hunterley report is out, page-9

Result Description
CMR has released updated Browns Oxide project metrics showing a serious deterioration in expected operating costs compared to earlier indications. While no surprise that costs have risen - industry inflation has been high in both operating and capital costs - the magnitude for CMR has far exceeded both industry averages and our expectations. The company forecasts unit costs at $97.30 per tonne of ore for FY09 and an average $94.35 per tonne for the 5 years to 2013. Based on our commodity price and exchange rate assumptions, this crimps expected margins to negligible if not negative levels and raises investment risk to extreme levels.


We assume long term copper at US$2.50/lb, cobalt at US$20/lb, nickel and US$10/lb and an A$/US$ exchange rate of 0.95. CMR has forecast positive project cash flow but at considerably more favourable commodity prices. Our Oxide project NPV is now zero - this after deflating costs to pair with the realities of assumed lower commodity prices and higher FX. Using spot prices long term would generate a positive Oxide valuation of $40m or 20cps, still modest.

Impact
In recent updates we pointed to potential for considerable shareholder dilution if cash flow was not sufficient to service debt. Short of CMR raising new equity we must now assume that US$56m of outstanding debt including US$24m from Coffee House, a company related to Chairman Gordon Toll, is repaid via equity repayments. Our downgraded $1.40ps CMR valuation imputes an average $0.80ps share price for conversion. In reality, the price will be at the whim of the market. We include a valuation sensitivity table at various repayment prices.