BWLRF- Breakwater recently reported diluted earnings of 9c for Q1 but that included an income tax recovery credit. Without that credit, they had earnings of 3.5c (Canadian). Annualized and converting to USD, that is a PE of 9. Company also sells at about 4x annualized Q1 cash flow. At 1.08, BWR has sold off 30% from highs of only a week ago. While all metal stocks have taken a big dive in the last couple of days, the market may also be disappointed that breakwater did not do better. After reading the 10Q and listening to the recent conference call, I have been loading up at today’s prices. Here’s why:
1. Last quarter, the company’s provisional liabilities increased from 14Mil to 42Mil. This represents ore/ concentrate that has been shipped and paid for but not yet recorded as a sale since the title has not transferred. Earnings in Q1 would have been much higher had more of this been recorded as sales. BWR actually recorded no sales of copper in Q1, although 3 shipments were made and paid for. In the conf call, mgmt indicated that those 3 copper shipments alone would have increased profits by $10 mil. Those sales will be recorded in Q2.
2. Company mined a lower quality of ore at Myrna Falls in Q1. That will improve in the coming quarters.
3. BWR currently has no hedges on Zinc or Copper, whose prices has exploded in the current quarter. In Q1, BWR received an avg. price of $1.01/ lb for zinc. So far, in Q2, zinc has ranged from 1.20 to 1.60. Today it is up a bit at $1.56. That alone should double earnings from Q1. Most of its current hedges on silver and gold expire after the current quarter.
This company could earn 10c in the current quarter and that annualizes out to a PE of less than 3. Looks cheap to me here
AI
