COPPERCO LIMITED
CUO - Diggers & Dealers Presentation - Mr Brian Rear, Managing Director
Wed, 6 Aug 2008 02:00PM
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Mr Brian Rear
Wed, 6 Aug 2008
02:00PM Australia/NSW
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COPPERCO LIMITED (CUO)
ASX code: CUO
Website: http://www.copperco.com.au
Industry: Materials
Principal Activities:
mineral exploration
Address:
77 St Georges Terrace, Allendale Square, Level 22,
PERTH
WA
Phone: 08 9260 8800
Fax: 08 9225 6091
Executives & Directors
Mr Keith Liddell , Chairman, Director
Mr Richard Basham , Director
Mr Brian Rear , Director
Mr Peter Patrikeos , Non Exec. Director
Mr Phillip Hartog , CFO
Mr Phillip Hartog , Company Secretary
Company Podcasts
Company ASX Announcements
Company ASX announcements can be viewed on the ASX website.
Announcements from the preceding six months are shown below.
Please refer to the relevant stock exchange if any of the above information is incorrect
COPPERCO LIMITED (CUO) Events
Australia/NSW
COPPERCO LIMITED (CUO)
| Letter re Change in substantial holding for BKG/COV/TGF | Thu, 2 Jul 2009 |
| CFE: Response to News Article | Wed, 1 Jul 2009 |
| Change in substantial holding for BKG/COV/TGF | Wed, 1 Jul 2009 |
| CFE: Completion of CopperCo Asset Acquisition | Mon, 29 Jun 2009 |
| Sale Successfully Completed | Mon, 29 Jun 2009 |
| Notice to Creditors of Special Resolution | Thu, 25 Jun 2009 |
| Declaration by Administrators | Wed, 17 Jun 2009 |
| BKG: Cape Lambert Iron Ore Ltd - Takeovers Panel Decision | Wed, 17 Jun 2009 |
| Cape Lambert MinSec Pty Ltd Panel Receives Application | Tue, 9 Jun 2009 |
| Board Resignation | Fri, 22 May 2009 |
Please note: This company appears on this website as a result of its listing on the Australian Securities Exchange. Boardroom Radio does not claim any association with any company listed on this site.
PRESENTATION FROM BRIAN REAR, MANAGING DIRECTOR OF COPPERCO LIMITED (CUO)
“Diggers & Dealers Presentation”
http://www.brr.com.au/event/49168
WEDNESDAY, AUGUST 6, 2008, 2:00 PM.
BRR Today on Boardroom Radio, we are at Diggers & Dealers 2008 to hear a presentation from Mr. Brian Rear, the Managing Director of CopperCo. Over
10 to you, Brian.
CUO Good morning everybody. I want to talk today about CopperCo, where we are at the moment, where we want to go, and the merger which obviously is an element of getting to where we want to be. CopperCo is a mining company
15 that produces copper cathodes. I described it in that way because we are not a copper company. CopperCo today has a single commodity, single asset business but as a base project, Lady Annie has delivered a better than expected platform from which to build the business. Resource and reserve development has exceeded our initial expectations. The high upside risk to
20 development capital in the construction and development of the mine has failed to materialise fortunately and operating costs are settling into a safe part of the world cost curve.
The purchase of the original assets that set up the company and its business
25 was equivalent to $25 million which in September 2004 money terms was around US$0.08 a pound. Since then we have spent over $35 million on exploration, drilling and development. The average cost of that resource development over that time has been around US$0.05 a pound. Importantly, we have maintained a high level of exploration effort right through the
30 construction and into the production phase.
The mine was developed over a nine-month period during up to and including October 2007 and produced its first copper almost three years to the day the company was established. Project construction capital escalation was held at
35 7% to 8% over a two-year period from estimates to the completion of the project.
During the early parts of the final feasibility and this initial style of the mine development, we made a decision to build in expansion capacity the front end
40 of the mine process area and I think that decision to build upfront capacity was probably the right one.
Across the line generally start-up was steady without any material issues arising. By way of example, copper production advanced steadily from switch
45 on of the rectifier.
From commissioning, two quarters to a steady state was achieved and there was a general improvement month on month until we hit and stabilized at nameplate capacity in April of 2008.
The C1 cash cost of production around the average of the copper industry cost as reported had March quarter 2008 and what that means is that globally, about 7 million tons of copper production costs more than it costs us to produce. So, I believe we are in a safe territory on the cost curve.
5
The key operating drivers for us are electrical energy which represents 9%; sulphuric acid around 8%; labour 27%; diesel fuel around 7% to 8%. We think that labour costs are stabilizing and we think future escalation in that large cost component of our total expense build will stabilize and mitigate over the
10 next 12 months. Electrical energy is sensitive to gas prices, but we are not seeing anything radical on that front at the moment. We expect acid prices to move up strongly in 2009, 2010 but not this current year for us. We have stress-tested the business on diesel fuel and acid import cost and whilst we can see the potential for a cost escalation in both of those inputs, they do not
15 present an overt danger to the broad operating margins of the business.
In the June quarter I think you see a realistic snapshot of the business in terms of revenue and costs. So, going into this new financial year we have a $150 million revenue base, operating on approximately $2 a pound operating
20 margin. That is equivalent to 65% EBITDA margin. So, it is a robust business and I want to talk about where to from here. I think the problem today is not necessarily one of fundamentals. If the market is determined on commodities yesterday's story, then there is a chance your company can be viewed in a similar light.
25
So, I tend to say that if sometime in the future copper is a dog, then somewhere in the future CopperCo will be a dog if we continue to be a single company, single asset company. To give you an example, let us say copper plummets, and I use the word " plummet" advisedly, from $3.50 to $3.00 a
30 pound, with that cost structure of $2500 a ton and a copper price of $6600 per ton, the margin is $4100 a ton or about $1.90 a pound. Even in that circumstance, the business is running on a gross margin of 62% and it is still a good business, but perceptions are all important.
35 So, where do we want to be? We want to be a multi-commodity, high-margin business and it is not a lot different to what we are today. It is not copper's fault that we turned out to be a dog. In fact, we like copper. It is a generic metal, a proxy for industrial development. So, unless we turn into the Middle Ages, an agrarian economy, it will continue to be a commodity in demand. In
40 fact, we are investing heavily in growing our copper business.
If you only have a single bullet and our single bullet is copper and Lady Annie, then you get one shot as a business. To grow and ride out the vagaries of the markets over time, you need to diversify, and you need to see
45 and exploit more targets, so diversify as to commodity and to asset location. I think that is vital for small companies in their development phases.
And our strategy going forward is one of building on the solid copper base we now have as a priority and doing that today.
And the second major element of what we are doing is merging with our major shareholder to open up the opportunities for that investment commodity mix looking forward in the medium term.
5 Let me talk about developing our copper business. When we started the business in 2004, we had very modest resource base of 10 million tons. In the period from 2005 through 2007, exploration crews developed that resource base to just under 39 million tons. It is our objective in the next few years to build that resource base, that global resource base to 60 million tons.
10
Because of that rapid increase in resource base in the 2005-2007 period, we took the decision to expand early. And we in fact have made that decision to expand before we completed ramp-up of the original project. So, that implies a belief that we will continue to not only replace depleted reserve but that we
15 see the potential to increase the resource inventory in time.
Parallel with the resource development drive, we are about to complete and bring on line expanded process facilities. We have undertaken the project management and construction management in-house. I can tell you that the
20 project group will deliver the expansion on time and on budget. This expansion will see a material increase in the size of the business during the course of this financial year '09.
Today, we are sitting in the revenue base, as I said earlier, of around $140-
25 $150 million with an EBITDA margin of around 65%. In a few months, we will push the project output up to around 25,000 tons by the end of December. That should start to lift the revenue base from the same copper price base of $8000 a ton to around 187 million.
30 Beyond December and targeting mid 2009, we want to bring the project up to a final output target of 30,000 tons per annum and at the same spot copper price assumption, the revenue base of the business will be around 200-225 million.
35 The capital intensity ratio for the expansion is going to come out at U.S. $3500 per annual ton, which is quite an attractive number looking at the capital intensity ratios being experienced in the industry where the average, according to some analysts, is up around $10,000 in annual ton.
40 And now I want to turn into the second element of how we get to where we want to be. The merger with MinSec is about putting the company in a position to grow. And we will grow through strengthening that balance sheet, becoming more relevant in the equities markets, lowering gearing materially, and bringing together a core group of people with skills and experience
45 across all levels of business.
Now, how does the merger do this? I think firstly, acquiring assets below their true value. As you can see, the offer CopperCo made for MinSec has a normal value of $178 million. At the time we announced the transaction, the net asset value of those assets in MinSec's accounts and books was 341 million. KPMG's independent valuation of value came out even higher than that, in the range of 386 to 593 million. I do not think the numbers are particularly important. The proposition here is to unlock the intrinsic value of
5 the assets that we have acquired such that we accrue to the merged company a greater value than the offer and we will do that through developing some of those assets and we will sell or trade the others.
Post merger, gearing there we also dropped to around 20% to 25%. As you
10 can see from the net asset value per share graph, transaction creates a material improvement in the backing of assets per share on that basis. We create a greater equity market presence and we can see on those graphic that we moved further up the equity exchange amongst the peer group. Looking at the last few days’ market conditions I am not exactly sure where
15 we are on this graphic. What is important to us is how we rank relative to peers. I think the merged company just creates a much greater equity market presence.
Going forward, we like the mix of copper and precious metals the portfolio
20 creates. We think copper has a pretty fundamentally good picture going out into the future. Fundamentals of supply and demand do look quite favourable to copper relative to the other base metals. I think precious metals are a perfect foil for any ups and downs in the market which may impact directly or indirectly on the price of copper in the future. And I think that the precious
25 metals, platinum in particular, are a very valuable commodity.
Clearly, the platinum asset is the most valuable asset of the combined company after copper. We want to build our position in Platmin and current market conditions appear to be favouring that. Platmin is currently dominated
30 by four significant shareholders, of which we are one. So, we believe that the ownership of Platmin is consolidated even further in the medium term.
Stage 1 project now under construction in South Africa, the Pilanesberg Project, with mining reserve of approximately 4.4 million ounces of 3PGE +
35 Gold mix at the initial rate of 250,000 ounces in the next 12 to 14 years.
A very good factor about the Pilanesberg Project is that it is mostly open pit over that live and it is a low-cost, high-margin business.
40 Second asset on the slide, Tianshan, is shaping up as a large low grade gold heap-leach and the stage 1 project is in feasibility for completion the end of '08. There is very good potential for us to transfer our heap-leaching and material handling in-house expertise to this project.
45 The third major asset arising out of the merger is probably the Lady Loretta. It is a high grade zinc lead silver ore body some 600 metres from the Lady Annie ore body. It is very close to where we are today.
And Loretta certainly fits our criteria as to the quality of ore body. Nothing beats grade and this project has the potential to produce 140,000 tons of contained zinc from a (inaudible) (0:14:21)1 million tons of treated annually and that is the equation that appeals to us. Nothing beats high grade ore
5 bodies at the end of the day.
Probably the fourth element and the driver for the merger for us is the human element. We tend to put this as the fourth element but in fact, it is really the number one element and it is a big challenge for small and medium
10 companies, particularly if they are trying to grow, is attracting and retaining the very best people. I think the single advantage we have in being able to do that is giving individuals greater challenges, greater responsibilities and greater authority. I think we have a capacity to let people stick their necks out, push the envelope, and letting them make mistakes. I think our maxim is
15 simple. We do not try to compete with the big guys, but we do need to do some things better than they can and I think to do that, companies of our size need smarter and more experienced people and not necessarily more people.
And on that note, it is fitting that I wrap up. Thank you everybody for listening
20 to the CopperCo story today.
INTERVIEW CONCLUDED
Contact brr@brr.com.au for more information
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