CMR's share price has stablilised somewhat after falling from...

CMR's share price has stablilised somewhat after falling from $5.50 levels in late July. Revelations that the Browns Oxide project is delayed by one quarter to 1Q08 with costs to increase by 20-30% or $20-30m dulled any chance for the company to recover to the degree of other resource companies after the general sell down in July/August. The market wants certainty as to the cost increase and timing followed by proof in the pudding. We had lowered our CMR valuation 25% to $5.50 after instituting a 15% discount rate to account for disappointing management performance. We feel more comfortable that the company is on the path to redemption after firing of certain personnel and new appointments. Increases to commodity price forecasts, chiefly lead and copper and to a lesser extent nickel, see our valuation upgraded by 18% to $6.50ps. Our recommendation remains Buy.

Ongoing growth in Chinese metals consumption followed by India, mining industry input cost inflation, industry consolidation, infrastructure bottlenecks, a scarcity of quality resources due to years of exploration neglect and sovereign risk are all underpinning commodity price strength. The long run average marginal cost of production has jumped permanently higher for most commodities. Much of the new demand has been satisfied by substantially higher cost mines.


Australia is a major beneficiary of the macro economic fundamentals and not surprising our currency continues to rise, at last count 86.8 US cents versus our long term forecast of 0.76. We have previously been in no great hurry to increase that long term number as our commodity price forecasts are cast with an eye more firmly on the A$ prices, rather than US dollar prices. The ratio of the A$/US$ exchange rate versus US dollar commodity prices is more important. We now upgrade our long term A$/US$ exchange rate outlook to 0.80.