1. DML had bad grades and the project could not make money at $3 copper, and no amount of cost savings could help bad grades. Even in that instance, they renegotiated with the creditors, who took massive haircuts over the long term and the show went on for years. DML is more evidence that TGS will do well partnering with Taurus than not.
2. Todd brothers are ordinary shareholders - they stand to make as much out of this as us. That statement doesn't stand up to fact. In addition, unless the Todd brothers have some magic formula that can shave 50c/lb off ASIC, then I could care less whether the come or go.
3. Taurus, who "own" the company through debt, would be unlikely to recover their loan investment through sale. The company ASIC of $2 and copper price of $2 make this marginal at the moment, with a low present value. Their best bet for recovering their investment is to support TGS to continue to operate. In the long term, they will do just fine out of the company, if copper can get back over $2.20 or so.
The risk isn't default IMO. The risk is the medium term price of copper and the ability to break even. Debt or no debt, no money is being made at $2 copper by anyone.
Look - all projects and companies have operating costs. However, unlike retail and manufacturing, resource companies sell a "commodity" which means they are "price takers". They can't crank up the price to make a margin. When the expansion got the go ahead, and the loan from Taurus granted, assumptions needed to be made about the long term price of copper. People with actual millions of dollars signed off on those. Since then obviously, the price has fallen for macro reasons. Anyone who predicted this back at 9c when copper was relatively much better is either a genius and should be gloating on HC from a boat in the Carribean or....
TGS Price at posting:
2.5¢ Sentiment: Buy Disclosure: Held
