TAM ist still very cheap shows my analysisfor newcomers especially :
Tamerlane Ventures
Disclaimer : I take no responsibility whatsoever for any errors, bad conclusions, important facts missing etc that might affect my analyses and their readers in any respect, but I always try to keep the facts accurate, as well as the calculations with their usually simple mathematics. Sometimes even the companies analysed deliver false information which could be impossible to detect for me and many other interested parties. In general I trust the corporate information and use it for my analyses. The future can´t be predicted 100 % and the stock market in particular is associated with considerable risks on the company level, but also on branch-, country- and world market level, implying that each person has to take their own full responsibility of the consequences of buying this particular stock.
Do your own due diligence !
2007 price target CAD 3.16
Pine Point project presentation
This is a calculation of the long term price outlook for Tamerlane ventures, TAM stock assuming long term zinc and lead prices as of Feb 2 2007, USD 1.40/lb and USD 0.76/lb respectively around which time the prices hit bottom for 2007 thus far. For the Peru copper project a cautious USD 2/lb price is assumed far below the current copper market price. The copper project will generate revenues much later and therefore a metal price assumption now has more uncertainties built in.
The Tamerlane CEO is very experiencied and in fact worked as a geologist at Pine Point in Canada when the mine was producing a few decades back. The chairman of the board, with no or little executive responsiblity in Tamerlane, was involved in a mining company in the 1990-s when there was a tragic incident, which may affect her reputation negatively now, maybe not justified though since she was declared having no responsibility, at least according to my Internet googling of the incident. Others had responsibility though including certain authorities. She is though said to be very capable of raising funds for projects like this one. The chairman of the board and the CEO have a 3 % NSR, net smelter revenue deal implying a cost for Tamerlane of around 2.5-2.6 % of total revenues. Therefore they have a strong incitament for the project to succeed.
Tamerlane will use freezing technology in their pilot project to control ground water. There are examples of freezing rings functioning well, but Cameco´s Cigar Lake project had problems with freezing technology, but still they will use it as one of the messures among others to restore their troubled uranium mine.
With an estimated historic resource base of about 70 millions of tons from all 34 deposits, near the Pine Point area with its historic mine , containing an around 1.6% lead and 4.2% zinc, the total sales value at metal market price would be around USD 10.9 billion, with zinc accounting for most of that value. The long term price outlook for zinc and lead seems good, as long as the China and India economies continue to grow at a very high level.
If you just would like a hint of the long term stock potential of TAM, let us take a look at this example of just the Pine Point zinc&lead project. Assume that the Tamerlane profit margin after all costs including tax will average 10-20 % . That would leave TAM potential future nominal profits after tax of around USD 1.09-2.18 billion. The total production time is assumed to be around 30 years. Now if we just calculate with the first 10 years of production starting with 2009, total net earnings would be around USD 363-726 million. The 2007 discounted value at 10 % interest rate, is around USD 186-373 million, if you approximate with all the 10 years of earnings achieved 7 years from now on a weighted average base (i e around the middle of 10 years after a 2009 beginning). At this moment there are only around 41 million diluted shares, but let us calculate with a heavy stock dilution for the total financing including for the copper project, to 80 million TAM shares, we would get an earnings based approximate discounted net per share value of around CAD 2.63-5.26 in 2007 (with USD=1.13 CAD). So the stock potential has to be very high probably close to that interval if adding the value of the copper project, even if the calculation assumes unchanged metal prices but on the other hand assumes a big stock dilution and only considers the roughly calculated discounted value of first 10 years of earnings.
Now if you examine the case within the more foreseeable future a little more close, the R – 190 pilot project is supposed to produce 0.110 million tons of zink and 0.0555 million tons of lead in around 1.5 years. The company then would have total revenues of about USD 432 million, corresponding to approximately CAD 325 million average per year, assuming metal market prices of Feb 2007. The total costs are very roughly assumed to be CAD 250 million per year, indicating profits before tax of around CAD 75 million and earnings per share of around CAD 0.61 after assumed 35 % tax and a heavy stock dilution up to 80 million shares. With a p/e ratio of 7 the long term potential would be CAD 4.27 On the other hand TAM should be able to debt finance at least a great part of the capital needed for their projects, thus probably resulting in less stock dilution and a higher discounted value per share.
Tamerlane has optioned Los Pinos Copper Deposit in Peru. Total payment will be around USD 1 million. It has a historical resource of around 63 million tons with an average grade of 0.36% total copper at a cut-off grade of 0.22% copper. TAM plans to carry out a USD 1.0 million in-fill drilling program on the Los Pinos property on receipt of a drilling permit, which will be applied for during the second quarter of 2007. The results will provide input for an NI 43-101 compliant technical report and the basis for an updated feasibility study. The possible profit from this project could be roughly but cautiously estimated from the historic feasibility showed plans for producing 25 million pound of copper per year corresponding to revenues of USD 50 million assuming just a USD 2 copper price compared to today´s levels around USD 3. Furthermore the copper resource is expandable. Assuming costs of USD 1.5/lb the earnings after tax would be USD 8.1 million corresponding to 0.115 CAD/share. I assume all capital costs are included with the stock dilution up to 80 million shares. A p/e 7 then would add CAD 0.80 to the long term stock price potential. I assume this profit is generated in 2011, and the value of it discounted to CAD 0.66 2009, with a 10 % rate of interest.
In summary you get a 2009 long term TAM potential of around CAD 4.93.
If you use 2009 as the valuation base when the Pine Point pilot project has commenced, and discount the stock price potential with a high 25 %, riskadjusted interest rate, you would get a 2007 price target of CAD 3.16. The 25 % interest rate corresponds to a total 23 % risk discount compared to a calculation with a 10 % interest rate. It could be interpretated as that the expected value of the 2009 potential production is 23 % lower in a probabalistic point of view. Therefore the stock price target is cautiously riskadjusted.
TAM could ,at least partly, debt finance their projects, thus resulting in less stock dilution and a higher price target. So in that respect my price target may be considered as conservative. Long term average metal prices for zinc and lead may, on the other hand, be significantly lower in the future than in the calculation above which used the Feb 2 2007. levels for zinc but a low, and much lower prices should reduce the discounted value significantly, but TAM could hedge metal prices probably for the whole pilot project at Pine Point.
The permitting issue should not be a very big obstacle due to the economic boost the project would result in, even if it is the environmental authorities that actually can permit the project, and I feel there is a high probability for acceptance, given the type of operations, the historic mining in the same area and Tamerlane´s measures to act within the regulations. The local support can´t be a negative factor either. The company has so far made a deal with one of three aboriginal groups, so called First Nations, which now supports the project. Short term we can look forward to a news release concerning the feasibility study where the whole pilot project will be thoroughly examined including all the important economical aspects. Maybe it will not be released until after Tamerlane has reached an agreement with all the three aboginial groups. The feasibility will most likely give a very positive outlook for the project as hinted in my calculations, and could cause the TAM stock price to reach a higher level, in spite of the recent stock price run, when the stock market sees that there is a real and significant potential left. Before permitting, TAM will be a volatile stock although with still a very fine risk/reward ratio. The long term metal prices and the permitting process are most likely the other most important risk factors this year, but the metal prices are also a long term potential especially for the pilot project, as long as especially China & India continue their fast economic growth. Tamerlane can hedge prices thus reducing their risk substantially.
Anyone with other input data can, as always, change these figures easily and do their own rough, simple and I think very useful calculations for an absolute and relative stock valuation purpose.