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from CUO thread. What a bodyblow.

Mid-Week Alert


CopperCo enters Voluntary Administration



CopperCo (CUO) has stunned the market by announcing today that it is entering Voluntary Administration, following the failure of recent discussions relating to new equity and debt facilities. Whilst the whole resource sector is under pressure at the moment due to weak commodity prices that are impacting operating margins, the situation with respect to CopperCo has us perplexed, angered and asking many questions.


In its September Quarter report released only a month ago, the company emphasised the copper price protection that it had in place which would ensure that revenue generated from copper sales delivered into the company’s hedge contracts would cover 100% of operating costs, debt servicing, overheads and minimum exploration expenditure for the financial years 2008/09 and 2009/10.


It also went on to say that lower spot prices in US$ terms had been partially offset by the weaker A$. The company also said that the combination of price protection and compensating changes in forex rates would serve to protect the company’s core business plan in the medium-term.


According to its September quarter operating report, the company generated net operating cashflow of $11.4 million during the period, with cash at bank at September 30 of $15.2 million.


We seriously question how a company that was communicating to the market that it was in such strong apparent financial shape, with protection to ensure coverage of all expenses, could end up in Voluntary Administration a month later?


Furthermore, on 30 October the company gave a presentation to the Queensland Resources Conference in which it said that the Lady Annie mine, which was generating an EBIT margin of 60%, was set-up to be a strong cash producer throughout the business cycle. The company also said that 63% of its revenue to the end of 2009/10 was protected by its hedge structure.


The company also gave forecasts that indicated that its hedge revenue during FYs 2009 and 2010 of $232 million would more than cover all its costs, with a further $123 million to be earned from unhedged revenue.


We reiterate that this was less than a month ago, yet somehow things have deteriorated to such an extent that administration is necessary, without the company giving any indication. Neither did the company provide any suggestion of the seriousness of its refinancing negotiations.


Our rationale for recommending CopperCo to Members was based on the widely-advertised premise that the company had sufficient ‘insurance’ in place to protect itself, and shareholders, even in volatile times. To our amazement and the amazement of other analysts that have closely followed the stock, there has been an extraordinary turnaround that appears inexplicable, given the suddenness of the deterioration.


We hope to have some additional information for Members as quickly as we possibly can.






Best Regards,

Fat Prophets
Investment Heavyweights