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July 18, 2010 Dear Friend,
We reinstated
research coverage on Smurfit-Stone at Underweight with a
$15 price target versus its $21.34 closing price. Most
important, many stocks are very cheap with the DJIA near
10,000 down about 28% from 2007 highs. SSCC is the
Forest Products stock for which we expect a 2011 loss,
the "Big Six" diversified mines trade near eight times
our 2011 earnings estimates and many fine stocks are
cheap today. Further, SSCC only met 2 of 5
reorganization expectations of ours. It addressed debt
and shut 2 paper mills, but did not fully address
pension, retiree medical or its 104 converting plants.
We believe it is "half a bankruptcy" organization
because $25 OCC inputs in early 2009 and fuel credits
after April 2009 made SSCC too flush with cash to
justify or force further concessions even in bankruptcy.
We wrote a very long
report interpreting Slide #18 on aluminum auto market
growth in Dr. Klaus Kleinfeld's July 11th presentation
this past Monday. He predicted 11 mmt of potential
aluminum growth in auto body structures, 8 mmt in engine
blocks, wheels, transmissions, closures and heat
exchangers, a 10.5 mmt gain in the next decade and a 7 mmt
gain in the second next decade. We described some of
the fine earlier all-aluminum auto programs that failed,
and subsequent destruction of human capital over the
past decade due to mergers, layoffs, asset sales,
program terminations, etc. We estimate 1.7% annual
aluminum market growth solely due to autos with zero
from auto body structures, 5 lbs per car atop
the current 258 lbs
per car global average to add 158,800 metric tonnes
annually and 6 mm units of added auto sales annually to
add 702,400 tonnes of annual demand. We believe
impressive demand growth opportunities remain from
consistent incremental progress.
We reaffirm our $17
price target for Greystar Resources, and updated our
spread sheets for the July 15th announcements. Most
important, we cut our estimates of necessary borrowings
to $300 mm at 8% from $600 mm at 10% due to a likely
royalty financing, recent conversions of a larger amount
of warrants than we had expected and likely heap
leach operating cash flow to help fund the mill
construction. The capital structure looks a little
stronger than we first thought.
We also attached our
regular weekly report reviewing Spot Markets.
Nonferrous inventories continue to fall.
I will be in the
Yukon this coming week. Please call Joe, Mickey,
Skip or Alicia in our offices if you need anything.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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