huntleys update

Exploration pace accelerates
We provide a brief update given further price depreciation since
our last report. That update was inappropriately titled ‘Fair Winds
Return on Asset Split’. Apparently not! In a fundamental sense
things appear to be tracking positively for CMR even if the price
isn’t. In May the company received its second $15m tranche from
Oxide project joint venture partner Hunan and will get another
$10m at the end of June. Hunan will also provide a further $32m
and repay $11m of past exploration expenditure. The stamp duty
ruling to allow those final payments is expected mid July.
The Oxide project remains on track for the revised October start
with capital cost estimated at $83m together with $21m working
capital. Hunan pays 50% of the $21m. CMR intends to fast
track the Sulphide Base Metals Project. The study envisages a
mine life in excess of 20 years up to 4.0Mtpa of ore processed.
Of our unchanged $7.25ps CMR valuation, the Oxide project
comprises $1.49ps and the Sulphide project $3.18ps, albeit we
halve the Sulphide project value to reflect its still early stage.
This conservatively assumes 50% probability of success. 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, again including only half the sulphides.
Exploration has restarted post end of the NT wet season. The
record 2007 field season is a 50% increase on the 2006 effort
and includes 35,000m in the ground. Browns Deeps drilling
continues parallel to a previous 79m @ 3.4%Cu equivalent
intersection from 364m depth. CMR aims to more than double its
84Mt global base metal resource and results could be telling in
addition to the 2006 results yet to be added. A rig has also been
working at Mt Fitch and completed a dozen holes to date. This
includes infill work to upgrade the 14.5Mlb uranium resource to
measured category, in addition to extensions. At Browns East
a third rig has completed 13 holes and at Area 55, a second
diamond rig is upgrading the oxide component of the 12Mt base
metal resource to measured category. Area 55 is the next oxide
orebody to be mined after Browns. CMR is also in the throws
of accessing a fifth NT drill rig. Future targets include Mt Fitch
South copper, Mt Fitch copper and Rum Jungle East uranium
between Whites and Dysons. Expect first assay results in the
June quarterly report.
In NSW drilling has just finished at CMR’s Ironbark gold Parkes
and Tomingley West prospects - no assay results as yet. Work at Alkane’s Caloma prospect is interesting adjacent to the
Wyoming deposits on its Tomingley ground. Recent high grade
Caloma gold intercepts include 15m @ 6.8g/t from 24m and
33m @ 5.0g/t from 78m. These are captured by CMR’s royalty
interests which also encompass most of Wyoming. We leave
our 8cps value for this royalty interest unchanged for now but it
could grow with more positive results.
Of most interest to red blooded exploration watchers will be
news that drilling at Cuttaburra in Western NSW is likely in about
six weeks. Radiometric surveys have generated encouraging
data. A wildcat hole drilled in October last year, freakishly
intersected look-alike geology to the established Cobar
Basin including anomalous copper, zinc, tungsten and silver
mineralisation. Early days but virgin ground in elephant country
is not to be sneezed at. CMR has four granted exploration
licenses and another three under application for a combined
~2,000sqkm.
Chairman’s roadmap
At the recent AGM, Chairman Gordon Toll set out company
objectives for the five years to 2011. These include doubling
the NT base metal resource inventory through drilling; an
oxide and sulphide plant and at least one other significant
operation; annual revenue in excess of A$1bn assuming copper
US$1.50/lb; payment of dividends; a portfolio of uranium assets
to support 5,000lb pa of U3O8 production; and a significant
greenfields discovery. Fighting words but not beyond the realms
of possibility. Toll says CMR has a wide network of international
investors interested in participating in developments. The
company will take a more international approach to search for
opportunities, is in the final stages of putting in place an A$100m
standby facility and will appoint a new Business Development
General Manager. It will evaluate additional listing venues and
intends a global roadshow in late August/September, at end of
Northern Hemisphere summer holidays. Hopefully acquisitions
will be prudent and the company won’t bite off more than it can
chew. Tax advice on splitting the company into three to achieve
better market recognition is pending.