RE: RE: TKO undervalued - reality vs wishful thinkHello,
Geology (grade and metallurgy) has much to do with the cash cost efficiency. I suspect for this reason, TKo will never achieve the cash cost of HVC. My bets, TKO will not do better than say 1.25 - 1.45, while HVC .90 - 1.10. I view past expenditures as sunk and irrelevant, what matters now is performance. Same with the HVC lake draining, who cares what happened 30 yrs ago, and how is that relevant to the valuation of a stock today? Don't get me wrong, I don't think that special interest groups should be able to exert power over the masses, and don't beleive in "citizen's plus" if y.k.w. I mean. You and I may both beleive that draining a lake like fish lake, is just fine, and especially with TKO's plan to recreate lake habitat, we accept and embrace that as investors and non redneck BC residents, but how much weight is that going to have? Northgates plan was really not all that bad, and certainly wouldnt be the first time that waste rock or tailings were placed in a water body. The fact is, that ARD in waste rock or tails is actually prevented by submerging the PAG material in an oxygen poor environment, so its actually environmentally friendly or at worst, neutral. Its another case of public perception and reality being way out of check. This was a good project, killed by special interest groups, and goes to show the ass-backwardness of our priorities and politics here in BC.
Regarding the valuation of stocks, I think any serious investor will value a stock based on the present value of its future free cash flows, discounted for risk, less current liabilities of course. If you understand discounting you will know that revenues and costs in the future are worth less than they are today, and this is where the principals of NPV, and the relevance of metrics such as P/E and other ratios are derived from.
So if I buy a TKo share for a buck, and I want a 10% return on my capital, then I need to see 10 cents a share discounted Free cash flow ( after taxes, sustaining capital, and also liabilities), or more specifically, the sum of its discounted expected future cash flows, adding up to 1.10 per share, so say 20 cents per share, this year. With tasekos share structure, this would mean 20M per year, and if I wanted 20%, 40 cents a share this year, since there are about 100M shares. To get the NPV, you would apply a multiplier of say 5 to 7 ( equating to a 10-15% discount rate) to the expected cash flows of tko (excluding prosperity). So you can see if you expect taseko to net 20 M the next few years, 6 times 20 = 120M and that is the market cap of tko today, so the stock valuation would seem to be in the expected range.
Teck, now thats a whole other can of worms, but I wouldn't even buy that stock for 4 bucks. If you break it down what you are getting for 4 bucks, is 26 dollars per share of debt, and about 1-2 bucks a year of operating cash flow to service this debt, if they can even find somebody to carry this financing at a reasonable rate like 4-6%. As with TKO, it all depends on metal pricing and exchange going forward, but does that sound like something thats going to pan out?
I would buy TKO at 2 before I bought teck at 4, the fact is that teck is ruined and it got sold down the road, by the ego driven banker running it. The price that was paid for FDG was an "atrocity" in canadian corporate acquisition history. think about that. they paid 14B for half the coal patch, now the whole thing is worth maybe 5B at best, 28 to 5, nice ROI. the 14B valuation assumed 300 dollar coal in perpetuity, that would be the equivalent of valuing every copper project with 3 dollar copper for its minelife. What kind of moron would do that? you dont see tko putting 3 dollar copper on prosperity, even when copper was 3 to 4 bucks. Teck belongs to the debtors now, who in a worst case scenario, will own their most prized assets, and the only ones to generate real cash flow during this crisis.
If you beleive the govt will loan teck the money to pay the bridge loan at reasonable rates, and that copper will hold 1.40, and coal will fetch 140 a tonne, and the Exch 0.8, then buy teck at 3-4, but its upside is only 5-7, so to me the upside is not worth the risk.
Taseko's upside is much better than teck, both near term and long term. I have many people coming to me asking if Teck is the slam dunk it seems to be, but the fact is this correction changed everything. The combination of this shock and the "gift - winning lottery ticket from heaven" for fording shareholders, means that the old teck is a thing of the past. That is the point of my musings here, is to help investors escape living in the past. So forget about 50 dollar teck and 6 dollar taseko. Those home runs and glory days are gone. think about lean, smart investment, and risk, in these troubled and uncertain times. buy value not speculation. again tko at 0.90 is value, tko at 1.20 or 1.30 is not. and FYI, teck at 4 is not value, maybe 2 would be, but that theory will be tested in 8 weeks when the coal price comes out.