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Quadra - When the hedge is over

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March 21, 2007 – Comments (6)

Quadra (QUA - Toronto) is a $350 million, fully diluted, market cap mining company with a producing mine with 2007 production guidance:
125 million pounds of copper,
60,000 ounces of gold,
no guidance on molybdenum, 260,000 lb in 2006.
They have just obtained financing to build a second mine for start-up in 2008, guidance 28 million pounds, increasing to 75 million pounds in 2009, and further in the future they have plans to develop a third copper, molydenum, gold mine in Chile, bringing the fully diluted number of shares up to 42.7 million.

Last year copper prices peaked at $3.99/lb and they have come down, slaughtering the earnings for most copper mines.  Take Goldcorp, market cap 19.7 billion, earnings crumbled to 11c/share in Q2 from 50c/share in Q4 -- in Q2 Goldcorp's copper earnings accounted for 65% of their total earnings, and enabled them to claim -$123/oz production costs on gold, all from a mere 46,700 lbs of copper sales.

For 2006 Quadra's eps was a mere $0.87, indeed, while Goldcorp was producing its record earnings, Quadra was losing money.  Quadra made a hedge, and the hedge ended up costing Quadra $143.9 million in derivative expenses.  The average LME price for copper in 2006 was $3.05, but Quadra's average prices was $1.32/lb less, $1.73/lb, because of the hedge.  $143.9 million in lost income amounts to $3.53/share.  After taxes it means that $2.18/share of earning potential was lost to a bad hedge.  Without the bad hedge, eps for 2006 would have been in the $3+/share range.

Quadra has shipped the last of its hedged copper and will clear the last of its hedge loss this quarter.

Think of the end of the hedge as an enormous cut to costs.  Their income for 2006 was $393 million, and out of that came this enormous $144 million hedge cost, or 37% of their revenue.

Another problem that Quadra had was lower than expected recovery rates, a mere 61% on copper until the last two weeks of December, where it increased back to the 70-80% recovery rate.  This problem appears to have resolved now, but it also lowered overall production for 2006.

So, Quadra is going into 2007 with a double leverage potential on earnings, an enormous reduction in expenses, and improved production rates.  At $3/lb for copper, $375 million, at $650 for gold, $39 million, and perhap $5 million for their molybdenum, for 2007 revenue of about $419 million, and no $144 million hedge expense.

6 Comments – Post Your Own

#1) On March 21, 2007 at 2:57 PM, Jro81 (< 20) wrote:

Quadra is my favourite stock .... I think a cardboard box could do a better job managing this company ( especially when dealing with hedges) ... do you know a US symbol so I can add to CAPS? .... I think this company will be bought out ... Sprott & Sentry Select own 10% each ... they will force a sale soon enough ... What other Canadian miners you like?

 Jared

 

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#2) On March 22, 2007 at 12:41 AM, dwot (47.53) wrote:

I don't know a US symbol that can be added to caps or I most certainly would as well.

 I think Sprott actually owns more.

 I think Blue Note is another that will do very well.  It should start producing in June.  It is a penny stock, at about $0.485 CND, but I think the last quarter of this year it should have about 4c eps.

 I like Roca, but it has really increased and without further development, I don't think it will support its price long term.  It will depend on its earnings from moly and how well moly prices hold up.  It could potentially end up with a couple hundred million in the bank before moly prices soften.

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#3) On March 23, 2007 at 12:01 AM, camistocks (< 20) wrote:

Quadra - QADMF.PK

You can find all Canadian stocks that trade on the pink sheets at Yahoo (CAPS gets their stock data from them.) However most are not in the database of CAPS yet. You have to request them here. Under subject select "request a ticker". They won't accept all stocks, however, and Quadra probably not. But who knows...

Sprott goes for moly... 

Peter

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#4) On March 24, 2007 at 12:38 AM, dwot (47.53) wrote:

Thanks Peter.

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#5) On March 27, 2007 at 4:33 PM, camistocks (< 20) wrote:

Nice to see that they accepted your request. I was sceptical, because there is almost no trading volume for the US listing. The chart looks like a W forming and volume is right too... good luck! (who knows what mistakes a cardboard-box-like manager could still do...;-)  )

Peter 

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#6) On April 03, 2007 at 9:56 PM, dwot (47.53) wrote:


Malmbjerg Deposit - Measured Mineral Resources

                           
Cut-off
(% MoS2)
Tonnage
(tonnes)
Grade
(% MoS2)
Million lbs
Molybdenum
Avg # lbs
moly/ton
cut-off # lbs
moly/ton
0.286,900,0000.311 28.3 4.113.70
0.2611,700,0000.29345.33.873.43
0.2421,700,0000.27378.23.603.17
0.2230,500,0000.261105.13.452.90
0.2037,300,0000.252124.13.332.64
0.1548,800,0000.234 150.73.091.98
0.1252,900,0000.226 157.82.981.58


Malmbjerg Deposit - Indicated Mineral Resources
                           
Cut-off
(% MoS2)
Tonnage
(tonnes)
Grade
(% MoS2)
Million lbs
Molybdenum
Avg # lbs
moly/ton
cut-off # lbs
moly/ton
0.286,400,0000.301 25.4 3.973.70
0.2613,100,0000.28549.33.763.43
0.2423,600,0000.26983.83.553.17
0.2239,100,0000.253130.63.342.90
0.2060,600,0000.238190.43.142.64
0.15124,300,0000.206 338.02.721.98
0.12163,900,0000.188 406.72.481.58



Malmbjerg Deposit - Measured and Indicated Mineral Resources
                           
Cut-off
(% MoS2)
Tonnage
(tonnes)
Grade
(% MoS2)
Million lbs
Molybdenum
Avg # lbs
moly/ton
cut-off # lbs
moly/ton
0.2813,300,0000.306 53.7 4.043.70
0.2624,800,0000.28994.63.813.43
0.2445,300,0000.271162.03.583.17
0.2269,500,0000.257235.83.392.90
0.2097,900,0000.243314.03.212.64
0.15173,100,0000.214 489.02.821.98
0.12216,800,0000.198 157.82.981.58

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