titan's tide turning?

The buy depth for Titan Resources has strengthened markedly in recent days with global nickel prices appearing to have turned the corner and investors picking over the items of value overlooked during the recent pillaging of the resource sector.

Titan's share price was decimated following the withdrawal of CSM's recent takeover offer. From a bid valuation of 53 cents, it has plummeted to around 27 cents today. Given that CSM would have conducted its own research prior to publicizing its bid (reportedly withdrawn due to CSM's internal concerns over an unrelated legal challenge), one can only draw the conclusion that TIR has been seriously oversold.

A cynic might be forgiven for pondering whether CSM's tentative suit and withdrawal (equivalent to a prospective groom's peek beneath the bridal veil) might have even been a strategic move to reduce the dowry! Certainly that has been the effect of the jilting on Titan. More likely, it was a combination of the withdrawn bid coinciding with rumours of a pullback in China's economic growth and a consequent drop in the nickel price that triggered the savage sell-off of nickel companies but whatever the reason, the impact on Titan's holders has been catastrophic.

As one who has a significant shareholding and who was unmoved by CSM's bid (given today's price a foolish strategic decision on my part), I await the next leg up with interest. My reasons for sitting tight originally were several and remain unchanged:

1) Titan's SP today bears no correlation to its near-term potential. Once the Armstrong mine begins production in October, Titan will enjoy a very strong cashflow of around $1m per month.

2) Titan is forecast to be one of the lowest cost producers of nickel around (estimated at around US$1.50/lb compared to around $2/lb for most competitors). This is significant as it means Titan remains highly profitable even if nickel prices fall markedly from their current position - and every indication is that they will do the opposite and remain very buoyant for at least another 18 months.

3) According to James Hamilton of "Resource Stocks" magazine, Titan aims to have two more mines in operation next year, boosting production to around 15,000 tonnes per annum. This will enable Titan to capitalize on buoyant nickel prices while drilling its highly prospective ground at Kambalda aggressively. It has the strong cash reserves to pursue these objectives simultaneously. Even at the current nickel price of around US$11,500 that would mean revenue of around $172m for a company capped currently at less than $50m.

Chartwise, the picture is less healthy. Cath Davey from Investorweb has TIR's chart dropping potentially as low as 18 cents before resuming its uptrend. Given the significant increase in buy depth we are now seeing, I believe that is unduly pessimistic. I should add that I tend to favour fundamentals over charts and do not pretend to be objective on this score.

On fundamental grounds however, Titan should not languish at these levels for long. Its low market cap relative to its near-term potential suggests it will either rise to levels more commensurate with the revenue it is about to generate or it will become the subject of another opportunistic takeover bid. Either way, the tide must be close to turning for Titan.

Any other long term holders care to express an opinion?

Prospective investors would be wise to conduct their own independent research as the chart has been strongly against me in recent weeks.

R/Gupper