TVI The waiting game

First let me say that Rhonda leaving TVI is a very bad thing for TVI and will surely mean a greater challenge for Rhonda. I wish her all the best and she will be missed in here. I was told that Raina is a very capable one and does have a great experience log. I will definitely be in contact with her in the very near future.

As expected last year numbers for TVI were good. Not excellent but ok.

Profit was correct, revenues were ok, their bank account is very nice and only very minor debt at very low interest rate. So what else can we ask for???

WE NEED PROJECTS GOING!

Obviously, every major company in the Philippine is actually in a waiting game with the Philippine Government as it would be absolutely ridiculous to announce new mining projects without even knowing what would be the taxable rate.

But for now let’s look at 2011 results and expectations for 2012.

The first thing that comes off my mind is Canatuan mine life: it is really surprising that there is still 1.6 years remaining mine life bringing TVI now to almost 2013 before mine is depleted totally. The new ore mix that Yulo is using seems to be very profitable. My opinion is that they are still drilling near the actual Canatuan pit and that they have a lot more ore available than originally thought. That being the case, it would be very interesting to know by how much mine life could be expanded but I will not count on that as it is illegal to mention new resources without going first thought a new 43-101. This would be costly and not needed at this time unless major discovery were to be made. Just the fact that they have drilled more copper and zinc near the actual pit is more than enough for me at this time.

The second thing that I find interesting is the value of the mining claims: it jumped from 3.9M$ to 6.9M$. Hummm what happen? There is an addition of 4.6M$ in 2011 and under construction, there is a 5,8M$ under Construction in progress. To me these 2 amounts are referring to Balabag and that being the case, this project is probably a lot closer to an official start-up that we originally thought.

What about cash reserves: WOW 23,7M$ that is a HUGE difference from last year and definitely comes from Alaska transaction (that had a direct impact on the 12M$ net equity jump in 2011) and some profitable mining during the year.

For the math lover in you, TVI is now generating 0,035 per share in cash flow (yearly). That is very surprising for a company to have their shares trading at the same level…

It is also interesting to note also that TVI is now a profitable mining company. Last year it had a cumulated deficit and now it is retained earnings. This is a good difference.

So the net results is that in 2011 TVI made a profit of 0,005 (half a cent) compared to last year 0,022 net profit per share. We can immediately see why shares are trading at 0,035: it does represent a multiple of 7 THE SAME as last year (well almost the same albeit a bit lower last year as a multiple).

As a starting point for TVI share price valuation I think the real ACTUAL value actually should be in the vicinity or 0,15 to 0,21 cents per share if we only take into consideration Canatuan and NO other projects. To achieve that and based upon current valuation multiple TVI will need to increase profit to the range of 0,02 to 0,03 and this means between 12M$ and 18M$ dollars in profit in 2012. For Canatuan only this is feasible.

I would also highly recommend reading the 2011 final MD&A as it contains a lot of information in relationship with 2011 results and 2012 projects. Iit would be too long to copy and paste in here.

So what should we expect from now on based upon a fast decision from Philippine Government?

1)      We need an update on Philippine oil project. I know that TVI is not the operator and NIDO is the one that will decide if and when we get one. Based upon NIDO web site, there is not much to mention about it and their extension to evaluate real oil prospect in there is ending somewhere in August 2012. Should we count on a great surprise there?  I am not sure and will not count that oil project as something of the highest priority. But I would be interested to know if the value of this area was to be considered as 0.

2)      The Balabag project official start-up signal should be announced almost immediately after the government decision because I think that TVI had enough time to complete and process all drilling and made up their mind (and their plans…). The mountain definitely did not moved but I can understand some delays in the 43-101 because they may have to fine tune the drilling process to ensure maximum value in the defined resources. If they simply change the angle at which the mountain is drilled, I am pretty confident that they have to redo completely the overall picture. (NPV (net present value) must be done pretty accurately and cannot be changed after releasing the report or it would be considered misleading information) By itself this core project of 50,000 gold ounces will be enough to give a boost to TVI shares at least half way to where they were until production really starts up. (Total proven resources as of 2008 43-101 were close to 500K ounces and the 50K ounces was only to define the start-up bootstrap.)

3)      Canatuan expansion: I am almost convinced that Malasuk contain enough copper to increase mine life at Canatuan by another 5 years and drilling around actual pit at Canatuan could increase again that mine life. I think that if there was a 10 years mine life increase (as a total including near pit mining)) this would be the biggest factor to increase share price to a more respectable level.

4)      TVI will need a really good JV partnership with a well-established company to start up a great project with well above what we are used to as potential. A jv that will have nothing in common with Dacon that unfortunately has gone nowhere as of today. How about Philex, Xstrada etc…After all if the bans were to be lifted it would be mostly because of TVI as they would have succeeded where both of them failed and I am almost certain that some of their properties could be jointly exploited. (That could be a great thank you mark…)

5)      Continue exploring the Grater Canatuan Tenement Area trying to expand Canatuan mine life as it is within trucking distance.

6)      Tamarok: Drilling program should be continued in 2012 as this could be another major project for TVI. Any major discovery there could change instantly the value of TVI.

Overall, my view in regard of TVI is that it is in a Federal and provincial battlefield where the outcome cannot be certain even if my opinion is that TVI is in its right. All those legal conflicts have eroded the share price and investor confidence. Until these are put to bed, it will be very difficult for the share price to gain any traction whatsoever.

On the other hand, I would be very surprised if TVI was only sitting there and awaiting results before getting some advancement ongoing. I am pretty convicted that TVI people are more advanced than we know and that they will release that information in due time. As of today, I would not consider that as withheld material information for the simple reason that nobody knows when or at which conditions TVI will be able to go ahead with any of those projects.

At this time we can only wish for the best outcome and it could also be a good time to lower your cost on TVI’s share if your stomach is tough enough to support a 50-50 chance of a positive outcome.

Time will tell but for now I will keep my fingers crossed and hope for the best.

François