undervalued or overvalued, page-24

CBH is about lead. Lead lead lead.

The reason guys like Russ get all worried about zinc companies is because in their mind zinc is a 60c a pound commodity trading in la-la land and all resource companies' share prices must neccessarily respond in a 1:1 fixed relationship in movements in the base underlying commodity: zinc. ergo, if the zinc price crashes, CBH will crash.

Charting is like anthropomancy; its just complete voodoo doodoo. That said, if you look at the Jabiru Metals Diggers presentation on the after-credits cash cost of zinc producers it is clear that the price of zinc cannot fall significantly below around US$1/lb. This will make Russ uncomfortable in his pants, but its simple; if you lose mines in a tight zinc market (Macquarie reckons Zn will stay tight for 2 more years) then the floor price is determined by the highest quartile cash cost producer; this is Xstrata's McArthur River at US$90c/lb before credits.

Lead is in an even more dire situation with Magellan out of commission for at least 6 months. There are no new mines with significant lead - Rasp at Broken Hill will merely replace Magellan's loss. Lead will be around 30% of CBH's revenues this year versus 12% last year. That's a significant improvement in earnings which is lost upon Macquarie's analysts, hence you can't believe Macquarie's 50c price target.

Similarly, if zinc falls to US$2,400/t CBH may track down on technicals, but mark my words; one decent quarterly report in the next month with earnings and production data to work from and the true story of CBH's profitability will come out.

Will PEM mak a play for CBH? It could. They have $220M in cash and are making a lot more money (again, thanks to the lead price) than last year. The two companies wold go hand in hand - particularly because PEM could get massive synergies from gaining Rasp. But CBH would be an expensive thing for PEM to buy. I doubt it will happen. But PEM could knock off Terramin, Jabiru or something similar.