RED HOT COAL
ADD WTN.V @6.15
This probably is another one of those "late to the party" stocks, and I have to pay about $3 more for the rid. Last time this happened, I was doing alright and I hope this time it will do as well. Let’s look at the CONS side first, it is definitely still a speculative stocks as it does not have any production, revenues and cash flow. This, practically pre-determines that I can only have a very small position. I believe valuation is also fairly high. Based on my back-of-envelop calculation, the book value probably in the area of $4.15-$5.5 range (12% discount, US$55-75/tone coal price, 1.5 million tone production starting 2007). However, this book value is based upon the current count of outstanding shares (43 million), the company has a lot of options and warrants out there and I believe it probably will require additional financing in order to bring the production on line. On a fully-diluted basis, its book value probably in the range of $3-$4 range. Therefore, the stock is trading at approximately 1.5-2.0 times of its book value. Finally, the stock is a bit of too hot for me at this point and simply too many people are chasing it.
On the PROS side, (1) coal price remains very firm and the trend is likely to continue; (2) the company has significant reserve under the ground (60 million tones of my preliminary estimate, at least 20-years reserve life); (3) productions will be largely open-pit, and cash production costs will likely be reasonable; (4) late stages of obtaining necessary approvals; (5) Dillion will be on-line late this year and early next year, which will bring some cash flow to fund its operations; (6) debt or project financing is possible, reducing the dilution effect; (7) technically, strong uptrend with large volumes; (8) near term catalysts: approval for Perry Creek project; production and revenue from Dillion, debt or project financing.
This probably is another one of those "late to the party" stocks, and I have to pay about $3 more for the rid. Last time this happened, I was doing alright and I hope this time it will do as well. Let’s look at the CONS side first, it is definitely still a speculative stocks as it does not have any production, revenues and cash flow. This, practically pre-determines that I can only have a very small position. I believe valuation is also fairly high. Based on my back-of-envelop calculation, the book value probably in the area of $4.15-$5.5 range (12% discount, US$55-75/tone coal price, 1.5 million tone production starting 2007). However, this book value is based upon the current count of outstanding shares (43 million), the company has a lot of options and warrants out there and I believe it probably will require additional financing in order to bring the production on line. On a fully-diluted basis, its book value probably in the range of $3-$4 range. Therefore, the stock is trading at approximately 1.5-2.0 times of its book value. Finally, the stock is a bit of too hot for me at this point and simply too many people are chasing it.
On the PROS side, (1) coal price remains very firm and the trend is likely to continue; (2) the company has significant reserve under the ground (60 million tones of my preliminary estimate, at least 20-years reserve life); (3) productions will be largely open-pit, and cash production costs will likely be reasonable; (4) late stages of obtaining necessary approvals; (5) Dillion will be on-line late this year and early next year, which will bring some cash flow to fund its operations; (6) debt or project financing is possible, reducing the dilution effect; (7) technically, strong uptrend with large volumes; (8) near term catalysts: approval for Perry Creek project; production and revenue from Dillion, debt or project financing.
posted by ZIGZAG at 11/26/2004 01:01:00 PM
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