Tuesday, March 8, 2011

Cobar Consolidated Resources continues to deliver...

I've covered CCU's development a couple of times on this blog. Here is the most recent occasion (Link). CCU announced today that they have bought back the production royalty from CBH Resources:
Cobar Consolidated Resources Limited (ASX:CCU) announced today that it had agreed to buy back the royalty payable to CBH Resources Ltd under the Wonawinta Joint Venture Agreement for $1.7 million.

Under the terms of the Joint Venture Agreement, as a result of Cobar’s expenditure, CBH’s interest had been diluted to a royalty. Concurrent with royalty buy-back the Company has executed a deed to transfer CBH’s remaining interest in the joint venture tenements and terminate the joint venture.
In my opinion this was a great move to add shareholder value.

The CBH royalty was 2% (I assume this was 2% of gross revenue, if on net profit the figures below would be slightly different).

2.5m ounces @ $35 = $87.5m revenue for 1 year x 2% = $1.75m

So CCU have bought out the royalty for less than 1 years fee, over the 5 year minelife that's potentially an additional $7m value managament has just secured for shareholders.

If you're like me and think Silver is going higher and CCU will extend their mine life then the value added is potentially much greater.

Every move this company makes screams top class management, from raising capital at a premium to the share price (which they achieved twice), to financing through a mainstream lender (CBA) where many juniors resort to less conventional methods of finance, to now clawing back the last interest from CBH.

I’ve held my parcel of CCU shares from the SPP in early 2009 at 6c. The share price is now hovering over $1. It’s been a bumpy ride at times, but every announcement solidifies my opinion that this is by far the best Silver play on the ASX.

CCU has 147m shares on issue and 5.5m options, assuming another 15m shares are issued before full scale production that gives us a total of approximately a 167.5m fully diluted share base. With 2.5m ounces being produced at $35 an ounce (assuming $12 total costs, will be less if lead can be separated effectively for credits), that gives us $57.5m profit per year, $40.25m after tax, 24c EPS. Personally I see fair value for CCU at around $1.20-$1.50 with some value priced in for their exploration potential and Silver resource over and above their 5 year reserve. I suspect though that before the Silver bull market is over CCU will be trading at multiples of the current share price.

As this chart would suggest the share price might still have a way to run as long as the price of Silver holds steady or continues to rise:


The above chart is from this article.

I continue to hold CCU with great confidence in where management is taking this company.


BB.


Disclosure: Positions held in Silver & CCU. Not investment advice. Do your own research.

2 comments:

  1. Would you like to make a comment on Argentina Mining (AVK) that has just listed on the ASX. Seems like it has a heavy silver load in there somewhere, but I can't seem to break down the numbers to see what value it has compared to the gold that the company promotes the most.

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  2. Hi Anon, I had a quick look over the AVK prospectus. From what I can gather they don't actually have a defined resource? Without a geological background I find these early exploration plays hard to comment on. CCU seems to be much more advanced in development so easier to compare to peers than this one would be.

    Cheers

    BB.

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