chart - maybe time to go long?, page-31

Brucey,

I've had a bit of a read of the QRs for 5 nickel producers, and I can't say MCR stands out from the crowd as a screaming buy or anything. Considering the LME nickel stockpile, perhaps they've all been lucky with the price the last 2 quarters. MCR very vulnerable to any price fall.

A few comments;
Hedging. MCR had quite a benefit for the quarter, as a result realising about A$1.80/lb payable above the spot on 4.03mmlb payable. They will get about half that benefit in the Mar Q, and pretty well none beyond June. That hedging has equated to most (say $7mm) of their $9.4 mm Cash+R build for the Q. That is without eating the hedge book (which could instead have been sold) they are treading water cash wise.

Nth Kambalda. These operations are not that bad. Cash cost of A$4.69 /lb is only 45cents higher than IGO's. Even after including mine capex expense (which I assume it was pretty much just sustaining capex) these mines made a surplus of $12.1mm.

Even without the hedging (on a prorata basis) this would have been about $7.3mm, still more than covering cash outgoings of about $5mm for the Q, not accounted for under mine expenses.

Sth Kambalda. Cash cost of A$6.14 is high, and when adding $2.74/lb of capex for $8.90/lb payable these mines are pretty worthless in the current climate with a nickel price of about $8.75 for the quarter.

I draw a few conclusions:
1) MCR's worthwhile production is 1900 t Ni (7600 tpa) in conc from the Nth Kambalda operation, on which basis it is a smaller producer than IGO (which still has lower costs). [PAN has the same problem with Lanfranchi, and is being carried by hedging and Savannah].
2) Had MCR not bought the GMM mines it would be in very poor shape. A company saving deal, very good.
3) MCR is higher dependent on extensional and/or USNOB success in the northern tenement
4) I'd be very suspect of putting much value on MCR's Sth Kambalda reserves and resources.

MCR has done well over the years, and probably will again. High grade exploration success, deals or an unexpectedly early upturn in the pon could change it quickly. Like PAN it has huge leverage to a pon upturn, and I really do like the exploration potential in Nth Kambalda.

Nevertheless, this needs to go quite cheap before I'd touch it. Real margins are too slender for my risk appetite atm.

Disclaimer: Apologies for any inadvertent errors. DYOR, I am no expert, just putting a considered amateurs thoughts for consideration/discussion.

EL