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

[David Randolph]

I will buy TGB with a long term perspective around today's open, $10,000 of stock. The justification is on the first page of this thread on the Stocks on Fire Message Board.

[Lucas Scott]

With the addition of TGB, 6 of the 10 Long Term slots are accounted for. That is all fine and well at first glance, but when you consider the LT portfolio has been in existence for less than a month and that the target timeframe for holding a stock in the LT portfolio is 2+ years, the portfolio is filling up very fast. If the LT port is full by mid-March, I am curious what you will do when you find a gem of a stock after that?

[David Randolph]

With the addition of TGB, 6 of the 10 Long Term slots are accounted for. That is all fine and well at first glance, but when you consider the LT portfolio has been in existence for less than a month and that the target timeframe for holding a stock in the LT portfolio is 2+ years, the portfolio is filling up very fast. If the LT port is full by mid-March, I am curious what you will do when you find a gem of a stock after that?

Good question Lucas Scott 

Even on a long term portfolio, since capital is obviously limited, one should consider the opportunity cost of holding a stock. Probably in the future I will hold 10 different stocks on the Long Term on Fire Portfolio, which is the maximum allowed.

But, if I find a stock even more attractive than the ones I hold, I will sell the less attractive of them to release capital to buy the new one. What do you think of this strategy?

I bought TGB at $2 on Friday, the high of the day 

But this is only the most attractive stock I've ever seen on the market. If we annualize the 3nd quarter net income, we get an earnings multiple for the stock of 2.26. And earnings are growing rapidly, as copper prices increased 38% over the last 6 months.

Copper mines are an awesome opportunity at this point of time in the market. Gold stocks rose a lot because the base metal was rising on a long term basis, but nobody paid attention to copper, which rose even more ! This way, copper related stocks are extremely undervalued relative to its gold peers (or on absolute terms), and that doesn't make any sense, since copper is outperforming gold !

This is as close as it gets from a sure thing in the stock market. Just buy and hold TGB for a 10 or 20 fold long term rise.

[brandyjoco]

I'm thinking the earnings will be about 8 cents this qtr and 12 cents each qtr thereafter. If they sell 13.4 milion @ an average profit of .67 cents ($2 sale price - $1.33 cost = .67) then that would be $9 million (roughly 9 cents before taxes). Any thoughts on this?



Below is an excerpt from the Dec 05 earnings report:

The forecasted copper and molybdenum production for 2006 are 60.1 million pounds and 874,000 pounds, respectively. The forecast by quarter is as follows:

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                                  Q1       Q2     Q3       Q4  Total 2006
---------------------------------------------------------------------
Copper (millions lb)         13.4     15.2    15.7    15.8        60.1
---------------------------------------------------------------------
Molybdenum (thousands lb)     200     220     227     227         874
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Copper production costs,
net of molybdenum
credits(i), per lb of
copper                        US$1.03 US$0.81 US$0.81 US$0.80     US$0.83
---------------------------------------------------------------------
OPC transport & treatment
per lb of copper          US$0.30 US$0.34 US$0.34 US$0.34     US$0.34
---------------------------------------------------------------------
Total cash costs of
production per lb of
copper                      US$1.33 US$1.15 US$1.15 US$1.14     US$1.17
---------------------------------------------------------------------

[Michael]

Hi David,

Nice to see that an old industry has found its way into the long term portfolio. Even a very old industry 

Now when that is said I also have to say that I disagree in the pick for this portfolio.

Copper has had a great run based on a surge in demand mainly from Asia. This pick long term is however a matter of supply and demand and the problem here is on the supply side.

Copper is not a precious metal. I fact there is plenty of copper around and the imbalance in supply and demand will be resolved with time. I believe that many of the copper picks that 3SOF is looking into is mining companies that has reopened old mines that has become feasible to exploit with the increase in copper price (these mines were closed last time there were an imbalance in supply and demand!)

The excessive profitability these mines have now might/will evaporate over time.

Short term EZM and TGB might be great picks and I am indeed looking into both of them. I do however prefer Gold stocks long term.

Michael

[stocky]

Applaud Mic, I think we should not neglect aluminium here, and ERS is the one of the fastest [read riskiest] way to play it. Just watch the futures for few days and you will know what we are talking about.

[eggman11]

David You Wrote:

"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 closely at their financials the really only earned about 3.8M the rast came from a tax benefit. Check out their financials. Revenue and profit excluding the tax benefit was actually down in 4Q05 compared to 3Q05. Over 15M of their net income came from this tax benefit.

[eggman11]

David You Wrote:

"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 closely at their financials the really only earned about 3.8M the rast came from a tax benefit. Check out their financials. Revenue and profit excluding the tax benefit was actually down in 4Q05 compared to 3Q05. Over 15M of their net income came from this tax benefit.

[David Randolph]

If you closely at their financials the really only earned about 3.8M the rast came from a tax benefit. Check out their financials. Revenue and profit excluding the tax benefit was actually down in 4Q05 compared to 3Q05. Over 15M of their net income came from this tax benefit.

It looks like it was too good to be true ... I still need to check some things later, but I see a $17.5 million tax benefit in 2005  .

Anyway, TGB still looks very attractive to me, and copper prices are up 1% or so in London today, so probably TGB will trade higher for the short term and I'll have time to study some more.

Michael, I understand what you say concerning the copper market, but at least for now, copper is in an intense bull market. If this bull market will last 3, 5, 10 or 20 years is anybody's guess.

As I see it major gold companies rose a lot because the gold price rose 70% over the past 3 years. But, in the same period copper prices rose 200% and copper related stocks did not rise nearly as much as gold related companies.

I agree that gold is a precious metal, and copper isn't, but copper is up 200% and gold is up 70%, so the market says the imbalance between supply and demand favours copper even more than gold.

I will probably need to make a new case for being so bullish on TGB, but for now I'll continue holding it, both on a trading and investment perspective.

[AussieTrader]

Quarterly report is available to view at www.sedar.com, I can't copy the file so here are some figs  (Canadian $)

Revenue: $41.2M
Net Earns $6.7M
Earns per share $0.06
Inventory $2.99M
Cash and Cash Equivalents $20.4M

I am not commenting as to the numbers just reporting them.

[brandyjoco]

Are we sure these copper stocks will be okay?  Copper prices seem to be volitile. Are the technicals holding up okay?

[usedcasting]

Taseko Produces 13.4 Million Pounds of Copper and 223,000 Pounds of Molybdenum in First Quarter
Wednesday February 15, 1:19 pm ET

VANCOUVER, British Columbia--(BUSINESS WIRE)--Feb. 15, 2006--Taseko Mines Limited (TSX VENTURE:TKO - News; AMEX:TGB - News) announces its financial results for the quarter ending December 31, 2005, including production and sales for the Gibraltar Mine located near Williams Lake in south-central British Columbia.

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Overview & Highlights

Taseko had after tax earnings of $6.7 million, or $0.06 per share ($0.06 per share fully diluted) in the first quarter of its 2006 fiscal year. The Company had an operating profit of $8.1 million for the period.

The Gibraltar mine met its copper production forecast for the quarter and exceeded its molybdenum production forecast by 11%. In addition:

- Revenues of $36.2 million and $5.1 million were realized from sales of copper and molybdenum.

- The average prices realized for sales were US$1.88 per pound for copper and US$22.45 per pound for molybdenum.

- Copper production was 13.4 million pounds in concentrate.

- Copper sales were 16.4 million pounds in 28,912 wet metric tonnes ("WMT") of concentrate.

- Molybdenum production was 223,000 pounds in concentrate.

- Molybdenum sales were 196,000 pounds in 192 WMT of concentrate.

A reserve update completed during the quarter resulted in a 30% increase in proven and probable reserves at Gibraltar (see Taseko News Release dated December 12, 2005).

A $2 million exploration drilling program is planned for Gibraltar in 2006 in order to more fully define the material adjacent to existing pits with the objective of further increasing the mineral reserves and therefore mine life. Drilling is scheduled to begin in March.

An engineering study has been commissioned to determine the optimum alternative for expanding mill capacity by approximately 25%. The goal is to increase revenue and reduce operating costs by increasing metal production as a result of higher throughputs and metal recoveries. The study is to be completed in March.

Taseko will re-assess the economics of constructing a copper refinery at the site once the reserve and mill capacity studies are completed.

The Company re-initiated feasibility and permitting work on its 100% owned Prosperity Copper-Gold Project, with the objective to advance the project toward a production decision.

Subsequent to the end of the quarter Taseko was approved, subject to final normal course documentation, to move to the TSX Exchange (formerly the Toronto Stock Exchange) from the TSX Venture Exchange. It is expected that the Company will begin trading on the TSX Exchange during the week of February 20, 2006.

[David Randolph]

I have the following remarks to make to the latest results from TGB:

1) The number of shares outstanding is $6.7M/$0.06 = 111.66 million, so the market cap is $197.65M.

2) Net income for the fiscal 1st quarter, 2006, was $6.7M. If we annualize this we get $26.8M in net income, so the earnings multiple is 7.37.

3) Growth in earnings from the previous quarter, according to eggman11, was 76%.

4) Copper ended the day down 3.5% and that explains yesterday's 9% fall in TGB.

5) Overall this mining company seems cheap to me and I believe copper prices will continue on its long term ascending trend.

The bullish case isn't as strong as I initially thought but I'll continue holding TGB for the long term.

[usedcasting]

?

[David Randolph]

I wrote an update on this on the Long Term Board. I believe the long term bull market in copper will continue and TGB is undervalued relative to its growth rate.

Technically there's support at $1.70 and the medium and long term trends are still bullish.

I'll continue holding TGB, despite the recent sell off.