Compass' Browns a site to behold: analysts Paul Garvey Wednesday, 29 November 2006
A SITE visit to Compass Resources' Northern Territory operations has impressed visiting analysts, with one research house describing the company as "one of the highest leveraged plays to an extended resource boom".
Last week's visit appeared to leave a strong impression on analysts from Aspect Huntley and Baker Young, which have slapped valuations on the company of $6.95 and $7.00 a share, respectively.
"The message we bring back from Compass' Batchelor base metal and uranium assets is they are real, impressive in scale and their development is underway and in good hands," Huntleys said in its report.
Compass is currently focused on the development of the oxide component of its Browns base metals project, with first production expected in the first half of next year.
The 9.4 million tonne oxide resource, which Huntleys said had an in-ground value of $1.9 billion, represents just over 10% of the 84Mt total resource currently in place.
A feasibility study into a 4Mt per annum sulphide development is underway, as is a preliminary study into the Mt Fitch uranium resource, also situated within Compass' NT land position.
On top of that, the company has a 50:50 joint venture agreement with Chinese company Hunan Metals over the oxide component that will see Hunan cover the capital expenditure and repay Compass' past expenses on the project.
"Compass is an opportunity to participate in the realisation of considerable value at advanced projects and exploration properties," Huntleys said.
"The balance sheet is strong with exploration and development will funded following the landmark Hunan deal."
On the back of the visit, Huntleys upped its valuation of Compass by 20%, based largely on an increased valuation on Compass' uranium assets.
"Such was the immediate and obvious potential of the uranium prospects on the recent trip, we increase our valuation for them from $50 million to $190 million," Huntleys said.
But the main focus for now is the oxide base metals component, which Huntleys forecasts will generate initial pre-tax cash flow of $48 million.
The research house said earthworks and foundation construction were on track to be completed prior to the onset of the wet season, while most major plant items were already onsite.
"In reality, the 10-year oxide project just mines the skin of one of the biggest base metal inventories in Australia.
"Compass cites potential to double the 84Mt resource and we think it could be more. The deposit is open along strike and at depths below 300-350m.
"That 84Mt is worth around $18 billion at today's prices or $215/tonne, making it one of the highest value ores for a deposit of its size."
Meanwhile, an analyst with Baker Young said he was most impressed with management and their strategy and resolve to become Australia's next base metals producer – "arguably next-in-line behind BHP Billiton and Rio Tinto".
Compass – which has a market capitalisation of $603 million – was one of the few larger mining stocks to avoid a fall yesterday, gaining 23c to close at $4.72. The stock had added a further 3.4% in morning trade today to sit at $4.88.
CMR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
