huntleys full update

Result Description

* Recently we suggested potential for a pre-production lull in share price. This looks to be bearing out. After spiking briefly in late February to $6.20ps, the current $5.30 price is only marginally higher than at the time we last wrote. Potential is for a re-rating upon first metal production all else being equal. This is still slated for mid 2007 with the oxide plant construction on track despite some of the heaviest rain in 20 years. Earthworks held despite a robust test of integrity from cyclones.


* CMR previously said the Hunan signing ceremony would be delayed until March 16 due to complexities in legal drafting of three separate joint ventures. It is taking longer still. The Chinese regulator has approved Hunan’s participation. We believe completion of the English version of the documents is imminent. The Chinese translation could take two to three weeks longer. That would see signing in mid to late April. CMR will receive $72m cash for the Oxide project and $11m for past exploration expenditure. While frustrating, we don’t believe the delays reflect any loss of enthusiasm on the part of the Chinese. CMR has more than enough cash to fund completion of the oxide plant in the interim.


Impact

* We retain our Buy recommendation. Our valuation increases marginally to $7.25ps still crediting only 50% of our calculated Sulphide project value. Long term assumptions remain US$1.75/lb copper, US$15/lb cobalt, US$5.00/lb nickel, an A$/US$ exchange rate of 0.76 and a 10% discount rate. Using spot prices markedly increases the valuation to over $12ps. CMR’s strength is likely substantial earnings from existing resources and impressive exploration upside.


Recommendation Impact (Last Updated: 28/03/2007)
Unchanged.

Price data based on previous close.
Previous Close Market Cap
$5.27 $661 (million)
52 Week High/Low
$6.25 - $1.57
Sector
Materials

Intrinsic Valuation
$7.25
Note
NPV at 10% discount



Event Analysis

One area where the rains have impacted is exploration. The big wet has put pay to plans for even limited drilling. The official wet season end is April. That will herald the beginning of the largest drill program in the company’s history. The enlarged $4m 2007 field season will see a 50% increase on the 2006 effort. Targets include Rum Jungle Creek South uranium, Browns East, Mt Fitch uranium, Mt Fitch South copper, Mt Fitch copper and Rum Jungle East between Whites and Dysons. The timing of release of first new drill results could coincide nicely with company’s new found producer status.

Uranium approvals process triggered


Results of the preliminary scoping study for the Mt Fitch uranium resource indicate positive economics for a 2Mtpa mine. The study is based on the 8.1Mlb indicated portion of the 14.5Mlb resource. A range of Net Present Values is provided including a high end $276.3m or $2.10ps at around the current US$90/lb spot uranium price. This is 46% above our current $1.43ps valuation for all CMR’s uranium assets. Our valuation credits 25Mlb of resources, half the company’s target, at A$7.50/lb. This could prove conservative. Thirty new drill holes have been completed since the July 2006 resource calculation. Results include 128m @ 1.1lb/t from 5m and 76m @ 2.0lb/t from 34m – solid grades over those widths. These are likely to both increase the global resource and result in more of the inferred portion being upgraded to indicated status. Mt Fitch environmental engineering and regulatory work has begun.

Mt Fitch is the first step in a plan to produce uranium from a number of sources in the Rum Jungle area through a centralised mill. Most recently, CMR reported significant uranium intercepts at Browns East including 10m @ 2.8lb/t with mineralisation continuing to over 120m below surface. CMR says it is possible the new zone has similar grade and size potential to the Whites mine 450m to the north east. Whites produced 2.4Mlb @ 6lb/t in the mid 50s. A third target is the more than 1km of prospective strike between the old Whites and Dysons (1.2Mlb @ 7.7lb/t) mines. The area delivered encouraging drill intercepts earlier in the year and will be a target for the 2007 exploration field season.

Mt Fitch Scoping Study

Uranium price NPV @ 10%
US$60 $73.8M
US$70 $141.3M
US$80 $208.8M
US$90 $276.3M

Mt Fitch Scoping Study


Note: The author personally holds shares in CMR.