Tiger Resources could be a wildly rewarding recovery play - 3-5x...

Tiger Resources could be a wildly rewarding recovery play - 3-5x the current share price - though investors may need a little patience for the story to play out.

Let's remember what Tiger has achieved over the last six months;
- The balance sheet has been repaired with new equity and far lower cost, long term debt. This is not the urgent situation that the company faced throughout 2015 (very short term debt, with eyewatering interest rates and charges). They do not need to raise equity this year and they have sufficient balance sheet capacity to expand the plant to 32.5 ktpa, at which point (subject to copper price), they will be generating excellent free cash flow.
- Unit costs have significantly come down through better production, higher grid power consumption and lower acid costs. The plant works, the leach performance is good and there is now far lower technical and execution risks. The costs may bounce around quarter by quarter, but the trend is down and far better than most punters forecast at the start of 2015.
- The underperforming board and management were removed and a new team is now leading the company.
- DRC government has confirmed that no changes will be made to the mining law.
- Glencore has mothballed their DRC and Zambian production for 2016 - that should free up power for other mines in the DRC.

The share price appears to be pricing in all of the downsides, and none of the potential upsides;
- Unit costs still have further to fall, especially with lower financing charges, but there is also scope for gird power utilisation to improve further in 2016 (especially with more power from Zambia after the wet season and lower consumption from Glencore in the DRC).
- Administration costs can fall as the company takes out overheads
- The capex required for the 32.5ktpa expansion can be reduced - the capex should be less than $20m
- The company production targets remain conservative, with the company consisitiently producing above the design spec. They could do easily do +27,000 tonnes this year, and 35,000 tonnes next year.
- Even if they produce at 32,500 tpa next year, at an AISC of $1.50 per pound, then at spot copper they will generate free cash flow of US$41.5m pa. Conservatively deduct US$20m of interest and admin and they can reduce the principal by over US$20m pa. This is fine and is not a distressed scenario.
- If we get a bounce back in copper to US$2.50 per pound, then EBITDA will be over US$90m pa, free cash flow will be over US$70m pa, and the debt simply becomes a non-issue as they will pay it off in just over 2 years. Assume a multiple of EV/EBITDA of 5x and the EV can hit A$625m

You need to hold for 1-2 years, but the upside is worth it.