I've copied this from the business section of "The Australian" printed earlier this month. Permission was granted form Tim Boreham the writer - Thanks Tim.
Regards P
In hindsight, Criterion was a tad rash last August when he declared this mettalurgical tester as immune from the commodity downturn, so long as the major miners kept producing. Back then the stock was trading at $4.50 a share and an acquirer was circling at $7. Then a $37 million asset sale fell through, followed by this week's 13% earnings downgrade. The Perth-based Ammtec looked a safe play because most of its work derives from existing mines rather than exploration work and proposed projects. Existing mines provide recurring work, as plan has to be re-jigged to cope with varying orebody conditions. While Ammtec cited deferred projects, notably a cancelled dust collection job worth $1.5m, the pared forecast mainly reflects fear of the unknown. More losses are sure to come: Ammtec chief Rod Smith reveals the group was slated to build a $3.5 - 4 million testing plant for Compass Resources's Browns Oxide base metals project. Compass yesterday called in the voluntary administrators. Happily, Ammtec assumed Compass would lose its bearings and the project was not factored into the revised forecast. After the downgrade, Ammtec expects to post full-year earnings of $8.7m and EPS of 34c, which put the stock on an earnings multiple of 6.5 times. We won't hold out for a repeat of last year's 25c-a-share dividend. Ammtec draws 22% of revenue from the iron ore sector, predominantly BHP's operations. "From all the conversations we have had with BHP they will continue to produce at the same rate," "But they sais the same thing about Ravensthorpe (the mothballed nickel mine)." Foster Stockbroking analyst Dominic Rose says there's a risk of even lower earnings - he's plugged in $7.3m - but remains an Ammtec believer. "We remain attracted to Ammtec's leading position in mettalurgical consulting, an important niche service". Ammtec has been saved from further damage by management's inherent conservatism, which meant it was slow to ramp up capacity in the good times. We now view the stock as a speculative buy. Smith is still trying to work out who was behind "irregular trading" that prompted an ASX query. He suspects two instos that recently pledged their loyalty. Meanwhile, Smith personally has forked out for 50,000 shares at $1.60 a pop.
AEC Price at posting:
$1.50 Sentiment: None Disclosure: Held
