the absolute truth

I do not know the content of the updates by Patersons and Fat Prophets in detail. As we know they apparently reiterated their buy recommendations (seems to be an A$ 1.50 price target). I guess that these guys know of what they are talking and what they are doing. At least this is my understanding.

Nevertheless I was able to receive an additional view from another source. Namely from Europe (UBS). After release of the resources update in April they came with an update: In principle they have also confirmed the buy rating (at a SP of 77 cents) with a price target of A$ 1.40 (down from 1.90) but the also pointed out that after the update from Kitumba in the view of the UBS analyst the risk profile of the project has increased.

Quotation: In summary and ultimately, the result and way forward for the Kitumba project will not be known until the Pre-Feasibility Study is completed in June. The company is aiming to complete the study at the end of June so that it can make the mining lease application in July, this should allow for sufficient time for the lease to be granted before the current exploration lease expires in November. However, given the potential change in direction, UBS believes there is a risk the study results in June may still be preliminary in nature and require significantly more work. For reference, under the current Zambian mining code, a company may apply for a 1-year extension to the exploration licence, which is then made at the Ministers discretion.
I have then tried to get a feedback from another “independent” analyst who has nothing to do with UBS and has no interest in BTR or the Australian mining industry. He looked at the UBS report and came to this conclusion (not looking at the current SP of 24 cents, what is IMPORTANT to know!!!):

1. Dilution of interest in Perkoa project due to cost over-runs not a great development. According to the UBS report this project is also not forecast to generate substantial cash net to BTR any time soon. This is also depending on future zinc price.
2. BTR is re-commencing drilling at Mumbwa to extend and infill resources – suggesting current resource is not big enough. This might delay the PFS and put on risk the mining licence.
3. He can see the compelling valuation argument that sum of the parts (cash + Mumbwa + Perkoa) is greater than the whole, but overall company seems too risky at current level (note: at a level of 77 Cents).
In summary that means: The key impact from this resource downgrade was on one hand a substantial hit to confidence and on the other hand a massif worsening of the economic parameters of the Kitumba project as a whole.
Aligned to that the uncertainty in regard of the outlook for the different economies (e.g. China) has added additional risk to the project itself (profitability, financing). It also seems that an open pit mining is very unlikely to be realized or open pit would only generate marginal profit.
We know despite the significant downgrade, management have been keen to stress that the company geologists and Pre-Feasibility Study team now have a much better understanding of the geometry and continuity of the deposit and the high-grade core. Also, the volume of indicated material within the resource is broadly inline with the previous estimate with contained copper of circa 1Mt. This gives at least a little bit of comfort.
UBS is of the opinion that as a result of the update in April, they believe the current Pre-Feasibility Study will end up suggesting the most appropriate development for the Kitumba project would be an underground mine targeting the high-grade core.
However UBS also believes that its Kitumba Copper Project in Zambia remains one of the better undeveloped copper projects held by a junior.

As already mentioned before: Ultimately, the result and way forward for the Kitumba project will not be known until the Pre-Feasibility Study is completed in June.

It seems that quite a lot of people have tried to get out of BTR in the last 2 months. Almost certainly exactly because of these uncertainties.

If one puts together all the puzzle pieces then obviously he might see the full “worst case” picture. Which means: a) limited cash flying in from Perkoa b) Kitumba and all the upside potential connected to it possibly completely vanishing c) 28m cash in the bank, 7.5 m to be spent 2013 = roughly 21m divided through 182m shares = 11-12 cents per share.

Worst case valuation therefore from my view: 11 cents cash plus roughly 15 cents (without enhancement and silver/lead credits), probably 25 cents (with enhancement and silver/lead credits) = 26 to 36 cents per share.

My conclusion therefore: The market is anticipating the worst case scenario.

This worst case scenario might happen or not and the high volatility and volume is exactly the consequence of the rebalancing of expectations, speculation and reality.

What at the moment is missing is the reality. We will know more in a few weeks. Obviously some shareholders have the feeling that it is better to get 24 cents today then 12 cents in 6 weeks other investors obviously are of the opinion that there is still a real (even if at the moment speculative) chance to buy today for 24 and sell maybe for 50 in July. As simple as that.

I personally do not think that the story is over yet. BTR (former AIM) was already completely smashed on the ground a few years ago and emerged from the ashes.

It might be that at A$1 or 0.70 BTR was a sell (and obviously a lot of people has sold and was right), today I am not sure if on these levels you should still sell. At least I will not do so. In my view the chance to double is bigger then to loose another 50 %. But maybe I am wrong. As wrong as I was to buy more BTR shares in the last few weeks.

But at the end everybody has to take his own decision. I think, the fall is overdone and anticipating really the most possible worst case scenario. We should not forget that Glencore is still on board – Perkoa therefore relatively secured. Cash is there and nobody really knows if Kitumba is worthless or not.

Furthermore as far as I know the big boys so far have not sold their investments. At least I have seen no notice on ASX. I was thinking of the possibility that JP Morgan have sold their holding. Becoming a substantial holder the 10th of April and ceasing to be a substantial holder the 24th of April (just a little bit below the 5 % level and so free to do what they want without informing ASX).

This was really a hard week for every shareholder. Nevertheless I wish everybody a nice weekend and let’s hope that the news from Kitumba (first of all the drillings results) and finally the PFS is better then expected or at least in the expectations. This would give the story a new spin.