Friday, 20 July, 2007

by Tim Blue
The Australian

COMPASS Resources has learned the hard way that the comrades in the People's Republic of China are just as happy to take a profit along the road to socialist nirvana as anyone else. Its shares took a dive when Chinese joint venture partner Hunan Nonferrous Metals Corporation sold a 5 per cent stake in the company at a deeply discounted price of $4.10. That was about half of Hunan's holding after taking a placement at $2.50 a share about a year ago.

But Compass has since bounced back, helped by some very good drill results from its Browns East Prospect in the Northern Territory that revealed high-grade copper and uranium. It has found high grades of copper and uranium about 100m underground with associated cobalt and lead.

Stockanalysis.com principal Peter Strachan says it has an in situ value of about $1650 a tonne at today's metal prices, made up of about $600/t each for copper and uranium and about $300/t for cobalt content at that high grade of 0.46 per cent cobalt. The market has decided this is good news, especially since mining approvals in the Northern Territory are controlled at the federal level.

StockAnalysis has a valuation target of about $10 a share for Compass, nearly $6 of which is ascribed to its sulphide project. The company is scheduled to crank up its oxide project in October to produce copper, nickel and cobalt, and work is under way on the sulphide project.

Yet there are other considerations when looking at Compass. It is talking of splitting itself into three entities covering base metals, exploration activities in NSW, and uranium. Criterion wonders if this is necessary and merely adds complications.

Details of the floats have yet to be finalised, but Compass hopes to offer guidance in a few weeks.

Compass is sitting on a 6500-tonne uranium resource near Rum Jungle in the Northern Territory, but it's the Browns base metals project, also in the Top End, that promises immediate revenues.

The Browns project is an intriguing mix of cobalt, copper, nickel, lead and zinc in oxide and sulphide form. The mineralisation is discrete, but most of the different ore bodies would need to be mined contemporaneously.

Compass reports the construction for the first plant is ``well advanced'', with the project on track for commissioning in October. Even at the oxide stage Compass envisages some serious output: annual production of 10,000 tonnes of copper cathode, 1000 tonnes of cobalt and 700 tonnes of nickel over a 10-year life.

Back in February, Criterion rated Compass as a speculative buy. We are happy to maintain the rating.