Taseko's Road Map to Prosperity

It has been an arduous journey for long-standing shareholders like me, but Foolish patience has begun to pay off in spades following a seminal moment in one junior miner's quest to ascend into the class of midtier miners.

I have characterized Taseko Mines (AMEX: TGB  ) as a David among Goliaths; a commensurate underdog in a copper industry dominated by global megaminers like Southern Copper (NYSE: PCU  ) and Freeport-McMoRan Copper & Gold (NYSE: FCX  ) . Well, David just had a growth spurt, and may soon be crowned King Midas.

Taseko announced Friday that the Prosperity copper and gold project has received the environmental permits from the British Columbia provincial authorities needed for construction to proceed later this year. Featuring massive deposits like Seabridge Gold's (AMEX: SA  ) KSM and Silver Standard Resources' (Nasdaq: SSRI  ) Snowfield -- together accounting for nearly 60 million ounces of untapped gold in the ground -- British Columbia continues to warrant the careful attention of discerning mining investors.

Following a two-year, $775 million construction phase, Taseko looks forward to a 20-year mine life, with an internal rate of return of 30% (using gold at $900 and copper at $2 as the basis).

With one of the most attractive cost profiles this Fool has ever seen, the Prosperity project earns its name with an estimated production cost of negative $330 per ounce of gold after copper byproduct credits! Taseko could enjoy some of the heftiest operating margins of any gold producer in the world, better than even low-cost leaders like Yamana Gold (NYSE: AUY  ) and Goldcorp (NYSE: GG  ) . Multiply those kinds of margins by 7.7 million ounces of recoverable gold in reserve, and you may grasp a taste of the miner's cash flow potential.

Meanwhile, Taseko has attracted a loyal Motley Fool CAPS following based on its low-cost copper production and well-executed growth strategy at its flagship Gibraltar copper and molybdenum mine. Even after selling a 25% stake in Gibraltar to fund mine development at Prosperity, Gibraltar remains a lucrative cash-flow generator that will aid the company through the mine construction phase.

The Prosperity project has been under some form of environmental review since 1995, and the market took notice once the permit was granted. Shares rose 15% Friday to trade above $5 for the first time since mid-2008, and rose a further 13% on the Toronto exchange Monday (while U.S. markets were closed). All told, Taseko shares have gained more than 350% since I asked Fools to take a fresh look at the stock in October 2008, but I still believe in the potential for further upside.

I perceive the smart money will begin to recognize that junior miners and explorers represent one of the last frontiers of both deep value and exciting growth potential under these economic circumstances. In the context of a continuing long-term secular bull market for commodities, and persistent fiscal imbalances among developed Western economies to buoy gold prices, I see Taseko shares primed for sustained strength. Less than two months ago, I offered Taseko Mines as the best bargain in miners, and it will take far more than a two-day surge in price to mine all the value from these underpriced shares.

Do you have alternative picks for the greatest value among metal miners? Make your pitch using Motley Fool CAPS, and share your thoughts with our community of investors in the comments section below.

Fool contributor Christopher Barker is the commodore of copper and the Colonel Klink of zinc. He can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets. He owns shares of Freeport-McMoRan Copper & Gold, Silver Standard Resources, Taseko Mines, and Yamana Gold. The Fool's disclosure policy is worth way more than $3.44 per pound.


Read/Post Comments (10) | Recommend This Article (47)

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.

  • Report this Comment On January 19, 2010, at 4:38 PM, jesusfreakinco wrote:

    Chris,

    Good call and good timing on TGB. Have added a nice chunk to my portfolio and have you to thank.

    Keep up the good work.

    JFC

  • Report this Comment On January 19, 2010, at 5:42 PM, Fool wrote:

    Bought tgb in 1s, 2s,3s and 4s,.....now time to enjoy the ride

  • Report this Comment On January 19, 2010, at 6:45 PM, trebman wrote:

    What do you think... there has been lots of talk about TGB being bought out. How likely do you see this in light of recent developments?

  • Report this Comment On January 19, 2010, at 7:14 PM, XMFSinchiruna wrote:

    Until the market manages to adequately value these shares, the chance of an external overture remains elevated. However, I think any suitor would find Taseko shareholders a very determined bunch, possessing full knowledge of the value of their holdings.

    From a potential suitor's perspective, the timing is very difficult. The ideal time to approach would have been before shareholders could easily envision Taseko unlocking Prosperity's potential on its own.

  • Report this Comment On January 20, 2010, at 12:26 AM, smuchamp wrote:

    Will a suitor want to build his own new mine and therefor pay less for reserves and have mine his way or have tgb build mine,with their great leader,mining exec of the year in canada, and pay 2 billion plus for thier work.

    I have followed for years and tgb is a home run now and into the future on their own,and who knows when a big hitter moves in will happen.

  • Report this Comment On January 20, 2010, at 11:33 AM, jed71 wrote:

    Still one of the best values in the market.... even at $5 a share!!!

    I hope many fools put some real money on this one as it still has quite a ways left to run.

  • Report this Comment On January 20, 2010, at 1:01 PM, DanCooper76 wrote:

    A little crow for Jim Cramer!

  • Report this Comment On January 20, 2010, at 2:31 PM, petpirhana wrote:

    Have own tgb since it was 3 and change. Stuckwithit and now I'm married to it, assuming it dowsn't cheet on me. Take that Mr Cramer and bow your head in shame!!!!

  • Report this Comment On January 20, 2010, at 3:39 PM, silverminer wrote:

    Did Cramer blast Taseko? Oh, that's rich ... someone post a link. :)

  • Report this Comment On January 22, 2010, at 6:55 AM, Br0oklyn wrote:

    Gains Are Go0d On TGB. Enjoy.

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