ursusbrumae on BMO report
February 15, 2017 - 03:59 AM 287 Reads
Post# 25847284
5 starsv
BMO Analyst Report, &c.
Thanks for posting, guarantor1. The analysis is sound and reasonably detailed, and the writing is clear. Basically Andrew is saying, yeah, they do have the best stuff. All four projects are not only world class but have no equal anywhere. Management is doing all the right things. NPV10 at USD 3/lb copper is CAD 7/share (my estimate is higher). But they admit:
1. The company's cost of capital is probably much lower (note their CAD 14/share NPV5 estimate - again, my estimate higher, probably 14 for K&K alone TODAY).
2. The projects are growing all the time, but we're not factoring any of that in, either drillled off and indicated, or future expansion potential, which in their in-house geological expert opinion, is significant.
3. Management has already said they will do 12 or 16 Mtpa throughput, perhaps more. That it's under study. But realistically, they are not doing 8. And they are definitely not doing 4!
4. Ongoing optimisation will improve the numbers, but we're not factoring any of this in, in spite of a pattern of continuous improvement
5. The NPV figures have tremendous leverage to higher copper prices, but we're sticking with current prices, or USD 3/lb, just to stay at copper-neutral at spot.
All in all I would say it's a very sound and correct report. And if you read between the lines, they are saying, yeah, it's worth a WHOLE LOT MORE. But we're only giving you 7 dollars, folks. The stock isn't even at 5 yet, and there are rules to these analyst reports! You certainly can't put a target up 100%...or more. That would be totally out of line. Let Bernstein put out the egregious number, and wait till the other institutions pick up their game. We have to get all our buddies in on the stock, and then all our clients, and then we still need some leverage with management so we get good information flow. When the stock hits 7 (in a few weeks' time???) we'll up the target. There will probably be plenty of news by then, and thus an upgrade can be rationalised. But for now, 7 dollars is all you get!
I can't help but think, when the stock was under $2 and the Kakula discovery was taking shape, the analysts (who presumably cannot own it) must have been telling friends and family to buy the stock. It was blatently obvious to a relatively experienced outsider following the company that this was going to fly. So to a specialised mining analyst covering only a handful of companies for many years, surely they must see the significance in real time. They are not stupid, though they often pretend to be.
I remember in 2H 2012 when Richard Bove [editorial note: Stockhouse disallowed his nickname which he goes by, so I am using his full name, ha!] of Rochdale Securities (a firm since ensnared in an insider trading case pertaining to another employee) went on every major financial network and was pounding the table on US financials, saying they were trading at half cash, had the strongest balance sheets (capital ratios) they had ever had in a century of operations (i.e., were massively overcapitalised) and were trading at half of tangible book and half of cash. And the journalists said "what about the weak economy? What about regulation?? What about their PIIGS sovereign exposure in Europe???" And he just shouted, "forget about all that. These companies are the strongest and cheapest I have ever seen them in my 50 years of coverage of money center banks!!! I am not allowed to buy them, but if I could I would be loading the truck with as many shares as I could get my hands on!" (I paraphrase.) He seemed like an honest guy. I read all the 10-Ks. And I agreed with him, and around that time loaded up on these Wall Street firms. I think I doubled my money in 6 months. It really wasn't complicated; it was just totally obvious! But if you listened to the press or most investors, you would just do precisely the wrong thing at exactly the wrong time. Sometimes I wonder whether the information flow in the markets is just a meaningless jumble of noise as a reflexion of herd mentality, or it really is a conspiracy against the unsophisticated investor. Perhaps both.
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fyi, the 4 page report on the other board in 4 succesive posts by this poster beginning with this post:
guarantor1
February 14, 2017 - 11:48 AM 363 Reads
Post# 25843352
