Friday, July 20, 2007

SWC Q2 Earning Estimated is 26.5 Cents Per Share!

Today both the SWC production numbers and metal prices for Q2 are known. One can crunch some numbers and get a pretty good estimate of SWC Q2 earnings.

Reduced mine production in Q2 versus Q1 hurts a bit, but the dramatic increase of metal recycling will absolutely move things up and lead to a very profitable quarter. Let's use the Q1 data as starting point and do the calculations.

In Q1, 305000 tons of mines were milled. Q2's metal production is 133.1K ounces versus Q1's 144K. 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, 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. However each ounce of platinum production is expected to sell for $950, a $35/ounce improvement, for a total of $1.071M. Combined, there is a $1.125M down side.

So far, reduction of production combined with improved metal price contributes a $0.463M on the down side.

Now the big good news is on recycling. In Q1, SWC recycled 27K platinum, 37K palladium and 6K rhodium, totalling 70K, for a total cost of $66.175M. This Q2, SWC recycled 46.3K platinum, 39.2K palladium and 7.6K rhodium, totalling 93.1K, proportionally, there is an extra cost of $21.84M on the down side.

Using the Q1 recycling metal price, $336 palladium, $1149 platinum and $5052 rhodium, the extra metals recycled mean an extra revenue of $0.7392M + $22.1757M + $8.0832M = $30.998M on the up side. Now you see recycling is BIG!

But the recycled metals are sold at improved market prices and not hedged. The market price for Q2 are $368 palladium, $1300 platinum and $6150 rhodium. So the extra revenue due to price improvements are: $1.2544M + $6.9913M + $8.3448M = $16.5905M.

So far everything tallied up, the net upside is $25.2855M. In Q1 SWC lost $1M. In Q2, the net change is $25.2855M up side improvement, so gross profit will be $24.2855M, or roughly $24M, at 91.585M shares, that is 26.5 cents per share gross profit. Since SWC enjoy loss carry over from previous years, no tax needs to be paid. So that gives us 26.5 cents per share net profit for Q2.

Of course this has NOT take into consideration that SWC might pay a bit higher per kilogram of recycling scrap metal, or that the metal may sell at slightly less than market price. But however you put it, I expect to see at least 20 cents per share net profit!

I think we are going to see SWC EXPLODE to the up side once the earnings is announced in early August, and it beats the street consensus of 3 cents by a huge margin!


JJ2000426 said...

ScienceBlog July 1th, 2007:
Molecule of the Day
Palladium On Carbon

Pretty neat.

JJ2000426 said...

Palladium supply and demand. Who do you want to believe in?


Great review on a interesting stock.