Marakand Minerals Share Discussion Threads

[tee man] 16/3/2006 13:57

GS I know you don't give advice usually, are you convinced enough to buy more MKD? Surely it worth selling Oxus and buying MKD for a quick 10%. The thing that worries me about that is I did it with EUG and got a bloody nose! In a nut shell how convinced are you that we are going to be offered 1 for 3.

[giant steps] 16/3/2006 13:33

Screen prices bid 18.5p offer 20p, volume @ 13:30 7K / 1 trade

As richgit would say, you'd have to be a numpty to sell at 18.5p
Worst case is give-in to 1 for 3 deal worth 22.5p, in equivalent
money.

Assuming there are some numpties that surrender their stock, the
'squeeze' potential will become even greater.

Not long before there will be fireworks.

[giant steps] 16/3/2006 10:44

Griffin reverses into Marakand to become Oxus Zinc, LOL !

(might explain why GFM are loading themselves with options today)

[novicedave] 16/3/2006 10:31

GS/ Cezary - why don't you suggest it to one of their managements, any combination would be good for me ;-)

[cezary] 16/3/2006 10:28

Hmmm...gs.....there's food for thought with that combination!!!

[giant steps] 16/3/2006 10:27

GFM & MKD ?

[ad1967mc] 16/3/2006 10:13

It would make more sense to add further base metals assets rather than gold. That's because to develop Khandiza you'll need people with the right sort of skills. In the current competitive job marketplace such people are in very short supply. Buying an existing producer would fill the skills gap and provide better synergy.

[cezary] 16/3/2006 10:01

EUG AND MKD???

[phillis] 16/3/2006 08:34

To balance the loss of Jerooy

[mattybuoy] 15/3/2006 21:22

New article at Minesite:



Mostly about Oxus but does mention Marakand at the end.

"The plan there is to acquire a new asset and pair it up with Marakand's Khandiza."

Looks like my sell-off idea is wrong, which is good! :)

[mattybuoy] 15/3/2006 17:22

Xstrata's MacArthur River zinc mine may have to close down if conversion to open pit is not allowed by the authorities. This large mine currently produces 2% of world zinc supply.

[nobull] 15/3/2006 11:34

Thanks for that ad1967mc. Very helpful and interesting. Very pleased too to have your view on Khandiza. Thanks again.

[ad1967mc] 15/3/2006 10:52

All mining project valuation methods have there problems. DCF is no different. For example, placing emphasis on early year cashflow, often ignores longer-term liabilities such as site reclamation. On the otherhand projects with very large reserves compared to production, tend to be undervalued. On top of that choosing the correct discount rate is fraught with difficulty and can vary from project to project depending on risks and source of capital.

It also struggles to deal neatly with inflation, forcing you to choose between constant (flat price) or current (inflated price) terms. In a constant model a discount rate of say 5% might be appropriate, but could be completely wrong if applied to a current model. This is a big issue at the moment as the mining industry is going through a period of very strong cost inflation, coupled with strong commodity prices and volatile exchange rates.

Personally I find DCF/NPV calculations a useful guide, but I prefer to judge a project by comparing it to its peers. I look at capex requirement, cash costs, total costs and mine life. In this respect Khandiza compares well.

[nobull] 15/3/2006 09:59

"So the discount rate is basically whatever rate you think is appropriate to the investment in question." Yes, but it is the person you are selling your shares to as to whether they think it is a reasonable return to get for the risk taken as to whether they pay you the full PV for your shares. (It goes without saying they would have to think the metal prices (or in the case of MKD, the concentrate prices?) used have a strong likelihood of being realised. I am a novice in all this, but there must be theoretical constraints on the discount rate: e.g. the Capital Asset Pricing model (or may be Modern Portfolio theory?) suggests that certain risks that can be diversified away (risks that you don't need to take?) should not be rewarded. Now of course I see the discount rate should be above the risk free rate.

The cost of equity capital should perhaps be higher to businesses that have more volatile earnings (mining companies perhaps have more volatile earnings than other businesses over the length of their business/commodity cycle?), but then you are not supposed to have a portfolio consisting of only mining stocks (CAPM says that is "risk ineffieint"?). Msy be all that matters is you understand the effect of different discount rates, you can do the calculations yourself, and are sceptical of brokers that use low rates?

Some investors who are choosing between one mining stock and another perhaps will want to use the cost of equity capital to mining companies as their discount rate to see which stock gives them the biggest NPV? Perhaps it is a case of different rates are appropriate to different purposes?

[zaphod99] 14/3/2006 19:44

Mattybuoy - if they do go bust I hope your computer's an Apple rather than an IBM mainframe!

[mattybuoy] 14/3/2006 19:25

You found something in Foyles? Wow! ;) I love that shop, haven't been there for ages though ...

Anyway, I see. So the discount rate is basically whatever rate you think is appropriate to the investment in question. I suppose they use 10% then because the ventures are considered high-risk. It may also approximate to the interest rate on project finance?

What this discussion does show is that you can basically make up any value you like for a mine, dependent on the assumptions used. Metals prices being the other significant value.
--

As I said, all this second-guessing about Marakand is not really much use. I am perhaps trying to apply logic to it (comes from being an IT person) rather than "stock market convention". We will just have to wait and see what happens :) I'll eat my computer if they go bust though.

[nobull] 14/3/2006 18:40

Mttybuoy, you are correct in that there is no conflict of interest in the sense that in putting the two parts of Marakand together does not make the part Mr Trew controls (the 80% stake) more valuabble than it was before. (The sum of the parts does not increase the value of the whole in this case?). However, Mr Trew is offering (or will be, I assume) Oxus "currency" in return for our MKD shares. As such, there must be issues about whether the OXS currency is correctly valued in the market, and we MKD shareholders need to hear independent advice (we are in nanny England?) about whether we should accept it? Of course some MKD shareholders may have paid anything up to 60+p for their shares, and they will want to see the MKD directors lead by example before taking up the offer of OXS shares, particularly if they only value the MKD shares at the equivalent of 23p each. None of the other MKD directors are on the board of OXS, so they don't need to resign?

The only other conceivable reason to resign is to avoid being associated with a company that is about to go bust? The MKD Admission to Listing documeent gives all our directors a clean bill of health (none associated with companies that have gone bust within 12 months of resignation, etc.) I prefer to think Mr Trew has resigneed for conflict of interest reasons, but I am open to persuasion on this :-) (Just joking)

Mattybuoy, I checked out the stuff on DCF models in P. Jones book in Foyles. (Investment Analysis and Management). P. 250 it says the terms "discount rate, required rate of return and capitalization rate are interchangeable terms." So I think you just put in the minimum required rate of return into your model, which could be, as you suggested, some industry wide cost of capital, not specific to any geographical region. The sum obtained in this way by discounting the cash flows is the shareholder wealth (present value) created. If you then deduct the amount invested from this, then the remainder is the NPV or the profit you ought to make if everyone else is rationsl and agrees your required rate of return will become a reality, and that it is a fair return for the risk taken? and have the money to pay you that amount?

The 10% you qouted in a lot of broker research if they are talking about NPV's (after you've got your initial investment back?) seems a bit high (too conservative), but not high enough if you haven't already allowed for getting your initial investment back i.e your are talking about PV's rather than NPV's.

[giant steps] 14/3/2006 16:06

Screen prices bid 18.5p offer 20p, volume @ 16:00 73K / 6 trades

Poised for upturn ?

[zaphod99] 14/3/2006 14:51

mattybuoy - you may well be right about the SE rules but this is not a formal takeover situation so perhaps the rules of corporate governance apply rather than Stock Exchange rules.

BT is still the CEO of the majority shareholder and will therefore still have a significant controlling interest, especially since this is not a hostile situation. In any case, his role in MKD was only Non-Executive Chairman so it wasn't very significant. I suspect he's still pulling the strings at MKD.

[mattybuoy] 14/3/2006 14:14

It's not about the percentage owned. There are AFAIK no stock exchange rules that kick in when ownership of a subsidiary company goes up from 57% to 81%. Also note that none of the RNS releases mention "conflict of interest" or indeed anything similar.

The point is, Oxus/MAED management are removing themselves from the company. As far as is possible anyway, you can't really do without a CEO. I just can't see why anyone would do that unless the intention was to sell the thing on.

Also, from the RNS: "A review of Marakand's operations and interests and a further announcement will be made in due course.". Do you really think that Oxus aren't already fully aware of what is going on with the "operations and interests"?

[zaphod99] 14/3/2006 13:35

Don't you think it's better for them to own 100% rather than just 57%?

PS I regard it as an open discussion rather than an argument.

[mattybuoy] 14/3/2006 13:30

zaphod I see no point in arguing about it. I will just repeat that OXS already owned (= controlled) MKD before so there is no need to "take it over".

Let's just see what happens ... :)

[zaphod99] 14/3/2006 13:07

Mattybuoy - they are 2 separate companies in every sense. Oxus's majority stake doesn't change that. If OXS are planning to take over MKD then a conflict of interest has arisen because BT is on the board of both companies.

However, Giant Steps understands that there are no takeover or de-listing plans at the moment and he is usually on the ball, so I accept that my theory may be wide of the mark.

[mattybuoy] 14/3/2006 11:50

I think it would it help if we stopped propagating the delusion that these two companies were ever separate in anything other than a nominal sense.

To my mind the only reason the OXS boys would remove themselves from MKD is because they won't be owning it for much longer. If it were just a simple case of "it's under-valued so we'll buy it back in" then why remove yourselves from the picture?

BTW I am not disagreeing about forthcoming tender offer to minorities. Just the overall purpose.