Author still retains shares and Huntley has included CMR in one of his model portfolios. He bought $20k worth at about $1.60 for that portfolio. CMR have released the baby upgrade to some wee satellite deposit, how many satellite deposits do they have? Then they have mega-sulphide deposit that they can't even find edge definitions for.
Day traders may of made a few dollars, but long term investors will make the real money. todays sp will look like a dividend payment in a few years. I'm not selling until sulphides is in full swing. I don't need the money now so I will let it sit for real valu to emerge.
Another Buffett quote "the best time to sell a share is hopefully never"
enjoy.
choice
Investment Rating CMR is focused on development of the Browns project near Batchelor NT. First ore from the base metal Oxides project is set for 2Q08. At 9.4Mt and growing, Oxide resources are just over 10% of the 84Mt total. A pre-feasibility study for a follow-up Sulphide development of up to 4Mtpa capacity is underway. CMR is an opportunity to participate in realisation of considerable value at advanced projects and exploration properties. It has no earnings history, is subject to development risk, low liquidity and high share price volatility. Development is well funded following the landmark Hunan (HNC) deal and exploration upside appeals.
Result Description
* Work at the Mt Fitch copper prospect indicates the presence of 5-6Mt of oxide mineralisation compared to the current 1.3Mt Indicated Resource. This is based on 170 drill holes. Our prior valuation assumed an eight year Oxide project mine life at a 1.3Mtpa throughput rate, or 10.5Mt in total. JORC compliant Oxide resources currently stand at 9.4Mt including 2.6Mt at Browns, 5.5Mt at Area 55 and 1.3Mt at Mt Fitch Cu. Assuming Mt Fitch contains 5.5Mt, the total would grow to 13.6Mt. Potential for significant oxide tonnage at Browns East is also highlighted. The Area 55 resource is still open to the NE and Mt Fitch to the west. Better 1Q08 Area 55 drill intercepts include 38m @ 1.8% Cu with associated lead, cobalt and nickel. Drilling to close off Mt Fitch is planned for 3Q08.
Impact
* We maintain our Speculative Buy recommendation on CMR. Our valuation is little changed at $6.05ps. An upgrade to near term commodity price forecasts, an increase in oxide mine life assumption, and the lack to date of any need to draw-down more debt are positive influences. CMR had $27.2m in cash at the end of the quarter and $29m of debt. Offsets are an assumed increase in unit operating cost for both Oxide and Sulphide projects and a more staid Oxide project ramp-up assessment. That last point sees our FY08 earnings forecast downgraded from 23cps to 9.1cps. We have lengthened the ramp-up period, assumed a greater proportion of lower grade feed during commissioning and raised operating costs.
* The profit figure during start-up and ramp-up is relatively meaningless. It could vary greatly depending on the proportion of costs capitalised or otherwise. Our FY08 number excludes potential further project impairment costs, a function of the reduction in carrying value due to budget overruns. CMR wrote down $15m in FY07. We treat these as exceptional. Our FY09 forecast is 32.8cps for a prospective PE of eight times at a $3 share price.
Long term assumptions remain US$2/lb copper, US$15/lb cobalt, US$10/lb nickel, US$0.70/lb lead and an A$/US$ exchange rate of 0.80. These are considerably below spot, particularly for cobalt, which is important to CMR but potentially very volatile. We employ a 15% discount rate. A successful ramp-up of the Oxide plant could see re-instatement of our usual 10% discount rate and a commensurate increase in group valuation to $8.05ps. Delays and overruns prompted use of the higher discount rate. The valuation still credits only half our assessed potential value for the much larger Sulphide project.
We increase our Oxide mine life assumption to 10 years. Upside exists in the potential for additional tonnage and/or plant expansion which could bring forward production and boost cash flow. Finding more Oxide resources also de-risks CMR. The Oxide mine is more straightforward than the Sulphide project and the plant all but complete. Resource upgrades are slated for mid 2008.
Browns Oxide Project remains on track for first ore to the mill in late May. The $140m capital cost forecast is unchanged although potential for a small increase remains. We assume $145m. Early commissioning activities have begun. Off-take agreements for CMR's share of copper cathode and nickel-cobalt concentrate are almost complete. The stamp duty issue with the NT government drags on but CMR and HNC are progressing the JV documentation regardless. HNC continues to advance funds as agreed.
The Browns Sulfide pre-feasibility study proceeds. Laboratory tests continue with lead metal successfully produced. HNC is paying 100% of costs including the feasibility study. Resource estimates are now in progress after the assay backlog was cleared late February. Two drill rigs during 1Q08 completed 13 holes at Browns, Browns East and Area 55. Drilling at Browns yielded a broad result of 101m at 10% lead along with associated copper, cobalt, nickel and silver. Browns remains open to the NE towards Browns East. Testing of this zone is slated for 2Q08. At Browns East, significant untested potential was also revealed with potential for the ore to extend further than first thought.
The Raptor Resources spin-out, containing the NSW and Peru interests, is scheduled for 3Q08. In Peru, CMR is negotiating rights to the Chinguela Gold project held by Indo Mines, CMR's 30% partner in its adjacent Nangali project. We view Nangali as a sleeper with high grade rock chip samples and a world class address, albeit higher sovereign risk.
Note: The author personally holds shares in CMR.
CMR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
