Shaws recent take on CBH;Well undervalued :With zinc prices...

Shaws recent take on CBH;
Well undervalued :

With zinc prices having based and now rising we believe CBH provides a sound investment based on strong zinc exposure and project growth. We have conservatively assumed zinc prices in our CBH model at US$1.55/lb for the remainder of FY07 and a LT price of US$1.20/lb. We have forecast Endeavour’s zinc production to be 55kt for FY07 which includes just 14kt for the March and June quarters of 2007 compared to 16k produced during the Dec quarter 2006. Based on these conservative parameters we forecast normalised earnings at $75 for FY07 equivalent to a PE of 6.5x. We anticipate earnings to double in FY09 with the full commissioning of the Panorama zinc-copper and Rasp zinc-lead projects. In the current environment Endeavour is a cash cow with net operation cashflows around $6m per month at current zinc prices and up to $10m per month with zinc at $2.00/lb. We currently have ascribed a $1.35ps valuation and a $1.00ps price target for CBH. Given that Elura alone represents $0.70cps we think CBH is a good buying at the current share price.
Zinc prices have fallen significantly since last year, from around US$2.00/lb to US$1.50/lb, due to China become a net exporter of 40kt during both Nov and Dec – the first time since early 2004. We believe that this was a ST phenomenon due to a price arbitrage opportunity created prior to the removal of a VAT rebate. Basically, the fundamentals for zinc remain strong given the poor investment in zinc mines over the last decade and strong zinc demand which is closely aligned to steel manufacturing. To put things in perspective LME inventories have fallen from a massive 750kt in 2004 to 86kt late last year and currently are hovering just under 100kt with no significant additions despite the price fall - this signifies a tight zinc market. The retreat in the zinc price from lofty levels has also been exacerbated by hedged fund activity.
CBH’s share price and Zinc prices