Sorry guys I got my wires crossed there, RBS had a target $1.74 back in Feb, not sure if that's been updated. As per the link recently posted it was Citi that put out the 50c target 01/06/12. Regardless, point being that UBS comes out $1.40 30/07/12 and Citi models the value of the cash flows and risk adjusted increased production 65% lower. That's a massive difference and they can't both be right.
This demonstrates obviously how critical assumptions are in valuation models. Citi are suggesting that post hedging (2015) the Plutus mine (50% of DML's reserve) will be uneconomic at $2.77/lb cash costs and $2.80/lb long term copper price.
I would like to read their report on how they established $2.77/lb at Plutus? If you think copper will continue to be in demand as the developing world becomes more 'Westernised', and supply will continue to be constrained (re decreasing grades and increasing production costs), then a reversion to a long term price of $2.80 might be way off. But the boys at Citi must know their game eh? Or dare I say the machine works beautifully where the analysts are asked to write justifiable short reports so their brokers can churn and their insto's can accumulate?? Shorting and churning means making money in any market.
I wonder who knows more about mining copper and projecting future prices, Vanguard's Precious Metals & Mining team (12.78% ownership) or the Citi guys who cover mining? Will be interesting to see? But the former are happy topping up at current levels and significantly higher.
DML Price at posting:
$1.30 Sentiment: LT Buy Disclosure: Held
