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Dear Friend, We completed a careful review of FNX Mining, which will produce from two high grade mines in 2010 and may be able to restart its idle McCreedy and Levack main mines if nickel prices sustained > $7.00 per pound. It will "develop" or tunnel into its high grade "Levack Footwall Deposit" in coming months to produce about 200,000 tons of ore there next year. It expects to increase its 754,000 ton resource in the Levack Footwall Deposit in two installments with its December 2009 and June 2010 quarterly earnings reports as its tunnels advance, underground drilling continues and data accumulates. We maintain a $20 price target for FNX Mining, which implies almost a triple from current levels. Its shares fell precipitously from $40 in late-2007, and its share price recovery from $2 recaptures relatively little of its 95% decline. We estimate long-term earnings at $1.80 per share at 2,000 tons of ore throughput from four mines, $9 nickel and $3 copper. Much uncertainty surrounds future ore grades, and we look to the next resource extensions to clarify ore grades and reduce doubts surrounding long-term earnings models. We believe FNX Mining was very prudent to idle its McCreedy and Levack main mines last October, which preserved the mineral resources in the ground rather than sell them at unfavorable prices. Its balance sheet has over $100 mm of net cash and no interest bearing debt. Many spot market dynamics flash "positive indicators," including a $7+ nickel price, a 25% lumber price gain over the past four weeks, counter-seasonal gains in wood, nonferrous metals, and possibly steel scrap in the coming week. We are encouraged that aluminum and copper inventories fell last week. A pragmatic approach towards market capitalization and a low-risk approach to earnings and balance sheets is simply to buy all six of the large capitalization diversified mines -- BHP Billiton, Rio Tinto, Vale, Xstrata, Anglo-American and Teck. We plan to host 30 companies over two days in our November 18-19 investor conference in New York which Knight Capital Group will co-host with us. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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