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November 6, 2011 Dear Friend,
We reduced our investment rating on MeadWestvaco
to Neutral from Overweight because at $28.81 its shares are very
near our $30 price target. We
want to be selective in our Overweight ratings as many other stocks
are very cheap, including Domtar, International Paper, Packaging
Corp. of America, U.S. Steel, Worthington Ind., Allegheny
Technologies, Vale, BHP Billiton, Xstrata, Anglo American, Teck,
Mercator Minerals, Thompson Creek Metals, HudBay Minerals, Alumina
Ltd., Century Aluminum, Fortescue Metals, Barrick Gold, FCX or
Antofagasta PLC. We do not foresee any defect or setback, but rather
we regard a valuation near 14 times estimated 2012 or 2013 earnings
as reasonably full and fair. Roughly 80% of the growth to $2.88 per
share in estimated 2016 earnings stems from debt paydowns cutting
interest expenses, and only 20% from growth sprinkled among the
business segments. We estimate MWV will maintain roughly $0.6
billion in cash balances, $1.3 billion in employee benefit and other
long-term liabilities, spend $1.7 billion in cumulative 2012-2016
cap ex and repay its roughly $2 billion in debt by year-end 2016.
The strong finances could fund share buybacks, new cap ex
initiatives or acquisitions.
We published the attached Texas Rare Earth Resources and Galway Resources reports under a second investment advisor registration, "John Tumazos Advisory and Compensated Research, LLC" because we received compensation for a capital raising in early 2011 from TRER and attempts to identify partners to advance the Galway Resources tungsten-moly project since 2008. We were not paid to write these reports, and visited each property this past week because the November 1-2 FCX field trip to Arizona brought me to the vicinity. We were looking in at our investments and advisory clients. While TRER works diligently to define tonnes, grade and recovery rates at Round Top upon which we base our financial projections that we estimate will be the world's largest producer of seven heavy rare earth elements, gallium, tantalum and beryl ore, investors should keep further opportunities in mind. The mountain Sierra Blanca contains a volcanic rhyolite structure 1.5 times as large as Round Top. The mountain Little Blanca is about the same size as Round Top. The recently discovered magnetic signature in the plain at the foot of these hills appears even stronger than Round Top. These represent about 7.5 billion metric tonnes of “target structures.” The aeromagnetic signature in the plain at the foot of the mountains may be a “subcropping mountain,” where its volcano never broke the surface. It may be a faulted “sister half” of Round Top. Or it may suggest that the four mountains Sierra Blanca, Little Blanca, Round Top and Little Round Top interconnect at depth into a single large upwards of 10 billion tonne system. Separately, limestone sedimentary bedrocks beneath these volcanic rhyolites could host “epithermal” or “hot springs” rare earth deposits separate from the rhyolites. Analogously, Nevada limestones often host the richest Nevada gold grades where porous limestones “trap” inbound mineral particles that also precipitate out of solutions as acid fluids experience PH changes in basic calcarious limestones. Dan Gorski theorizes hot springs REE behave like gold particles in such siliceous solutions. The surrounding area within a 30 mile radius of Texas Rare Earth Resources has evidence of porphyry copper, molybdenum, polymetallic, gold and silver deposits. Amax Inc. intercepted low grade molybdenum decades ago in the plain at the foot of Round Top and Sierra Blanca mountains. FCX and Quaterra Resources have the “Cave Peak” moly deposit to the northwest, which Union Carbide had defined two generations ago. We believe Hudspeth County and the West Texas corridor towards El Paso offer similar opportunities as Arizona, New Mexico, Chihauhua, Sonora and other northern provinces of Mexico. TRER may undertake a regional reconnaissance of nonferrous metals opportunities. We were disappointed at the slow pace of permitting for ten drill holes at Galway Resources' Victorio tungsten-molybdenum property, where the State of New Mexico adopted more tedious procedures in 2009 that imply a less cooperative attitude with mining projects. We changed our asset valuation for Galway Resources to $3.11-$6.58 from $2.96-$7.62 per share, where we raised the minimum value of the Vetas gold project in Colombia by $25 mm to $125-$300 from $100-$300 mm and lowered the top end of the tungsten-moly project by $200 mm to $100-$300 from $100-$500 mm owing to potential permitting opposition down the road. Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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