Updated analysisafter among other things the much increased metal prices lately, thus improving the "case" in that respect, similar to the situation last Aug/Sept
Less intelligent persons who cannot stand reading this kind of "pumping" are excused
The price target assumes the metal price average to be unchanged.
TAM - Tamerlane Ventures – calculation with metal and USD prices as of Feb 27 2008 at 12 AM
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 !
2008 current price target CAD 2.14-3.50
(assuming USD = 0.97 CAD, Zn 1.20, Pb 1.52, Cu 3.84 USD/lb, 20-50 % equity financing at stock price CAD 0.80)
The Tamerlane CEO is very experiencied and worked as a geologist at Pine Point in the Northwest Territories, Canada when the mine was producing metals a few decades back. It was the most profitable zinc & lead-mine ever in Canada. The chairman of the board and the CEO have a 3 % NSR, net smelter revenue, deal implying a cost for Tamerlane in the order of 2.5 % 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 including roads etc.
Tamerlane has a huge resource, starting with the The R-190 pilot project scheduled for 2009 production and which has NI 43-101 compliant reserves of 1.00 million tonnes at 11.2% Zn and 5.5% Pb. The company will use freezing technology on their pilot project to control ground water. There will be a vertical conveyor in shaft to move ore and Dense Media Separation to upgrade ore.
The long term price outlook for zinc and lead seems good, as long as the China and India economies continue to grow their GNP at a very high level of around 10 % per year or thereabout. 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, lead and copper to continue for another 10 years or so, with world annual demand increasing around 5 % or more. India has not even entered this rapid growth of demand for metals stage yet, but will most likely do within a few years. However my calculation on TAM does not even consider this long term stock price value adding possibility but you could neither exclude the risk for metal prices falling due to an unexpected weakened demand & supply-balance if for example China and India slows down.
My TAM Pine Point valuation is based on the feasibility study on the R-190 pilot project and the scoping study to 2014 as of Aug 24. It is a net present value of cash flow after my own tax deduction. However the USD has weakened since then, and hereafter I assume that the USD was equal to CAD 1.06 when TAM made their calculations in August 2007.
Total revenues 2009-2014, were forecasted to USD 1385.7 million according to the scoping study with the lower metal price assumption (Zn 1.30, Pb 0.80), and with current Zn & Pb prices around USD 1597.6 corresponding to around CAD 1550 million exchange rate (USD = around CAD 0.97). Total operating costs 2009-2014 were forecasted to be USD 885.4 million, which in August corresponded to around CAD 938.5 million and these are assumed to be originated in CAD which is a cautious assumption.
I assume that TAM will to a 50-80 % degree debt finance the R-190 Pilot Project capital costs of 100 million (converted to CAD from August exchange rates as above), with CAD 50-80 million debt financing, probably denominated in USD since revenues are in USD. I also assume that TAM will get the remaining CAD 20-50 million from new shares, sold at CAD 0.80 . That would result in fully diluted 47 million old shares + 37.5-93.8 million new shares F D (including an assumed one half warrant for every share), thus indicating that stock dilution is a big risk factor not easily estimated due to the volatile stock market. The loan should be possible to pay back in 2 years, resulting in interest expenses of around CAD 4-9 million before tax or CAD 3-7 million after tax.
The remaining capital costs of USD 130.0 million, which are assumed to be covered by cash flow from operations, for operations after the pilot project corresponded to around CAD 137.8 million as of August with the same exchange rate assumption. Thus the total cash flow from Pine Point 2009-2014 after financing (except for interest) but before tax could be calculated as CAD (1550-938.5 -137.8) = around CAD 473.7 million, or after tax (assumed at 30 %) around CAD 332 million. On the average I assume that the free cash flow is generated in 2012, and discounted with 10 % interest that corresponds CAD 226 million in 2009. Per diluted share (and after the net tax interest CAD 4-9 million only in the debt finance case), you get CAD 1.58-2.56 per share for Pine Point 2009-2014 in 2009.
You could also add an after tax and discounted to 2009 value per share of the remaining life time of the Pine Point project after 2014. A theoretically identical continuation (i.e. assuming each year nominal equal on the average) for another 9 years (2015-2023) would bring the same 2009 value as above but discounted to (since the ”center of gravity”- year would be 7.5 years later than 2012: ) 9/6 x /((1.10^7.5) or 73 % of the initial 6 years. However the grades would be much lower impling much lower revenues per tonne ore, but maybe the efficiency of the mining operations have been trimmed by then, resulting in better economy in just that respect - not considering grades. I admit rather arbitrarily, I just add 1/5 of the calculated value above (corresponding to only around 1/7 of the 2009-2014 PP value), for all the years after 2014, resulting in CAD 0.22-0.37 for an probably cautiously assumed residual value of all the Pine Point earnings after the first 6 tears of mining. If metal prices long term increase sufficiently then the value could be much higher, so one might interpret this as an built in cheap ”call option” on very long term Zn&Pb prices.
In summary so far you find that the whole Pine Point project could be valued at around CAD 1.80-2.93 in 2009, conservatively assuming that all costs are originated in CAD.
Tamerlane also has optioned Los Pinos Copper Deposit in Peru, thus reducing their average metal price risk somewhat. 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 the drilling permit which was received for during Q3 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 profits from this project could be roughly estimated from the historic feasibility showed plans for producing 25 million pound of copper per year corresponding to revenues of USD 82.5 million assuming current copper price. Furthermore the copper resource is expandable. Assuming total costs of USD 2/lb the earnings before tax would be USD 46 million corresponding to 0.23-0.38 CAD/share after tax (assumed at 30 %). I assume all capital needed for this operation, before it will be paid back, will be covered by cash flow from the Pine Point project i.e. financed by TAM and that the costs are USD based. A p/e valuation of 6 then would add CAD 1.38-2.28 to the long term stock price potential. I assume this profit is generated in 2011, and the value of it is discounted to CAD 0.88-1.45 2009, with a high 25 % interest rate for relatively high risk until Los Pinos is actually producing.
If you add the Peru copper Los Pinos project 2009 valuation above you get a TAM 2009 share valuation around CAD 2.68-4.38. Discounting with a high risk adjusted 25 % interest per year as I usually do with junior mining companies until production has started i.e. in 2009 a discounted 2008 value would be around CAD 2.14-3.50
The Pine Point metals revenues are approximately proportional to my ”PP-pricefactor”, which is the Pine Point weighted metal price average, (2xZn + Pb)/3 prices. The currency which metals are traded in is less important, than the real underlying supply-demand situation in the world. Therefore the specific USD-related Pine Point risk is probably smaller size than many believe. One might of course replace my PP-price factor with an also CAD/USD-relation-dependant metal price factor. And if you include a (weighted) copper-dependance you would include Los Pinos as well.
The lower end of the price target is due to a possibly very high stock dilution if only half debt financing will be possible.
The permitting procedure should now be a minor obstacle after the positive statement from an important environmental authority MVEIRB. The local support is also a positive factor. The company has made deals with aboriginal groups who now supports the project. Primarily the long term metal prices and secondary the permitting process are most likely the 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. Another risk is if TAM decides to finance the needed capital when the share price is low, thus causing bigger stock dilution than expected in my calculation above.
My conclusion is that I find that TAM has a very fine risk/reward at the metal prices level (and USD/CAD ratio) stated above or higher. TAM has a very high leverage to higher metal prices. If the earlier metal price fall gets revived there would be an obvious risk for a renewed bad stock price performance, and if the metal prices fall a lot more and stay below the whole Pine Point project could narrow the break even level which would be very bad if it happened before the financing is completed. After the financing the risk and breakeven level decrease.
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.