snapshot of cudeco today , page-32

ikeymoses, you forgot a few things.

#1, CDU has to raise $200M to build the plant. They have $36M now, and burn $16M per annum in drilling and exploration, so with a 12 month build of plant ahead, they still need to raise at least $200M. This is unlikely to happen above $1.80/sh, but I'll be charitable and say $2/sh leaving the company with close to 250M shares on issue if CDU goes full equity.

Therefore your $1.76/sh EPS is now 88c/sh and $18 turns into $9 just from that.

Secondly, as whalewatcher pointed out elsewhere, the plan is to ramp up to 3Mtpa over several years. So you have 88c EPS in year 3, but less than that in year one of the mining operation. Further, the resources at 0.8% Cu cut-off grade are only 10Mt @ 1.66% Cu, 0.17g/t Au and 405ppm Co.

Thirdly, the payability of copper, gold and cobalt is also not addressed. You are using the 1.24% Cu equivalency without metallurgical recoveries or payability and confusing the equivalency of sulphide mineralisation with the oxides.

Au and cobalt is not recoverable in oxides, including native Cu, which you seem to believe is lurking in the shadows as a mystery upgrade. In primary mineralisation, Au and Co report to a chalcopyrite concentrate, which should have a Au grade of around 2.4g/t and Co of 0.6% (assuming the Cu grade goes to a typical 23% Cu).

Considering Konkola in the Congo has a cobalt grade of over 5% Co in concentrate and is only 40% payable, and typically payability of that gold will be 75% over 1g/t in concentrate, you need to consider the copper equivalence of the resource a bit more. Considering that cobalt makes up 50% of the resource value, Au nearly 15%, a low payability of cobalt will significantly impact on profits.

Example, if the smelter charges 6.6% Cu TC/RC on $8,000/t Cu (ie; $400/t) and you have 75% of 2.4g/t Au payable, and 40% cobalt payability, your refining costs and tratment charges eat up around 26-30% of the in-ground value alone. And that's for primary ore, which has potentially payable credits. Oxides, you have to work solely upon the copper.

So.

3Mtpa at 0.8% Cu (95% recovery, 94% payable), 450ppm Co (85% recoverable, 40% payable), 0.17g/t Au (75% recoverable, 75% payable) slashes their in-ground values from;
Cu @ $54/t to $48.57/t
Co @ $25.74/t to $8.75
Au @ $7.43/t to $4.18
Or $87.17 to $61.50

So. Your costs per tonne are $17, your recoverable and payable value is $61.50/t. You make 3Mtpa x $61.50 = $184Mpa operating profit.

Take 30% off for tax ($60M), 2.7% royalty on the value of extracted metal not the recovered metal ($7.05M), leaves nett $117M. Minus their $16m p.a. admin and exploration expenses leaves them with $100M NPAT.

With 250M shares, that's an EPS of 40c, valuing CDU at a 5x potential future earnings right now. With a potential 4 year mine life. And that's if you get 40% payability on cobalt, which is yet to be proved (I have my doubts) and only in primary mineralisation; forget it in oxide or native copper.

You are also inventing the 2% Cu. it doesn't exist in the JORC resource, so we should ignore that part of your EPS concoction.

Oh, damn, I guess I worked out a valuation. 13x 40c = $5.20, which was the price before they announced the resource sidewaysgrade/downgrade. So you can see that the company fell off the cliff last month because the market clearly realised they were paying champagne money for beer.

Note that this is just hypothetical. This is also the best case scenario as per the JORC grades as announced on the 18th.

Anyway, I'll change my sentiment to none. Its clearly full priced at 5x forward rainbows and unicorns, and I wouldn't pay $2.07/sh...but if you are someone who paid around $5.50/sh this will probably bring you some comfort - you may be able to grit your teeth and get your money back in 2013. Good luck to holders.