RE: TCK a "high priced lottery ticket"hey CashCow,
I think you have hit the nail on the head. With the current capital structure and cash flows, this stock could be worthless or triple with in 6 months time. The sensitivity to mainly coal, and the cdn exchange, but also copper, is insane, the stock has about a 10 to one leverage to relative price changes in coal, copper, exch.
I have built a cost model for this company, and in looking at the CDN NPV of the cash flows from operating entities, it becomes quite clear. Using a baseline of 140 coal, 1.40 copper, an 0.80 exchange, and an 8% discount rate on future cash flows, the total value NPV of HVC is about 1.6 B, Antamina about 1.75B, Red Dog about 2.5B, EVCC about 6.5B, and including the other minor operations totals ~12.5 B, take their net debt today at about 12Bln debt service and overhead of about 1.5 bln, and if they can flog FT hills for 800 Mln and you can see the company has been sold down the road, literally, the banks may own it come early May , and the result of selling off all of the operations for their NPV, will yeild just enough to pay off the debt, and nothing left for shareholders. In the case of a break even scenario, that found a long term refinancing for the 5.8 B, the cash flows would be eaten by interest, and as the economy picked up, the higher interest rates would continue to do so for any forseeable amount of time. Debt repayment could take decades!
However, that is just the baseline scenario. Changing the coal price to 125, ex to 0.90, and cu to 1.20, yields a total cash flow NPV of a paltry 4 Bln. Not even a hope in hell of covering the massive Liabilities. At these prices, no amount of refinancing, asset sales, or even a 5 BLN interest free loan from the BOC, would gaurantee the shareholders would be left with any value. This outcome is not really that far fetched, all of these commodities have lost 50-60% of the value, and would only need to lose a few more percent, to hit these numbers. Scary sh&t !!
For the optimist the upside sensitivity is equally as impressive. inputting just 160 US coal, 1.60 US copper, and todays exchange of 0.77, yields a value of TCk cash flow NPV of over 21 BLN, a healthy margin to cover the liabilities and return to the double digit divendend yeilding juggernaut it once was. taking the 12 B away from the 21 leaves the share price at 9 B over 500 M shares = 18 bucks cdn, not too shabby at all!!
Now heres where it gets real interesting, for you real ballsy optimimists out there who are thinking of going large and long, if you assume they can weather the storm, pay down debt and interest as a going concern, and avoid selling assets, and then input just 70% of the recent commodities high into the model for the future cash flows, that being 200 usd coal, 2.80 us cu, and throw in a historically realistic cdn exch like 0.70, the result is simply amazing. the NVP is 40 BLN, ( 52 less 12) amounting to 80 per share, or a possibly 30 bagger on a 2-3 yr horizon.
My Conclusion - TCk has been has been transformed into a high priced lottery ticket. !!
If you think the bottom has been hit, buy away!, but if has not, then this company will most likely die a slow and painfull "death by dismemberment"