If the Investor Presentation posted on TC's website, dated Nov 9, 2012, TC projects the profits they will see from the Mt Milligan mine. These figures are based on bloomberg pricing as of Nov 8/2012, which are:
Gold @ $1,733/oz
Copper @ $3.47/lb
Exchange rate @ 1.00
The estimated costs are for the first 6 years, and the include all operating costs, refining/smelting costs, and transporation. This take into consideration Royal Gold's stream, and the money they will contribute ($435/oz @ 52.25%)
Based on their figures, there would be a cash revenue of $565 million, and cash costs of $280 million. This means a revenue of $285 million dollars. If you divide that by the diluted share amount of around 220 million shares, you get $1.30 per share.
Now these figures may not include the debt servicing. I don't know if they or not. But even if they don't, or if you just want to be conservative and figure $65 million a year in debt servicing from Mt Milligan, you still end up with an EPS of $1 just from Milligan, and that's at current prices.
So it's difficult to imagine how, come this time next year, TC will not be worth at least $10-$12 a share, even at diluted values. Only two things can prevent this from going to $10-$12 a share, and that would be:
1) More cost overruns, which are becoming increasingly less likely
2) Gold and copper prices plunge
Now keep in mind, gold could go way up and so could copper, and so could molybdenum. Let's just say gold hit $2,000, molybdenum went back to $16 and copper went back to $4. You'd then be looking at a company that could be worth $20-25 a share easily. I think by the end of 2014 TC could easily be worth $5 billion dollars market cap.
How can you ignore debt servicing? It's HUGE..as in $142MM/year. 86MM/year for the $350MM@7.5%, $56MM for the$200MM at 12.5%, plus $5MM in royalty payments and whatever they have with Catepillar on the equipment.
I did some rather extensive modeling, attempting to replicate their income statement for 2013 and 2014, down to an EPS basis, month or so ago.
Using current pricing, their revised projected cash costs for Mt. Milligan, and running it out on a fully diluted basis, assuming a 30% tax rate, I come up with $0.94/shr for 2014.
The numbers you're using are cashflow based, and don't translate well into reported EPS.
There will be depreciation & deletion on the Mt. Milligan project that will effect EPS (I summed up the total investment (everything) in Milligan and divided by 22 yrs.). Also, debt service is around $50mm annually, and provincial taxes for BC will be at least 26% (I used 39.63% as a proxy, since Milligan e&p will be repatriated to it's Denver-based parent for corp. purposes [ie, debt repayment], so really, US federal and state tax rates apply, since we all know that cash will come back to parent). So, that's why my EPS number is much lower than your cash-based number.
But cashflow is MORE important in 2014 than EPS, anyway. Milligan will generate a lot of it, and they'll use it to chop away lots of debt, probably beginning in later half of 2014 after building up a reserve. Anything they don't repay, will get refinanced, by end of 2015.
Anyway, in a year or so, I agree, this is an $8-$12 stock, at current metal pricing, provided Milligan is up and running, hopefully smoothly (it should be running.....hopefully it's smoothly). If Moly prices do happen to go up in the future, that will yield signficant operating leverage, providing share price upside beyond $12/sh.
"Anything they don't repay, will get refinanced, by end of 2015."
Correct me if I'm wrong but I thought all the bonds issued last year and this year were non-callable bonds. This means that they cannot be refinanced resulting in a sizeable debt-burden overhang for a number of years.
Wow, there you go ultra. A nice informed post. Right on and roughly also in line with a similar analysis I did. My only quibble is the expectation of $8 to 12 stock assuming moly prices stay where they are now. With metal prices where they are now, I can't see this stock going much above 8. imo moly needs to move back into the low teens to get much higher than that.
With the whole world printing money like mad, I think the chances of gold being above $2000 an ounce (at least in US dollars) is pretty high. $2000 gold and $5 copper and we would be holding shares worth $10 for sure.
Once Mt Milligan is done, TC is going to be extremely well diversified. They will have almost equal amounts of MOLY, GOLD and COPPER. Their total gross revenue can be expected to approach close to $1 billion dollars a year. Overall I could easily see TC pumping out $500 million dollars in earnings in 2014 after all costs and debt servicing. This would give an EPS of 2.27, or around $15 to $18 a share.
Moly prices are key here. At $11/lb, TC is going to be fine and will be profitable. But if they were to go back to $16/lb, this would be a monster of a company. With 2013 guidance of 30 million lbs of molybdenum, an extra $5/lb would mean $150 million dollars more in earnings (not revenue, EARNINGS). So if molybdenum prices can stay at $16 long term, that alone will add around $5 to the share price.
Now that markets have closed and things have calmed down a bit, and as I read over the investor presentation and all the earnings, it becomes even more clear to me what is about to happen if a few things click properly. This could be a huge play. There is even a small potential to see this hit $8 or $9 by the end of this year if everything went right. The fiscal cliff thing is resolved, the US government announce they are spending $600 million dollars on new roads and bridges, the S&P 500 hits over $1600 before christmas (new all time high), and molybdenum and copper rebound. If that all happened, we would see TC approach the $10 mark by the end of the year. Probably end of January is more likely.
Sounds ridiculous, but it's happened to this stock before. With 25 million shorts covering, that's enough to send it soaring. The same thing that happens to a stock on the way down (stop losses being triggered and people taking profits) will happen on the way up, with shorts who have shorted it from $10, $7, $4, etc. all taking profits. Also look for big players to enter as it goes above $3 for good, and then above $5 (penny stock levels).
And to add to this, looking back at my ultra conservative predictions, from 4 months ago, I had accounted for total costs of Mt Milligan to be $360 million including debt servicing, so if this is true above then it's almost the same as above. Even if went higher (no reason to suggest so, but let's be more than ultra conservative), even if we said... let's say... costs of $400 million total, with all debt, you'd stll be looking at $0.84 a share, or around $6 to $7 per share added.
The MATH as dtime puts it just doesn't add up in his favour. And if you read the investor release, they say that only $177 million in non-fixed costs remain. So no more surprises and not much uncertainty left. These are also figures as of September 30, we are now in the middle of November. Also, forget about 2014, TC is set to have way less capital expenditures next year, and they will post a PROFIT (positive EPS) each quarter. 2012 was the big bad year. It's done and almost over with. After next quarter results we can expect this company to be making lots of money.
Wouldn't want to be a short...
Sentiment: Strong Buy