Break-out just the beginningThe pop to $2.57 on Friday was just the beginning of a move that should take the stock well past the $3.50 target published by RJ.
Clearly, there was no good reason for the stock to languish at the $2.40 level. It was due to mostly pyschological reasons. The issues that "plagued" ARG included the following (in no particular order):
- They missed production estimates
- Until recently, there was ongoing uncertainty on fresh tailings volumes
- Colihues was continually delayed
- Electricity prices were sky-high this year casing a "ballooning" in costs
- Maybe there is some negative news?
- Company not buying back shares - If they don't why should I?
The above concerns are all legitimate on an individual basis and if narrowly defined. And in fact, it has been the culmination of these concerns that have caused a huge psychological impact that has kept the stock at ridiculously low levels. The only thing management guilty of is being wrong on the expectations of Colihues start-up. But look at the following FACTS:
- ARG posted, by anybody's measure, very strong EPS (like $0.10/quarter average)
- If ARG running annual EPS of $0.40 isn't the stock at $2.50 cheap but wait!......
- What would ARG's earnings be without the production issues and with normal energy prices?!
- OK...we are all annoyed with Colihues. But stock undervalued even if Colihues didn't exist. If the stock was at $4.00 and Colihues was delayed I could see the stock go down. But at $2.50 there is ZERO value for any colihues potential at all. So if the value reflected is zero then how does any further delay negatively affect the share price logically (only psychologically).
Without Colihues ARG annualizing $0.40-$0.50. With Colihues it could be 50%-100% more. and that can happen in under 2 years.
Meanwhile they just generate gobs of cash and paying huge dividend.
This stock should be at $3.50 now even with some Colihues uncertainty. Once Colihues is actually in production, the stock worth $5-$6.
The company is guilty of lack of stock buy-backs. That even perplexes me a bit. But they have stated that they are looking at fuirther growth initiatives (other than just making share investments like CHD and DNT). A new tailings plant at Chiquicamata or a slag recovery operation could cost upwards of $75 mm. ARG has about $30 mm in cash.