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.
CMR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held