euroz report

Key Points
ƒÏƒnStrong production result from Dikulushi.
ƒÏƒnDoubling of Kula resource to 255kt of Cu provide impetus to study SX-EW option.
ƒÏƒnProduction and earnings forecast to double over next yr.
ƒÏƒnInitial Kinsevere resource of 348kt of Cu exceeds
expectations.
ƒÏƒnAttributable copper resources of +500kt.
ƒÏƒnTarget price $0.80/sh.

Comments
Dikulushi has enjoyed a strong turnaround after the problems in 1st H of the CY¡¦05. A record qtrly production result plus a record month in Oct¡¦05 (2.1kt of Cu), combined with the doubling of the Kula resource, imminent commissioning of this project, initial 348kt resource at Kinsevere and a strong copper market has resulted in AVM bouncing back to previous share price levels of Mar¡¦05.
The commissioning of the second ball mill combined with access to run of mine ore resulted in a record qtr production of 5.7kt @ US$0.79/lb at Dikilushi. This performance continued in Oct with a record month of 2.1kt of Cu.
Sampling of the river gravels was extended from 7.5km to 12.5km and resulted in a doubling of the contained copper. The rsc has grown from 1.5mt @ 6.8% Cu to 4.3mt @ 4.4% Cu plus a fine tailings component of 44kt for a global rsc of 255kt Cu.
AVM will now start a feasibility of a SX-EW plant at Kula. This appears to be a logical development strategy in light of the increased TC/RC charges and low cost power available in Kolwezi.
We believe an SX-EW project producing ~ 25kt Cu pa would have low operating costs of ~US$0.50/lb and could potentially add some $60m or $0.20/sh to our valuation.
The Kula project is on track for commissioning in Dec¡¦05 which will see copper production increase to ~ 40kt in CY¡¦06, increasing to 50kt in CY¡¦07 as higher grade Dikulushi ore is mined. Earnings are forecast to increase from US$8m in CY¡¦05 to US$20m in CY¡¦07
(based on a Cu price of US$1.15/lb).
The initial oxide resource at Kinsevere of 8.4mt @ 4.1% Cu for 348kt exceeded our expectation of ~ 250kt of Cu. This is likely to be the third operation with a potential start up in late CY¡¦06.
Ultimately this is likely to develop into another SX-EW operation after Kula has been successfully developed.
We have increased our valuation from $0.64/sh to $0.80/sh with better Dikulushi production performance, a larger Kula and
Kinsevere resource. With attributable copper resources of +500kt and the likely development of an SX-EW operation will take AVM a long way towards its objective of becoming a mid tier copper producer.