Taseko Mines Ltd (TSX: TKO) is a Canadian mining company. It 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.
  

• Decline in total debt: Despite the sluggish macro scenario and liquidity crisis, the company reported a prudent capital management and reported total debt of CAD 520.2 million in Q1FY22, lower than CAD 531.7 million in Q4FY21. This is impressive and would enhance the overall financial flexibility of the firm.

• Improved outlook from the Yellowhead Copper Project: The company is exploring opportunities from the Yellowhead Copper Project, which is strategically located in the 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.

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.

   Financial Highlights: Q1 FY22

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 company reported a net income of CAD 5.0 million v/s a net loss of CAD 11.2 million in pcp.
  

Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

During Q1FY22, copper revenues increased by CAD 35.7 million from previous corresponding period with due to higher sales volumes coupled with higher realization prices. We expect the prices of the metal is likely to remain elevated due to higher demand dynamics. This would support the company’s upcoming realization price.

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 2.04 on May 20, 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 May 20, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV 

  Technical Analysis Summary

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