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August 19, 2011 Dear Friend,
We cut our long-term earnings estimates
for Teck Resources Ltd. by 1%-2%, but maintained our $95 price target as our
model calculates $100 and it understates the values of up to 4 bil barrels
of bitumen and 7 billion metric tonnes of coal resources that will not be
fully developed in the next decade. It provided detailed updates on 3 oil
sands projects, Quintette Coal and 3 copper projects.
We provided a very detailed discussion of the Teck-NovaGold 50%-50% Galore Creek copper-gold-silver property, where we model 2018 output. While the project appears flawed on the surface with a $5.2 billion capital cost and 7.4% after tax return at $2.65 "base case" copper and 15% net IRR at current spot prices, we firmly believe that up to 3 years of more exploration will identify higher grade reserves, more reserves and reserves located directly near the mill able to lower capital and operating costs. NovaGold's detailed Galore Creek presentation made July 28th is useful for those Teck shareholders seeking more detailed data on the large dollar outlay. We sent Matt Van Cleve, our resident M.S. in Biomedical Engineering who started in June, to British Columbia for August 7-10th. We were offered an expense paid trip to the Wellgreen "platinum" deposit in British Columbia, where about 50% of the future revenues should come from nickel. Much like my farming out Forest Products to Joe Reagor in September 2007 as I was too busy, Matt Van Cleve was quite industrious and did a good job on this first assignment. Both Joe concerning Forest Products and Matt concerning this Vancouver trip were quite industrious and thorough. Thus, we have a couple long reports that we did not expect to complete. Hence, we have enclosed a standalone report on Prophecy Platinum, which seeks to resurrect the Wellgreen Platinum deposit that Robert Friedland dropped in the late 1980s. We compare it extensively to 7 polymetallic sulphide nickel companies, including Vale, Xstrata, Quadra FNX, Duluth Metals, PolyMet Mining, First Quantum in Finland and Norilsk. Prophecy Platinum's Wellgreen deposit is the 7th richest among these eight deposits or companies, but its venue in the Yukon Territory is highest operating cost. We estimate it costs three times more to do business in Yukon Territory than mainstream mining districts. The capital cost of the project has not been estimated yet, it probably needs upwards of $20 mm in work to get to definitive feasibility study and the company has just $2 mm requiring near term financing. Matt Van Cleve also visited while I hooked up teleconference with Mercator Minerals, Silver Wheaton, Taseko Mines, Capstone Mining, Western Lithium, and Platinum Group Metals. We cover Mercator Minerals formally, and have an Overweight rating and a $5.50 target. We have hosted Taseko, Capstone and Platinum Group Metals at our conferences, and I own Mercator and Platinum Group today and have owned Taseko Mines and Capstone Mining in the past. We intend to initiate coverage on Silver Wheaton, Royal Gold and Franco-Nevada as Matt Van Cleve's first research coverage. There is a detailed report with about 6 or 7 pages of notes on these six fine companies. Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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