Seeking Alpha
Long only, value, growth, event-driven
Profile| Send Message|
( followers)  

A few investors are always keeping an eye out for that speculative stock that could cause a huge jump in their portfolio's return. But is there a stock that would allow its shareholders to safely wait for a massive increase in stock price, while not being subjected to extreme volatility? If I could pick any company that meets this description, I would absolutely have to choose Taseko Mines Limited (NYSEMKT:TGB). Taseko is a British Columbia-based mining Company focused on the extraction of copper, gold, niobium, and molybdenum. The company currently extracts copper and molybdenum from its Gibraltar mine (of which they own 75%) and have plans to mine gold, copper, and niobium from a host of new sites. These sites include the New Prosperity Project (gold/copper), the Aley Project (niobium), and the Harmony Project (gold). All of the projects could see great returns for the Company and the shareholders, but one in particular seems to stand out the most; the New Prosperity Project.

First off, I'd like to take a little bit of time to explain the speculative part of this play. The speculation comes mainly from the New Prosperity Project, which could provide astounding revenue for the company in the near future. But the hitch is, local tribes don't seem to be too happy about having a mine in the area and have voiced concerns about wildlife including trout and endangered grizzly bear habitats (sounds a bit like Avatar now doesn't it?) coming to harm. Officials in Ottawa, axed the plan last year due to its destruction of Fish Lake, a well-known tourist destination in the area. But Russell Hallbauer, President and CEO of Taseko Mines, has attempted to assure the local government that the revised plan offers a fresh plan with a solution for everyone:

New Prosperity is a unique opportunity for British Columbia, First Nations and Canada as a whole. Taseko has made significant efforts to address the concerns identified during the original Federal review process. In particular, the preservation of Fish Lake, which adds $300 million in capital and operating expense to the project, is a strong example of the company's commitment to the success of New Prosperity and to the principles of sustainable mining. (Source)

This chart, available on Taseko Mine's website, shows a comparison between the environmental effect of the old project versus the new project.

(Click chart to expand)

The Tsilhqot’in National Government (TNG) disagreed with Hallbauer's opinion, and responded by stating:

The only major change is that instead of killing Teztan Biny outright, it would render it inaccessible, destroy the smaller adjacent lake that is essential to its self contained wild trout ecosystem, and leave open the option of killing the lake later during the proposed extended 33-year lifetime of the mine.

If the new plan doesn't affect the environment or the surrounding area as much as the old plan, then there's a good chance that Taseko could see preliminary approval on the project within the next year and start working on the mine within the next few years.

Secondly, if the project is actually approved, then the amount of revenue and profit the Taseko earns will skyrocket. In 2010, the company earned only $278 million in revenue. And according to Taseko, the Prosperity Mine has 13.3 million ounces of gold and 5.3 billion pounds of copper. With gold at $1840 and climbing and with copper at a price of just about $4, the company's assets in this area could be worth in excess of $45 billion dollars ($24,472,000 billion for gold/$21,200,000 billion for copper). Original estimates for the project put the pre-tax net value at 3 billion dollars (at 1,000 gold and 3.15 copper), but with rising commodity prices, that value could be more than 5 billion dollars. Taseko already has 1 billion ready to be invested in the project and all it needs is government approval to go ahead. The worth of this mine alone is a symbol of the potential that the company currently has.

And finally, what sets Taseko apart from many other stocks is its ability to be a speculative play as well as a safe one. There are many other companies out there such as Entree Gold Inc (NYSEMKT:EGI) and Keegan Resources Inc. (KGN) that are still only in their exploration stages. Investing here is extremely risky because, if the companies don't turn up reasonable amounts of minerals (gold in those cases), then the investors are in for some trouble. Speculative biotech stocks such as Dendreon Corporation (NASDAQ:DNDN), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and AEterna Zentaris Inc. (NASDAQ:AEZS) are also in the same boat. If the companies' drugs don't meet the hype, then investors are in for one heck of a crash.

In Taseko's case, if the New Prosperity Project proposal is rejected yet again, it still has its mine in Gibraltar to bring in profits and keep the company alive. In the year 2010, Taseko managed revenue of $278 million, a pre-tax profit of $195 million, and an after-tax profit of $149 million. Even though earnings have been rather low the past few quarters, Taseko's outlook is good as the company moves forward with a Phase 3 expansion program at the mine. This plan will include construction of a new concentrator, which will increase annual production capacity to over 170 million pounds of copper.

In conclusion, it appears that Taseko could be a good company for anyone who likes big gains, but who is also patient at the same time. It could be years before the New Prosperity Project is put into action and an even longer time before any of Taseko's other projects start making major headway. But with $212 million in cash, only $38 million in total debt, and a P/E of only 25, what more could you ask for? A profitable and expanding mine to come along with it? Well, Taseko comes with that too. It's possible that the New Prosperity Project could be rejected, which would probably lead to a slump in the stock price. But if the Gibraltar mine continues along the path it is on today, investors should be able to feel safe.

Source: Has Taseko Mines Struck Gold?