a closer look with rough model

it's worth a closer look into CCU. I acknowledge this price still has many existing holders at break even or carrying a loss presently. scalpers will be buying heavily into this bounce to sell and exit before cot today - already +20% from yest low.

HEDGING
{The Company has 1.8Mozs of silver hedging in place at an average price of A$29.60/oz maturing in 10 quarterly instalments. The first quarterly tranche of 180,000 ounces matures in December 2012.}

That means 720,000oz p.a (4x 180kOz) is under contract to sell at a fixed price of A$29.70 regardless of spot silver prices. Balance of production available to sell at spot or forward rates.

Currently 2.4M unlisted options in the money at or below 20c. Daily turnover ave 400,000 sh/day prior to recent dump.

sources: company presentation 12Sep [pdf] and CCR powerpoint 17Oct [ppt] and most recent qtrly activity and cashflow reports.



PRODUCTION RATES (from proven, using Oct2012)
Log washer running at 17,000t p.w producing 26,000oz p.w ave gives recovered grade of 47.7g/t Ag from total throughput as measured for Oct2012 (3 weeks). Assume recovery of 90% has ore feed grade 53g/t which if blended is far below 80g/t resource grade cut off but is in line with ore grade, as per grade control chart -



Maintaining 26,000oz/wk is 1.35Moz p.a. which is currently 54% of original 2.5Moz p.a forecast. So 50% of this revised production (if not increased) is hedged at fixed sale price of A$29.60. This covers current production costs easily.

If $10/oz cleared margin (after costs) can be maintained as annual average then $67.5M mkt cap minimum using p/e of 5 with +ve ebitda using 1.35Moz p.a. production is considered my worst case. This assumes feed grades stabilise from here, and do not get any worse.

Very crudely - currently ave approx $15/oz cost on $30/oz silver ave sale price - nets $15/oz margin on reduced Oct2012 production. CCU are targeting cash cost/oz of less than $15/oz.

Perhaps an element of blending, some of production estimate snafu, and some of ramping up operations.