good rev in the financial review today

Finally main stream media waking up to Tiger's potential - see below in today's financial review


Keep an eye on Tiger Resources


Small caps

TREVOR HOEY

A strong 2013 production performance from Tiger Resources Kipoi copper project in the Democratic Republic of Congo, combined with a substantial increase in ore reserves announced by the company last week, prompted a share price re-rating in the order of 10 per cent.
But details contained in the ¬Definitive Feasibility Study (DFS), only released by Tiger yesterday, are far more significant in terms of the ¬company’s long-term future, and its ¬relevance is best demonstrated by comparisons with valuation models completed by brokers prior to this update.
This latest data hasn’t produced a short-term spike, but it should be the foundation of a sustained re-rating for a company that has arguably flown under the radar over the past two years, despite being Australia’s fourth-largest copper producer outside majors such as Rio Tinto and BHP Billiton.
The main game for Tiger Resources is its transition from a producer of copper concentrate to premium-priced high-demand copper cathode. The big news in the updated DFS relates to this area of its operations due to start production in the second quarter of 2014. Based on revised metrics, the after-tax net present value of the copper cathode operation has doubled to US$755 million ($854 million) as a result of production modelling increasing 43 per cent to 538,000 tonnes and a mine life extension of two years, which sees production extending to 11 years.
To put this in perspective, when Macquarie initiated research on Tiger Resources in September 2013, it used the company’s January 2013 DFS results and factored in some upside, though nowhere near that implied by this recent update. But even based on those much more conservative projections, which included copper cathode production of 365,000 tonnes, the broker valued Tiger at 60¢ per share.
Production indicated in the revised DFS is nearly 50 per cent ahead of Macquarie’s projections. This development should prompt analysts to make substantial changes to valuations, earnings estimates and share price targets.
As Tiger’s managing director Brad Marwood so simply put it, “the numbers speak for themselves – Kipoi is a world-class copper project”.
PROSPECTIVE TERRITORY
But don’t expect this to be the last you hear from Tiger given that there is substantial scope to increase resources and reserves from prospective territory close to the Kipoi mine site, which is the subject of comprehensive exploration activity. Despite Tiger’s share price falling to 16¢ in mid-2013, Macquarie didn’t lose faith in the stock. Its confidence in Tiger Resources is based on its current performance and the medium to long-term prospects of its Kipoi project. The broker was impressed with management’s comments last week that the construction of a new plant, which will produce the high-grade copper cathode, is ahead of schedule.
Macquarie highlighted that 2014 would be a pivotal year for Tiger with it transitioning from the production of copper concentrate to premium-priced copper cathode. Based on the broker’s pre-DFS forecasts, a net profit of $19.2 million in 2013 was anticipated, increasing to $72.7 million in the 12 months to December 31, 2014.
With the original plant at Kipoi expected to continue to operate above design capacity during the transitional phase, the company has cash flow to negotiate this period. In fact, Macquarie is expecting cash flow per share growth of about 190 per cent in 2014.
Yesterday’s upgrade is arguably the most significant development in the past 12 months, aside from the promising operational results delivered by management in 2013. It not only translates into a longer mine life, but additional data in terms of increased grades and lower operating costs, making the company a compelling story in terms of medium to long-term profitability.
With regard to the copper price, it has pushed up towards mid-2013 highs. While there are mixed opinions regarding the outlook for 2014, the supply-demand dynamics for copper cathode are more favourable than copper concentrate, and this should help to cushion volatility. One of the other positive factors that UBS highlighted was lower supply coming out of South America, and a continuation of this trend would be positive for Tiger.