**huntleys recommendation**

hi guys..

thought you might be interested in this..note dated 16/4/04

Huntleys Recommendation: Mincor Resources NL ( MCR )
Recommendation: Short-term Hold / Long-term Accumulate
MCR’s robust medium-term production growth, healthy cash reserves and aggressive exploration focus should allow the company to continue expanding its operations in the future. Yet despite the growth prospects, MCR’s current share price seems to reflect its fundamental value. Considering nickel prices trending from US$13,000/t for FY04 back to the long-term average by FY06, our NPV for MCR is approximately 90cps based on ore reserves only. Our valuation assumes USD/AUD falling from 75c to 65c over the next 3 years and does not incorporate any value for exploration. At this stage, caution is advised as the current nickel price is nearly 60% above the long-term average. For short-term investors we recommend a HOLD stance. In the long-run, we believe that MCR’s large portfolio of tenements in the Kambalda region in conjunction with its extensive exploration initiatives offer significant upside potential to extend mine life and reserves. For investors who consider MCR as a long-term investment and recognize the speculative nature of exploration activities we recommend an ACCUMULATE.

Event
Last Update - 16/04/2004
MCR announced its plan to spend around $7m on exploration programs over the next 15 months within the Widgiemooltha Dome-Kambalda district.

The company’s main objective is to double its existing reserve base through exploration of known ore bodies. In addition, MCR aims to discover a new million tonne high grade nickel ore body within its Widgiemooltha Dome tenements.


Business Impact: While at first glance this exploration strategy may look very ambitious, the company has on its side a track record of getting things done and meeting planned goals. According to our valuation, an additional 10,000t Ni could represent an increase of 15cps in MCR's share price.

Forecast Impact: Our EPS forecasts for FY04 and FY05 are 7.5 and 18.1cps.

Recommendation Impact: Upgrade to Short-term Hold/ Long-term Accumulate. (Last updated: 16/04/2004

Event Analysis

Backed by an experienced management team with a track record in achieving production growth through acquisitions and exploration initiatives, MCR should experience significant growth in the medium to long term. Strong cash flow and positive development decisions could allow the company to increase nickel production by more than 60% over the next two years, pushing profit to over $40m for FY06.


Since 2001, the Kambalda district has been the centre of MCR’s mining activities. In the half year to December 31, MCR’s Kambalda operations produced 154,000t of ore at an average grade of 3.05% Ni, generating 4,168t of nickel in concentrate. Cash costs for the period, including mining, milling, administration and royalties increased 27% to A$5,650/t due to lower nickel grades at the Miitel and Wannaway mines.

Production is expected to start at North Miitel, Redross and Mariners in FY05, substantially increasing MCR’s output. North Miitel has reserves of 466,00t @ 2.88%Ni and is scheduled to begin mining activities in the Sept 2004q. Redross and Mariners have reserves of 526,00t @ 2.95% and 422,670t @ 2.88% Ni, respectively. Both mines are expected to start producing in the December 2004q. In total, the company has a reserve base of around 2Mt @ 2.81% Ni for 55,760t of nickel metal. At forecast production rates, MCR has enough reserves to continue producing till 2008.



Ore produced at the Miitel and Wannaway mines is transported to WMC Resources’ mill, where it is toll-treated. In accordance with the long-term off-take agreement, all nickel concentrates produced are sold to WMC Resources, with payments made in US$ with reference to the spot price. Importantly, the agreement also covers any new Kambalda area mines developed by MCR.


MCR’s low-priced project finance hedging ended in January 04, leaving the company totally exposed to spot nickel prices. In the December half, MCR sold 71% of production into hedges that achieved an average price of A$10,898/t, a value 34% below the average nickel price for the period. In the current half, buoyant nickel prices are expected to boost MCR’s performance, lifting revenues to over $50m assuming stable production rates.


MCR plans to spend around $7m on exploration programs over the next 15 months within the Widgiemooltha Dome-Kambalda district. The company’s main objective is to double its existing reserve base through exploration of known ore bodies. In addition, MCR aims to discover a new million tonne high grade nickel ore body within its Widgiemooltha Dome tenements. While at first glance this exploration strategy may look very ambitious, the company has on its side a track record of getting things done and meeting planned goals.


At the end of December 2003, MCR had no debt and $20.3m in cash which will fund its mine development and exploration programs. Current mining operations and high nickel prices should provide the necessary cash flow to fund planned mine developments at Redross, North Miitel and Mariner. Total capital requirement including exploration is estimated to be around $45m over three years.


MCR’s robust medium-term production growth, healthy cash reserves and aggressive exploration focus should allow the company to continue expanding its operations in the future. Yet despite the growth prospects, MCR’s current share price seems to reflect its fundamental value. Considering nickel prices trending from US$13,000/t for FY04 back to the long-term average by FY06, our NPV for MCR is approximately 90cps based on ore reserves only. Our valuation assumes USD/AUD falling from 75c to 65c over the next 3 years and does not incorporate any value for exploration.

At this stage, caution is advised as the current nickel price is nearly 60% above the long-term average. For short-term investors we recommend a HOLD stance. In the long-run, we believe that MCR’s large portfolio of tenements in the Kambalda region in conjunction with its extensive exploration initiatives offer significant upside potential to extend mine life and reserves. For investors who consider MCR as a long-term investment and recognize the speculative nature of exploration activities we recommend an ACCUMULATE.






..................Forecast Earnings Trends
................30-06-04................30-06-05
..........EPS(c) ..PE ..Growth....EPS(c) ..PE ..Growth
Median 10.2 ....6.6 ..112.5% ...29.8 ....2.2 ..192.2%
High ....10.9 ....6.1 ..127.1% ...34.5 ....1.9 ..216.5%
Low .....9.4 .....7.1 ..95.8% .....25.0 ....2.7 ..166.0%