You and I both knew of the closure of the Mount Margaret pits months before Xstrata announced it to the market but the reason I read about economics is a little different than the reason being the polymetalic nature of the deposit (to much zinc) I hear on the rumour mill. Process plants are obviously set up to process a certain type of ore and the blend they are trying to achieve through the Ernest Henry plant just isn't working, doesn't mean these pits aren't economical in their own right.
Take for example Altona's Little Eva deposit which the Xmen had a choice to farm into but declined. The Little Eva process plant designed for sulfide ore would have only been able to achieve 60% recovery rates from native copper where as Rocklands has predominately been set up to achieve high recoveries from native copper but at a considerable cost. I personally think Altona would rather have a joint venture partner than to go it alone and itself have the headaches of rail and port infrastructure to build so whom better than a close neighbour like Cudeco which will have these plus a process plant capable of economically extracting native copper of which Altona has two large native copper deposits on their lease grading .6% Cu and containing in excess of half a million tonne of copper (Blackard and Scanlan).
I also don't think the market appreciates the value of Cudeco's rail and port contracts plus the infrastructure they will own. I still cant fathom why the Xmen pulled out of the multi user rail facility when in 2016 the smelter in Mt Isa will close and then the concentrate from EHM will have have to be trucked to the Isa only then to be railed back past Cloncurry which will effectively add another 250 Km to the cost of freight verses loading out of the Curry. People don't realise how congested the rail line between Townsville and Cloncurry will become in 2017 and would be worth checking out Queensland rail sustainability report for the costs involved and what they are gearing up to do. For starters without the smelter the Xmen will need up to 3 times the amount of rail capacity it needs now. Incitec will also need another 300 000 to 400 000 tonne of room to transport sulphur or sulphuric acid since they will no longer have flue gas available, which could be a sale opportunity for Cudeco's cobalt/sulphur concentrate if a roaster was installed.
If you think rail contracts are easy have a look at Osbourne mine (Inova) which allowed the rail contracts to expire when on care and maintenance and now have to transport their concentrate to Cloncurry when they have a perfectly good rail siding at Phosphate Hill which they own and is capable of around 200 000 tonne per annum. Incitec Pivot and the multi billion dollar company they are which ship up to 1 million tonne of fertiliser out of the Townsville don't even own their port facilities but lease an area from Xstrata. When on the other hand will own ours and believe me having rail and port infrastructure plus contracts which can be leased to other companies in Cloncurry and Townsville will worth much of Cudeco's current market cap in the future and more than some of the deposits in the area themselves. No point in having a mine if you cant get the product to market, like the smaller iron ore companies in the Pilbara and BC Iron giving half their resource away in exchange for the use of Fortescue's rail and port infrastructure.
The rumour on Dugald river is its a balls up, didn't get the six p's right (prior planning prevents piss poor performance). The declines didn't intersect the ore body where they should of, so either the ore body moved or the declines were put in the wrong spot :( . Think they are spending something like $46 million to fix the problem.
CDU Price at posting:
$1.82 Sentiment: Buy Disclosure: Held
