minerva,"If profitable Oxide production occurs..." was part of...

minerva,

"If profitable Oxide production occurs..." was part of Huntley's speil posted on HC this morning. In my mind it is the most critical caveat on CMR share price beyond the obvious requirement of getting nameplate tonnes through the plant and recovered metal out the back.

You have nailed the reason for my biggest concern, sulphuric acid price. I have done my own research and come up with an estimation of additional sulphur costs of another $60/t over previous operating costs ($32/t 2006 Strachan broker report). This assumes consumption of 250kg acid/tonne ore (read post below titled who sank the boat).

My assumption of 250kg/t sulphuric acid usage is conservative IMO based on the following.

- HPAL Ni plants currently use 500kg/t acid

- Test work done by Inco on Herron's Ni laterite used 500kg/t acid in HPAL tests but 750kg/t acid in AAL tests (CMR use AAL process). AAL is less capital intensive than HPAL but comensurately higher reagent operating costs being the trade off.

It is possible CMR will need 500kg or more of acid per tonne so 250kg assumption is almost certainly too low. Add $60 to 40$ ($32 increased due to cost increases since 2006) and minimum operating cost is $100/t IF design throughput and recoveries are achived. Move up to $150/t if higher acid consumption is required. Value of RECOVERED PAYABLE metal taken form Strachan 2006 report but using todays exchange rate and metal prices is about $120/t.

Basically unless the price of sulphur comes down dramatically the best Oxides will do is break even. IMHO there is a +90% chance costs will be considerably higher than payable metal produced per quarter as throughput, plant avaiability and recoveries dont meet design perfection. This is the gamble of holding CMR over the next 6 months and only time will tell.

I would be pretty confident that Mt Fitch Oxides wont be profitable with Cu grades at 0.36% Cu Resource grade announced yesterday. Keep asking the hard questions, look at risk management, peer comparisons and good investing.

goodluck.

...previous post on sulphur costs below

Who sank the boat?

Was it the Management; arrogant, complacent and incompetent who sank the boat? No, despite being too busy back slapping each other about their success driving CMR up from 10c to $5 to notice no-one was steering the ship it wasn't management.

Was it the construction blow-out; doubling the costs and construction time that sank the boat? No, despite horrendous mistakes, cost/time blowouts that even today went up another $50M and even assuming commissioning works it wasn't construction.

Was it the stock market; resource stocks now getting sold-off in capitulation of the Bear that sank the boat? No, even with the U-bubble bursting which didn't help sentiment, it wasn't the stock market.

Well what sank the boat then, especially in the midst of the greatest resource boom in a generation? It is something hither-too thought almost irrelevant, just an obscure part of the operational costs that sank the boat!

I've been kicking myself all weekend about this. Having bought in around $4 and rode it down then up in my "long term holdings" it suddenly dawns on me back at the bottom again why it recently sunk. I even posted on the topic back in April as a Sulphides by-product stream but such were my blinkers I posted it as a positive, quietly chuffed with my cleverness and left-field thinking.

It is blindingly obvious now that the price of sulphuric acid has sunk the boat. Probably about one third of the 2005/06 operating costs that we have all taken for granted while greedily eyeing the USD rise of the metals.

Unfortunately Sulphur has risen from under $100/t to $800/t since 2006 (FOB Vancouver). That has increased MRE's sulphur costs from $50M for 2007 to $325M estimated for 2009 at just $600/t sulphur, virtually wiping out profits. I estimate that CMR will use approx 250kg of sulphuric acid per tonne of ore in the Oxides plant. That equates to 110,000t of elemental sulphur for a 1.3Mtpa operation, another $80M on costs. Put another way that increases operational costs by $60/t. Given costs in 2006 were estimated by CMR at $30/t (incl approx $10/t sulphuric aid) I would think it safe to say that with diesel, wages and other inflation in the mining game that costs would be now well north of $100/t.

A tonne of Oxide ore is worth about AUD$120 per tonne of payable recovered metal to CMR (based on today’s price/exchange rate and recoveries from the STRACHAN broker report 2006). That leaves very little room left for ANY cash cost profit even BEFORE admin, depreciation etc is applied THEN divided by 2 for CMR’s share. If the recoveries at FULL production come in under nameplate then it looks cash flow negative for sure.

I am nervous about the commissioning because of the complex process, multiple metal recoveries and the recent history of CMR under delivering anything as forecast. The next 6 months will see a ramp up in production BUT with production and recoveries well under nameplate due to the very nature of commissioning this beast. Put the inherently unprofitable cash costs of commissioning production rates and recoveries together with huge sulphuric acid costs and CMR will be haemorrhaging cash for the rest of the year MINIMUM.

In this bear market and with metals likely to continue to come off recent highs I expect CMR will go sub $1 as the market contemplates the Oxide plant viability in the current operating environment (eg many high cost Oz gold mines at present).

IMHO CMR will be a buy at the height of sulphur price and bottom of bear market in 3-6 months time when people are considering whether even the Sulphides project will be viable and ever go ahead. I cannot think of one reason for upside at this juncture with nothing but bad news guaranteed for 3-6 months. Neither can I see HNC making a takeover bid until all the bad news is out and CMR is begging for a fire sale if at all.

I have provided this information as a long term holder as a warning to others DYOR and balance against the talk of manipulation or pending takeovers. A lot of very bullish chat on this thread but CMR is not without risk of significant further downside so everyone please be careful how you play it.

I hope I am wrong, all figures and calc's are my own estimates and not to be relied upon.

Goodluck.

Link below has current sulphur prices as of 17th July 2008

http://fertilizerworks.com/fertreport/pdf/2008/TheMarket-071808.pdf