September 28, 2012 (Investorideas.com Mining stocks newswire) - eResearch Corp Reports: reports Red Tiger Mining Inc. (TSX-V: RMN) - Now producing! After an extended delay, during which time the Company’s ownership changed, its name changed, its shares were consolidated, and it weathered a heavy rainstorm that damaged facilities and halted production for over four weeks this past July, Red Tiger Mining Inc. (“Red Tiger” or the “Company”, and formerly Zaruma Resources Inc.) is now in production. The Luz del Cobre copper project in the State of Sonora, Mexico, is producing copper cathodes and ramping up to the commercial stage.
Full-capacity operation, at 20 tonnes per day, at Luz del Cobre should start in November 2012, and Red Tiger will likely declare it to be in commercial production in January 2013. The project is anticipated to operate until 2017 and produce almost 35,500 tonnes of cathodes. The life-of-mine could be extended by up to two years depending upon the outcome of future definition drilling.
There is also hidden value in Red Tiger's gold holdings, which total 405,000 oz Au. These are currently on hold, but the Company expects to resume exploration of the targets soon. The goal is to bring them into production in 2014.
TARGET PRICE
We valued Red Tiger based on our DCF model of the Company's Luz del Cobre operation which started producing copper in early 2012. In the model, we used the Company's indications about the plant's capacity, Luz del Cobre's NI 43-101 compliant resource estimate, and our estimates of the project's capital and operating costs which are based on the Company's actual numbers and estimates.
The project's Intrinsic Value (or NAV) at a 10% discount rate (our base scenario) amounts to $0.94 per share (see Valuation, page 7). Once the project enters commercial production, we would likely lower the discount rate, which would increase the Intrinsic Value.
The calculated Intrinsic Value implies a current 2013E P/CF of 4.3x, as compared to our chosen peer group current average P/CF of 11.2x (see Valuation, page 8). At its current stage of development, we believe that Red Tiger is not yet ready to trade in line with the producing peers in terms of P/CF. However, this gap with the peers may well narrow in 2013-2014 after Luz del Cobre has been in commercial production for a while.
In our valuation, we did not include any value which may be attributed to Red Tiger's gold assets (405,000 oz Au). Once Red Tiger nears production of gold, these assets would likely boost the Company's valuation.
Based on our Intrinsic Value calculation, our Target Price is set at $0.95 per share.
We rate the shares as a Speculative Buy, suitable only for risk-tolerant investors who would be interested in an undervalued, overlooked developing copper producer.
INVESTMENT SUMMARY
Red Tiger is producing: Red Tiger started the crushing and curing of ore at the Luz del Cobre project in November 2011 . The first copper cathodes were produced at the project in May 2012. By the end of August 2012, the Company had produced almost 900 tonnes of cathodes.
Recent interruption is behind: A heavy rainfall in the Luz del Cobre's area in July 2012 interrupted production for over four weeks and caused some damage to the mine and facilities, but without critical consequences. Red Tiger took swift action to restore the facilities and resume production. In August 2012, 112 tonnes of cathodes were produced.
Commercial production is around the corner: So far, the production is not recognized as being commercial . We expect that the project will reach its capacity, 20 tonnes per day (tpd) of cathodes, in November 2012. After two months of full-capacity work, in January 2013, the project could be declared to be in commercial production.
Production until 2017: The Luz del Cobre mine is expected to be in production until 2016 when the currently-identified resources should be depleted. In 2017, the project should produce cathodes based on rinsing of the leach pad. Over the life of the project, 3.95 million tonnes of ore are expected to be mined and almost 35,500 tonnes of cathodes produced.
More resources could add to the project's life: Red Tiger plans to conduct definition drilling of the copper targets close to Luz del Cobre in 2013 . Based on the drilling results, the Company expects that additional resources could add up to two more years to the life of the project.
Gold projects may start producing soon: The Company also plans to resume exploring its gold targets, with the goal of bringing them into production in 2014 . This plan has a high likelihood of materializing, as the targets are close to the Luz del Cobre site and the same existing infrastructure could be used.
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