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http://www.fostock.com.au/announcements/tiger-resources-ltd-tgs-asx


Tiger Resources Ltd (TGS.ASX; $0.25/sh; Mkt Cap $169M). No negative impact expected from proposed concentrate export ban in DRC.

BUY PT $0.55/sh.
•A reported decree signed by two cabinet ministers on April 5 is seeking to ban the exports of copper and cobalt concentrate from the DRC. The motive behind the ban is to force mining companies to process ore locally to add further value. The DRC produced ~650kt of copper in 2012 with 30% in concentrate form, ranked 8th globally. A separate letter dated April 12 and attached to the decree details that companies can still export concentrate if they receive permission from the Mines Minister and pay the related taxes.

•Following the release of the initial report, the Governor of the Katanga Province, Moise Katumbi, commented that the Katanga Province will not implement the ban due to the fact that there is insufficient electricity required to further refine the concentrate within Katanga. The ministry did state in the decree that they may consider granting exceptions to the proposed ban “to counter any eventual difficulties linked to an energy deficit”.

•It is expected that the Minister of Mines will meet with the Governor of Katanga and senior mining executives in the near term to discuss the decree in more detail.

•TGS have stated that they believe there will be no impact on operations or the continued sale of concentrate from Kipoi, currently sold via offtake partner Trafigura both locally and to the Chambishi smelter in Zambia. The percentage of concentrate exports in Q1 2013 was less than 20%, and at current copper prices the payability terms are similar, resulting in very little difference in the net revenues received under sales into either the local or export market. Further, TGS have stated that there is sufficient demand from local smelters to accommodate all of the concentrate volume (~35ktpa) from Kipoi. Finally, export sales from Kipoi are done so under valid permits that have previously been executed by the Governor of Katanga and Regional Minister of Mines.

•We have spoken with TGS management at length and note the announcement released by the Company which is consistent with our key belief that, based on the information presently available, there will be no impact on the sale of concentrate from Tiger’s Kipoi Project.

•We highlight that concentrate output is only relevant for Stage 1 at Kipoi, which has ~12 months of remaining mine life prior to the SX-EW operation (Stage 2) coming online to produce ~50ktpa Cu cathode, a more refined product that is not subject to the proposed ban.

•Finally, we note that the Mines Ministry has previously attempted to ban the export of concentrate in April 2010, however that was not enforced on the basis that mining companies were to pay a tax of $60/t of exported concentrate.

•Whilst this proposed ban highlights the sovereign risk of operating in jurisdictions such as the DRC, we believe it will have a negligible impact on the Kipoi operation. We are expecting another strong quarterly performance following a record month in March with production of 4kt, which is an annualised rate of almost 50ktpa and almost 40% above the HMS nameplate of 35ktpa. The copper in concentrate produced for the March quarter was ~9.5kt, ~9% above nameplate. In an environment where many ASX-listed copper producing peers are lowering production forecasts and increasing cash cost guidance, TGS is exceeding expectations operationally and is on track to produce almost 40tk Cu in concentrate in 2013 at cash costs of ~US$0.48/lb, which will deliver ~$80m operating cash flow (based on current Cu price of US$3.20/lb) and is being re-invested to develop the 50ktpa SX-EW plant which will come online in mid 2014 (LOM staged capex US$384m and C1 costs of US$1.39/lb). Project construction for Stage 2 commenced in January 2013.

•Recent assays at TGS’ other project, Lupoto, have also been very encouraging (e.g. 39m @ 3.65% Cu from 55m) and will likely lead to resource growth in the near term. It is envisaged that Lupoto will act as a satellite deposit to feed the Kipoi SX-EW plant in due course, given the oxide nature of mineralisation being seen at the Sase Central deposit and the location (being ~10km south of Kipoi).

•We note that ~24m TGS options are set to expire on 5 May, exercisable at $0.25/sh, equivalent to $6m in proceeds.

•BUY recommendation retained with a price target of $0.55/sh. Yesterday’s fall of ~10% in the share price represents a good buying opportunity in our view.