sb1, an interesting and good question.Firtly, these are the...

sb1, an interesting and good question.

Firtly, these are the company's accounts. It isn't KPMG that comply with any of the IFRS, but Cudeco. KPMG's role is to comment on Cudeco's accounts. It sounds nitpicky, but it's an important distinction for auditors. They are not preparing the accounts, they cannot order the company to change accounts, they examine the reports and comment on them. The directors will always be given an opportunity to change something so as to avoid the auditors/reviewers having to make a comment, if possible.

Secondly, KPMG have not audited the half year accounts. They have conducted a review. They make it clear in their "Independent Auditor's Review Report to the Members of CuDeco Limited" on the last page of the half yearly exactly what they have done, and an indication of what they haven't done. The second para under Auditor's Responsibility in particular refers.

Thirdly, the JORC and the Corporations Act obviously have different criteria. As you say:

"2. Evaluation and 3. Development
The cut-off between evaluation and development is often a critical accounting issue. The cut-off point is once the technical feasibility and commercial viability of extracting the mineral resource has been determined; this is usually upon completion of a bankable feasibility study (BFS) and when a decision to develop has been made by the directors, usually based on the BFS."

Assuming that this was a full audit at 31st Dec 2013 and I was the auditor, I would need to determine whether "technical feasibility and commercial viability of extracting the mineral resource has been determined". However, the company hasn't completed a BFS, so the directors must have used other criteria. The directors would tell me that they didn't need a BFS to raise the cash, That the project is x% complete and that, with the CR monies coming in in January they now have nearly $100m in cash which is enough (in their opinion) to take the company through to positive cash flows from production and as such the commercial viability of the project is established. As for technical viability, they can give me the reports from the bulk testing. For a half yearly review of financial information, that would probably be more than enough. For a full audit, I might require expert opinion on viability, or to discuss matters with the bulk testers, geologists, JORC consultants etc., review the production results of the plant installed to date compared to expectations. But prima facie, if the company says it has the money to complete the plant and the JORC shows they'll be mining a resource rich enough to make operations cash positive, there is enough evidence to form an opinion that the project is technically feasible and commercially viable. Which isn't the same as saying that there will be huge dividends for all, or even that it will produce enough cash to justify its current market capitalisation. Just what the IFRS require - the directors consider the project is commercially viable, and the auditors can see no reason that that is not the case.

So the company doesn't need a BFS for the reviewer to sign off, nor for the auditor to sign off. The BFS is just the "usual" method. The company has an established offtake agreement for 100% of its product at its discretion (and no doubt the auditors will have perused the offtake agreement and will know what "all" or "just the concentrates" really means) so the "identifies the existence of markets or long-term contracts for the product" criterion is dealt with.

This does mean that the auditors might have a different view at 30th June 2014 when they perform a full audit - but by then it will be a completely different kettle of fish anyway.

So the answer in a nutshell is yes, that KPMG, as a result of their review of the interim financial statements prepared by the company, as signed off by the directors, see no reason why it shouldn't be a commercial operation.

I would just add that I have never doubted that it could be a commercial operation. The JORC appears to indicate that. Unless Cu prices dive further there should be enough material of sufficient grade for a few years' positive cash flow. I cannot see it ever producing a $1 quarterly dividend, however, as mooted by several posters on here in the past, unless the company manages to front load NCu recoveries to a remarkable extent - which is only depriving future periods of their divvies. And there is nothing wrong with that either - if they can process all the NCu quickly, they can sell the Alljig.