My Mines

Wild day wasn't it? My portfolio ended up down 0.15%, pretty much par with the averages. A couple of MFI stocks I glance at from time to time really moved around.

USNA - they announced their auditor was resigning and the stock dropped over two days from above $50 to $41 and change. But last night they released earnings and the stock bounced back 12%. Whoa!

BVSN - this stock first appeared on MFI lists last fall. You would have done well to have bought them for about 60 cents a share. They closed yesterday at $2.23 for a quick three bagger. Then today they jumped up 23%! Anyone who bought under MFI back in Novemeber must be smiling as most people would have sold with the three bagger, which today became a four bagger.

Now the title topic. I have two mines in my MFI portfolio (NXG & TGB). And while they seem similar, Canadian mining companies, that is not the case. Check out their 3 month graphs below:

You can see that TGB is up about 30% in the past 90 days while NXG is down about 20%. That is a big difference for two companies in the same space. Why the difference? I certainly do not have the answer and ask people to post comments. Here are a few observations:

• The last quarter for NXG was poor with Operating income 1/4 of the prior quarter while TGB showed steady growth.
• NXG seems to be about 50% copper and 50% gold. Taseko is mostly copper. Of course copper prices have escalated much faster than gold.
• NXG appears to have sold much of the copper via futures at what may not be an attractive price. I don't understand the accounting for this. In the 1st Q TGB sold copper at $3.13 per pound. NXG sold at $2.69 per lb... quite a difference.

But put all of this aside. My question is what are the companies worth? Is NXG a better buy right now? If you go to NXG website, they have a presentation talking about their gold and copper reserves. They have three mines, one is producing and the other two are under development.

1. Kerness South (in production). It has about three years left. Annual production is about 285,000 ounces of gold and 72 million pounds of copper.
2. Kerness North - 4 million ounces of gold and 1.4 billion pounds of copper.
3. Young-Davidson - 2 million ounces of gold.

So let's see. That is about 7 million ounces of gold. At $600 per ounce that is worth $4.2b. Then about 1.6b pounds of copper. At $3 per pound that is about $4.8b. So gold and copper together = $9b. Obviously it'll cost money to get the metals. But even if the margin is 33%, you're talking about a value of $3b. Then you have to consider that it'll take time to get everything, so one should calculate the present value (of course, gold and copper prices could go higher).

I don't know, say cut it in half. That still gives you a value of $1.5b. How much could you buy all of NXG for? 830m.

How about TGB? They have the Gibraltar mine (in production). It looks like it has 1.6b pounds of copper. Then the Prosperity Mine (looks well-named) has proven/probable reserves of 2b pounds of copper and 4.5 million ounces of gold. Wow! So the copper at $3 per pond is worth about $11b and the gold is another $2.5b. Using the same parameters, 33% margin and the 50% present value you get about $2.2b value. How much could you buy TGB for? 571m.

Hmm, perhaps the divergence of the two graphs is sensible. Makes me want to buy more TGB on dips!

Rough numbers yes, but you can bet that the mega mining companies are running their own numbers. The nice thing is the mines are in nice safe Canada, as opposed to Peru.