CAMPBELL RESOURCES (cblrf): 5 Mines Operating by Late 2007: Campb...

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Hilander

Re: Hilander post# 27

Wednesday, 07/25/2007 12:57:22 PM

Wednesday, July 25, 2007 12:57:22 PM

5 Mines Operating by Late 2007:

Campbell should have 5 mines operating by late 2007:
1. Joe Mann (mostly gold)
2. Copper Rand (copper, with significant gold byproduct)
3. Corner Bay (copper)
4. Cedar Bay (an extension of Copper Rand, but with higher gold grades)
5. Merrill Island (a satellite deposit. We will see earnings in 2006 from this small mine)

You need to examine several sources to get an accurate picture of expected production, and production costs. Details for Copper Rand are presented in excellent detail in the Prospectus (see below). For Joe Mann and Corner Bay, you need to do some investigation.

1. Joe Mann Mine:
I expect production at Joe Mann to rise back above 30,000 ounces of gold per year. Joe Mann will also produce almost 1 million lbs copper. I conclude this because:

- Joe Mann was producing above 30,000 ounces gold in 2003, 2004, and 2005

- The main reason why production dropped in 2006 was the cash crises the company faced.

- Campbell will begin a significant drill program at Joe Mann (see prospectus). The Resource number should go higher.

- Even without new drilling, the Joe Mann Resource number (not the Reserve number) would support about 2 more years of production.

- Mr. Fortier gave an interview in a Quebec paper in late March 2006. He is quoted in that article saying he was targeting a number above 100,000 tones per year from Joe Mann (grades about 0.30 oz/ton). The translated article was posted on StockHouse the same day (posted as text).

- I expect production costs of around $400 USD per ounce. This is inline with production costs we saw in the 3rd and 4th quarter of 2005, before their cash crisis.

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2. Copper Rand Mine:
For Copper Rand, please refer to the Prospectus for the best detail. The Prospectus is available StockWatch (subscription), and it should also be in Sedar (free).

The ballpark numbers I have been using are for 14 million lbs copper and 37,000 per year from Copper Rand. These numbers were extrapolated from the slideshow on the Campbell website. I had been using the slideshow numbers, minus the 25% lowering of expecations we saw in a recent report.

Updated numbers are below. These numbers are for Copper Rand only. They come from the table in the Prospectus (with my math calculations), and are slightly different from numbers I have posted in the past.

Cooper Rand 2007
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Almost 11 million lbs copper
18,000 ounces gold
Copper production costs about $2.07 CAD per pound
Gold production costs $0.00

Copper Rand 2008
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Almost 16 million lbs copper
Almost 26,000 ounces gold
Copper production costs about $1.60 CAD per pound
Gold production costs $0.00

Comments:
In 2009 and 2010, the copper grades come down, and the gold grades go much higher, as the ore mix changes.

Production costs are higher in 2007, then come down in 2008. Let me emphasize: The prospectus gives a detailed table, on page 48, showing the 5 year production plan for Copper Rand. Every year is modeled.

These are total production costs, including “environment” and “human resources”. In the past, I have posted about cash operating costs.

This model shifts all of the production cost into the copper component. That’s reasonable, because Campbell has typically provided one number for Copper Rand – the cost per ton. Any gold they get out of that ton is accounted for as a byproduct.

These numbers are Canadian dollars. In my previous models, posted in StockHouse, I have used US dollars.

The reason I sound a little defensive is because I have often posted that the copper production costs at Copper Rand should be around $1.25 per pound. I pride myself on accuracy. When you see how they have modeled these costs, you see that the latest numbers are not that far off.

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3. Corner Bay Mine:
The Corner Bay mine is Campbell’s “Behemoth” project. Nuinsco (NWI.TO) will be paying for part of the development of Corner Bay. Nuinsco will own 50% of the production from CB, but it looks like that is only for the first 250 meters of the mine.

Campbell will proceed with a bulk sample program over the next 2-3 quarters. The Prospectus says that we will see about 8 million lbs copper produced in this bulk sample program (if I did my math correctly).

Full production will be start after the bulk sample, should be mid-2007. The prospectus doesn’t talk a whole lot about the anticipated production rate from Corner Bay. I was using a number of 9 million lbs copper per year. But Nuinsco wrote some comments about Corner Bay in one of their recent press releases. Nuinsco listed an anticipated production rate of 15 million lbs copper per year.

I expect production COSTS to be much LOWER than Copper Rand. That’s my conclusion, not something that Campbell has indicated. I base that on the fact that the CB copper grades are more than double the grades at Copper Rand, and the ore exists at shallow depth.

Campbell discusses an initial mine plan in the prospectus. As one might expect, they don’t postulate (dream) about what Corner Bay might become. But take a look at the total tonnage numbers. If you count all three categories of Resource, you will come up with about 250 million lbs cooper.

Add to that the fact that Campbell will start further drilling in the next few months. They do say, in the Prospectus, that the Corner Bay deposit will probably grow.

I know I’m being optimistic here, this next comment is a “blue-sky” scenario. But I think that within the next 1-2 years, we will be looking at a total Resource of over 400 million pounds high grade copper at Corner Bay. And Nuinsco will own much less than half of that production.

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4. Cedar Bay:
Cedar Bay is an extension of the Copper Rand mine. It’s a former producing mine, and can be brought back online fairly quickly. There is a beautiful diagram of the Cedar Bay deposit in the Prospectus, and on the Campbell website.

The April 24th, 2006 press release specifically mentions bringing Cedar Bay back into production. But the Prospectus only discusses Cedar Bay in a footnote. I have confidence that we will hear more about Cedar Bay after all of these deals close.

My ballpark, gut feel, is that we will see annual production of 5-10 million lbs copper, and over 25,000 ounces gold, annula production, just from Cedar Bay. The main reason for this guess is that Cedar Bay appears (in the diagram) to be smaller than Cooper Rand, but Mr. Fortier said that the average gold grade was higher (Mr. Fortier never provided details on the grade)

I expect Cedar Bay production will start in late 2007. I base that date on the fact that Cedar Bay is mentioned in the April 24 press release.

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5. Merrill Island:
This is the first of several “satellite properties” that Campbell will be bringing online. Production should start within about 30 days.

Production rates will be low, but profitable. Let’s talk more about this later.

The important thing to note about Merrill Island is that Campbell management never talked much about the fact that they own several of these “satellite deposits”. It was a surprise to everyone on the StockHouse CCH board, when Campbell made the announcement that Merrill Island would start producing. They announced it 1 or 2 months ago.

This revelation, about Merrill Island, helps describe one of the best things about the Campbell Management team: They will more likely offer a positive surprise than a negative surprise.

How many Dips_hit Juniors have we seen, where Management offers more hype than substance? The average mining company Management always seemed to be overstating things.

Then we have Campbell Management that says “Oh, by the way, we also own a bunch of other small satellite deposits, and we decided to start producing from them. Sit back, production will start in a few months”.

Campbell has a few other “satellite” deposits, they wrote that in a recent report. But Mr. Fortier refuses to give any details on this. I guess we just have to wait for Christmas.

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Conclusion:
I have been posting, for a long time, that I believe Campbell will be earning between $30 and $80 million Canadian dollars by mid-2007. That will be the annual rate they will hit by mid-2007, so total earnings for 2007 could be slightly lower. That will give Campbell a forward PE ratio of somewhere between 1 and 3.

I have written how the CCH price got “walked down” this week, by a bunch of slimeball Traders from TD Sec. I watched it happen in level 2 – you could see them “taking out the bids” with a bunch of low volume sales. Late Friday, TD Sec (broker 7) was bidding to buy the shares right back.

Well if you take my more optimistic model of $80 million annual earnings, and use Friday’s share price of $0.14, you will come up with a forward PE ratio of about 0.70.

That’s right, a producing copper/gold miner with a PE ratio of under 1.

Entire Article:
http://www.stockhouse.com/bullboards/viewmessage.asp?no=13116560&tableid=2

Beware Bull's Ready to Run - Before investing $ do your own dd. All posts are my opinion.