In mid-September, Taseko Mines (TKO-T, TGB-X) made a second attempt at permitting its US$1.1 billion New Prosperity copper-gold project in British Columbia, submitting a revamped environmental impact statement with a US$300 million plan to salvage Fish Lake by moving the company’s tailings facility 2 km upstream.
In the meantime it is hedging its bets.
Taseko has raised its stake in Yellowhead Mining (YMI-T), which owns 100% of the Harper Creek copper-gold-silver project in south-central B.C., about 150 km north of Kamloops. Yellowhead bills its project as one of the largest copper development projects in Canada. It hopes to start production there in 2015 and according to a feasibility study completed in early March the deposit should produce 3.6 billion lbs. copper, 372,000 oz. gold and 14 million oz. silver over an open-pit mine life of 28 years.
On Nov. 8, Taseko acquired an additional 7.7 million shares of Yellowhead at $0.65 per share — bringing its total ownership to 10.3 million shares or 16.8% of the junior’s issued and outstanding shares.
“With Taseko’s controversial New Prosperity copper-gold project currently advancing through the permitting process, we note that a negative decision by the review panel or the federal government could increase the company’s interest in Yellowhead Mining as Taseko could potentially look for an alternative production growth vehicle in the Harper Creek copper-gold-silver project,” Christopher Chang, an analyst at Laurentian Bank Securities, reasons.
In a research note, Chang points out that Yellowhead is already seeking joint-venture partners to help fund development of Harper Creek, which in the feasibility study was estimated to cost $839 million.
Harper Creek’s extensive low-grade volcanogenic sulphide system contains reserves of 704.4 million tonnes grading 0.26% copper, 0.029 gram gold per tonne and 1.14 grams silver per tonne. The project offers a pre-tax net present value of US$749.7 million, an internal rate of return of 20.2%, and a five-year payback at US$2.50 per lb. copper and an 8% discount rate. Life-of-mine cash operating costs, including precious metal credits, are estimated at US$1.56 per lb. copper.
“Should Taseko acquire the remaining shares of Yellowhead, we believe the combined company could potentially improve the likelihood of a Harper Creek JV as Taseko’s flagship Gibraltar copper-molybdenum mine already has a 25% minority interest partner” in Japan’s Sojitz Corporation, Chang notes.
The Toronto-based mining analyst has a speculative buy rating on Yellowhead and a target price of $2.75 per share, an amount he believes is supported by the company’s “compelling valuation, low political risk jurisdiction and ongoing project de-risking.”
“Yellowhead Mining is currently trading at a compelling 82.6% discount to our 10% NPV of $3.21 per share,” he argues. “This compares favourably to our coverage universe average discount of 65.1%.”
And based on an in-situ per lb. in the ground valuation, he continues, the company is also trading at a favourable enterprise value of attributable contained copper equivalent of 3¢ per lb., “well below the copper developer peer group of 1.7¢ per lb.”
At presstime Yellowhead was trading at 63¢ per share within a 52-week range of 52¢-$1.37. The junior has about 53 million shares outstanding.
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