CMR 0.00% 15.0¢ compass resources limited

huntleys update

  1. 934 Posts.
    Exploration pace accelerates
    We provide a brief update given further price depreciation since
    our last report. That update was inappropriately titled ‘Fair Winds
    Return on Asset Split’. Apparently not! In a fundamental sense
    things appear to be tracking positively for CMR even if the price
    isn’t. In May the company received its second $15m tranche from
    Oxide project joint venture partner Hunan and will get another
    $10m at the end of June. Hunan will also provide a further $32m
    and repay $11m of past exploration expenditure. The stamp duty
    ruling to allow those final payments is expected mid July.
    The Oxide project remains on track for the revised October start
    with capital cost estimated at $83m together with $21m working
    capital. Hunan pays 50% of the $21m. CMR intends to fast
    track the Sulphide Base Metals Project. The study envisages a
    mine life in excess of 20 years up to 4.0Mtpa of ore processed.
    Of our unchanged $7.25ps CMR valuation, the Oxide project
    comprises $1.49ps and the Sulphide project $3.18ps, albeit we
    halve the Sulphide project value to reflect its still early stage.
    This conservatively assumes 50% probability of success. Long
    term assumptions remain US$1.75/lb copper, US$15/lb cobalt,
    US$5.00/lb nickel, an A$/US$ exchange rate of 0.76 and a 10%
    discount rate. Using spot prices markedly increases the valuation
    to over $12ps, again including only half the sulphides.
    Exploration has restarted post end of the NT wet season. The
    record 2007 field season is a 50% increase on the 2006 effort
    and includes 35,000m in the ground. Browns Deeps drilling
    continues parallel to a previous 79m @ 3.4%Cu equivalent
    intersection from 364m depth. CMR aims to more than double its
    84Mt global base metal resource and results could be telling in
    addition to the 2006 results yet to be added. A rig has also been
    working at Mt Fitch and completed a dozen holes to date. This
    includes infill work to upgrade the 14.5Mlb uranium resource to
    measured category, in addition to extensions. At Browns East
    a third rig has completed 13 holes and at Area 55, a second
    diamond rig is upgrading the oxide component of the 12Mt base
    metal resource to measured category. Area 55 is the next oxide
    orebody to be mined after Browns. CMR is also in the throws
    of accessing a fifth NT drill rig. Future targets include Mt Fitch
    South copper, Mt Fitch copper and Rum Jungle East uranium
    between Whites and Dysons. Expect first assay results in the
    June quarterly report.
    In NSW drilling has just finished at CMR’s Ironbark gold Parkes
    and Tomingley West prospects - no assay results as yet. Work at Alkane’s Caloma prospect is interesting adjacent to the
    Wyoming deposits on its Tomingley ground. Recent high grade
    Caloma gold intercepts include 15m @ 6.8g/t from 24m and
    33m @ 5.0g/t from 78m. These are captured by CMR’s royalty
    interests which also encompass most of Wyoming. We leave
    our 8cps value for this royalty interest unchanged for now but it
    could grow with more positive results.
    Of most interest to red blooded exploration watchers will be
    news that drilling at Cuttaburra in Western NSW is likely in about
    six weeks. Radiometric surveys have generated encouraging
    data. A wildcat hole drilled in October last year, freakishly
    intersected look-alike geology to the established Cobar
    Basin including anomalous copper, zinc, tungsten and silver
    mineralisation. Early days but virgin ground in elephant country
    is not to be sneezed at. CMR has four granted exploration
    licenses and another three under application for a combined
    Chairman’s roadmap
    At the recent AGM, Chairman Gordon Toll set out company
    objectives for the five years to 2011. These include doubling
    the NT base metal resource inventory through drilling; an
    oxide and sulphide plant and at least one other significant
    operation; annual revenue in excess of A$1bn assuming copper
    US$1.50/lb; payment of dividends; a portfolio of uranium assets
    to support 5,000lb pa of U3O8 production; and a significant
    greenfields discovery. Fighting words but not beyond the realms
    of possibility. Toll says CMR has a wide network of international
    investors interested in participating in developments. The
    company will take a more international approach to search for
    opportunities, is in the final stages of putting in place an A$100m
    standby facility and will appoint a new Business Development
    General Manager. It will evaluate additional listing venues and
    intends a global roadshow in late August/September, at end of
    Northern Hemisphere summer holidays. Hopefully acquisitions
    will be prudent and the company won’t bite off more than it can
    chew. Tax advice on splitting the company into three to achieve
    better market recognition is pending.
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