A bit of a line I stole from hotcopper, wheres the best value!
Contrasting opinions on Independence
Michael Quinn
Monday, 21 August 2006
IT IS a case of onwards and upwards for nickel producer Independence Group, though analysts are at odds over the valuing of the boom stock.
Independence closed up 4.5% at $3.26, maintaining a run that has seen it move up from under $2 in March to a peak of $3.59 in May.
According to an August 15 analyst report by Keith Goode, the stock remains an "accumulate (Hold, buy on weakness)", with a "7.5% NPV of $A3.12 at nickel prices of $US22,000 per tonne ($9.98 per pound)".
Indeed at a recent nickel price of around $29,000/t, the stock is worth almost $A4.50/share, according to Goode.
However, for Argonaut Securities, there is "better value elsewhere".
A report it put out around the same time as Goode's, claimed Independence was expensive compared to Kambalda peers Mincor Resource and Sally Malay Mining on five different valuation metrics – price to revenue, price to earnings, price to cash flow, enterprise value to reserves, and enterprise value to resources.
"Although Independence has lower cash costs than its Kambalda nickel competitors, the stock is relatively expensive on every valuation criteria," Argonaut analyst Troy Irvin said.
At a then share price of $2.90, Argonaut calculated that the market was paying a 36% premium to its net present value-based estimate – calculated using 10% discount and a nickel price falling from $US8.25/lb in fiscal 2007 to $5.50/lb in fiscal 2010. (Long term, Argonaut uses a $5/lb nickel price).
"Although Long mine is impressive, unjustifiable allowances for exploration upside have been placed in the share price," Irwin concluded.