Copper - analysis Message Board

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Gold/Mining/Energy : Copper - analysis

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From: Gofer	1/14/2005 9:47:04 AM
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Amerigo Resources - ARG.TO, ARG-WT.TO If anyone here would like to check this post for accuracy, I would appreciate it. This company produces copper from tailings from Codelco’s el Teniente mine and tailings pond in Chile. 2005 Copper production of 42M lbs is planned to increase to 65M in 2006. By the middle of this year they are expected to be producing Molybdenum(MoS2) at the rate of 700,000 lbs/year. A capital cost of $Can 24M is estimated for the expanded production. In 2004 Q3 they reported cash flow of $3.61M and earnings of $2.96M There are approx. 87M shares fully diluted. This includes approx. 21M warrants at $0.70 due in June of this year which will produce $14M in new equity. If I make these assumptions (in US$): Copper price: 1.35 - Cash cost/royalties: 0.80 = $0.55 cash flow/lb. Moly price: $25.00 - Cash cost/royalties: 6.00 = $19.00 cash flow/lb. (42M lbs copper * 0.55) + (700K lbs Moly * 19.00) = US$ 36M annualized cash flow US$ 36M * 1.2 exchange rate / 87M shares = Can$ 0.50 cash flow/share Earnings/share are difficult to estimate, but if I assume Can$ 0.35 then I get a forward P/E of 1.68/0.35 = 4.8 The biggest risk for ARG is their dependence on Codelco. Potential investors should take this into account. Since this stock ran up in ’03 and established its current trading range I’ve been able to trade it 3 or 4 times for an average gain of $0.20 each time. stockcharts.com[w,a]daolyyay[dd][pb50!b20][vc60][iUb14!La12,26,9]&pref=G I feel that ARG will establish a new higher trading range. The trigger for a price increase may be the announcement that they are shipping Moly which may occur by June of this year. Disclosure: I am long ARG Disclaimer: The information in this post is for discussion purposes only and is not a recommendation to buy this stock.

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