Taseko Mines Ltd. (TSX: TKO) is a Canadian mining company which is principally engaged in the production and sale of metals, as well as related activities, including exploration and mine development, within the province of British Columbia, Canada, and the State of Arizona, the United States.

Key Updates:

• Strong Macro Demand: The usage of copper is growing due to the metal’s durability, high conductivity and efficiency. Demand for the metal is likely to remain elevated due to the higher usage across the electric vehicles, charging stations and requirements for infrastructure. More importantly, copper is 100% recyclable and can be used and reused without losing its important engineering qualities. As the world continues to move toward a sustainable and energy efficient future, the usage is likely to grow in the coming days.
  

• Bullish prospect from the Yellowhead Copper Project: The company is exploring opportunities from the Yellowhead Copper Project, which is strategically located near close proximity to power, rail and highway. As per the estimates has an 817 million tonnes reserve and a 25-year mine life with a pre-tax net present value of CAD 1.3 billion. Over the first five years of operation, the copper equivalent grade would likely to produce an average of 200 million pounds of copper per year. This is likely to boost the overall production of the company in coming years.

• Strong Working Capital Management: In Q1FY22, the company reported its quick ratio and current ratio of 2.34x and 3.06x, respectively, as compared to the industry median of 1.58x and 2.81x, respectively. This is impressive and is reflects that the company has ample current assets to meet its short-term liabilities.

• Inclusion of TKO stock within the newly launched S&P/TSX Battery Metals Index: Recently, the Toronto Stock Exchange (TSX) announced today the launch of the S&P/TSX Battery Metals Index. The new index measures the performance of TSX and TSX Venture Exchange listed companies that are focused on the production and exploration of select metals. Notably, Taseko Mines Limited, with symbol TKO was included in the list.

Risks associated with the investment:

The company’s performance is correlated to the international commodity prices, and price volatility would likely to dampen the company’s income and cash flows on account of lower realization.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• In Q1FY22, TKO posted revenues of CAD 118.3 million v/s CAD 86.7 million in pcp. The surge was driven by higher revenue from Copper contained in concentrate segment along with increase income from the silver segment.
• The period was marked by higher production costs, a slide in depletion and amortization. Earnings from mining operations stood higher at CAD 29.2 million v/s CAD 14.4 million in pcp.
• The company reported a lower net finance cost, decline in general & administrative expense, while an extended loss on derivative remained as a drag. Income before financing costs and income taxes stood at CAD 13.8 million v/s CAD 4.4 million in pcp.
• The group reported a net income of CAD 5.0 million v/s a net loss of CAD 11.2 million in pcp. This is due to a higher Income before financing costs and income taxes stood as mentioned above along with an increase in foreign exchange gain.

Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

The company has reduced its cash conversion period to 82.4 days in Q1FY22, as compared to 121.4 days in Q4FY22. This reflects that the company is taking lower time to convert its investments to cash flows. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Basic Materials) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last closing price of CAD 1.82 on June 13, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on June 13, 2022). Source: REFINITIV, Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV 

Technical Analysis Summary:

Disclaimer

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