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Company ProfileJOHN TUMAZOS VERY INDEPENDENT RESEARCH, LLC (JTVIR LLC) is registered as an investment advisor in the State of NJ. We have 30-odd institutional clients in New York, CT, Massachusetts, California, Wisconsin, Minnesota, North Carolina, and Florida. We do fundamental research on commodities markets and common stocks in the metals and forest products sectors. For example, in the second-half of 2007 we traveled abroad five times to visit mines and smelters, and published 92 investment reports. We collected our first revenue on September 20, made our first email communications seeking revenue September 4 and 10, became registered August 27, filed for registration August 10, formed our LLC on July 6 and "changed course" on June 6, 2007 when the former Prudential Equities Group shut down. We sent reports "developmentally" to our former mailing list from July 8 to August 27, 2007 "not for compensation" while we completed registration and through mid-November in a "grace period" as our clients engaged us.We are regulated like a money manager, but we manage no client funds as our business is to advise active money managers. We are not a broker-dealer, but deliver the same basic research services that we had since 1981 as an employee at major brokerage firms. In our business model we sell our research direct payments and deliver it via email and our www.veryindependentresearch.com web site. Our clients pay us via direct checks, wire transfer, commission sharing agreements or soft dollar payments. Initially we have had no sales force, and our clients learn of us from our existing reputation, existing relationships and "word of mouth." Please click on the "Become a Subscriber Member" button to the left or simply phone or email us if you want to buy our research Special Events Webcast link for Nov, 29-30, 2011
May 17, 2012
Dear Friend, Topics: Teck Resources and Metals Prices
We restored our Overweight investment
rating on Teck Resources as its share price fell to $29.49, which represents
over a 50% discount to our $63 price forecast. We cut 2012 earnings
estimates 11%, 2013 6% and 2014 25% while keeping 2015 onwards largely the
same as we raised our long-term zinc price estimate by $0.05 to $0.85 per
pound to offset a $2 cut in our moly price estimate to $15 long-term. We cut
our 2012-14 estimates for copper prices, moly, gold and met coal. We cut our
price target to $63 from $65, which we had cut by $1 on April 25th and by
$28 on April 16th as we cut our diluted-bitumen price estimate to $60 per
barrel discounted $20 from crude oil. Copper exchange inventories have
fallen 100,000 tonnes in the past 5 weeks, Chinese imports rose 71% in the
first-quarter and global apparent demand rose 9.6% in the first-quarter,
where the possibility exists that our copper price estimate reduction and
current market sentiment are too pessimistic. While Teck's shares are ten
times their 2009 low, its debt burden is small, copper and bitumen
businesses have grown and both metals prices and stock index levels much
higher than the more distressed March 2009 levels.
We took a very hard look at our 2012 to
2014 price estimates for 15 metals commodities. After all, 9 of the 15
commodities were lagging our 2012 price estimates for the first-quarter.
Then they all plunged as the second-quarter has evolved. In Table 1 within
the attached reports we made quarterly estimates for the balance of 2012 for
Al, Cu, Ni, Pb, Zn, Au, Ag, Pt, Pd, U, Mo, Co, #1 heavy melting grade scrap
steel composites, Nynex Hot-rolled Sheet Steel and Posted Seaborne Met Coal
prices. We also made 2013 and 2014 revisions.
Most remarkably, our revisions averaged
about a 5% typical metals price cut for each year 2012 to 2014. We believe
market sentiment is too gloomy, where in the case of Teck we cut our price
target by $2 but its shares have fallen over 25% in the past quarter. We
actually increased our Zinc price estimates for 2012-14 and our 2012 Met
Coal estimate (4 of 45 estimates over three years). We did not change 8 of
the 45 estimates, including 2013 or 2014 price estimates for Au, Ag, Pt, Pt
and Ni. Yes, we did cut 33 of the 45 estimates, but only 12 of the estimates
were cut by 11% to 19% margins.
We were
pleased our reductions were not deeper, given the dire news we read.
We actually raised our 2012-14 zinc and 2012 met coal price
estimates, which had been too dire already. We left unchanged
3 of 15 2013 and 5 of 15 2014 price estimates, and cut 33 of the 15
commodities for the 3 years. We note that
aluminum, zinc, molybdenum, platinum, palladium and steel scrap have
been less volatile, on average falling less, because their
prices had not risen much above industry average costs, marginal costs now
support prices and production cuts occur for aluminum, zinc, nonferrous and
steel scrap. We made 11% to 19% price
estimate reductions in 12 instances to 7 of the 15 commodity
prices for 2012, 2013 or 2014, or for “12 of 45 cells” in Table 1. These
include an 11% copper price estimate
cut in 2014, an 18.7% nickel
price estimate cut for 2012, 12% moly
price estimate cuts for 2013 and 2014, 13%
cobalt price estimate cuts for 2013 and 2014,
steel scrap cut 11% for 2012 and 10%
for 2013, hot-rolled sheet steel cut
13% for 2012 and 2013 and met coal cut
14% for 2013 and 10% for 2014. Aside from cutting our “above consensus”
$4.50 copper price estimate for 2014, all of the other large magnitude
reductions involved steel, steel ingredients or ferroalloys.
We have estimated mild price rebounds in
2013 for 9 of the 15 commodities. Several of the commodity prices appear to
be below marginal costs for at least 20% of the supply base, including Al,
Ni, Pb, Zn, Pt, Pd and Steel Scrap. Plant shutdowns have been announced in
aluminum and zinc in particular, and flows of both ferrous and nonferrous
scraps have fallen markedly. Total exchange inventories of nonferrous
metals, which had risen from a 7.2 mmt level at December 1st to a record 8.1
mmt in late-February, have fallen to 7.8 mmt as of last week. The inventory
declines have been limited in recent weeks to Cu, Al and Pb, while Ni, Zn
and Sn inventories continue to rise. Among these, only the falling copper
inventories are small enough to suggest a bull market with shortages.
Faithfully,
John C. Tumazos, CFA
Contact InformationPlease Contact us with any questions.
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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