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Gold/Mining/Energy : Big Dog's Boom Boom Room
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From: DaveAu4/30/2007 9:13:08 PM
  Read Replies (2) of 206093
 
I know there has been some interest on this thread in NTO. I still expect NTO to do well but I recently sold it because QUA.TO seems to be both cheaper and lower risk. Here's what I posted to the Copper thread:

QUA.TO may be the best value of any stock I follow even though it’s up 60% since my post on March 15. In Q1 they reported fully diluted EPS of 1.12 US which is about 1.24 Canadian. Annualized that gives a PE ratio of 2.6 based on the close today of 12.88. Some details to consider:

Plus side:

1. Hedging losses cost them about a nickel a share in Q1 (need to look at both realized and unrealized losses and net them out), The last hedges were settled this month (April 2007). They had massive hedge losses last year that kept them under the radar of most investors.
2. The metal prices in Q1 were far below the current prices. The LME average price for Copper was 2.69 and QUA received a little less than this. The LME close today was 3.65.
3. The Q1 earnings were after 16.7 MM in taxes (3 in current, 13.6 in future). Many of the other mining companies with supposedly low PE ratios have zero tax or tax recoveries in their bottom line and often are close to exhausting their tax pools due to recent profits.
4. Q1 production was a record for the mine.
5. Refining charges were down from last year and should stay down (they’re down across the industry due to excess capacity in China)
6. Current production is from a single Cu/Au mine (Robinson). A second Cu mine (Carlotta) is on schedule to begin production in 2008 which will increase their production 50%. Stripping will start this summer. Costs at Carlotta are much lower than Robinson.
7. Both mines are located in the US, which I think should give a premium valuation both for political safety and for the fact that costs are in the falling US dollar.
8. They are currently purchasing a company (InterMoly) that has a large Molybdenum deposit in Greenland with an already completed feasibility study. The price paid per pound of Moly is substantially below comparable companies. They have a lockup agreement on 78% of the shares so it looks like a done deal. Orion comment from April 3, 2007: “Clearly the price paid by Quadra is materially less than current market multiples – when the impact of the higher moly grades at Malmbjerg are considered we believe that the differential is even greater”
9. They have a very large, earlier stage project in Chile with a resource of 5 billion pounds of Cu. Drilling continues. Water is a potential problem.
10. Sprott Asset Management owns 20% of the company. They’ve been known to pick a few winners in the mining sector.

Minus side:

1. Q1 copper sales were 10% higher than production
2. A financing announced in April that will close around May 9 will dilute earnings. The financing was done at 12.60 and includes a half warrant with exercise at 20.00 and a 3 year time frame. Note that the financing allowed the early repayment of some very high interest debt (50 million at Libor plus 10%) taken on for the Carlotta project so this will reduce future interest payments.
3. The repayment of debt noted above will result in a one time charge of 11 MM in Q2.

PS. I’ve changed my SI handle from Bluejay to DaveAu to match what I’ve been using on stockhouse and Investor Village.
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