Action: Purchase Taseko Mines Ltd. (TKO.TO)
Purchase Price: under $3.00
Current Price: $2.71
52 Week: $4.29 High/ $2.47 Low
We continue to support Taseko Mines as we feel that it offers a great deal of value to investors at this time. The recent pull back in material stocks has created a buying opportunity for Taseko despite company developments advancing steadily. Taseko has a very favorable outlook going forward. The company reported an operating loss of $3.9 million for the quarter yesterday and earned $0.03 per share in the first half of 2012, down 50% from the $0.06 per share in earned last year. For full year 2012, it expects to earn $0.10 a share, up marginally from the $0.09 a share last year. In 2013 however, Taseko’s earnings are poised to jump to $0.41 per share thanks to increased production expected at its Gibraltar mine in BC. The company hopes to double its copper production to 180 million pounds and to triple its molybdenum output to three million pounds.
Despite disallowing the project to advance last year, the Federal Government invited Taseko to submit a revised proposal for the development of the New Prosperity Project. In the revised plan, the company includes an additional $300 million to limit the mine’s environmental impact, notably the preservation of Fish Lake. Highlights of the impact of the project (over the 20 year mine life) being approved would be as follows:
- An increase in employment of 71,000 jobs
- Federal government revenues rise by $4.3 billion
- Provincial BC government revenues rise by $5.52 billion
- Consumer spending increase of $9 billion
- Production revenues in excess of $11 billion
- An increase in Real GDP of $11 billion
- $786 million in housing construction
- Investment in machinery and equipment to increase by $1.38 billion
- BC population increase of 5,400
- Would be the 7th largest Copper-Gold Project in the world
Obviously these economic impacts are substantial and will have to be strongly considered in a province where economic growth has slowed considerably. We are continuing to see more and more evidence suggesting that the eventual approval of this project is imminent. As referenced below, the market has not priced the prospect of New Prosperity approval into the stock, so an opportunity exists should this project receive the green light.
Taseko Mines Ltd is a mining company focused on operating and developing copper/gold projects. Its key assets are the Gibraltar copper-molybdenum mine located north of Williams Lake, the advanced stage Prosperity gold-copper project in the Clinton Mining Division southwest of Williams Lake, the Harmony gold and Aley niobium projects (all located in British Columbia). The company is steadily working to increase its production profile and is a low cost producer. The illustration outlines the project locations below.
Recently, Taseko announced a third phase of modernization at Canada’s second-largest open-pit copper mine, the Gibraltar Mine(Gibraltar is currently the company’s only income producing project). TKO plans to grow yearly copper production by 60 million pounds, or 90% from current levels. As a result, cash costs are expected to decline to $1.61/lb from $1.94 in 2011, driven by higher production rates. However, despite this positive news (higher revenues, lower costs), the share price did not react to this announcement of greatly increased production.
TKO submitted a revised proposal to the Canadian Federal Government at the end of February 2011. The new project design now fully preserves Fish Lake, which was the point of contention in the original proposal that received Provincial approval but did not receive Federal authorization to proceed. New Prosperity is currently the 7th largest undeveloped copper-gold porphyry deposit in the world and gaining government approval for it would surely result in a significant increase in share value. The mine would be expected to produce $400 million in revenues annually and create a steady stream of jobs (700 employees for two years for construction and then 500 employees for 20 years during the operation of the mine). However, the current stock price for Taseko seems to be only a reflection of the production performance of Gibraltar and provides little to no premium for the potential of securing Federal approval for New Prosperity.
Additional reasons to consider investment in Taseko
- Financial Strength: $200 million in cash on hand (more than $2 share)/ Significant cash flow at current metal prices/ Debt free
- Growth: Diversified project pipeline of 100% owned gold, copper & niobium projects/ 90% copper production increase by 2014
- Stability: Assets located in secure political jurisdiction/ experienced operations-focused management team
- Long-Life Assets: 8 million oz of gold reserves (16 million oz of gold resources)/ 6 billion lbs of copper reserves (11 billion lbs of copper resources)
- Provincial Outlook: Mining is critical to BC’s gross domestic product as it brings in over $8 billion annually despite declining construction of new mines and existing mines closing which seriously effects unemployment rates in the province
- Resource Value: Copper price remains above $3.00/lb and Gold over $1,600/oz and the company has hedged 90% of its copper price (with a low price of $4.00/lb through 2011 & $3.50/lb through 2012) which will limit the pricing risk
Since the Federal Government’s decision on Prosperity was learned in November 2010, we believe the stock has been unfairly punished. The consensus among industry analysts is a price target on the company of $4.66 which the company currently agrees with as evidenced by the aggressive stock buyback program they are currently undertaking. We agree that this is an excellent opportunity to purchase at a price level that may offer excellent value to investors.