UPDATE TVI

What’s up with TVI ?

Last quarter report was not as expected, to say the least, but even then there were some good realisations that obviously were overshadowed by other very disappointing items.

Let’s start with the bad one:

-          The costs of chemical products seem to be rising. I think the zinc copper separation was actually harder to achieve than originally thought. The price received for the zinc is offsetting a good part of those rising supply cost and did increase total cost to produce.

-          The fact that ship had to be re-route to Europe instead of China created the worst problem. Easy to figure out that the cost to send 5000dmt to China is by far less costly than to Europe. Looking at the details, this expense ruined the quarter and I do not see any changes for at least 1 or 2 more shipments allowing TVI enough time to find a new smelter nearer Philippines.

-          Overall debt is getting higher. Some debts are a necessity but at this time increase the debt level could be suicidal. When water is running, grab a bucket but now it is time to say enough: no more room for the buckets.

-          Cash is getting lower even if TVI is STILL cash flow positive for the quarter. It simply means that they used more cash than it generated. Maybe time to assess where the money is going. To their defense there is an 284K loss due to foreign currency translation. If this was due to can$ being at 1,045 average for the last quarter, TVI could get a break on this one for Q3.

-          Very high total cost per pound equivalent most probably due to first shipment in Q2 that must have been completed when zinc flotation was not perfect and when they were experimenting a lot of different recipes of the refinement of those recipes. Still total cost per pound is higher.

-          I do not expect any profit in Q3. I expect a 1M$ loss and maybe a break even for Q4 meaning a loss for the year as I do not think TVI would be able to generate a 3M$ net earnings in Q4 unless they find a new smelter before end of Q3 for shipments in Q4.

Now the good one:

-          Cost to produce copper is going down (do not mix with total cost per pound) and should offset a good part of higher expenses

-          Mill is running at high capacity

-          Copper % is very high at 23% (average)

-          1^st  zinc shipment to be reported in Q3

-          2^nd Flotation circuit to be added that should help again lower cost per pound and increase quality of copper con and zinc con. 

-           % of copper of 1,24 (lot higher than estimated average). Remaining mine life was averaging 1,07% but we see that there is still higher copper grade available to be mined.

-          High gold grams per tons (for Canatuan it is very good)

As for Tamarok results, well it is a neutral one. They were drilling the outcrop and as suspected nothing of importance out there. THIS IS NORMAL. With the size of Tamarok, it is easy to expect many hundred drilled holes before having the right picture of this huge area. As far as I am concerned, I would not expect any updates before 2012 and as of today, this is not priority number 1.

Increasing mine life at Canatuan is the number 1 priority then it is Balabag. No surprise there.

A note about share dilution. It is false to state that TVI went from 479M shares in December 2010 to 622M shares because of TGE acquisition. 76M of those shares were options already acquired by LIM when they financed TVI for Canatuan in exchange for a 15% stake in the company. So these options could have been materialized without the purchase of TGE.

Now about the options: this is a good new: at the TVI price of today, most of them could not be exercised. About 28M options are over 0,06… and the 8M warrants remaining are at 0,045. So if price stays at this level, we could avoid another partial dilution. As for the issuance of those options, I do not see any problem there. You want the best guys, you need the best guys, then they get the best possible pay when EXCEDING results. (Easy to see when stock price moves higher and the opposite is equally true)

So what is the real picture: as of today: bad on results and great on possibilities. TVI will have to get back to profitability as I am now wondering who will finance Balabag as there are simply no other options unless oil properties were sold to cover start-up cost (I doubt that unless there are great proven resources in Alaska or Niger surprises us) and issuing shares would dilute too much actual shareholder value. So cash flow generated must increase to allow the implementation of this bootstrap mine. Canatuan should be producing until mid-2013 so it should not be a problem to fund Balabag almost completely with cash flow generated from Canatuan.(Do not mix cash flow with earnings because earnings take into account many items that do not have any influence on cash like amortization) as long as expenses stay under control and that no other major surprise arise.

Do I still believe in TVI’s future: Yes BUT at this time I would simply wait for new developments and hold my actual position hoping for the best but planning for the worst. It is time for somebody in charge to stand up, face the music and explain in ‘real’ English what is going on, what are the plans to correct those problems because margin of error is getting lower by the day and only then will shareholder be able to take a decision: keep or liquidate position.

But do not get me wrong: Balabag could become a cash cow (as did Canatuan) and we will find out as soon as the 43-101 is released, any other oil discovery would change the pattern instantly, (I say other discovery as we all know they found oil in Alaska but the unknown is how much), any 3-4 years mine life addition to Canatuan would fix part of the problem and we can go on and on. The possibilities are great but confidence is running low and the market tends to agree as we are now back to September 2009 share price.

Still not the right time to panic and still could be a great time to average down the price. But, overall it is certainly the time to get the right answers from the top officer because after all Mr James is working for us, the shareholders and we deserve to know.

I remember having been asked in the past why I would still push TVI and my answer was that until it did 2 consecutive quarters in increased negative earnings, I will still keep my target for TVI (or any other company on my top list).

Come on TVI, come on Mr James YOU can do a lot better than that.