TGB - Sector: Basic Materials---Industry: Copper

[willey]

Hi, folks,

David, TGB is an excellent pick!  Gold ( and precious metals, in general ) has just entered what is called the investment phase of the bull market...Copper is getting so expensive that copper flashing on buildings roofs will soon be stolen for scrap value - I go way back & remember these days, long-long ago.

Anyway, tomorrow ( yes tomorrow, believe it or not ) should see the Dow slice upwards thru 11,000 & head towards 11,500.  This event will be extremely bullish for the Dow theorists & confirm the Dow transports legitimacy in their recent new highs ( all time new highs, by the bye )

good trading to all!

willey

Molybdenum characteristics...<<Molybdenum (Mo) is a refractory metallic element used principally as an alloying agent in steel, cast iron, and superalloys to enhance hardenability, strength, toughness, and wear and corrosion resistance.   To achieve desired metallurgical properties, molybdenum, primarily in the form of molybdic oxide or ferromolybdenum, is frequently used in combination with or added to chromium, columbium (niobium), manganese, nickel, tungsten, or other alloy metals.   The versatility of molybdenum in enhancing a variety of alloy properties has ensured it a significant role in contemporary industrial technology, which increasingly requires materials that are serviceable under high stress, expanded temperature ranges, and highly corrosive environments.   Moreover, molybdenum finds significant usage as a refractory metal in numerous chemical applications, including catalysts, lubricants, and pigments.   Few of molybdenum's uses have acceptable substitutions.>>

This material is often used in special grease for CV joints in vehicles

[Terliso]

I will take profit tomorrow, TGB looks toppy here, maybe... Smoothed ROC is telling me to take profit.. maybe i'm wrong but i'll take it anyway

[1reilly]

BI Research issued an updated earnings scenerio last night based on the fact that copper is now $2.25 apound for delivery this quarter and the 2 year out contract for Feb 07 has rallied to $2.02. Also Moly rallied $2.00 last week to $25. He has given that the first quarter will not be good and is only concerned with fiscal 06 year end numbers. His 06 scenerio if copper stays at current levels :
US .44cents before tax earnings       Canadian .52
US .31cents after tax earnings          Canadian .36
US .50cents cashflow per share         Canadian .57

Believes a 6 multiple is fair
States that more warrants expired on Jan 8th 06.
Cautions that there are warrants in excess of the 4 mil Dec warrants expiring in Sept 06.
States that stock is being listed on the senior Toronto Stock Exchange making it more attractive to Institutional accounts that avoid the lower exchanges
Recommends his subscribers take another 15% off the table at $2.00 (remember he's been in this stock since 2000) still holds 50%.
reminds that Prosperity business is years away, but might add to the multiple anyway.
Hope this helps

[David Randolph]

With this kind of information, soon I'll be paying you guys to get your analysis 

1reilly, that's great info you got there, on both your posts (applaud). What I find strange is, for someone holding the stock for so long, why sell with a small profit, now that the market is finally perceiving the value of TGB? (now that the company started producing real revenues and profits, of course, until then it was just another shut down mining company with promises).

BI Research issued an updated earnings scenerio last night based on the fact that copper is now $2.25 apound for delivery this quarter and the 2 year out contract for Feb 07 has rallied to $2.02. Also Moly rallied $2.00 last week to $25. He has given that the first quarter will not be good and is only concerned with fiscal 06 year end numbers. His 06 scenario if copper stays at current levels :
US .44cents before tax earnings Canadian .52
US .31cents after tax earnings Canadian .36
US .50cents cashflow per share Canadian .57

Believes a 6 multiple is fair
States that more warrants expired on Jan 8th 06.
Cautions that there are warrants in excess of the 4 mil Dec warrants expiring in Sept 06.
States that stock is being listed on the senior Toronto Stock Exchange making it more attractive to Institutional accounts that avoid the lower exchanges
Recommends his subscribers take another 15% off the table at $2.00 (remember he's been in this stock since 2000) still holds 50%.
reminds that Prosperity business is years away, but might add to the multiple anyway.
Hope this helps

Thanks for the numbers, great research. But, explain to me like I'm 6 years old (hahaha, saw that movie recently), howcome an earnings multiple of 6 is fair?? 

The industry has an average 68.4 earnings multiple 

TGB stock held quite well, despite the overbought condition and the gap up on the day I bought at $1.82. I believe there's only one way for TGB, which is up.

I'll continue holding TGB for the foreseeable future.

[1reilly]

David
Your first question, "After holding for so long why sell for a small profit" I can answer. He averaged down on this stock twice. Aug 2000 averaged down at 1.00 and then again at .30 in May 2002. This is unusual for him . In reality he is only trimming back to his one unit. Now the multiple question I can't speculate why he has chosen 6. I'll ask him and get back to you.
Mike

[Terliso]

I will take profit tomorrow, TGB looks toppy here, maybe... Smoothed ROC is telling me to take profit.. maybe i'm wrong but i'll take it anyway

I think i'm wrong.. TGB broke the resistance @ 1.85.. putting me @ #4 for the contest

Bearish Technicals:
-- Smoothed ROC is ready turn down
-- Directional Sytem is overheating

Maybe TGB wants to rock some more we will see....

[Holygrale]

I think i'm wrong.. TGB broke the resistance @ 1.85.. putting me @ #4 for the contest


Terlisa, I jumped out to on wednesday, but if you win the contest without having a "position" now that would would be tooooo funny.......

[David Randolph]

David
Your first question, "After holding for so long why sell for a small profit" I can answer. He averaged down on this stock twice. Aug 2000 averaged down at 1.00 and then again at .30 in May 2002. This is unusual for him . In reality he is only trimming back to his one unit. Now the multiple question I can't speculate why he has chosen 6. I'll ask him and get back to you.
Mike

Thanks 1reilly 

I'll continue holding TGB.

[slomo007]

Looking perfect this morning, just broke $2.00.   

[qma]

Great pick. I am out @ 2.00. switch to EZM

[Terliso]

more room to grow.. too bad i sold it early

[David Randolph]

It looks like the investment adviser 1reilly reads sold 15% of his position in TGB at $2, yesterday's closing price: «Recommends his subscribers take another 15% off the table at $2.00 (remember he's been in this stock since 2000) still holds 50%.»

That's ok. With the current copper price (by the way, copper made a new all time high today) he expects 31 cents of profit per share in 2006. With the current share price at $2, that is a 6.45 multiple, extremely low !

Its industry average earnings multiple is 64 (because strong growth is expected in mining stocks, due to very high commodity prices). If TGB were to get to the average sector earnings multiple it would be a 64/6.45 = 9.92*$2 = $19.84 stock 

Absolutely no reason to sell here, I'll continue holding TGB.

[David Randolph]

Unfortunately stocks don't go up in a straight line and TGB had a sharp corrective day yesterday. The stock touched its ascending trendline (TL1 on the chart below) and then recovered some ground.

TGB has just start production again, after many years of interruption. So, this play is not only on the copper, molybdenum or gold prices, it is also and pretty much an increasing production play.

What happened with commodity prices yesterday in the US and today in Australia and Europe doesn't matter all that much to my trade in TGB.

I'll continue holding the stock.

[David Randolph]

TGB touched TL1 again and rebounded nicely 

The company will present results on February 14: Taseko First Quarter Fiscal 2006 Earnings Release

There are no analyst's covering the stock, but if we consider what copper prices have done during the quarter  (copper futures chart below).

Considering the company made about $21.4M in profits in the 3rd quarter (calendar year), and average copper prices increased by about 12% during the 4th quarter (they are 24% higher now than in September 30th), I would say this company will earn about $24M in this quarter 

Annualize that and you get $96M a year, and about $230M in market cap 

My previous estimates were wrong, I made a calculus mistake, TGB is even more undervalued than I thought. No doubt I'll continue holding the stock.

I'll study it deeper during the weekend and perhaps consider it for the Long Term on Fire Portfolio.

[David Randolph]

Yesterday I said this:

My previous estimates were wrong, I made a calculus mistake, TGB is even more undervalued than I thought. No doubt I'll continue holding the stock.

Now let me explain what happened. On the initial analysis I wrote:

So, on a fully diluted basis, we have $24.4 million/$0.21 = 116.19 million shares outstanding. Given this, the current market cap is 116.19M*$1.76 = $204.49M (probably the company sold some more shares between September 30th and now. Say the number of outstanding shares is now 125 million, the market cap is $220M).

Still, the earnings multiple is something like $220M/$32.5M = 6.77, very cheap indeed.

I thought the company earned $24.4M for the nine months ending September 30th, but now I see that it was for the full 2005 fiscal year, that started on the 1st of October 2004 instead of the usual 1st of January 2005. Then I annualized the $24.4M to come up with $32.5M for the full year.

At first sight it looks like I was overestimating net income, but the fiscal 1st quarter was a losing quarter for the company ! So, for the last 4 quarters, TGB lost $4M in Q1, lost $1M in Q2, earned $8M in Q3 and earned $21.4M in Q4. Considering 12% growth in copper prices in the 4th quarter of 2005 (fiscal 1st quarter in 2006 for the company), TGB may report $23.97M in net income when it reports earnings next Tuesday.

If you annualize these $23.97M you get $95.87M for the full fiscal 2006, and this is without any growth ! Considering the market cap is about 125 million*$2.02 = $252.5M, the earnings multiple is 2.63 and TGB is probably the cheapest stock on the street.

If there is growth TGB can be a 20 or 30 bagger from current levels. I need to buy it for the Long Term on Fire Portfolio also.