Tuesday, August 7, 2007

SWC Q2 Earnings In Retrospect

SWC just released Q2 earings. On paper it was a loss of $2.5M, or 3 cents per share, contrary to my very optimistic prediction. Where did I get it wrong, and where did I get it right?

My biggest mistake is assuming they will sell all the recycled metal they have. There are 34K leftover recycled metals from previous two quarters, plus Q2 processed 93.1K, totalling 127.1K. I expected them to sell at least 110K. But they actually sold only 69K. When you don't sell the metal, you don't realize sales revenue and profit on the paper. But the value is still there in the metal, although it is not on the paper. It's an accounting gimmick to pay less tax and preserve more shareholder value. Compare the balance sheets, SWC gained $6M in book value from Q1 to Q2. That is the real story of actual gain, 6.5 cents per share.

In Q1, The net loss of $1.1 million for the first quarter of 2007 included, by business segment, $3.8 million of income from mining operations and $5.3 million of income from recycling activities, less corporate costs including $8.8 million of G&A expense and $1.4 million of unallocated net interest expense.

In Q2, The reported net loss of $2.5 million for the second quarter of 2007 included, by business segment, a loss of $1.4 million from mining operations and $7.8 million of income from recycling activities, less corporate costs including $7.4 million of G&A expense and $1.5 million of unallocated net interest expense.

So, with 69K recycled PGM metal sold, SWC realized a gross margin of $7.8M. Had they sell 100K recycled metal as I expected, linear extrapolation says the recycling gross margin would be $12.435M margin. I projected a way more optimistic $30.42M margin, using the metal prices $368, $1288, $6090 for the three metals. But the actual realized metal price for recycled metals are less, at $355, $1225, $5923. Because I over estimated the metal prices, I over-estimated the gross margin by $11.52M. If I used the correct metal price, the gross margin would be $18.9M, I also under-estimate the cost for the recycled metal, which accounts for another $6.5M difference.

On the mine production side, my projection says Q2 will be about the same as Q1. But the actual result i mining in Q1 provided $3.8M profit margin, and contributed $1.4M loss in Q2. So that's a difference of $5.2M on the worse side. What gives?

I assumed SWC will being mining the same grade of ores. So a reduction of production means less ores are milled, leading to the savings of $3.142M cost. But insread, the ores mined are lower in grade. So SWC actually milled 309K ton versus 305K ton. Milled 4 tons more ores while producing less metal. so the cost of extra tons is $0.55M. So that's a discrepancy of $3.7M. The remaining discrepancy is explained by slightly increased cost per ton of ores milled.

My projection of price of mine prodution metal is quite on spot. Palladium sold at $386, versus my number $384. Platinum sold at $949, slightly less than my projection of $963.

The produced mine grade is 0.46 ounced per ton, versus 0.49 in Q1. That's the main contributing factor in increased cost. It should be a one time thing, not a long term trend.

7 comments:

Tim said...

I sold at $9 after taking a loss-looking like I was smart for once after being a fool. Another 7% down what a dump!!

JJ2000426 said...

Tim:

Your move is smart only if you end up buying back the same shares cheaper. I doubt you will end up getting back those share, even if you see the price out there right now. Statistically an average person who sold near the low will never buy back cheaper.

Check out what happened to the 25M retail longs who sold out before SWC reaches the $8 bottom. I heard none who came back. Currently the retail investors own less than 3M shares of SWC. Clearly most of the 25M were gone for good.

Bruce said...

dude, you are a one trick pony .. it is a BIG BIG BIG world out there & you are stuck with some pathetic company that can't make a dime in a palladium/metals monster bull market. If there is any kind of blip in this bull market for palladium or metals, or a global recession for a couple years, your baby SWC will cease to exist. If they can't make it with the wind at their back, they will be goners if the wind changes direction. Open your eyes. You live with blinders on. But its your life & your blinders. Enjoy them.

Dinosaur Trader said...

JJ,

Nice run today. I hope you're banking the palladium coins.

-DT

Calex said...

There's your rocketship, JJ. Nice SWC move today. Hope you are still on board. Cheers, Calex

JJ2000426 said...

Calex:
Of course I am still on board. I have not sold a single share. I am on this for the long hawl. Everything I talk about on this blog, you think I was trying to fool you and pump up the stock and I can sell? I really believe the super bullish future of palladium and I am really in this for long term. I am NOT a day trader.
Dinosaur: Nice to see you commenting on my blog. If I ever bothered you I hope you now feel thankful that I brought your attention to SWC. Calex was brought here the same way. I wish you can bring Broker A on board if you can. I don't hate any one. We are all in this game to make money.

Tim said...

Time to buy ?? took another dump today. 10% here 10 % there What a crazy stock