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Overview
LIM is a Canadian headquartered nickel miner with listings in Toronto, London, Botswana and Australia. Its major projects are in Australia, Botswana (a country with the same assessed political risk as Australia) and South Africa. Their reporting currency is USD.
Hedging/Borrowing
They have little nickel hedging 12% in 2007, 15% in 2008 (company announcement, 9th Jan 07). They were recently able to borrow 250m USD at LIBOR + 1% which is pretty cheap. The remaining 370m needed for the expansion project they are borrowing to fund will be financed from cashflow and internal resources (announced 9th Jan 07) showing the strong cash-generating nature of this company.
Production & Product Mix
In 2007 They are expecting to produce 44,300t Nickel (+30% on 2006) at a cash cost of $3.52/lb (2006: 34,100t at $3.25/lb). EPS for 2006 Qtr. 1-3 look like this: 6c, 28c, 68c, showing the impact of higher nickel prices and to a lesser extent, greater production through the year. Resources are 2.8Mt nickel. From 2010-11 they expect to produce 85Kt Nickel/year, comparable to the former WMC before its takeover by BHP (company presentation of 13th Dec 06). Currently they are the 10th largest nickel producer worldwide. Their product mix is 77% nickel, 12% gold, 6% copper, 5% platinum+palladium (2005 ann. rep.).
Production Expansion
A lot of this is supposed to come from LIM's proprietary nickel extraction technology "Activox". This uses a mild acid leach (compared to the high pressure and temperature acid leach of Murrin Murrin, Bulong etc) and fine grind to extract metals directly from sulphide ores, eliminating the need for a smelter. Therefore it's more environmentally friendly. Another benefit is that "dirty" ores that might be rejected by a conventional smelter due to impurities -as happened to Titan with their Armstrong debacle - can be processed easily. LIM have had a 1/200th scale refinery operating for 2 years in Botswana proving that:
1) In-specification metals can be produced (LME grade Ni & Cu)
2) The technology works, and works in a remote location.
However, this dependence on new technology for part of the production increase might put off prospective bidders for the company, until a full-scale plant has been built and seen to work. The 250m USD LIM recently borrowed is destined to build this full-scale plant in Botswana.
Investment Case
Currently they are trading on a forward 2007 P/E of 7.6. Assuming nickel prices and production remained the same as the Q3 number then EPS of 2.72USD for the year (0.68 USD * 4) becomes 3.18 CAD. At the current CAD share price of $13.00 this gives a P/E of 4. Really depends on your views on commodity prices, especially nickel and gold whether you put any faith in this number. There are not many WMC-sized nickel companies left in the world as takeover targets, so I'd imagine it would be on somebody's radar somewhere.
My UK broker who keeps track of analyst recommendations of this stocks has a 1.36 on it currently based on the research of 11 analysts (5 is the worst, 1 is the best). Please view the attached file for more information.
LIM is a Canadian headquartered nickel miner with listings in Toronto, London, Botswana and Australia. Its major projects are in Australia, Botswana (a country with the same assessed political risk as Australia) and South Africa. Their reporting currency is USD.
Hedging/Borrowing
They have little nickel hedging 12% in 2007, 15% in 2008 (company announcement, 9th Jan 07). They were recently able to borrow 250m USD at LIBOR + 1% which is pretty cheap. The remaining 370m needed for the expansion project they are borrowing to fund will be financed from cashflow and internal resources (announced 9th Jan 07) showing the strong cash-generating nature of this company.
Production & Product Mix
In 2007 They are expecting to produce 44,300t Nickel (+30% on 2006) at a cash cost of $3.52/lb (2006: 34,100t at $3.25/lb). EPS for 2006 Qtr. 1-3 look like this: 6c, 28c, 68c, showing the impact of higher nickel prices and to a lesser extent, greater production through the year. Resources are 2.8Mt nickel. From 2010-11 they expect to produce 85Kt Nickel/year, comparable to the former WMC before its takeover by BHP (company presentation of 13th Dec 06). Currently they are the 10th largest nickel producer worldwide. Their product mix is 77% nickel, 12% gold, 6% copper, 5% platinum+palladium (2005 ann. rep.).
Production Expansion
A lot of this is supposed to come from LIM's proprietary nickel extraction technology "Activox". This uses a mild acid leach (compared to the high pressure and temperature acid leach of Murrin Murrin, Bulong etc) and fine grind to extract metals directly from sulphide ores, eliminating the need for a smelter. Therefore it's more environmentally friendly. Another benefit is that "dirty" ores that might be rejected by a conventional smelter due to impurities -as happened to Titan with their Armstrong debacle - can be processed easily. LIM have had a 1/200th scale refinery operating for 2 years in Botswana proving that:
1) In-specification metals can be produced (LME grade Ni & Cu)
2) The technology works, and works in a remote location.
However, this dependence on new technology for part of the production increase might put off prospective bidders for the company, until a full-scale plant has been built and seen to work. The 250m USD LIM recently borrowed is destined to build this full-scale plant in Botswana.
Investment Case
Currently they are trading on a forward 2007 P/E of 7.6. Assuming nickel prices and production remained the same as the Q3 number then EPS of 2.72USD for the year (0.68 USD * 4) becomes 3.18 CAD. At the current CAD share price of $13.00 this gives a P/E of 4. Really depends on your views on commodity prices, especially nickel and gold whether you put any faith in this number. There are not many WMC-sized nickel companies left in the world as takeover targets, so I'd imagine it would be on somebody's radar somewhere.
My UK broker who keeps track of analyst recommendations of this stocks has a 1.36 on it currently based on the research of 11 analysts (5 is the worst, 1 is the best). Please view the attached file for more information.
