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July 14, 2010 Dear Friend,
We valued
Weyerhaeuser at $42 using a "sum of the parts"
analysis. We valued its homebuilder operations at $1.2
billion comparing them to Pulte, Lennar and Hovnanian.
We valued the Wood Manufacturing at $1.6 billion an d
compared it to Louisiana-Pacific, and note that WY's
wood mfg. assets have fallen to $1.7 billion from peaks
of $3.6 billion. We continue to value Pacific Northwest
lands at $2,500 and southern lands at $1,500 per acre.
Our analysis of
Century Aluminum centered on its $1.9 billion 360,000
tonne Helguvik smelter project. Century Aluminum
considers how quickly to build it, whether to take
perhaps a 25% partner to bear up to $0.5 billion of the
capital outlay, and how to finance it. We assumed
Century keeps 100%, does two $100 mm equity offerings in
2011 and 2014, borrows $950 mm and funds the balance
from operating cash flow and cash balances. We believe
Century's best option is to simply wait for better
aluminum markets, equity markets, bank lending in Europe
or until a partner pays a juicy sum simply to buy into
its equity and enthusiastically bear its share of the
capital.
Alcoa's improved
outlook applies less to Century Aluminum than first
impressions as Century has no alumina, flat-rolled or
engineered products where Alcoa approaches record
performance metrics. We are encouraged that 2010 enjoys
an estimated 49.2 mmt global apparent consumption up
from the 2007 46.8 mmt record, but we believe Century
will trade more on the financing developments at
Helguvik than near-term aluminum smelter earnings. We
compare Alcoa, Century or any nonferrous metals company
to the "Big Six" diversified mines trading near 8 times
estimated 2012 earnings, which is a demanding peer group
benefiting from July 1st iron ore and met coal price
hikes and various new initiatives.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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