By William Travis 01.05.2011
Stock: Tiger Resources
Stock code: TGS
Share Price: $0.62 (as at 4pm 29/04/11)
Broker Buy Recommendations:
State One Stockbroking (18th April 2011, share price was $0.585 that day)
Foster Stockbroking (25th November 2010, share price was $0.40 that day)
Investor Centre: Tiger Resources
Fact Sheet: Tiger Resources
Chart: Share price over the year to 29/04/2011 versus ASX200 (XJO)
The seemingly endless Chinese hunger for raw materials is driving many mining stocks higher again, with strong demand and big deals on the table. Minmetals Resources Ltd, China’s largest metals trading firm, offered $6.5 billion earlier this month to buy Equinox Minerals Ltd with the company’s copper assets in Zambia as the driving force behind the deal.
The potential for further deals is not lost on investors and is driving share prices higher for companies with African copper mining operations. One company that is sure to generate interest is minerals producer Tiger Resources (TGS), which is expected to commence mining production this month and looks ready to reap the benefits of strong Chinese copper demand.
Tiger Resources Limited (TGS) is an exploration company focused on the exploration and development of copper and cobalt in the Katanga Copper belt in the Democratic Republic of Congo.
There are currently two major projects that are of interest for investors:
1. Kipoi Copper Project
The Kipoi Copper Project is located in the central part of the Katangan Copperbelt. The Kipoi project covers an area of 55 sq km and hosts five known copper deposits: Kipoi Central, Kipoi North, Kileba, Judeira and Kaminafitwe. Tiger Resources has a 60% interest in the Kipoi project. The remaining 40% interest is held by La Générale des Carrière et des Mines, a Republic of Congo state controlled company.
Three of the deposits have reported JORC-standard resources. The Kipoi Central deposit contains a zone of high grade copper mineralisation within a much larger lower grade global resource. The high grade zone of mineralisation at Kipoi Central is projected to produce during first stage of development for over a course of three years a total equivalent of 35,000 tpa of copper commencing in April 2011.
2. Lupoto Copper Project / Sase Central Prospect
The Sase Central Prospect is situated within the Lupoto Permit, is located south of the Kipoi Project. Tiger Resources holds a 100% interest in the Lupoto Permit.
An indicated resource estimate of 3.1 million tonnes (Mt) at 1.6% copper (Cu) containing 49,000 tonnes of copper for the Sase Central copper deposit was announced earlier this month. The Sase Central copper deposit also has an Inferred Resource of 11.6Mt at 1.3% Cu containing 151,000 tonnes of copper.
The Resource estimate shows Sase Central has the potential to extend the life of the Stage 2 development for the Kipoi Project. Resource size could also increase as mineralisation remains open along strike and at depth. Drilling results indicate potential for high grade sulphide mineralisation at depth.
TGS management believes that “the deposit includes significant high grade mineralisation, with drill intersections up to 75 metres at 5.94% copper.”
Strong copper demand is expected to continue throughout 2011 as markets become more confident in China’s ability to be the main driver for economic growth this year. Copper mining stocks should enjoy good gains as beneficiaries of the demand, with some analysts, such as Barclays Capital’s base metals analyst Nicholas Snowdon predicting a further 30% gain in copper this year alone in a recent interview on Breakout. He claims that copper is set to continue its run because production is at capacity for the next few years, global demand remains strong due to the supply shortage, and the fact that the Chinese – who consume 40% of the world’s copper – are through their stockpile of scrap.
Hamza Habib an associate adviser at Patersons Securities expects an improving global economy to drive copper demand beyond supply. Habib calculated that since June 2010, global demand for copper has driven up the spot price by 50 per cent to US$4.25 a pound. “For 2011, the market is expecting a copper supply deficit above 444,000 tonnes,” he says. “This is subject to change depending on the speed of the global recovery.” Amid the positive outlook for copper, Habib stated that his best value choices to benefit from bullish copper prices will be producers and explorers of copper.
Taking a look at the daily chart of Copper futures we see that Copper prices have enjoyed a nice upward run but could be headed for a temporary downdraft. Looking at the RSI indicator we see that there was a RSI swing failure coupled with a MACDdivergence. Both of the indicators are suggest that the rally in copper is headed for a brief pause.
Taking a look at the daily chart for Tiger Resources, we see that TGS shareholders have enjoyed a nice run from $0.20 to $0.55 in the past 7 months. Investors using Bollinger bands in their chart analysis would have observed the volatility band compress in October of 2010. This compression is called a volatility squeeze and is a precursor to a break out of narrow trading range. Once TGS shares broke out we see that prices “walked up” the upper Bollinger band indicating real strength in the upside move of prices.
TGS shares have completed a bullish W pattern indicating that TGS prices may be ready to continue the upside trend again. Investors need to wait for price action to confirm what the chart pattern is suggesting.
John Rawicki of State One Stockbroking commented that “Tiger initially expects to produce an impressive 35,000 tonnes of copper a year. Further growth may come from Tiger’s second project, Lupoto, which has returned encouraging geochemical results, indicating widespread copper mineralisation.”
Foster Stockbroking in a report from November 2010 announced that they believe that copper will remain its preferred pick of the base metals on a two-year view given the robust economic prospects combined with the looming supply-demand imbalance. Foster Stockbroking, now considers $US11,000 / tonne a target for 2011 (the copper price is currently sitting at 9,370).
In the report they stated a key theme for this year will be an increased level of merger and acquisition across the mid-tier copper sector as the large producers look to increase scale through buying assets with the potential to produce between 50,000 and 100,000 tonnes of copper a year.
Even as copper’s shorter-term prices are unclear in recent weeks, the possibility of increased merger and acquisition activity underscore a healthier, longer-term demand view from metal-consuming countries such as China. Factoring in the longer term positive macro environment for copper and the start of copper production, Tiger Resources may be an attractive metals play for those who can handle short term price volatility, however it must be noted that the stock has already run hard over the past year and with warning signs for commodities prices, investors need to be particularly cautious with junior miners.
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