huntleys upgrade to 5.25

Result Description

* Simplification of Rum Jungle Project area ownership is good news. CMR will issue private company, Guardian Resources, 8.25m shares in exchange for its 10% equity in the projects. CMR will own 100% of its NT properties for the first time. The deal is value accretive with CMR paying out 6.5% of its issued capital for 10% of assets that comprise the vast majority of our valuation. Assuming the deal with Hunan Nonferrous Metals (Hunan) goes ahead, as we expect, CMR's sell down of the projects will leave it with 50%, not 45% as before.


* CMR is also more attractive to predators. In the short term a would-be acquirer may want to get in prior to consummation of the Hunan deal. In the longer term CMR will now own 100% of the uranium excluded projects. Simplification from a project management point of view is positive. The prior requirement to free carry Guardian on some exploration programs and assist in arranging its share of project finance is now removed.


* Guardian will no longer fund its share of the Oxide - $6m and Sulphide - $30-50m projects in addition to exploration spend. Guardian's owner, Josh Pitt, is already a major CMR shareholder. By switching into CMR he ends up with a larger stake in the company's other prospects in central and western NSW and in Peru. Whether Pitt ends up on the CMR board remains to be seen. He has highly regarded exploration and investor credentials. Throwing his lot in with CMR is already a seal of approval. CMR has flagged the possibility of further non-exec additions to the board given the rapid growth in the company.


Impact

* Our valuation increases 6% to $5.25ps due to a combination of the value accretive Guardian transaction and an increase in assumed Sulphide mine life. Long term assumptions are US$1.75/lb copper, US$15/lb cobalt, US$5.00/lb nickel, US$0.41/lb lead, A$/US$ exchange rate of 0.76 and a 10% discount rate. We include $0.27ps for exploration and $0.10ps for the Wyoming royalty and Territory Iron agreement. We retain our Buy recommendation.


Recommendation Impact (Last Updated: 16/06/2006)
Unchanged.

Price data based on previous close.
Previous Close Market Cap
$3.40 $348 (million)
52 Week High/Low
$4.38 - $0.70
Sector
Materials

Intrinsic Valuation
$5.25
Note
NPV at 10% discount

Risk High
Company Beta 1.10
Sector Beta 1.39

Year 2004 2005 2006 2007
NPAT ($m) -0.60 -1.10 1.6 39.3
EPS (c) -1.11 -1.67 1.40 30.80
% Change 1,133.33 50.45 -183.83 2,100.00
DPS (c) -- -- 0.00 0.00
Franking (%) -- -- 0 0
Dividend Yield (%) 0.00 0.00 0.00 0.00
PER -245.05 -162.87 194.29 8.83
Source: Aspect Huntley analyst estimates

2 Year Price Chart


Event Analysis

The first of three drill rigs for the NT exploration campaign is already working at Browns East, to be followed within a week or so by a rig to target Browns Deeps. The third rig scheduled for testing uranium targets is expected in July. This

will see four rigs drilling simultaneously including one in NSW. NSW exploration is expected to begin in three weeks including drilling at Croakers, Bogan East and then Cobar look-alikes in western NSW. The NT campaign is a substantial 35,000m program. Management was highly optimistic for its potential at the recent AGM. Browns East drilling will target sulphide mineralisation above the existing resource of 30.5Mt @ 1.3%Cu, 1.3%Pb, 0.13%Co and 0.13%Ni. The second rig will initially drill three deep holes beneath the Browns deposit, about 60m deeper than the deepest mineralised hole which returned about 62m @ 12% lead. The holes will chase this higher grade core.

Federal Government approval for the Browns Oxide project, FIRB approval for the $30m placement to Hunan, and the preliminary resource estimate Mt Fitch uranium are imminently awaited. The first uranium resource is likely to be only the start of a growing resource position. Drill results should flow aplenty given the busy exploration program.

Recent market volatility has seen CMR's price fall heavily. Panic and sentiment seem to have overridden fundamentals. Our valuation is predicated on commodity prices lower than spot. We only credit CMR with 50% of the potential value for its Sulphide project. We estimate CMR will have cash approaching $100m or $0.78ps after the Hunan placement and assume repayment of $10m for past exploration expenditure. CMR will remain debt free with respect to all its base metal developments with Hunan to pay $60m for the Oxide project, all capital for the sulphide project up to 4.0Mtpa throughput rates and 70% of exploration expenditure for five years. The strong cash balance underwrites Oxide project development independent of Hunan's involvement and affords CMR the luxury to take advantage of opportunities should they present and/or pay dividends.