Bought more TAM at CAD 1.74yesterday, even if my "camp site Internet" worked extremely bad. The general extreme depression among juniors in Canada is a bit discouraging now, even for TAM, but I think my analysis is still valid :
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 4.05
Pine Point project presentation
This is a calculation of the long term price outlook for https://www.tamerlaneventures.com, TAM stock assuming long term zinc, lead and copper prices of USD 1.30 , 1.10, 2.60 /lb respectively.
The Tamerlane CEO is very experiencied and worked as a geologist at Pine Point in Canada when the mine was producing a few decades back. 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´s Pine Point project has excellent possibilities when you look at the infrastructure. They will use freezing technology on their pilot project to control ground water. There are examples of freezing rings functioning well. Cameco´s big Cigar Lake project has been flooded, and they will use freezing technology as one of the means and 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 with assumed metal market prices as of above would be around USD 11.1 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. Newer findings conclude that a country with a GNP/capita of around USD 5000 enters a long period of rapid growth of the demand for base metals until the GNP/capita reaches around USD 15000 when the growth rate decreases. This could be the explanation for the recent rapid growth of the demand fore base metals in the world, since a big country like China just a few years ago entered this stage. This implies that there is a high probability for the rapid growth of demand for zinc, copper and lead to continue for another 10 years or so, with world annual demand increasing around 5 % or more. India has not even entered this stage yet. However my calculation on TAM does not even consider this long term stock price value adding possibility, indicating that there is an upside compared to my price target.
If you just would like a hint of the discounted long term stock potential of TAM, let us first take a look at this example of the Pine Point zinc&lead project. Assume that the Tamerlane profit margin after all costs including tax will average 10-20 % with the revenues as calculated above. That would leave TAM potential future total nominal profits after tax of around USD 1.11-2.22 billion, and unchanged with time as long as the production lasts. The total production time is assumed to be 25 years. Now if we just calculate with the first 10 years of production starting with 2009, total net earnings would be 40 % thereoff or around USD 444-888 million. The 2007 discounted value at 10 % interest rate, is around USD 277-553 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 42 million diluted shares, but let us calculate with a heavy stock dilution for the total financing including for the copper project, to 60 million TAM shares, we would get an earnings based approximate discounted net per share value of around CAD 3.15-6.29 in 2007 (with USD=1.05 CAD and taxes 35 %). So the 2007 stock fundamental potential has to be very high, and even higher if you add the value of the copper project, look at the calculation belowbelow, summaring to around CAD 4-7.
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 for the 1.5 years would have total revenues of about USD 449 million, corresponding to approximately CAD 315 million average per year. The total costs are very roughly assumed to be CAD 250 million per year, indicating profits before tax of around CAD 65 million and earnings per share of around CAD 0.70 after assumed 35 % tax a stock dilution up to 60 million shares. With a p/e ratio of 7 the long term potential would be CAD 4.93. On the other hand TAM should be able to debt finance a great part of the capital needed for their projects, thus possibly resulting in somewhat less stock dilution and an even higher discounted value per share.
Tamerlane has optioned Los Pinos Copper Deposit in Peru. The 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 62.5 million assuming a USD 2.60 copper price compared to today´s levels well over USD 3. Furthermore the copper resource is expandable. Assuming costs of USD 1.5/lb the earnings before tax would be USD 27.5 million corresponding to 0.31 CAD/share after tax. I assume all capital costs are included with the stock dilution up to 60 million shares. A p/e 7 then would add CAD 2.19 to the long term stock price potential. I assume this profit is generated in 2011, and the value of it discounted to CAD 1.40 2009, with a high 25 % interest rate.
In summary you get a 2009 long term TAM potential of around CAD 6.33.
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 4.05. 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.
Compared to the roughly calculated 2007 TAM potential of CAD 4-7 above, the CAD 4.05 price target still seems cautious and well riskadjusted.
TAM can , at least partly, debt finance their projects, thus resulting in somewhat bless stock dilution and a corresponding 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, but TAM could hedge metal prices . As indicated earlier there is also a clear potential for higher metal prices in the future.
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 so far has made a deal with two of three aboriginal groups, so called First Nations, which now supports the project. Short term we can look forward to a third such aggreement and also a news release concerning the feasibility study where the Pine Point pilot project will be thoroughly examined including all the important economical aspects. Most likely it will not be released until after Tamerlane also has reached an agreement with the third aboriginal group. The feasibility study will probably give a very positive outlook for the project as hinted in my calculations (even if the company may use cautious metal price assumptions), and could cause the TAM stock price to continue its success story this year when the stock market easier should be able to understand that there is a real and big stock potential left. Before permitting, TAM may be a volatile stock although with a very fine risk/reward ratio. The long term metal prices and the permitting process are most likely the other most important risk factors, but the metal prices are also a long term further potential as long as especially China & India continue their fast economic growth.
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.