hang on lol...$2 dividends aren't sustainable, page-29

Scanspeak, it is all well and good to do "mining on a calculator" as I like to put it, but you have to understand that you can't just put two or three numbers together, whack a PE on it, and say, "voila here's what we are looking at".

You've forgotten to account for recoveries and are also assuming (like me) that the 40% resource tax won't get up. If you were to be true to yourself, you would be accounting for around 95% net recovery, and a further 10% of your income being taxed. You are ALSO assuming that there is no downtime in the mines, but generally you have about 1-2 net weeks of maintenance in a year, or around a further 3% of production potential lost. You then also have time/natural risk, but lets not go there for simplicity's sake. For what its worth you normally account for 9% time risk in NPV/Earnings calculations.

So, if you assume all the above to give a proper model, then you are looking at around $1.11 earnings per share per annum from the high grade production.

BUT>>>

This is ofcourse assuming that all of the 30Mt @ 1.7% CuEq is feasibly to mine, which it most likely is not. Ask every single company in the world and they will tell you that their reserve is much less than their resource.

So what is it for CDU? We'll have to wait for the DFS...

If their prospect goes down a similar path to most mines in the world, then you are probably looking at 50% of the ore being a proven reserve, in which case you would be forcasting 55c EPS if you divide the reserve over 10 years. If its 70% of their resource (which is probably more likely given the copper at surface) then you are looking at 77c EPS or a 77c dividend.

Now, ofcourse, CDU could decide to run a 4%CuEq operation for a couple of years out of LM Central, but a problem arises. Over just the first 3 years, that would take 360kt of CuEq out of the ground, and leave no more than 150kt above a cut-off of 0.8% for the next 7 years. You earnings would skew dramatically as I believe most of you are aware of already.

As for PEs, well I think you need a reality check, because the market won't pay a PE of 10 on a 10yr operation. Try 5. And they won't pay a PE period if the earnings and being handed out as dividends, because all a PE circulates around is an anticipation of earnings that the company can then use, but they won't be able to use them if they hand them out to shareholders.

I can see what you're getting at because the company will commence a low grade operation in the eleventh year at 10MTpa, but if you account for time and execution risk, you would know that the market probably isn't thinking that far ahead at the moment with regards to earnings beyond the 10th year. They might account $1/share for future expansion out of LM etc once progress is being made to show it is plausible, and then pay a further premium if Wilgar ever shows anything promising. The key here is that the operation is not continuous, thus there is risk attached, and the market doesn't like risk at the best of times.

If it were me giving you a price target for whenever CDU starts producing at 3MTpa, then I would give you a price target of around $4.50 but that doesn't account for earnings being handed out as dividends. Just look at the share price of the majors when they hand out their divis. It drops by almost as much as what the dividend is but that is a whole year/half year of profit that can't be speculated on.

The take home message is that these sorts of calculations depend an awful lot on that reserve figure and how much net cash the company will be carrying at the time, and finally how many shares are on issue. P.S: I suggest you read up on PE ratios :)