Below is an extract of the Fat Prophets newsletter, dated 24 June 09. I first bought at 61c, then at 32c, and then gave up on this stock... Now, I wonder whether or not it is worth considering getting into it. I guess it is still a bit of a gamble, based on which funding solution they go for. =========================================================== ....The project will generate a forecast Internal Rate of Return of 26% after tax, with a Net Present Value of $81 million after tax at a 10% discount rate. The project is sensitive to the price of copper and to the A$/US$ exchange rate. For example, a 10% rise in the copper price from US$2.50 to $2.75, increases the NPV of the project to $128 million and lifts the IRR to 35%, all other things staying constant.
However a drop in the assumed price of copper or an upward movement in the value of the A$, has a similar negative impact on the project. For example, at US$2.25 copper, the NPV is $33 million.
The initial phase of the operation will see planned total production of 100,000 tonnes of copper, 25,000 ounces of gold and 3.5 million ounces of silver over a seven-year period, followed by production of 42,000 tonnes of zinc, 25,000 tonnes of lead and 2.2 million ounces of silver over two years.
Estimated capital costs are A$108 million for the copper stage followed by A$14 million for the later zinc-lead stage. The company is however cognisant of the fact that the current economic conditions make it difficult to attract project finance on acceptable terms, so it will now be focusing its efforts on alternative financing strategies, including the introduction of a strategic partner.
From a resource and exploration upside there is also good news. Concurrent with the preparation of the Feasibility Study, the company completed a review of the exploration potential of the total Einasleigh area, which has identified 13 high-priority targets for immediate drill-testing upon the resumption of field programmes.
The most advanced of these lie beside and beneath known copper resources and success would quickly increase the resource inventory, adding to the robustness of the project. So there is room for significant confidence in the commercial development potential of the Einasleigh project. Examining alternative funding proposals will now be the company’s biggest priority.
Copper Strike will continue to remain held within the Fat Prophets Mining & Resources Portfolio.
CSE Price at posting:
9.3¢ Sentiment: Buy Disclosure: Held
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