Article on Lower production costs
The article indicates that LBE expects production costs to be 20% lower than those experienced in 2010. That news makes for some positive PR, which LBE certainly needs - but it is not unexpected. The 2010 production costs were incurred in a year that the mill was not operating at capacity, it was explained at the time that costs were higher for this reason.
2010 revenue, with a 20% reduction in production costs, would have resulted in some operating cash flow. The pertinent information that will come from 2012 operations, is the operating cash flow generated from capacity operations. This number can then be related to debt service requirements for the existing operation.
Looking between the lines, and looking for positives, there are a few comments that might be taken as an indication that LBE has potential.
- The acceptance of an immediate expenditure of nearly $10 million on the tailings pond indicates that management sees profit potential in the mill operation. The further large expenditure to extend the tailings pond life fifteen years is just in the preliminary stage - but is an indication that management expects the mill could be profitable for a further 15 years.
- The CEO states "
Once the operation was running at capacity and making a profit, Liberty would be on the lookout for acquisitions or joint venture opportunities" This comment has two implications that could indicate potential for LBE.
First, the attitude is "when", not "if" - in dealing with reaching capacity and profitability. In the past, bashers have chirped about the company never being profitable, and have come up with some bizarre theories on Jilin Jien secretly taking nickel from the Shaw Dome - with no concern over LBE being profitable. Past management felt there was worthwhile profit potential - and the new management is confirming that it sees profit potential, even with the added costs that have become necessary.
The second positive, is the goal to grow the company beyond the present Timmins camp. This may be a longer term objective, but this goal, and any future action to meet the goal is a positive to potential investors. At present, potential is tied to the existing mines, and their limited mine life. Developing additional revenue potential and extending the life of producing assets, supports higher share valuation. This is an element that is not easily achieved by most junior mining companies. It is a realizable goal for the company because of the support of a solid controlling shareholder.
The above comments relate to the potential success of the
company. From an investor's standpoint, the other question is how much will company success, translate into success for the minority shareholders. That was a concern the instant that it became necessary to save LBE with funds resulting in a controlling position by Jilin Jien. For many supporters, this concern increased when Gary Nash left the company. In my opinion, the lack of communication in the first year of new CEO's added to the concern. Recent news releases have been somewhat encouraging, but management will have to demonstrate that minority shareholders have a future in LBE, or the share value will be substantially discounted. There are foreign controlled public companies that have proved to be excellent investments for minority shareholders, and these companies have benefited through access to public capital markets. Is buying or holding shares at current levels going to be rewarded by being in on the ground floor of such a successful public company - or will it be parking money in a company with no potential, suffering a loss or unsatisfactory return? I don't pretend to know the answer to that one, time will tell.
As mentioned in the previous post, the recent spike did not involve significant dollars - it may have been a reaction by a few to the above article, or by some aware of the increased hiring at Timmins. What is does show is some volatility in the share price. Future news releases on drilling results, NI43-101 updates, actual production start-up,
could result in similar spikes, or higher, if the news is unexpectedly good. But, in my opinion, for any sustained share price growth it will have to be positive cash flow numbers in the quarterly reports, and that will not show up until next spring, at best.