You Can't Dig Without a Shovel

As a yacht captain, I once had to postpone a sailboat delivery for several days because of a $0.39 engine part. Whether it's a NASA shuttle launch or a copper mine expansion, it's incredible the number of variables that can stymie a schedule.

With major backlogs for mining equipment piling up, mining companies eager to expand existing operations or develop new mines may be forced to adjust their timetables accordingly. Taseko Mines (AMEX: TGB  ) has no intention of letting that happen, as indicated by the recent announcement of a $100 million procurement package with several suppliers. For a small-cap miner with only a $725 million market capitalization, this is one serious shopping spree.

To expedite "Phase III" expansion at the company's prolific Gibraltar Mine in British Columbia, Taseko has negotiated the following strategically sequenced deliveries of equipment:

  • Four 240-ton Terex (NYSE: TEX  ) hauling trucks for 2008.
  • Two mining shovels and a production drill from Bucyrus (Nasdaq: BUCY  ) in 2009.
  • A 28-foot, 30,000-ton-per-day capacity semi-autogenous grinding (SAG) mill for mid-2010.

In the words of Taseko President and CEO Russell Hallbauer:

Delivery times for both mining and milling equipment continues to be a problem for many mine developers and this is having a dramatic affect on project timelines and completion dates. With these purchases, we have eliminated any such delays. Since the Phase III expansion requires a relatively small SAG mill, delivery time has been reduced to 20 months from the industry average of 40 months ...

This evidence of progress in the fast-track expansion of the Gibraltar Mine likely delights the 1,182 CAPS players who have rated Taseko an outperform, but the news has Foolish underpinnings for investors beyond this single company.

First, the anecdotal confirmation of a growing industrywide equipment backlog adds further support to a forecast for continued growth among mining equipment manufacturers. Indeed, the collective backlog among Terex, Bucyrus, and Joy Global (Nasdaq: JOYG  ) has risen to about $9.4 billion.

Zooming out further still, I believe several key factors are converging to constrain increases in the global metals supply, at a time when demand remains especially robust. Add this shortfall of mining equipment to rapidly rising input costs, reduced availability of financing from beleaguered financial institutions, and a spate of disruptions from natural disasters and other events. The result, I believe, will be reflected in further price appreciation throughout the raw materials complex.

Further Foolishness:

Complex issues are at work shaping the commodity-related markets. If you would like some help staying on top of it all, watch for the new weekly series "This Week in Commodities" every Friday, and join the Motley Fool CAPS community to gain insight from a talented group of individual investors. It's free and fun!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Taseko Mines. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 675718, ~/Articles/ArticleHandler.aspx, 11/23/2014 4:24:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement