### SWC Q2 Earning Estimate Updated

SWC did very well last Friday amid a bearish general market. The general opinion is it probably bottomed here. The attention now needs to be turned toward Monday August 6th's earnings release for Q2, 2007. I have previously estimated SWC's Q2 quarterly earning at around 26.5 cents per share. With updated information and more careful math, I attempt to give a better estimate here.

SWC's quarterly earnings fluctuate greatly, depends on the amount of recycled metal sold and the metal prices. SWC processes a variable amount of recycled metal during the quarter, but it is not always sold right away, some may be sold in the subsequent quarters. We know SWC does not hoard metal, so any processed recycled metal not sold within the quarter will be sold in the next quarter, adding to the revenue and gross profit.

Let's look at previous quarters to get some idea. In Q3,06, SWC processed 90K PGM metal, and sold 105K (49K Pt + 49K Pd + 7K Rh) for a revenue of $104.2M. Cost was $95.4M, averaging $0.9086M per K PGM metal. SWC sold more than it processed, part of the sell was from previous quarters.

In Q4, 06, SWC processed 104K ounces of PGM recycle metal, and sold 87K (40K Pt, 40K Pd and 7K Rh) for a revenue of $91.5M. Cost was $85.2M for the sold metal, averaging $0.9793M per K PGM metal. An extra 17K was left to be sold in future quarters.

In Q1, 07, SWC processed 87K ounces of PGM recycled metal, and sold only 70K (27K Pt + 37K Pd + 6K Rh) for a revenue of $70M. Cost was $66.2M for the sold metal, averaging $0.9457M per K PGM metal. The accumulated left over is now 34K ounces.

In Q2, 07, We already know the processed PGM metal is 93.1K (46.3K Pt + 39.2K Pd + 7.6K Rh). Plus the left over from previous quarters. The total is now 127.1K. How much will be left to next quarter? Let's assume 17K will be left over to next quater. That brings the estimated metal sale to 110K, 17K extra from the processed amount. Let's assume that the leftover from previous quarter is half palladium and half platinum, we will be talking about 54.8K Pt, 47.7K Pd, and 7.6K Rh, total**110.1K**sold.

If we average the cost of three previous quarters, the cost is $0.9445M per K PGM metal. about the same with last quarter. The total cost is $104.0M.

The recycled metals are not hedged and are sold at market price. I looked up the metal average price for Q2 from KITCO. They are: $368 for Pd, $1288 for Pt, and $6090 for Rh. So the total sales revenue will be

**$134.42M**. Subtracting cost $104.0M, recycling will contribute a gross margin of $30.42M. This is way much higher than the

**$3.8M**margin in Q1, 07. That's an improvement of $26.62M on the recycling portion of business.

Now let's look at the mining side. Mine production is 30.6K platinum and 102.5K palladium, total 133.1K PGM, down from Q1's 144K. In Q1,

**305000**tons of mines were milled, so proportionally, 23100 less tons of mines were milled. At cash cost of

**$136**per ton, that is a cost reduction of $3.142M on the up side.

Palladium production in Q2 is 102.5K versus 111K ounces in Q1, a reduction of 8.5K oz, using Q1 production price $377/oz, revenue reduced by $3.2M on the down side. But each ounce of production is expected to be sold for $384 based on the hedge price, a $7/ounce improvement. So that's an extra revenue of $0.72M on the up side. Combined, there is a down side of $2.48M.

Platinum production is 30.6K versus 33K in Q1, a reduction of 2.4K ounces, at Q1 price

**$915**per ounce, that's a revenue loss of $2.196M. Based on the hedge, 14% of the 30.6K,

**4.284K**, is obliged to be sold at $850 ceiling, and the forward sell oblidged SWC to sell

**28K**at $1000, so SWC had to purchase from open market

**1.682K**at $1288 to satisfy the contracts. When you average everything the sales price is $963, a $48/ounce improvement from Q1, for a total of $1.469M. Combined, there is a $0.727M down side.

So the total effect from mining production reduction, and metal price increase, contributed to a $0.065M down side of the gross margin.

**Assuming there is no change in the administrative cost**, then the recycling and mining combined, the profit margin is improved by $26.555M from Q1. If Q1 see a net loss of $1M, then we see a net profit of $25.555M in Q2, divided by number of shares 91.6M, the per share profit will be

**27.9 cents**for Q2. This will

**beat**the analysts concensus of

**3 cents**by

**9 folds**!

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