valuation, page-4

and there is more from Huntley.
CMR is surprisingly holding up well this morning


Event Analysis



Next two quarters absolutely critical

We are now beyond surprise with CMR announcements and so report dispassionately on the 2Q08 update. Downgrades to the Browns East sulphide resource and Mt Fitch uranium resource are only partially counterbalanced by upgrades to the Browns sulphide and Mt Fitch oxide resources. A substantial overall shift in tonnage from Inferred status into the higher quality Measured & Indicated categories is a positive feature. But the disappearance of 50% of the admittedly higher risk "inferred" Browns East sulphide resource, declining from 30Mt to 14.6Mt, takes a toll on our valuation. We reign in our Sulphide mine life assumption from 20 years to 15 at 4Mtpa and lower average grades due to the reduction at Browns East.





Sulphide Resource Mt Cu Pb Zn Co Ni Ag
59.7 0.52 3.10 0.61 0.10 0.10 11.51 2.83

Spot Price (US$/lb) 3.72 1.00 0.84 38.50 8.30 17.53
Ore Value (US$/t) 42.7 68.4 11.2 86.1 17.4 6.5 232.2





Our pre-tax NPV valuation for the Sulphide project falls 20% from $540m to $430m or from $3.65ps to $2.90ps. We retain the 15% discount rate and continue to halve the valuation for risk. The global Sulphide resource now stands at 59.7Mt, down 10%, with an in-ground spot value of US$13.9bn. The ore value remains healthy at US$230/tonne at metals prices above. For comparative purposes Equinox Resources' (EQN) Lumwana project has an in-ground value around US$60bn but lower ore value of US$65/tonne. EQN's enterprise value of US$0.22/lb copper, if applied to CMR's copper equivalent resource, would imply a coincident value of A$430m or $2.90ps for CMR's 50% share. We use this only as a very crude value check - the projects differ markedly. We assume a unit operating cost close to US$60/tonne of ore for Browns sulphide versus Lumwana's US$15/tonne, a simpler and larger mine.

Elsewhere we halve CMR's uranium valuation to $50m or $0.34ps. The well flagged Mt Fitch resource downgrade was worse than anticipated. It now stands at 4Mlb U3O8 at 0.8lb/tonne grade. Uranium exploration upside remains immediately to the north of Mt Fitch in addition to good potential at Brown East and Rum Jungle South. Any future production hopes will require solid exploration success from these and other prospects.

Overall, our CMR valuation falls 28% from $5.10ps to $3.65ps. We assume near term Cornell capital repayments are fulfilled at a $1.30 share price, prior $1.50, so some additional dilution. We include a reduced $50m for exploration upside, equivalent to a conservative 6% of our valuation overall. New CMR management has cleared the decks with respect to geology and resources. We believe this is a solid, conservative resource base for exploration to begin to add up. We realise for many, ourselves included, this will be small consolation near term as resource upgrades were anticipated this time around, not downgrades. Very clear potential to begin to grow resources again remains.

If profitable Oxide production occurs and the Sulphide project progresses, re-instatement of our 10% discount rate could see our valuation rise back above $4ps. Further, removing the 50% discount from the Sulphide project would take the valuation to $7ps. In the meantime, surviving Oxide commissioning is critical. Construction of the processing plant is substantially complete. Around 400,000 tonnes of ore is stockpiled to be milled.



Critical period ahead

CMR's survival depends on successful ramp-up over the next two quarters. If the latest production timetable is not achieved and/or the share price continues to fall, dilution will become a major factor. Nickel and cobalt production are to begin this month and copper from second half September. Cash flow should cover debt repayments from 4Q08 onwards. The share price discount to valuation means we retain our Speculative Buy recommendation. We again caution CMR is a stock for those who understand high risk, and have it very clearly in that category. All hinges on the next few months.

Exploration potential for additional Oxide ore sources looks good at Area 55, Mt Fitch and Browns East. On the Sulphide front high grade results, particularly for cobalt, at Mt Fitch South bode well. The Browns sulphide resource increased 23% to 45.1Mt. A zinc lens was added which lowers the headline grade of the combined lenses. In reality, the grade of those other lenses is unchanged.





VALUATION Equity Value Per Share
(%) ($m) (A$)
Browns Oxide 50% 192 1.30
Browns Sulphide 50% 431 2.90
Uranium 100% 50 0.34
Wyoming Royalty 5% 20 0.14
Territory Iron Agreement - 2 0.01
Other Exploration - 50 0.34
Corporate - Include Tax 100% -177 -1.20
Net Debt -56 -0.38
Options 30 0.20
TOTAL 541 3.65