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| February 28, 2011 Dear Friend,
We raised our price target to
$113 and our investment rating for BHP Billiton last
Wednesday morning out of enthusiasm for its $4.75
billion acquisition of the natural gas assets bought
from Chesapeake Energy. We believe an outlay of 2%
of BHP's market cap to increase Barrels of
Oil-Equivalent Reserves by 45% is a big win.
Further, the prices of most of BHP's key commodities
significantly exceed our estimates, and the now $10
billion share repurchase authorization could be
increased several more times. We have 19 years of
research analyst historical experience among the
three members of our team other than myself,
which permits our continued service to you even
as I travelled in Argentina from February 16 to
26 visiting gold and silver mines.
We raised our price target for
Temple-Inland to $28 from $22 per share, and raised
our investment rating to Overweight on the basis of
firm containerboard prices, strong current earnings
and further cyclical upsides to containerboard,
board lumber, gypsum or other building products.
Temple-Inland is one of the first mature historic
companies that we follow to raise its
dividend above pre-recession levels to
$0.52 from $0.40 per share. Further, we are
impressed that Temple-Inland's management did not
"wet its pants and destroy shareholder value" in the
2009 first-half as many companies like Alcoa, U.S.
Steel, FCX and others did in issuing large amounts
of common stock and cutting their dividends at the
worst possible moment. Temple-Inland held its $0.40
per share dividend, even as its shares bottomed at
$2, because firm pricing, the collapse of OCC input
costs and the black liquor tax credits served to
improve business.
We lowered our price target for
MeadWestvaco to $37 from $32, as its consumer
products appear exposed to rising input costs in
sympathy to $98 crude oil while retail consumer
product pricing trends are stagnant. Further, its
shares appreciated mightily, and we cut our
investment rating to Neutral from Overweight. It is
exposed to cost inflations, especially with the
recent upturn in crude oil prices, while its product
prices do not rise automatically like a copper or
gold futures price.
We updated our analysis of Teck
Resources, where an 8% discount rate and a 1.75%
terminal growth rate spits out a $106 valuation
while we maintained our long-standing $95 price
target. We continue to have great respect for 8.6
billion metric tonnes of predominantly met coal
resources and 300,000 oil sands acres where we
believe recoverable bitumen definitions ultimately
will grow to 4 billion barrels or well above 1.57
billion barrels currently published, which we regard
as large future stores of asset value.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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