TASEKO - RAYMOND JAMES WEEKLY STOCK PICKAction: Purchase Taseko Mines Ltd. (TKO.TO)
Purchase Price: under $2.15
Current Price: $1.98
52 Week: $3.48 High/ $1.95 Low
We continue to support Taseko Mines as we feel that it offers a great deal of value to investors at this time. Despite the continued weakness in the materials space, this story possesses incredible upside from deeply oversold current levels. This optimism was supported yesterday from Raymond James analysts who toured the company’s 75% owned Gibraltar mine in BC. They came away impressed with the progress the company has made with the expansion through the construction of a second concentrator (the Gibraltar Development Phase 3 mill expansion which is estimated to increase company production by 90% once completed). The expectation is that the completion of this expansion will translate into increased cash flow, and provide a solid foundation from which to grow the company. Based on operating rates to date, Taseko expects Gibraltar to produce approx. 135 million lbs of copper in 2013. This would exceed estimates of 130 million lbs of copper for 2013.
Despite disallowing the project to advance in the past, the Federal Government invited Taseko to submit a revised proposal for the development of the New Prosperity Project. In the revised plan, the company includes an additional $300 million to limit the mine’s environmental impact, notably the preservation of Fish Lake. Highlights of the impact of the project (over the 20 year mine life) being approved would be as follows:
- An increase in employment of 71,000 jobs
- Federal government revenues rise by $4.3 billion
- Provincial BC government revenues rise by $5.52 billion
- Consumer spending increase of $9 billion
- Production revenues in excess of $11 billion
- An increase in Real GDP of $11 billion
- $786 million in housing construction
- Investment in machinery and equipment to increase by $1.38 billion
- BC population increase of 5,400
- Would be the 7th largest Copper-Gold Project in the world
Obviously these economic impacts are substantial and will have to be strongly considered in a province where economic growth has slowed considerably. We are continuing to see more and more evidence suggesting that the eventual approval of this project is imminent. As referenced below, the market has not priced the prospect of New Prosperity approval into the stock, so an opportunity exists should this project receive the green light. Obviously the failure of the NDP to secure control of the BC Government will help the potential for project approval as well.
Taseko Mines Ltd is a mining company focused on operating and developing copper/gold projects. Its key assets are the Gibraltar copper-molybdenum mine located north of Williams Lake, the advanced stage Prosperity gold-copper project in the Clinton Mining Division southwest of Williams Lake, the Harmony gold and Aley niobium projects (all located in British Columbia). The company is steadily working to increase its production profile and is a low cost producer. The illustration outlines the project locations below:
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Gibraltar
Taseko is undertaking a third phase of modernization at Canada’s second-largest open-pit copper mine, the Gibraltar Mine(Gibraltar is currently the company’s only income producing project). TKO plans to grow yearly copper production by 60 million pounds, or 90% from current levels. As a result, cash costs are expected to decline to $1.61/lb from $1.94 in 2013, driven by higher production rates.
New Prosperity
TKO submitted a revised proposal to the Canadian Federal Government at the end of February 2011. The new project design now fully preserves Fish Lake, which was the point of contention in the original proposal that received Provincial approval but did not receive Federal authorization to proceed. New Prosperity is currently the 7th largest undeveloped copper-gold porphyry deposit in the world and gaining government approval for it would surely result in a significant increase in share value. The mine would be expected to produce $400 million in revenues annually and create a steady stream of jobs (700 employees for two years for construction and then 500 employees for 20 years during the operation of the mine). However, the current stock price for Taseko seems to be only a reflection of the production performance of Gibraltar and provides little to no premium for the potential of securing Federal approval for New Prosperity.
Additional reasons to consider investment in Taseko
- Financial Strength: Net Asset Value (as determined by Raymond James) of $4.21 per share currently
- Growth: Diversified project pipeline of 100% owned gold, copper & niobium projects/ 90% copper production increase by 2014
- Stability: Assets located in secure political jurisdiction/ experienced operations-focused management team
- Provincial Outlook: Mining is critical to BC’s gross domestic product as it brings in over $8 billion annually despite declining construction of new mines and existing mines closing which seriously effects unemployment rates in the province. Recent Liberal re-election will only work to support this outlook
- Resource Value: Copper price remains above $3.00/lb and Gold over $1,400/oz and the company has shown the initiative to hedge copper prices in the past which has functioned well
Since the Federal Government’s decision on Prosperity was learned in November 2010, we believe the stock has been unfairly punished. This has only continued with the overall weakness that the materials sector has faced in 2013, applying further pressure to Taseko. Raymond James analysts do agree with this sentiment as they currently have a 6-12 month target price on the stock of $3.70 which is an 85% premium to current prices. We agree that this is an excellent opportunity to purchase at a price level that may offer excellent value to investors.