copper price, page-18

You need to use the adjusted earnings, not the statutory earnings - the statutory earnings include non-cash unrealised forex gains ($21M) and forex sales price adjustments ($11M). The adjusted earnings figure is the actual company profit from running the mine.

Adjusted earnings for the year was CAD 38M which at current forex is USD 29M. For 74M lbs of copper that is US 39c per lb. If the average copper price was $3.12 then it follows that the total breakeven is $2.73. The total cash cost for this quarter was $1.90 vs $1.81 for last year, so adjusting for that, breakeven is $2.82. In other words, nearly $3 like I said.

The difference between the $1.90 cash cost and the $2.82 total cost is primarily depreciation and interest charges. Depreciation in this case is essentially paying back the loan required to build the mine - the accounting is slightly different because paying back a loan doesn't show up on the P&L statement, so depreciation (which does show up on P&L) is used instead. But for a mine using a linear depreciation the two should be similar, and they are - CMMC paid back $12M in loan principal this quarter and recognised $15M depreciation.

So the $1.90 figure is the actual cost of running the mine and the company for the year. The $2.82 figure is, broadly, the $1.90 plus the per-pound cost of building the mine in the first place (including interest), paid off over the life of the mine.

That's why CMMC struggles if copper drops much below $3 - the mine is still generating cashflow but not enough to fully pay down the loan. But every cloud has a silver lining, and the silver lining in such a high breakeven cost is that it creates leverage if copper goes up. If copper goes from $3.12 to $3.50 (a 12% increase) then CMMC's margin doubles. Add in Cloncurry's returns if copper's long-term price is $3.50 and CMMC is a real leveraged play for copper bulls.

Hope this helps.