Breakwater Resources (BWR)

Symb	Name	Price	EPS	Book	P/B	ER%	ER / P/B
BWR.TO	"BREAKWATER RESOUR"	5.78	0.87	4.42	1.31	15.05	11.51

-First year of significant profitability since 2006.

-Copper and zinc are the biggest contributors to profits, but also has significant exposure to silver and mild exposure to gold. Ramp up in metals prices, which I expect to be sustained. Sales volumes and absolute $ sales falling each quarter for the past year, but overall, still above the previous year.

-Production and resource estimates look like they have stabilized, and perhaps the lack of growth factor has taken them off the table for some investors. It looks like they have peaked in terms of production, since there is some mention that they mined out the higher grade deposits in 2010. However, there is some speculation about similar deposits elsewhere on the property, so not all hope is lost. In the mean time, I am content to milk the cow for all she is worth.

-Most recent share issuance fetched $6.30 per share as of Dec 30, 2011. This was approx the market price at that time. Curent price $5.80

-Recent reverse split 1 for 10. This transported it out of the penny stock arena and into the big leagues. However, this comes with cost as well as benefit. They could be losing some of the speculative crowd that one supported them by the move, and have not yet been picked up by the larger investment firms, some of which require stocks to be above $5 before they can even be considered for investment.

-There is a note about changing their accounting to IFRS in Feb 2011, which will have a negative impact on income of about 50M to the balance sheet. However, it is important to keep in mind that this is an accounting change, and reality for the company does not change.

Shares Outstanding 80M (round to 100M) (used for all calculations below)
Cash – $1.35/share
Current Assets / Current Liabilities – 3.1x
Book Value – $4.42/share (price / book value = 1.3x)
Debt – $0.08/share (Interest at LIBOR + 2% = roughly 5%. This is a reasonable rate and confirms the bank sees low risk for the company.)
EPS 2009 = $0.01/share, EPS 2010 = $0.87/share ($1.12/share when using financial statement share count), which is a 15% return on $5.80/share stock price. The only real change was that sales volumes were higher, and costs remained mostly fixed in contrast to sales and did not increase as fast. Even if EPS next year is half (i.e. $0.40), it is still a 7% ROI. Analyst expectations (according to Yahoo anyway) are expecting EPS to be $1.40 next year.

Summary:
There are enough negative items on the table to give me a realistic scenario why the stock is currently down. However, I still see significant value here. I bought some this morning around $5.80.

Source: http://www.breakwater.ca/Theme/Breakwater/files/2010FinRpt.pdf

Dropped to $4.50 within the last week. Good pick Max!

Breakwater closed back at $5.37 today. Tempted to wonder what caused such a huge gain if I wasn't already stumped about what caused such a huge loss preceeding that gain.

big move today, i too have watched this one for a long time without getting in (as my uncle told me about a year + ago).... now is gonna take off? for ?

The rumour right now that sent it back up was that it was going to get bought out. The company that was after Lundin and sent their share price soaring (and crashing now that the deal fell through), apparently has eyes for other Zinc miners and BWR is apparently a good bet.

I am up 5% realized gain over average of 1-2 weeks (started at $5.80 and averaged down with lowest purchase at $4.55), and am now left holding a somewhat smaller position from an entry point a few days ago at $5.31, which is up 11% unrealized. This was one of the first times I actually held on to the stock after I had seen a moderate appreciation in price, because I already thought it was undervalued at $5.80 (based on the analysis below and completely unrelated to any buyout).

OK, sold this morning for 15% gain over 3 days. Not sure if overall I can say my analysis was right, or I just got lucky with the buyout rumour, but I think discount valuations may be causally related with buyout rumours, so I will take credit for this one anyway.

Back into BWR starting at $5.67. It closed around $5.50. What a roller coaster.

sold today for $7.43 for approx 37% gain over 2 weeks.

OK, looking at this logically, I should buy back in, since the deal is already accepted for $7.00 cash and a $0.50 special dividend, and the tax advantage of dividend income is superior to income from capital gains.

The current price is still $7.44.

I don't see any reason this would not go to $7.50 guaranteed. Why am I still afraid to buy back in?