calling danash, page-2

Hi Nick and others

I guess the old adage that a company is only worth what someone is prepared to pay for it or a company's share price is worth what the market investors are prepared to pay is rule of thumb when one looks at a share price. However, by applying different valuation metrics we are able to essentially value potential. It is these metrics that govern analyst valuations and price targets. The below is not a ramp and I am providing the below with the caveat that this is simply an educated take on CPL.

The way I see it is that there are essentially two ways to value CPL. The first is a simple valuation of EV/Resource (US$/Tonne) and the second, more widely used, is a DCF or Discounted Cash Flow valuation.

Using an EV/Resource (US$/Tonne) model if we look conservatively at what we may have with Vista and Vista South in the next couple of months I would use a figure of 1.5 billion tonnes. Now the hard part is what is a tonne of thermal coal in the ground worth? This depends on a lot of variables which have been mentioned previously on the CPL thread such as

Location
Infrastructure
Political risk
Environmental risk
Management capabilities
Financial risk
Costs of production
Time to production

The list is endless. However, as I believe that none of the above will pose a real problem and that several are real competitive advantages it is worthwhile to look at recent M & A transaction multiples for some idea as to what a potential suitor would pay. Presently with takeover talk WHC is trading at about $2.52 EV/Resource AU $ tonne with 1190 mill tonnes of Export thermal and PCI coal and a market cap of over 3 bill but it is producing. Several research reports have shown the average takeover price over the past three years has been approx $2.10 per tonne for export thermal.

Therefore at $2.10 x 1.5 bill / 530 mill shares fully diluted = $5.94 per share. Even if we discount this by 50% for time till production we are looking at nearly $3.00 a share.

On a DCF valuation, which is more favoured by investment analysts, I have put a variety of assumptions into a simple DCF calculator and get NPV well north of the current share price.

I have used the following parameters with the first two being from the scoping study and applied what I believe to be possible assumptions of the current pre-feasibility study

US $87 USD per tonne of coal
exchange rate of .83 AUD
8 mill tonnes pa
20 years mine life
Production costs US $45
Cap ex $650,000,000
Royalty 13% after cap ex payback and 2% mine mouth = 15%
Company tax rate 25%

On this basis we get a NPV (at 10%) of approx $1.89 bill equating on a fully diluted basis to $3.47 a share with an Internatal Rate of Return of 39%.

If we take the project out over 25 years we get a NPV (at 10%) of approx $2.086 bill equating, on a fully diluted basis, to $3.83 a share.

If we take production to 10 mil tonnes pa over 20 years we get a NPV (at 10%) of approx $2.495 bill equating, on a fully diluted basis, to $4.71 a share and an IRR of 52%. Over 25 years it is $5.17 a share.

However, we need to remember that any change to the assumptions alters the valuation. Having said this, the value only applies to the Vista project and does not include any value for Vista South which would increase the valuation per share.

Remember, Gene Wusaty, Denis Lehoux and Dermot Lane are Canadian Coal veterans and know value as does Colin Steyn and Highland Park. These are industry luminaries developing North Americas largest export thermal coal project. Essentially, any way we view this, the current share price has significant upside and my view is that it is not a case of IF, but essentially a case of WHEN.

Nick I hope this helps.

Regards

Danash