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Palladon: Update on construction

January 12, 2012 Leave a comment Go to comments

Another update from CML Metals (Palladon owns 18% of CML). The start of the concentrate facility is on plan. The expected date was Feb 1st, but it looks like we might be a few days early on it.

Management has hedged more of its production at very good prices. I think the cost of production should be around $70. So the hedges at $141 are good margins. Plus, the quality of the concentrate will be better, so the actual price received will be higher than the hedged price.

The company has plenty of cash on hand to finish production. Infact they should be left w/ $22M of cash after all is done.

At current prices Palladon is stupid cheap. A market cap of $45M. CML should do 2M tons of production in 2012. If you assume $60-70/per ton margins, you get $120-140M of gross profit. Cash flow should be around $100M. Palladon owns 18% of CML, so their stake is 18M. With a market cap of 45M, it is a minuscule 2.5x of cash.

Also, CML is still working on the production ramp up to 4M in 2013. In 2013, it is very likely the production will be materially higher than 2M. If you assume 3M tons in 2013, you get around 1.5x multiple based on Palladon’s current valuation. If you assume 4M tons in 2013, you get around 1.2x multiple. There is lots of uncertaintly w/ 2013 production and the price of commodities. So take it with grain of salt.

Also, the company’s compliant resources haven’t been updated in a long time. I expect to start seeing some updates in late-2012. The assets the company owns are very good. Again, lets wait and see, but I expect pleasant surprises.

Overall, the company is executing on plan. I give a hats off to John Cutler and the team at Palladon Ventures. They have done a fabulous job of turning around this fraud and mis-managed company.

Based on today’s volume, liquidity is getting better. Although it is hard for any big hedge fund to buy shares with only 20-30K of daily volume.

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