive jump up since the end of 2009, I am wondering how much room is left before a typical correction pull back.
Following is a calculation made by a member of the Stockhouse Bull Board, named MoneyK.
Based on these numbers, here is his interpretation of the share price.
Q3 brought us revenues of:
Copper – 18 392 000$
Moly – 7 407 000$
Estimating an average sale price during this period of 2.50$ for copper and 11$ for moly, this gives us a production of:
Copper – 7 356 800 pounds
Moly – 673 364 pounds
Estimating that the production will remain the same in the next 3 quarters, this would mean that our annual production is now:
Copper – 29 427 200 pounds (target 50M lbs/year)
Moly – 2 693 454 pounds (target 10M lbs/year)
Now, calculating the annual revenus based on Q3 metal pricing, we get:
Copper – 73 568 000$
Moly – 29 627 972$
Total – 103 195 972$
Now calculating the annual profit based on cost:
Copper – 29 427 200 * (2.50$ – 1$ ) = 44 140 800$
Moly – 2 693 452 * (11$ – 8.50$) = 6 733 630$
Total – 50 874 430$
50 874 430$ / 178M (shares) = 0.29$ per share
Pessimistic forecast PE x5 = 1.45$
Realistic forecast PE x10 = 2.90$
Optimistic forecast PE x15 = 4.35$
We were right on at 2.90$
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With current metal prices: (Copper 3.00$, Moly 12$)
Now calculating the annual profit based on cost:
Copper – 29 427 200 * (3.00$ – 1$ ) = 58 854 400$
Moly – 2 693 452 * (12$ – 8.50$) = 9 427 082$
Total – 68 281 482$
68 281 482$ / 178M (shares) = 0.38$ per share
Pessimistic forecast PE x5 = 1.90$
Realistic forecast PE x10 = 3.80$
Optimistic forecast PE x15 = 5.70$
We are now heading to 3.80$ IMOH
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Potential with actual production and copper at 3.50$ and moly at 25$
Now calculating the annual profit based on cost:
Copper – 29 427 200 * (3.50$ – 1$ ) = 73 568 000$
Moly – 2 693 452 * (25$ – 8.50$) = 44 481 958$
Total – 118 009 958$
118 009 958$ / 178M (shares) = 0.66$ per share
Pessimistic forecast PE x5 = 3.30$
Realistic forecast PE x10 = 6.60$
Optimistic forecast PE x15 = 9.90$
We could see this shortly if moly goes up to 25$ and copper stays at 3.50$
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Potential with full potential production and copper at 3.50$ and moly at 25$
Now calculating the annual profit based on cost:
Copper – 50 000 000 * (3.50$ – 1$ ) = 125 000 000$
Moly – 10 000 000 * (25$ – 8.50$) = 165 000 000$
Total – 290 000 000$
290 000 000$ / 178M (shares) = 1.63$ per share
Pessimistic forecast PE x5 = 8.15$
Realistic forecast PE x10 = 16.30$
Optimistic forecast PE x15 = 24.45$
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Potential with full potential production and my crazy imagination (copper at 4.00$ and moly at 40$)
Now calculating the annual profit based on cost:
Copper – 50 000 000 * (4.00$ – 1$ ) = 150 000 000$
Moly – 10 000 000 * (40$ – 8.50$) = 315 000 000$
Total – 465 000 000$
465 000 000$ / 178M (shares) = 2.61$ per share
Pessimistic forecast PE x5 = 13.05$
Realistic forecast PE x10 = 26.10$
Optimistic forecast PE x15 = 39.15$
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The last scenario is not likely to happen in the near future in my opinion, although some super optimistic persons may think that 2011 may bring such valuation.
But $3.80 I can see it happening.
The last SP was $3.23 but I am not sure it’s possible for the security to sustain the climb up without the necessary correction.
Some comparative charts to get a general idea about metals trend over the past two years follow.
