Go Digging North of the Border with Taseko Mines (TGB - $2.50)

In this crazy market all stocks should be looked at with a critical eye, especially any stock that is involved in commodities. Commodity prices and stocks had been on a tear up until a couple weeks ago when the rug was pulled out from underneath them. Certainly there was a lot of money put into these looking for a quick buck that all run for the exits at the same time. However, one thing has not changed and that is the global demand for a lot of these commodities and in this case copper. You can look at all the statistics that you want to but developing nations like China and India needs a lot of copper. I think the demand and thus the price of copper will be around these levels for a long time.

Taseko Mines owns three mining properties in Canada of which one is currently being mined and generating revenue. Their current mining project (called Gibraltar) is producing about 13 million pounds of copper per quarter and they are projecting for that number to increase in the next two quarters. But what is really being overlooked with this stock is their other mining properties. The second mining property that they own (called Prosperity) is actually a copper and gold deposit that is undeveloped and going through feasibility studies right now. The first study of this property showed measured and indicated resources of copper at 4.4 billion pounds of copper and 9.2 million ounces of gold. Quick math on those numbers would put the value of the copper at over 13 billion dollars and the value of the gold at over 5.5 billion dollars! I simply can’t believe this company has not gotten more attention from this.

The stock was hit badly after they released their last quarterly earnings report so this is not a completely rosy picture. Their copper production was down a little from last quarter and also below the same quarter a year ago. In their conference call they discussed that some freak things happened like birds causing power lines to go down and a shortage in tires for their trucks. So I don’t think it is a big deal that their production is down as it should be on its way back up. Last month they announced that they are upgrading their concentrator to expand production which also is a positive for this company going forward.

Even though production was down, earnings were up to 3.1 million as compared to .6 million in the same quarter a year ago. This is due in a large part to the price of copper which they sold at an average of $2.06 in this past quarter. With copper over $3 now, they should have a full quarter of selling at these levels causing earnings to benefit greatly. With the price of copper higher and some production problems behind them this upcoming quarter should be a blow out. The stock has a P/E ratio of 9 right now which does compare to some of the bigger copper producing companies but their future earnings growth I expect to be much larger then the other copper companies. As a smaller mining company it is understandable that they lack some attention but a company that has billions in mining deposits only has a $275 million market cap is just ridiculously undervalued.

In the near term they are expecting their feasibility study to be finished on their Prosperity mine which should be a positive catalyst for the stock. I am also expecting this upcoming quarter to blow the socks of the previous quarter. Mix that with the fact that they have huge mining deposits in a safe country and I think this is a good takeover target from one of these larger mining companies. The stock had just recently been as high as $4.25 and I think there are a lot of reasons for it to at least get back to that level if not much more.