Don't get the opportunity to get on HC much anymore... but I...

Don't get the opportunity to get on HC much anymore... but I thought I would share my current valuation and assumptions from the last quarterly.

On a conservative basis I have assumed:

- 50kt concentrate in 2012, then 54kt in 2013 and 67kt from 2014 onwards (vice the mine plan of 80kt). 67kt is achievable at present and 80kt needs more investment (possibly in 2013/14)
- No further capex and therefore a production steady state at 67kt (see conclusion regarding effect of increased production)
- 26.2% concentrate grade 2012, then 26.5% 2013 onward.
- Total ongoing operating costs of $2.79/lb (see conclusion regarding effect of reducing costs). Note precious metals are counted a revenue and therefore dont offset C1 cash costs.
- Depreciation is not accounted for as it is a non-cash accounting item.
- Tax rate 30%
- AUDUSD 1.00 in 2012, 0.95 in 2013 and 0.90 2014 onward.
- Discount rate was under 10% due to current low interest rates, however I have assumed 10%.
- Cash flow assessed over 10 years.
- No capex/cash flow from Indonesian assets. Valuation is based only on Kanmantoo project.

NPV is $208m. taking into account Net Debt to calculate shareholders equity we get 19-20cps.

If mining casts are reduced to $2.50/lb, that adds $50m to NPV and 6cps. Original mine plan was $1.61/lb so there is plenty of upside if they can reach full production.

80kt concentrate pa adds another 4cps to the price.

Then you have some strong drilling results in Indonesia, and from the quarterly I particularly like:

“The significantly elevated molybdenum values with associated copper are a very strong indicator that [current] drilling is in a near-porphyry environment… Porphyry copper exploration is a long-game, often requiring years of exploration effort before a discovery is made…so we are very pleased to see such positive indicators of a large copper-molybdenum porphyry system at this early stage”

Exciting stuff.

So for me it is 26 cents a share at current levels (mc ~ $250m) that accounts for Kanmantoo production, with some upside there, and the value of the 80% stake in Birds Head and Sumba.

Medium term I still hold the view this is a 50 cent stock and speculative interest with a porphyry discovery might achieve that.