SFR has a 5% copper grade and nearly 2g/t of gold. You can run a (bulk) underground mine on 2g/t of Au, lets put it that way. What this means in simple terms is that SFR's ore body has a robust defence of the potential profits it can make in the event the copper price dives in the future.
CuDeCo, however, has an ore body grading 1.2% Cu with credits. These credits are assessed into a copper equivalent price and while the gold factoring is at $900 Oz, leaving upside, the cobalt factoring somehow maintains a pre-GFC pricing level which disproportionately enriches the reported grade equivalence and, hence, when the 'big end of town' plugs the LME 3 month forwards price for cobalt in, gets very much different copper equivalent figures.
This weighs directly upon how you pay for in-ground copper. In Sandfire's case it is patently clear that even with a predominantly underground extraction, its costs are at sub US$1/lb (or should that be AUD$/lb?) inclusive of a credit from gold.
In CDU's case, the projected cost of production is unknown, and in any way will be likely quoted primarily as copper equivalence. This means that the cobalt price assumption you use heavily influences the revenue you assess toward your operation, and hence, the eventual price of producing a tonne of "copper equivalent". In essence, if you slash the cobalt price to the 3 month forwards price, your cost of production will be default increase.
So the cost of production of SFR is well understood, whereas CDU's remains a moving target because of the uncertainty re: DFS, and the incredible oversight of the use of out of date price assumptions in the calculation of the "copper equivalence". Believe me, CDU would do better calculating a copper equivalence on forwards prices versus woefully out of date historical prices.
Finally, regarding the location of DeGrussa, it is 70km north of Meekatharra. It is 400km by sealed road to Geraldton, and only 250km from the rail-head. There is no need for it to reinstate the historical rail line to Meekatharra to haul out its copper. I will remind you all that Aditya Birla runs a sizeable concentrate copper operation at Nifty, which is even further off in the middle of nowhere than meekatharra. Clearly there is no need to worry how SFR will get its concentrate to the coast.
This argument is based in myopic opinion based on the decision of CDU to put in a spur line to Rocklands. That's their choice, but what the operation saves in loaded-km charges for rail over road is not very much, aand they lose a lot of cost in putting in a rail line versus a road, and they likely need to secure rail haulage contracts with QRN or ARTC, etc etc...so I really fail to see how CDU's decision to rolls-royce it and SFR's decision not to is relevant.
CDU Price at posting:
$3.16 Sentiment: None Disclosure: Not Held
