The last quarter report did show again another very strong revenues stream and profitability when removing the 1 time event being the repayment of the ‘shark loan’ to be replace in part from a very low interest rate (compared to the previous one).
By analysing TVI we can easily see a very low cost copper producer that has a stream of revenues that will enable them to continue exploration and operation of new mine sites.
TVI still has 3 years of production in the bank (before low % cut off) and are generating enough cash on a quarterly basis to increase mine life significantly.
So what is going on and coming for the last 3 months of the year.
First, Balabag results should start the fun around the end of august (early September) and based upon comments from Mr. James (ceo) stating that they were very very pleased with the preliminary results. As a matter of fact they are still drilling on another vein and I think this could mean a good positive surprise. But remember that TVI never intend to start up themselves a 400,000 Au ounces mine project as it would be too costly and time is not on their side to accomplish that task. If they were to prove that kind of resources, that would be great for share value but would only be accomplish small steps at the time.
They are looking at a bootstrap mine site where cash generated will be reinvested to increase capacity over time. This being said it would still be a very profitable operation and would add up great mine life.
Do not forget also that there are many other opportunities lying in front of them like Tamarok area. I do not expect development right away but prospect out there are really interesting.
So why invest in TVI when shares are moving sideways?
Sure the money invested there could be in a small upward pattern at this time but when you look at the charts you can see that there is a battle between buyers and sellers. Nobody wants to sell at these levels and nobody wants to buy either. I mean nobody because of the number of transactions in any given day. It is very rare that you see a company with so many shares not being traded daily in the million shares range. It is as everything was frozen until something great happen. And, I still think it is coming. Yes there will be some lows and some getting discouraged but I think that the reward is by far greater than the risk. Maybe also Canadian buyers have already picked up their shares and they might find interesting to try grabbing more investors somewhere else in the world. Do not expect financial analyst to come on board at this time to help as the market cap and mine life is still a problem. But get ready if market cap was to be in the 100M$ and a 10-15 mine life remaining.
Look at the cash generated per share, then look at market cap versus real value. Look at the debt ratio, shareholder equity almost positive, a price to book ratio at only 2,62, a P/E ratio at 1,66 and you can easily see that something is wrong with this company share price BUT the value is there.
Many have mentioned confidence toward management: no. Not a good reason because in the market, numbers talk and TVI does have great results.
Some have mentioned mining in the Philippines: no again I do not agree. Nationalizing the mines is not in their interest. Their people are getting far more from private companies than what their government would ever give them if all non-Philippines corporation were to leave.
So where is the exact reason: in my opinion it is a question of company valuation: you have 3 years of mining left that will generate some good money and this is the factor on which it is evaluated. How much money would you invest in a company that has a net projected revenue of about 60M$ over a span of 3 years? Would you invest 45M$ and have a return of 10% per year? Well it would make sense from that point of view and actually I think this is where the market value TVI: a 45M$ corporation that will give a return of 10% per year.
The expectation of getting more copper (and expanding mine life at the same time) and expectations about Balabag are pure expectations where nothing has been confirmed as of today explaining why the premium is almost 0 at this time but when Balabag results do get out in a couple of weeks that will change the scenario.
Your investment calculation will be based upon the same 60M$ over 3 years + any net earnings expected from Balabag. Then from that number do the maths and you will get a fair market evaluation. Anything over proven resources would be the speculator premium over share value.
So for the rest of the year let say we remove zinc from our estimations and keep 2 good copper shipments per quarter. TVI will end up close to 75M$to 80M$ directly in line with original plans from TVI so meaning that they will have again delivered as they planned.
But what will happen next is interesting as Balabag will not get into production mode until probably Q3-Q4 2011 and even at the time they will need some commissioning move real production to Q1 2012. At that time, they will be left with 1 year and 4 months of copper production at the actual Canatuan mine.
So here is what I suspect for the coming 6-12 months
1) They will find the right way to extract zinc from copper if there is a way to do that properly. May not be before year end but remember that this VMS (volcanogenic massive sulphite deposit) is not easy. You have to apply the perfect recipe not to lose copper but only remove infamous zinc. But by doing so you win on the 2 sides of the story: you get $ for the zinc and you increase your copper % (and at the price copper now standing it does make a great difference). But each time to try it out you have to stop and start the actual circuit. (explaining why 6 weeks shipments and not 4 as in the past)
2) They will still ship every 6 weeks and at actual copper price their revenues will be as expected
3) Balabag will confirm a minimum of 50,000 ounces and other steps needed to start mining and gold producing will follow. I think the total process and mine production could happen within a year.
4) Other Canatuan prospection will continue and some interesting sites will be announced as there are no reasons why the actual Canatuan could be the only site where copper exist in % enough to be profitable.
5) EBITDA will continue to improve
6) Interest expenses will drop dramatically due to repayment of the loan
7) No more charges related to debt repayment
8) Other join venture will be explored with major partners
Now let see some ratios and numbers compared to last year
6 months ending June 30th 010
2010 2009 Diff
1) Revenues 42,4M$ 18,2M$ 133%
2) Exploration cost 2,4M$ 0,2M$ 1200%
3) Net income 7,2M$ (1,3M$)
4) Total Liabilities 17,5M$ 34,7$M$ (50%)
4A) Long term debt 2,7M$ 19,5M$ (80%)
5) Due to related Parties 0,1M$ 1,2M$ (90%)
6) Accumulated deficit 6,5M$ 32,4M$ (75%)
7) Net income per share 0,013 (0,003)
8) Cash on hand 6,1M$ 5,1M$ 20%
9) Administrative cost 3,8M$ 3,8M$
10) EBITDA 21,7M$ 4,7M$ 400%
11) EBITDA as % of revenues 51 % 24% 110%
1) Revenues are on the rise when compared against last year. Naturally shipments did not begin in January as it did in 2010. But even by adding 3 shipments for Jan, Feb and March 2009, the first 6 months of 2010 are well over mostly due to copper prices rising.
2) This number just proves that TVI is not sitting on their cash and are advancing at a fast pace to increase overall mine life.
3) This number speaks by itself. What a difference 1 year can make.
4) Overall liabilities does include short and long term debts even accounts payable considered as current and very short term
4A) the long term debt has been eliminated totally. The 2,7M$ comes only from pension fund and asset retirement. The last one is at 2M$ and is eliminated as an amortization expense and not cash related. As for the bank loan it is repaid every time a shipment is received and another loan is made after with only the take-off agreement.
5) Very interesting to note also that all related parties transactions have been reimburse except for the current portion that I think is payable on a quarterly basis and must be accrued in the financial statements. Remark also that shares issued to reimburse loans made by company officer were issued as they had no other choices. From the shark loan agreement I would assume that they were banned to make any kind of cash payment.
6) Look at this one. WOW they have made a tremendous effort to maximise net earnings (it is the only way to be on the positive sign). Also please note that a new ratio will be in place whenever they become deficit free. It is called shareholder equity! This is a great ratio for establishing a share price.
7) Very very good for a development mining company that generate their own needed cash flow to expand. Normally used as a great ration to establish share price. In mining it is normally between 12 and 20.
8) The cash on hand is extremely high. Remember that they repay completely the shark loan and replace with bank margins at very low interest rate. There is somebody there that knows their maths…
9) Administration costs have been reduced a bit showing a good control over management expenses and salaries. If somebody was to become greedy for salary, stock compensation, trips etc. It would have shown right there.
10) EBITDA is a non GAAP measure but used my mostly all corporations around the world as it gives a good picture of gross profit and not final results that very often include amortization and depreciation that does not involves cash. Although it is not a perfect ratio it is consider a great indicator about business health and when used quarter over quarter does reflects the real growth of the company.
11) This is how I view business: do they make profit and are they better than they were. Do cost growth faster than revenues? Does administration becomes sharks and think about them first? As you can see, this business is totally exploding on the positive side.
When you look at all these figures it is easy to understand why TVI is still one of my favourite picks. Will it takes 3 months, 6months or a year? This I do not know. But based upon their past results and their actual performance, they will definitely increase mine life to a greater extend and this within the next 12 months.
My final thoughts about share price.
Tvi is totally disconnected form their real value. It is very rare that you will find a company valued at about their yearly cash generation AND ½ of their annual gross earnings as their market caps.
Only based upon their gross earning they should be trading NOW at about 0,16 (which is TWICE than there actual value) then add the cash value 0,01 means that it is almost incredible to be able to buy TVI under 0,17.
Sure the remaining mine life is killing them at this moment and this is great for investors because unless they face 0 gold discovery in Balabag, 0 Canatuan extension this company share value and share price will be multiplied by 10-20 within 24 months. What is also so great is the ratio risk reward: risk is 0,08 per share and reward is 0,80-1,60$ So whenever you see a company that is profitable and this ratio is 10-20 times the possible loss GO. It’s a buy
Have a great week
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