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7/16/08

Amerigo Resources: A headsup

Ready for a rebound

Amerigo Resources (ARG.to) is a copper producer with a very different (and smart) business. It takes the tailings from Codelco's El Teniente copper mine and re-processes them, pays a royalty to Codelco for the pleasure and sells the resulting copper and moly. It has been a very successful model and is one of those small copper producers that is always on my radar. It's also smart enough as a company to be a minority shareholder in Candente (DNT.to). Here's the website, so go have a look yourself.

Just after the bell yesterday, ARG.to published these two press releases that made good reading for shareholders. Cutting away the blah blah, the important points were the production numbers of:
  • 7.08M lbs copper
  • 147,508lbs molybdenum
  • booked price of $3.80/lb Cu
  • Energy costs that were down U$4.9m compared to 1q08
So I took ten minutes out yesterday to play with these numbers, and I ballpark Amerigo with a quarterly EPS of $0.0875. If you then take another ballpark leap and project that as a forward PE ratio, it comes in at around 3.9X. Here's a very basic table with some info (that's not the easiest to read, but makes sense if you squint hard enough), and my estimates for 2q08 in the left column. I want to point out that i didn't spend a great deal of time on these estimates and rounded up and down quite a lot, but all the time I think they're close enough for our purposes.

Amerigo Resources ARG.to

2q08est 1q08 4q07 3q07 2q07 1q07
Revenue 34.15 35,933,465 26,974,854 28,536,864 32,011,648 18,171,183
Power costs 9.00 13,903,331 8,288,847 7,781,476 7,821,020 3,609,673
Teniente royalty 5.40 5,146,561 5,836,784 4,654,187 5,291,091 2,891,838
Other COGS 9.00 8,035,829 9,979,043 7,592,407 6,980,611 5,083,299
Gross profit 10.75 8,847,744 2,870,180 8,508,794 11,918,926 6,586,373
Other exs incl tax 2.50 2,464,732 1,053,682 1,926,907 1,586,239 1,035,091
Net earnings 8.25 6,383,012 1,816,498 6,581,887 10,332,687 5,551,282

The bottom line is ARG a producing copper miner in Chile that's pleasantly surprised the market with both limited damage to production from the Codelco strike and much lower than expected energy costs (around $9m instead of $13.9m). It has been sold off throughout this slump and stands at a very low PE ratio, considering it is a nice, profit-making operation.

Recommended value stock at these prices. DYODD etc etc