Fears of a global economic slowdown have resulted in the prices of commodities such as copper dropping in the past few months. But the demand for copper in emerging economies like China and India continued to remain strong as these economies look to expand. Surging demand is expected to be favorable for copper prices and could lead to a surge in the prices of copper securities as well.
It might therefore make sense to consider laying your hands on copper securities. Let's take a look at whether small-cap copper miner Taseko (AMEX: TGB ) would be a good investment.
Copper plans
In the just-concluded quarter, Taseko announced that mineral reserves from its 75%-owned Gibraltar mine (the rest is owned by Cariboo Copper) increased by 80%, to 802 million tons. This adds 1.8 billion pounds of recoverable copper to its reserves, taking its total reserve count to 4.3 billion pounds of recoverable copper. This figure means that Taseko can sustain operations at its Gibraltar mine for the next 27 years. Also, it doubled its molybdenum reserve to 60 million pounds.
After the completion of Gibraltar development plan 3, the ore body will likely carry mining operations of 30 million tons of ore per year with a production capacity of 180 million pounds of copper and 2.2 million pounds of molybdenum a year. With emerging markets likely to see increased demand for copper and the prices expected to go up, Taseko can hope to benefit from this increase in capacity.
All that glitters
The Canadian Environmental Assessment Agency recently accepted a proposal by Taseko Mines to construct a $1 billion gold and copper mine in British Columbia. This houses the largest undeveloped gold-copper deposit in Canada and also happens to be the seventh-largest in the world. This mine has the capacity to contribute $340 million to provincial GDP annually and $400 million in provincial revenue, plus $43 million to local and regional governments. Taseko may just have struck gold.
Now that we've seen Taseko's growth potential, let's see how the market has priced the stock and compare its value to that of its peers.
The price you pay
|
Company
|
Trailing P/E
|
Forward P/E
|
| Taseko Mines |
20.8 |
6.6 |
| Southern Copper (NYSE: SCCO ) |
11.9 |
7.8 |
| Hudbay Minerals (NYSE: HBM ) |
9.1 |
9.8 |
| Freeport-McMoRan (NYSE: FCX ) |
6.1 |
5.7 |
Source: Capital IQ, a division of Standard & Poor's.
Looking at trailing P/Es, it may seem that Taseko is considerably more expensive than its peers. But as you can see from looking at forward P/Es, Taseko is expected to grow its earnings considerably over the next year, which makes quite a bit of sense, given its expansion plans. I think Taseko is a stock worth taking a closer look at.
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