Investment Rating CMR is focused on development of its Browns project near Batchelor NT. First production from the base metal Oxides project is set for mid 2007. At 9.4Mt and growing (A$1.9bn in-ground value), Oxide resources are just over 10% of the 84Mt total (~A$18bn in-ground value). A feasibility study for a follow-up Sulphide development, up to 4Mtpa, begins shortly. A preliminary study on the adjacent Mt Fitch uranium resource is underway. CMR is an opportunity to participate in realisation of considerable value at advanced projects and exploration properties. We rate this as one of the highest leverage plays to an extended resource boom. CMR has no earnings history, is subject to development risk and low liquidity. The balance sheet is strong with exploration and development well funded following the landmark Hunan (HNC) deal.
Result Description
* Has CMR gone into the pre-production lull that so often besets companies emerging from explorer status? The market can become fixated with wanting to see the colour of the metal before moving on. CMR should be in production in less than six months and may be conforming to the pattern. Lower metals prices have also taken some of the exuberance out of the resources sector. The December quarterly report had much to cheer about, yet not so with the share price. Those hoping for a huge uranium discovery on the first drill pass may have been disappointed. There was no Ranger in the initial results from either the Kylie or Rum Jungle Creek South prospects. That said the Kylie three metre intersections at just under a pound per tonne uranium did contain anomalous gold, a characteristic of the coveted unconformity related orebodies. It’s very early days and the results sufficiently enticing to warrant early follow-up drilling despite the wet season which doesn’t officially end until April.
Impact
* We retain our Buy recommendation. Our valuation is little changed at $7.05ps 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 $12.15ps. We credit a doubling in uranium resources to 25Mlb, half the company’s target, and apply A$7.50/lb. CMR’s strength is likely substantial earnings from existing resources and impressive exploration upside.
CMR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
