RE: RE: RE: RE: Definition of Illogical? Ganja,
I actually am quite familiar with Harris and I have read his thoughts on EGD. Actually know some of his former employees from the Hedge Fund quite well as I have met them at conferences over the years. We have also both been interviewed by Jordan Roy Byrne of the Daily Gold and Jordan commented to me that it was amazing how similar our macro/market thoughts are. But, I have to say that the estimates that Harris has thrown out for EGD for FY2012 of $1.00 always seemed to be on the aggressive side. I had been saying $.70-$1.00 for FY2012 prior to the Q4 results. I am now saying that I think $.50-$.60 per share is the right range. Completely agree that the Fraser guy is way low.
Fred bascially said on the CC that revenues should be $200-$215 million. My high end estimate is $221 million. In that model I have $152 million coming from minerals, $47 from energy, and $22 from Dando. I guess I could see how I may be a bit low on the energy side.
However, they said on the CC that they expect 2012 to average $200/meter. Got the impression that we we will likely see $205-$210/meter in Q1 and then it may come down to $190 or so in the seasonally strong Q2/Q3 before going back up to $210 or so in Q4. So even if I go with your estimate of 780k meters (which I think is pretty darn aggressive) at $200/meter that would be $156 million. So that would only put you $4 million higher than where I am on mineral revenues for the year. I tend to think we are going to be in the 700 meters for the year range.
I think the biggest factor in analyzing this company is figuring out what is the peak amount of revenue that they can get per rig on an annual basis. We hit a quarterly peak of $256k/meter in Q3 of last year. So if we just basically annualize that to account for seaonality I come up with $1 million per rig. Assuming that they have 150 mineral rigs at 2012 year end that would be ~$150 million. In fact, since 20 of those 25 rigs will only be operating partial amounts for the year they would have to get revenue per existing rig up to $1.1 million or so or an average of $275k per quarter. Seems pretty aggressive to me considering that their barn buster Q3 was $256k and fell down to $217k in Q4. Gross margins in Q4 for minerals were also only 31.4%, down from 36% in Q3. Even if we assume that pricing per meter goes up to $210k per meter and meters drilled grow by 15% to 155 million (I was told that they expect mineral meters drilled to be up 15-20% in Q1 vs. Q4) that gives me $32.5 million in revenues. for Q1 which I believe is very doable but will gross margins immediately jump back up to 36%? I'm thinking in the middle at maybe 34.5% or so. They have been very clear to me that Thanksgiving through the end of January is very slow as many take off for the holidays and many rigs are re-mobilized. Thus I would think Q1 gm's will be down vs. Q1 from Q3 but not to the extent that they were in Q4.
What has been very confusing to me is why Q4 was so weak (across all divisions) vs. Q3. Particularly minerals. I understand the seasonality and I'm even willing to forget about Dando and Bertram in Q4. But look at Q3/Q4 2010 and Q1 2011. Mineral meters drilled, revenue/meter, and mineral revenues grew sequentially each quarter. Then this year we had a big fall off from Q3 to Q4 by all measures (total mineral revs, meters drilled, and gross margins) aside from revenue/meter. Trying to be conservative I modeled Q4 at $28-$30 million and they came in below that.
Anyway, I am keeping an open mind and I like your thoughts. You present a very good case as to why my numbers could be low. Any comments you have on the thoughts I have just presented are welcome. I will go back through my numbers over the weekend and try to tweak some things around and see what I come up with. I just think that your expectations of 780 million meters drilled at a $220k average for the year seems just way too aggressive to me. The key IMO on getting to 780 million meters drilled is how fast they can expand their fleet (which was only at 130 at the end of Q1 as per my understanding) and just how much they can get in revenues/rig for the year. If they can get to $1.1 million or an average of $275k per quarter we can start to argue more towards your numbers. Just seems aggressive from the perspective that even in their strongest quarter last year they were at $256k and they are coming from $217k in Q4.
Appreciate your thoughts Ganja.