There is also the event analysis(posted below). All in all this report contains many positive words(big contrast to last report).
CMR has 5 months of oxide ore stockpiled. This is a sunk cost and potentially some relief for near term cash operating costs. It also means, all else being equal, CMR is reasonably assured of operating through the wettest of wet seasons. But the Oxide plant will naturally take time to bed down and lowest grade ore is being utilised during the start-up phase - we don't expect financial miracles near term. On current pricing - US$3.08/lb copper, US$7.59/lb nickel, US$36.25/lb cobalt and A$/US$ 0.80 - the Oxide plant should be operating cash flow positive based on the company's published forecast operating cost estimates. At those prices the margin would be sufficient to allow debt repayments in cash rather than scrip and a payback of around 3 to 4 years. The nature of CMR as an investment proposition would change radically to the positive. We retain our more hawkish price forecasts for now.
In CMR's favour, the existence of distinct copper and cobalt rich ore stocks could allow some tailoring of production to the better performing metal at any particular time. Further there may be scope for cherry-picking the best ore to help accelerate debt repayments. In the longer term there might also be potential for cost savings via plant de-bottlenecking and circuit upgrades. This would however require additional capital if ultimately deemed appropriate.
CMR has signed an offtake agreement for copper cathode with Sempra Metals and Concentrates LLC for 3 years with an option to extend. Pricing is linked to the LME with the first sale likely in October. Final documentation for the nickel/cobalt precipitate sales contract is outstanding although terms are agreed.
Note: The author personally holds shares in CMR.
CMR Price at posting:
57.0¢ Sentiment: None Disclosure: Not Held
