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Why Tiger Resources Limited crashed 60% today

Junior copper miner Tiger Resources Limited (ASX: TGS) has seen its share price demolished, losing 60% of its value to fall as low as 3.4 cents.

It seems the Tiger may have bitten off more than it can chew in the last six months, just as copper prices come plummeting down.

Tiger was forced to postpone the expansion of its flagship Kipoi copper mine in the Democratic Republic of the Congo (DRC) to conserve cash. But then the company borrowed more debt and raising capital to buy out its 40% partner in the mine for US$111 million. Now Tiger has US$173 million in debt, and a tiny market cap of around A$50 million.

In its December quarterly cash flow and activity reports released to the ASX today and a guide to this financial year’s outlook, Tiger says it expects to produce 25,000 tonnes of copper cathode for the full year, half of what CEO Brad Marwood was aiming for in the 2013 Annual report, after canning the plant expansion.

But the miner had planned to use net cash flow to reduce the level of debt it was carrying. With copper prices falling and costs escalating, Tiger saw net operating cash outflows of US$4.3 million during the quarter – and over the whole year a tiny net operating cash inflow of US$5.5 million.

And that problem is compounded by the fact the company has US$21.6 million cash in the bank but still expects to spend more than that on capital works and sustaining capex this year.

Not only that, but management appear eager to progress the next phases of the plant expansion – estimated to cost between US$294 million and US$364 million. Not sure how they are going to fund that, especially with US$100 million of debt due around April 2015…

For shareholders, an investment in Tiger has been a disaster. I once owned stock in the company – but sold out last year after losing faith in management – and  the prospect of never seeing a decent return on my investment. I should’ve known when “Target shareholder dividends in the short to medium term” was sixth (and last) on the list of key goals in the 2013 annual report.

Maybe management should’ve focused on generating returns for shareholders, rather than aiming to be the biggest copper producer on the ASX.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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