TVI final numbers have been released and even if they contain no mathematical surprises, there is one major item gone: the infamous GOING CONCERN.
By itself this paragraph could mean a major difference between investing and restraining from buying by some major institutional and many retail investors.
In this article there will be no reference to the share price even if it has been very deceiving, to say the last, over the last couple of months but will try to focus on share value as we all know that the share price is what the market gives as result of trades as opposed to share value where all members of TVI are working toward the same goal of increasing that value.
I am of the category of investors who think that whenever a company increase the total company value, market will follow but in an uncontrollable way and time. So to say that ceo and other members of administrative committee should concentrate on share price is by itself an error. THE ONLY value they can increase is the total company value. There are also no references to past problems, deals and everything else as I think everything that had to be said was said and it’s time to look ahead even if it is tempting sometimes to look at how the company could be perceived by some.
So let see in details what’s in 2009 final numbers and 2010 estimates.
2009
Record revenues of 67M$
Record net income of 18M$
Elimination of 46% of the debt (some events subsequent to Dec 31st)
And I could go on and on and on. So for 2009 we all know the story and it was really good on every aspects of the business. If I was to present a Phoenix trophy they would be a major candidate. For a company that was technically bankrupt early 2009, they did a fantastic job of recovering and going forward and all of that against all odd. Who would have bet the house on this company??? Not too many. Sure many bought 100K shares when it did hit 0,01 but that was speculation NOT investment.
For their achievements and moving that train back on its rails, TVI deserve a score of 10
So what’s in it for 2010?
Increase production permit = possibly more ore drilled increase and I mention possibly because if mining increase by 10% mine life will decrease by same %. I would rather presume that TVI will continue to mine at about the same pace(enough to ship every 6 weeks) and keep revenues stream pretty stable over this year. Even if copper price is increasing I would rather use that excess mining tonnage allocated toward the other developments coming to life this year. Naturally, tonnage is not cumulative and if no mining is expected at Balabag, a small % increase could increase revenues to the level needed to eliminate loan and speed up other projects (Balabag and Greater Canatuan area)
Sustainability was proven to be possible from the last 12 months results. They have constantly produced month after month what they said they will and more. There are no doubts in my mind that they will do the same in 2010 and I would not be surprised to see an increase in the total tons of copper sold. (Do not forget that they will be increasing the % of copper to 25% instead of 20%. So tonnage may stay the same but net copper in concentrate will have increased thus increasing revenues.
They have also worked a lot on transparency. This eliminates surprises and stabilize stock price avoiding the biggest ups and downs due to an unknown future. For example it would have been a surprise to have a second shipment in March 2010 but stock may have retreated before the news. We cannot any longer say that TVI is a secret company. The moves have been called in advance and even if timing sometimes differs a bit, they are delivering as expected. Their web site (including Facebook) and IR efforts are definitely the best in their class. They came a long way from where they were before and I would even say that they have set some kind of standard for companies in their situation. Let the world know the story, follow and execute the plan. This is a good value increase factor for TVI.
Less shipments is also a very good idea as the higher concentrate they ship, the less shipment they need to keep same receivables. As of today the cost of a ship is about 30K$ per day (based upon renting fare from OCNF one of the major shipping company). So if they were to save 20% on number of shipments, it could means close to 1,1M$ per year based on a 15 days trip back and forth.
Also it gives more time for repairs and maintenance. Do not forget that this is the 2nd year of production and they never had any breakdown. Most probably one will come this year as the mean time between failures (or major maintenance) is about in that range (MTBF). It would be very surprising to see Canatuan mill continues to be problem free for another year even if maintenance is performed as per their schedule.
Mine life extension is one of the major problems for TVI. They are executing their plan exactly as it should be but at the end, mine life remaining is still only about 3,4 years and based upon a reality check where copper % is great enough to makes mining profitable, I would say that the real mine life is about 2,6 years before they gets to the end of profitable mining. So they have to increase that life span NOW and it does put in great perspective the deal signed with DACON that will accelerate the finding of new copper zone in the greater Canatuan. Without any new discovery, expect extinction of mine by late 2012 early 2013.
The biggest advantage of the Greater Canatuan is first the trucking distance. Those sites are so close (about 15km) to the actual Canatuan mining site that they won’t need any major investment in infrastructure to operate. All new ore can be process at the actual Canatuan mill. 1 or 2 trucks will do the job! Canatuan expansion will be definitely starting to add to mine life this year or very early 2011. It maybe not that much at the beginning but enough to add 2-3 years to current mine life and maybe 5-7 years by the end of 2011. Don’t forget also that based on their 2009 management review, they are exploring many others avenues to increase mine life in most of the surrounding areas and other mineralized land they own.
The infamous loan repayment: can wait till end of the year. There is simply no hurry to repay until we are well into Q4 as for the moment I think money is more needed in drilling at Balabag and studying Tamarok. Bad timing of the repayment could delay Balabag in case of breakdown or major sea storm where 1 shipment could be missed. I think they should complete Balabag and then repay the loan. It was also interesting to find out some more details about the fact that the advisor is no longer entitled to a 40% fee but 36% and not on cash flow but net profit. In the past no details were given as to what should be interpreted as cash surplus but finally 2009 financial review says that it is cash earned by TVIRD in excess of cash required for operating, financing and investing activities. Any voluntary repayment will also decrease the advisor fee furthermore.
Not exactly a new project but zinc is coming and coming fast. Before end of April we should be made aware of who the trading company will be and when to expect the real start-up of the zinc circuit. Then 4-6 weeks later, expect full production of about 1000 tons per month. That’s another 1M$ per month to add up or at least compensate for decrease in copper %. I think also that the zinc will not diminish the copper production and it will be a complement as actually zinc is lost in the dam during refining process. (Clarified in plain English on the TVI discussion page on Facebook
(quote)
It’s possible that we may have had a terminology disconnect when we were speaking of the treatment and refining charge. I was referring to the TC/RC (treatment charge/refining charge), which is an amount charged by the receiving smelter for the treatment of the concentrate before they can smelt. It’s not related to TVI’s treatment costs. It’s charged by the tonne of concentrate shipped, independent of the copper content of the concentrate. So if we ship 1 tonne with 20% copper, we pay the same tc/rc as when we ship 1 tonne with 25%. But we get paid more for the latter, hence the “savings”.
On the TVI side the processing costs are not significantly higher when increasing the concentrate grade. The higher copper concentrate grade is achieved by putting the concentrate through additional flotation steps. The additional flotation process “cleans” the concentrate by further removing dilutants which include among others, significant amounts of zinc. Until we have the zinc circuit on line (designed to recover the zinc), we will need to continue with what we have been doing to date, which is mining and blending the ore to minimize the amount of zinc fed to the process and and dilute the copper concentrate down to insure we are below the maximum limits specified by the buyers’
(end quote)
Balabag drilling should be done in the next 2 months and I suspect it will be a nice surprise as the needed 50,000 AuEqOz will be confirmed and bootstrap mill will be put in service before year end. This should bring in maybe 5M$ (if lucky enough) and build-up of mill start early in Q4. For 2011, this will add up great overall mine life for TVI and very nice revenue in the range of 10M$ per year for the mine life expectation that I expect to be close to 6 years.
Tamarok (and Tapisa) could be the biggest star for 2012 as if it is to be close to Tampakan in overall value, well get ready for a major boost in share value and mine life extension. I do not expect any revenues until end of Q4 2011 if everything goes well and if they decide to go with a very small mining installation to start with.
Metal price will continue to raise and I would not be surprised to see 3,90-3,99$ before year end as supply is pretty stable and demand is still rising especially from China. Do not forget also that first electric cards production to start early 2011 and this will increase again the copper demand.
Metal recovery % could be a problem in the Canatuan primary area. As indicated on initial resources measured after 2,4M tons mined the copper % decrease to less than 1% meaning extra cost and less revenues. The remaining mine life is probably at about 3,3 years but removing tonnage from less than 1% copper reduce mine life to around 2,5 years. (original estimations are 2,4M tons for copper in excess of 1% and tonnage already processed is around 525,000 tons at Dec 31st leaving close to 1,9M tons available. Mining average is now a bit over 750Tons per year meaning 2 years and 6 months.
New investments strategy is something that concerns me as in the management discussion page 2 they are mentioning that management is considering additional capital to finance exploration and development of their diverse portfolio of mining properties. ANY NEW SHARE DILUTION SHOULD NOT BE part of the strategy. Shareholders of TVI have already been throughout that situation before and even if sometimes it is one of the easiest solutions to a capital need, this would only create a very negative effect on the shares value. It would be very badly perceived to reimburse a 30M$ loan where 76M warrants were issues only to find more capital and issues either more warrants or options. This would not make sense. I cannot imagine tvi diluting shares again.
In my opinion, the only solution would be a joint venture for the larger projects like Tamarok and Tapisa where we all know that TVI does not have the needed budget to go there all alone.
2010 Plan is very conservative and most likely to be beat. But it is always preferable to have a lower estimate, and then go over, than the opposite. There is no room for disappointing the market especially when the share float is so high. Major deception could equals sudden share value drop.
Revenues 2010 are expected to be in the range of 80M$ but I personally think it will be closer to 105M$ due to higher metal price, better zinc revenues than expected and some $ coming from Balabag.
The profitability will be very low in Q1 2010 because of the write off of parts of the loan cost that was originally plan to be 5 years. Having shovelled close to 50% of it, they had to recalculate and re amortized differently. Expect Q1 to be close to their expectations of 2M$ net revenues. But I must highlight the fact that even if a write off of 4M$ is taken, this is not affecting cash on hand as it is only an accounting issue. As for the other 3 quarters, I would not be surprised if 2010 year end numbers were to be about 18 to 20M$ including loan writes off as it is based on copper at 3,29$ and we all know the story of copper at this time. Again very conservative but that’s ok with me.
How about the end of the shark loan? Well, unless major problems arise this year, that loan will be eliminated during Q3 or Q4 2010. Why that late: they have the right to make a payment in July without penalties. So why get charges with early repayment fees on that part. The advisor fee is not taking effect until Dec 31st 2010. So there is no hurry here. Keep the money for the projects, keep aside some to repay the loan and get rid of it end of 2010
Let’s touch base a bit on the number of shares TVI has on the market right now.
It is very high and unfortunately it is like it is. Can they buy back some: NO they can’t. So the only option would be to do a reverse split and this would not be a good idea at this time. The only thing that this could open the door to is more dilution in the making. First, most of the time reverse splits are done by companies desperate to find more money for their projects and shares always (well almost all the time) gets a beating.
Share buyback NO: Simply forget that. They cannot do it period. Whenever the accumulated deficit is gone and liquidity is so great that they do not know what to do with them that could be a solution. But I do not expect that for many years to come. What is more important is the market cap of TVI not the share price.
If TVI was to again in 2010 generate 0,08 to 0,10 cents per share in net revenue, increase their mine life to a 5-7 years (to begin with), market would react positively as it is very rare that you see a company market cap estimated at about 1,5 time their annual net profit per share.
For all those reasons, TVI is still my top pick for 2010 for growth and increase in share value. As for the rest, market will take care of that.
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