TVI is my number 1 pick for 2011
Why: 3 words Siennalynn, Balabag and Tamarok
Some of the notes are from a conference call with Mr. Clifford James and Rhonda Benetto but this document is my interpretation of the call and my personal opinions.
2010 was a good year for TVI and unfortunately share price did not increase as it should have been and many reasons have been expressed but only one is real: mine life extension. TVI is not paying any dividends (nor should they do) as they need the money for drilling and exploring. They also have a large float of shares and it is not helping the share price as they need major investors to buy them in large quantity to see some interesting movement on the share price. This also leads me to believe that maybe in 2011 we could see a share consolidation of about 5 or 10 for 1. If it is done in parallel with a major event (like results from Tamarok or a good oil drill result) the reverse stock split could be profitable for everyone.
They had also mentioned a possible Hong Kong listing in 2011. If that was to be the case, expect some major cost in accountant fees. The listing is not that expensive but all the requirements cost a fortune and me not be necessary at this time. Again it could fit better when combined with the above mentions and the proposed merger with TGE would help as companies that are in the resources field are highly appreciated. (probably even a lot more than in the North America)
The problem actually is the fact that Canatuan mine life remaining is about 2,3 years and not a lot of large funds or investors are willing to invest for a so short period of time. You have to understand that large buyers want some good return on their investment and for more than 2-3 years.
That is exactly what TVI is trying to achieve right now with their fast pace exploration plan: increase mine life.
Balabag scooping and start up plan is due somewhere in Q1 and even if it is not the main project, it will provide TVI with a greater cash flow during 2012 (and over) to go ahead and explore more at Tamarok and many other sites within the area. (I mention 2012 because I do not think that production will be large enough in 2011 to be substantial if there was to be any production. I would suspect some kind of commissioning end of Q4 2010)
Canatuan should also get some expansion with the new Siennalynn area where drilling is actually occurring. This new development is by itself enough to give TVI another 8-10 years mine life if the ore drilled out there is comparable to Canatuan. Remember that Siennalynn is 4 times bigger than the actual Canatuan. I expect an update within Q1 2011 (based upon Nov 2010 TVI presentation)
If enough proven resources are there I think it could be easy to increase the mill processing up to about 3000 tpd (do not need any more permit from government) and, if needed, obtain a limit increase in monthly production up to maybe a 5000tpd. This would need a 2-3M$ in capex
When you combine Balabag 2012 cash flow + new Siennalynn coming incrementally into production (in Q3-Q4 2011) there is no problem to see enough cash generated to do lot and lot of drilling at Tamarok where I think the real thing is. Tamarok could be identical to Tampakan actually own by Xtrada and their proven resources are worth between 1,2B$ to 2,2B$ with 2,4B tons of mineral resources.
Very interesting factor about Tamarok is that TVI is probably not large enough and does not have the needed cash required to go out there alone and will need a partner that could take the form of a JV with a large mining corp. Any drilling starting at Tamarok or jv announcement could easily have the shares sky rocket instantly.
So let’s review resources or, in my opinion what could become resources, in a very near future:
- Balabag: They want to define the best area to start a bootstrap mining operation with 50,000 ounces. Proven resources based upon 43-101 in 2008 = over 500,000 ounces of gold for a total value of 650M$ in total revenues during mine life.
- Siennalynn being 4 times Canatuan and IF ore is of the same quality a very conservative estimate could be over 10M tons and 10 years mine life total value of 650M$ based upon 2 shipments per quarter of 8M$ during 10 years.
- Tamarok being too large of an investment for TVI alone, let imagine a jv where they get a good % royalties and a large capital gain when selling the rights to this area. No actual findings are published yet but if we base our estimations from Tampakan it could be a net present value of 1B$ to 2B$
By looking at these figures it is easy to see another important factor in the real value of TVI. They were unable to go ahead with exploration and drilling until their 2009 loan was repaid totally and they did start to drill only early August of 2010. Within only 6 months they have advance in many areas and great news should be coming in Q1 or early Q2.
Whenever any of the above plans are confirmed expect a very good share movement that will gradually reflect the true internal value of TVI. Remember also that nothing go fast in the mining sector.
Did I mentioned that zinc will become a paid by-product…and at the same time increase copper % in all shipments there after? It is still in the commissioning phase as this is a tricky thing to do but it is worth the wait.
The share price problem is known, the remedy is in place and it will gradually fix the problem.
I should also add some thought about oil and TGE deal. As of now, I am in a favourable position toward that deal after getting an overview of the real value behind TGE and TVI merger. (the main point behind the conference call) At first it did sounds very strange because of Mr James being the ceo for both companies (even if Mr James was not part of the 2 committees that finalized the merger proposition).
But:
TGE does have some interesting assets and is an exploration partner in some properties located in Alaska (very close to Conoco Philips) in Niger and in the Philippines. Sure their main interest was Tindalo and Yakal but recent developments have put these projects on hold. But Tindalo was not the only prospect in the Philippine area. Many more areas (about 20 sites) and many have already proven that oil is there and are ready to develop. Two fields have also recovered oil: on page 30 of TGE presentation you will find that the drill site A and B have 19M barrels recovered. So in these areas (SC14 to SC54) the question is not if oil is there but how much can be recovered. Platform is in place so let’s go and see. We also have to keep in perspective that most oil wells will generate some % of water and the cost to eliminate those sub-products are taking into account in regard of profitability of the well. Will it goes back into production? I do not know but there is surely some oil out there as proven by recuperation of oil. They are still making arrangements for selling the remaining 75,000 barrels. Yes water was the main problem but that does not mean that they cannot fix that if the problem was mechanical. The well has not disappeared: it has been placed on hold and equipment decommissioned to avoid unnecessary operating costs. But the actual plan is to move toward the 1X1 location (most probably in Q4 2011) then Lawaan than Yakal. The reason beind zX1 is that the platform is already there and ready.
The very interesting other sector is Alaska where all costs associated with development are refunded by government as a 45% refundable credit. So the net cost to develop in Alaska is 0 over the course of about a little more than a year. There are some major exploration sites already producing lot of Oil. As a matter of fact Alaska has a 1,2B barrel of proven reserves and Conoco Philips has produced 252 MB in 2009. (From Conoco presentation). So there is huge quantity of oil out there and the quantity of projects is increasing in that region at a really fast pace. So even if TVI was to supply some money out there, they would be getting a tax refund. So you cannot lose money there.
Then there is Niger: if there is oil, great if not well too bad. (Remember that all cost associated with Niger have already been spent. So it is a freebee...) But if they were to find oil as expected by all models I am pretty confident that China will be more than happy to finance or even buy back the value of this partnership. They already have 80% of the property and if China went there they are definitely very confident that oil can be extracted in great quantity. Sure Niger is Niger. It is an unstable area of the world and my expectations for this part of the world are null. All investment that was to be made there was made so no more $ if no findings but anything found out there would be a good surprise and a great return on the investment. Imagine the real value of this one if oil was to flow: it could pay the total cost of acquiring TGE.
To me the real value is in the Philippines and Niger and Alaska could be easily sold after real value is known. By hitting oil it could change the real net value of TVI and by not hitting anything, the asset value would still be there. When you look at the different maps of these areas, I would be very surprise not to have some good amount of oil flow.
They also made some changes in the agreement to reflect problems encountered at Tindalo and recent drop in TGE share price. The modification from 0,67 to 0,458 share of TVI means a huge difference in share dilution (32% less) if deal completes but assets value (except Philippines) do remains the same. TVI will be acquiring some very good assets for a fraction of the cost.
So let’s do some maths here:
Actual TVI assets are worth 28M$ net 45M$ gross
Actual TGE assets are worth 28M$ net 34M$ gross ***
TGE/TVI Exploration corp 56M$ net 79M$ gross
*** These are book value of properties. Actual TGE value is much higher and in the range of about 70M$
Actual shares outstanding TGE
Bef dec 23rd float of TGE 122M
Shares issued to TVI/LIM 42M
Convertible note to TVI 26M
Options/warrants 0
(They will be eliminated as they are under threshold of 0,08)
Actual shares outstanding
Bef dec 23rd float of TVI 488M
Lim Warrants exercised 72M
Other options 41M (only about 24M are exercisable)
Warrants 8M (all LIM warrants have been exercised)
Actual TVI net value per share 0.045
(Actual value per share does not take into account participation in TGE or actual property value. Actual number could be a lot higher but would also reflect in the final calculation)
Conclusion of the deal (book value) 56M
Total shares float 665M shares outstanding
(122M TGE outstanding * .458 shares each TGE + actual TVI shares: 609M fully diluted)
Total value of NEW TVI (book value) 56M$
Net Value per share 0,084
Conclusion of the deal (real value) 92M$
Total share float 665M
Net value per share of new TVI (real value) 0.138
(As a side note to be explored: Could the 34M$ in TGE accumulated losses be transferred and used by the new TVI? Good question. If that was to be the case, it would mean that total cost for the transaction would be 0 (or close to). That is question for an accountant and I do not want to take that amount into consideration.)
So it is easy to see the real value of the deal. To be a total waste for TVI will need ALL TGE assets to be written off to 0. That scenario even if possible is more definitely not probable.
This shows that TVI would be after the conclusion of the merger a company that shares actually trade under real value without even taking into account the earnings results. That is another great disconnect.
All together these are the reasons why TVI is again my top pick for aggressive growth in 2011.
All numbers expressed here are opinions unless otherwise indicated (expect for Balabag where numbers are proven resources based upon 43-101 and share number) and future results may vary a lot based upon commodity price, mineral findings, exchange rates or political changes.
Naturally please do your own diligences review of the facts and never invest more than you can afford to lose on any stocks. You should also consult your financial planner to see if investing in stocks fits your profile.
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