rocklands mostly developed 30kt/yr copper from later in 2016 · 2016. 5. 11. · cudeco limited...

Cudeco Limited (CDU.ASX) 11 May 2016

Rocklands mostly developed

30kt/yr copper from later in 2016

See Page 34 for Disclaimer and Disclosures 11 May 2016

Recommendation ■ Exploit 27.7Mt Reserves, including 2.2Mt in current stockpiles, at 3.0Mt/yr to produce 256kt of copper at an All-In Sustaining Cost of US$ 1.18/lb (Beer & Co estimate).

■ Project already significantly de-risked, with significant work to optimise return from native copper.

■ $63.7m more to invest to complete $637m project.

■ Process plant currently complete. Beer & Co expects first product before September 2016.

■ Significant further Resources plus mineralised potential.

BUY, Medium Risk

Price

80c

Valuation

$1.08

Commodity

Copper

Snapshot Market Cap $315m

Net Debt $88m

Shares on Issue 394m

Includes present issue of 78.9m shares at 80c

52 Week High $1.73

52 Week Low $0.98

CDU has been suspended from trading on the ASX since 4 August 2015

CDU : daily share price v. value traded

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$ 0.00

$ 0.50

$ 1.00

$ 1.50

$ 2.00

$ 2.50

1 Apr. 2014 1 Jul. 2014 1 Oct. 2014 1 Jan. 2015 1 Apr. 2015 1 Jul. 2015 1 Oct. 2015 1 Jan. 2016 1 Apr. 2016

CDU value traded

CuDeco (CDU) share price

CDU announced the acquisition of the Rocklands project in November 2005.

CDU announced their first Resource estimate in June 2006, of 59Mt at 2.04% of copper equivalent, soon revised to 25Mt Inferred Resources plus 34Mt target.

In May 2011, CDU revised the Resource estimate to 30.3Mt Measured & Indicated Resources, at 1.70% Cu eq, using 0.80% cut‐off grade.

CDU began development in April 2012 and shipped DSO material in October 2014.

However, it was only in December 2015 that CDU published its first reserves estimate and March 2016 when it published its feasibility Study.

Author : Pieter Bruinstroop [email protected]

CDU poised to start production

CDU has nearly completed development of its Rocklands operations

the mine is developed;

the processing plant has been constructed;

plant commissioned has been largely competed; and

CDU has 2.2Mt of ore in various stockpiles ready to feed the plant

Raising $63.1m to begin commercial production

CDU is raising $63m in equity to be able to start commercial production; CDU needs to make payments to contractors for work done, to repay shareholder loans, pay environmental bonds and final re‐commissioning.

CDU has 27.7Mt in JORC 2012 Reserves, within significant Resources

CDU reported its maiden Reserve estimate in December 2015, of 27.7Mt containing 9kt of oxide copper, 64kt of native copper and 126kt of primary copper, plus cobalt.

CDU announced the results of its DFS on 3 March 2016. The project will process 3 different ore types to produce 5 different products.

Beer & Co estimate Life of Mine All In Costs of US 1.19/lb of copper (after net by‐product credits).

Beer & Co’s valuation of CDU is $1.08/share.

Beer & Co’s valuation of Rocklands reserves is $1.20 and we value CDU’s Resources, excluding Reserves, at a further 7c/share. From this is subtracted debt and corporate costs to derive our CDU valuation.

Beer & Co rates CDU as a BUY, Medium Risk

Beer & Co rates CDU as a medium risk as the project is developed and has been commissioned. The raising is largely to pay contractors for work done and some other small payments plus working capital.

Beer & Co rates CDU has a BUY as our valuation is premium to the offer price.

The major risks are with the commodity prices, and Beer & Co is positive on the outlook for copper.

This report was produced by Beer & Co Research, an independent research and advisory firm. It is intended for wholesale investors ONLY.

If you do not wish to receive our research, please email to [email protected] with “unsubscribe” If you wish to receive, free of charge, Beer & Co research, please register at http://beerandco.com.au/all‐research/

Cudeco (CDU.ASX)


Cudeco (CDU)

,

Introduction

CDU’s asset is 100% of the Rocklands copper (gold‐cobalt) project, which is about 17km west of Cloncurry (or about 100km east of Mt Isa) as shown in Figure 1.

CDU has 100% of the Rocklands coper project, 17km from Cloncurry, in N‐W Queensland

Figure 1 : Rocklands, near Cloncurry, N‐W Queensland

Source : CDU presentation, November 2015

CDU acquired Rocklands in 2005.

Rocklands has significant native copper

The project was acquired from a prospector in 2005. CDU announced its first Mineral Resource Estimate in June 2006, of an Inferred Resource of 25M, plus 34Mt of Exploration target, at a copper equivalent grade of 2.04%.

The deposit is has significant surface evidence of copper, and a significant presence of native copper.

After advising a maiden resource estimate in June 2006, CDU’s update of this was not announced until August 2010, after the completion of 268,000m of drilling, employing up to 15 drill rigs, comprising 5 RC rigs, 9 diamond core and 1 RAB, on a 168 hours a week basis.

The Resource was revised in May 2011, after a further 37,000m of drilling and finally in November 2013, which provided the estimate shown in Figure 7.

Using a cut‐off grade of 0.40% coper equivalent, Rocklands has 346kt of contained copper in Measured + Indicated Resources

Figure 2 : CDU Revised Resource Estimate, November 2013

Copper Cobalt Gold Fe3O4 Copper Cobalt Gold Fe3O4

0.2 % 47 Mt 0.36 % 273 ppm 0.09 g/t 6.4 % 170 kt 12,886 t 137 koz 3,021 kt


0.8 % 14 Mt 1.23 % 504 ppm 0.22 g/t 5.8 % 170 kt 6,955 t 98 koz 800 kt








0.8 % 0.5 Mt 0.54 % 413 ppm 0.12 g/t 3.2 % 3 kt 207 t 2 koz 16 kt





Cu‐Co‐Au cut‐off


Inferred Contained Metal


Total Resources Contained Metal

Measured Contained Metal


Indicated Contained Metal

Source : CDU ASX announcement, 29 November 2013, Beer & Co

Cudeco (CDU.ASX)


CDU was granted a Mining Licence in November 2011

CDU received its final approval in April 2012

And began development

CDU first applied for a Mining Licence in August 2006. The Ming Licence was finally granted in November 2011. Approval from the Queensland Department of Environment and Heritage Protection was given in April 2012 and CDU began development on site in June 2012.

Management Changed

The first published financial analysis of the Rocklands project was when the Definitive Feasibility Study was published in March 2016.

CDU financed $570m of exploration, evaluation and development expenditure through equity raisings, plus a US$ 100m from the Chinese bank MinSheng.

In the process, CDU introduced major Hong Kong and Chinese investors, with $177m raised in equity, plus $68m in equity in lieu of cash payment for work done, all at prices over $3 a share.

Figure 3 : CDU share price v copper price

$ 4,000/t

$ 4,500/t

$ 5,000/t

$ 5,500/t

$ 6,000/t

$ 6,500/t

$ 7,000/t

$ 7,500/t

$ 8,000/t

$ 8,500/t

$ 9,000/t

$ 0.00

$ 1.00

$ 2.00

$ 3.00

$ 4.00

$ 5.00

$ 6.00

3‐Jan‐12 3‐Jul‐12 3‐Jan‐13 3‐Jul‐13 3‐Jan‐14 3‐Jul‐14 3‐Jan‐15 3‐Jul‐15 3‐Jan‐16

CDU share price Copper price

Source : IRESS, Beer & Co

The former Executive Chairman, Wayne McCrae, was forced to resign in July 2015

However, the CDU share price fell from over $3.00 to below $2.00 during July 2013.

On 4 May 2015, CDU announced that it had agreed to place 40m new shares, at $1.25 each to Hong Kong based investor, Focus Sun Holdings, of which

4m shares ($5m) was issued immediately; and

the balance, of 36m shares ($45m) was subject to both FIRB and shareholder approval.

FIRB approval was given on 12 June 2015.

On 30 June, 2015, CDU announced that the shareholder meeting had REJECTED the equity placement to Focus Sun Holdings.

On 23 July 2015, a major shareholder, New Apex Asia Investment, which was the employer of one of CDU’s Directors, “Tony” WU Zhao Hui, filed a notice under s230D of the Corporations Act to remove Wayne McCrae as a Director of CDU.

Mr McCrae subsequently resigned the following day.

Reserves

On 11 December 2015, CDU announced its maiden Reserves estimate. Figure 4 shows the detail of that statement, which shows the detail of the different copper species, with 32% of the contained copper in the form of native copper, as well as the other valuable minerals.

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CDU reported 27.7Mt of Reserves, containing 198kt of copper

CDU announced its maiden reserve estimate in December 2015.

Figure 4 : CDU’s Maiden Ore Reserves Estimate


PROVED, IN‐PIT

Oxide 0.8 Mt 0.81 % 236 ppm 0.16 g/t 3.0 % 6.6 kt 0.4k lb 4.2 koz 25 kt

Native Copper Oxide 0.1 Mt 1.62 % 639 ppm 0.24 g/t 2.0 % 1.6 kt 0.1k lb 0.8 koz 2 kt

Native Copper Chalcocite 1.0 Mt 2.13 % 797 ppm 0.27 g/t 2.6 % 21.7 kt 1.8k lb 8.9 koz 27 kt

Native Copper Chalcopyrite 2.0 Mt 0.92 % 617 ppm 0.14 g/t 3.8 % 18.6 kt 2.7k lb 9.1 koz 77 kt

Chalcocite 0.3 Mt 0.87 % 296 ppm 0.19 g/t 3.3 % 2.8 kt 0.2k lb 2.0 koz 11 kt

Chalcopyrite 13.4 Mt 0.71 % 339 ppm 0.15 g/t 10.1 % 95 kt 10 kt 65 kt 1,356 kt

Bornite 3.1 Mt 0.26 % 212 ppm 0.07 g/t 2.2 % 8.1 kt 1.4k lb 7.0 koz 68 kt

Sub‐Total, Proved, In‐Pit 20.8 Mt 0.74 % 366 ppm 0.14 g/t 7.5 % 155 kt 17k lb 97 koz 1,565 kt

Native Copper 3.1 Mt 1.34 % 676 ppm 0.19 g/t 3.4 % 41.9 kt 4.7k lb 18.7 koz 105 kt

Sulphides 16.9 Mt 0.63 % 315 ppm 0.14 g/t 8.5 % 106.2 kt 11.7k lb 73.7 koz 1,435 kt

PROVED ‐ STOCKPILES






Chalcopyrite 0.4 Mt 1.12 % 494 ppm 0.20 g/t 3.1 % 4 kt 0 kt 3 kt 12 kt


Sub‐Total, Stockpiles 2.2 Mt 1.02 % 529 ppm 0.16 g/t 2.7 % 22 kt 3k lb 11 koz 60 kt


Sulphides 1.0 Mt 0.59 % 330 ppm 0.11 g/t 2.6 % 5.9 kt 0.7k lb 3.5 koz 26 kt

PROBABLE








Sub‐Total, Probable 4.7 Mt 0.45 % 233 ppm 0.11 g/t 5.0 % 21 kt 2k lb 17 koz 237 kt



TOTAL RESERVES 27.7 Mt 0.72 % 356 ppm 0.14 g/t 6.7 % 198.4 kt 21.8k lb 124.8 koz 1,862 kt




Metal Grades Contained Metal

Source : CDU ASX announcement, 11 December 2015

CDU has invested significant time and resources in developing the processing route for native coper

Development

CDU has spent 7 years working with 5 different labs on metallurgy and the process, as shown in Figure 5, has steps to collect :

massive nuggets, when dug out of the ground;

very coarse native copper (>40mm), by scalping / grizzly, before being crushed by high pressure grinding rolls;

coarse native copper (>1mm) by jigs; and

fines by gravity separation using spirals and shaker tables (Figure 5b)

Native coper will be melted into ingots, of about 99.6% copper.

Figure 5a : Crushing flow‐sheet, for native copper recovery

Source: CDU presentation, November 2015

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Figure 5b : Gravity separation flow‐sheet, for native copper recovery


Native copper is melted and cast into ingots for sale.

Figure 6 shows that the mine at Rocklands is developed, while the process is substantially completed with much, but not all, of the commissioning done.

The mine at Rocklands is already developed

2.2Mt of ore has been mined and is stockpiled, ready for processing

Figure 6 : Rocklands mine is developed

Source : Beer & Co site visit, December 2015

Beer & Co expects CDU to be generating revenue in the September quarter of 2016

Figure 7 shows that of total project investment of nearly $640m, only $64m. is required to be spent.

In Beer & Co’s analysis, only about $16m of this amount is for “in the ground” construction activities, with $28m being payment for work already completed and the balance relating to working capital.

Hence, Beer & Co expects that the Rocklands project should be in production in the third quarter of 2016.

Operations

Figure 7 : Rocklands investment

Project Pre‐Development $ 83.8m

Process Plant $ 276.9m

Land & Buildings $ 17.0m

Mining Equipment, etc $ 46.3m

Mine Development

pre‐strip $ 62.6m

ore stocks $ 17.6m

T S F $ 5.2m

Infrastructu $ 55.0m

Rehabilitat $ 6.2m

Roads $ 3.1m

$ 149.8m

Sub‐Total $ 489.9m

Expenditure until positive cashflow $ 63.7m

TOTAL PROJECT COST $ 637.4m

Source : CDU April 2016 Prospectus, Beer & Co

Figure 8 shows Beer & Co’s projected production. Figure 4 showed that there is 2.2Mt of material stockpiled at Rocklands, so Beer & Co expects the processing operations to begin ahead of re‐commencement of mining.

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Figure 8 shows some variation on a year to year basis, as shown by CDU in their March 2016 DFS.

Beer & Co has used the information in the DFS as our production projections

Figure 8 : Beer & Co’s projections of Rocklands mining & processing

LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Ore mined 25,530 kt 1,238 kt 3,600 kt 3,450 kt 2,550 kt 2,640 kt 3,900 kt 3,900 kt 3,000 kt 1,253 kt 0 kt

Waste moved 127,698 kt 2,970 kt 16,400 kt 16,550 kt 17,450 kt 17,360 kt 16,100 kt 16,100 kt 17,000 kt 7,768 kt 0 kt

Ore Processed 27,730 kt 1,650 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 2,080 kt

Oxide Copper 1,040 kt 322 kt 600 kt 98 kt 0 kt 0 kt 0 kt 0 kt 20 kt 0 kt 0 kt

Head grade ‐ Cu 1.02 % 0.81 % 0.81 % 0.00 % 0.00 % 0.00 % 0.00 % 0.58 % 0.00 % 0.00 %

Native Copper 5,140 kt 660 kt 931 kt 523 kt 416 kt 393 kt 538 kt 585 kt 774 kt 321 kt 0 kt

Head grade ‐ Cu 1.42 % 1.37 % 1.34 % 1.34 % 1.34 % 1.34 % 1.34 % 0.82 % 0.75 % 0.00 %

Primary Copper 21,550 kt 668 kt 1,469 kt 2,379 kt 2,584 kt 2,607 kt 2,462 kt 2,415 kt 2,206 kt 2,679 kt 2,080 kt

Head grade ‐ Cu 0.60 % 0.62 % 0.63 % 0.63 % 0.63 % 0.63 % 0.63 % 0.56 % 0.47 % 0.46 %

Source : Beer & Co estimates

Figure 9 shows the resulting production of saleable product, showing that Rocklands will have range of products.

Figure 9 : Beer & Co’s projections of Rocklands production, by product

LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Copper in Concentrate 118,967 t 3,757 t 8,657 t 14,156 t 15,401 t 15,548 t 14,686 t 14,405 t 11,595 t 11,805 t 8,957 t

Gold in Cu Conc 137,350 oz 5,138 oz 11,082 oz 15,567 oz 18,455 oz 18,077 oz 16,310 oz 17,781 oz 11,428 oz 14,181 oz 9,331 oz

Copper Ingot 60,202 t 8,608 t 12,118 t 6,636 t 5,280 t 4,981 t 6,822 t 7,421 t 6,047 t 2,287 t 0 t

Cobalt in Co Conc 6,387 t 503 t 816 t 733 t 712 t 706 t 740 t 751 t 586 t 502 t 337 t

Magnetite 1,148 kt 30 kt 95 kt 134 kt 143 kt 145 kt 141 kt 139 kt 119 kt 117 kt 85 kt

Total Copper 256,317 t 8,895 t 19,739 t 29,723 t 33,855 t 33,625 t 30,995 t 32,186 t 23,023 t 25,987 t 18,288 t


Costs

Figure 10 shows the detail of Beer & Co’s cost estimates. Beer & Co’s costs differ from some of the costs in the DFS, but when we adjusted our commodity prices for those used in the DFS, our costs were very consistent with the DFS costs.

Beer & Co’s costs estimates have been checked against the costs given in the DFS, and matched when the same commodity price assumptions are employed

Figure 10 : Beer & Co’s projections of costs for Rocklands operations LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

WASTE REMOVAL $ 254m $ 5.0m $ 26.1m $ 30.8m $ 35.0m $ 36.7m $ 34.1m $ 34.1m $ 36.0m $ 16.6m $ 0.0m

AUD /t ore 10.0 4.0 7.3 8.9 13.7 13.9 8.7 8.7 12.0 13.2 0.0

AUD /t material 2.0 1.7 1.6 1.9 2.0 2.1 2.1 2.1 2.1 2.1 0.0

ORE EXTRACTION $ 72m $ 3.1m $ 9.2m $ 9.9m $ 7.5m $ 7.8m $ 10.9m $ 10.9m $ 8.6m $ 3.6m $ 0.0m

AUD /t ore 2.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

MINE OVERHEAD $ 28m $ 1.5m $ 3.7m $ 3.6m $ 3.4m $ 3.4m $ 3.7m $ 3.7m $ 3.5m $ 1.5m $ 0.0m

AUD /t ore 1.1 1.2 1.0 1.1 1.3 1.3 1.0 1.0 1.2 1.2 0.0

PROCESSING $ 306m $ 17.7m $ 32.0m $ 33.4m $ 33.2m $ 33.2m $ 33.2m $ 33.2m $ 33.2m $ 33.2m $ 23.7m

AUD /t ore 11.0 10.7 10.7 11.1 11.1 11.1 11.1 11.1 11.1 11.1 11.4

SITE G & A $ 31m $ 2.0m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 2.5m

AUD /t ore 1.1 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.2

TRANSPORT $ 207m $ 7.4m $ 18.7m $ 24.2m $ 25.5m $ 25.7m $ 25.0m $ 24.8m $ 20.9m $ 20.2m $ 14.6m

AUD /t ore 7.5 4.5 6.2 8.1 8.5 8.6 8.3 8.3 7.0 6.7 7.0

AUD /t Product 129 129 129 129 129 129 129 129 129 129 129


Figure 11 shows the details of Beer & Co’s estimates of Life of Mine costs. It shows that costs are low in the first year as high grade stockpiles are exploited and rise over time due to increasing transport distances and lower grades.

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Beer & Co estimates costs of US$ 1.18/lb of copper, for all costs, net of by‐product credits

Figure 11 : Beer & Co’s projections of costs for Rocklands, in US c/lb of copper US c/lb LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Waste 48 c/lb 14 c/lb 43 c/lb 50 c/lb 58 c/lb 61 c/lb 54 c/lb 53 c/lb 69 c/lb 40 c/lb 0 c/lb

Mining 14 c/lb 9 c/lb 15 c/lb 16 c/lb 12 c/lb 13 c/lb 17 c/lb 17 c/lb 17 c/lb 9 c/lb 0 c/lb

Mine Overhead 5 c/lb 4 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 7 c/lb 4 c/lb 0 c/lb

Processing 58 c/lb 49 c/lb 52 c/lb 55 c/lb 55 c/lb 55 c/lb 53 c/lb 52 c/lb 64 c/lb 80 c/lb 90 c/lb

Site Admin 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 5 c/lb 5 c/lb 7 c/lb 8 c/lb 10 c/lb

Transport 39 c/lb 20 c/lb 31 c/lb 40 c/lb 42 c/lb 43 c/lb 40 c/lb 39 c/lb 40 c/lb 49 c/lb 56 c/lb

TC/RC 21 c/lb 17 c/lb 20 c/lb 23 c/lb 22 c/lb 23 c/lb 19 c/lb 19 c/lb 19 c/lb 24 c/lb 28 c/lb

net by‐product credit (40c/lb) (21c/lb) (27c/lb) (38c/lb) (46c/lb) (45c/lb) (39c/lb) (43c/lb) (41c/lb) (54c/lb) (53c/lb)

co‐products (57c/lb) (36c/lb) (47c/lb) (56c/lb) (60c/lb) (61c/lb) (59c/lb) (58c/lb) (58c/lb) (66c/lb) (72c/lb)

Royalties 16 c/lb 10 c/lb 12 c/lb 15 c/lb 19 c/lb 19 c/lb 17 c/lb 16 c/lb 16 c/lb 17 c/lb 17 c/lb

Sustaining Capital 8 c/lb 0 c/lb 5 c/lb 9 c/lb 9 c/lb 9 c/lb 9 c/lb 9 c/lb 11 c/lb 10 c/lb 0 c/lb

TOTAL 118 c/lb 72 c/lb 115 c/lb 126 c/lb 122 c/lb 128 c/lb 122 c/lb 114 c/lb 150 c/lb 121 c/lb 75 c/lb


Cashflows / Financials

Figure 12 shows Beer & Co’s projected cashflows for the Rocklands project. It also details Beer & Co’s commodity prices assumptions.

Beer & Co’s financial projections assume that the copper price rises to US$ 2.95/lb, over time

Figure 12 : Beer & Co’s projected cashflows for Rocklands

AUD m 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

AUD/USD 0.750 0.750 0.750 0.750 0.750 0.750 0.750 0.750 0.750 0.750

Copper $ 5,188/t $ 5,563/t $ 6,375/t $ 7,375/t $ 7,563/t $ 6,688/t $ 6,500/t $ 6,500/t $ 6,500/t $ 6,500/t

Gold $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz

Cobalt $ 12.3/lb $ 14.3/lb $ 16.3/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb

Iron (magnetite) $ 64/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t

Copper ‐ TC / RC $ 109/t $ 113/t $ 94/t $ 75/t $ 75/t $ 75/t $ 75/t $ 75/t $ 75/t $ 75/t

Copper Revenue 82.4 148.0 174.1 201.1 204.9 189.0 186.3 150.5 121.2 77.6

Cu TC / RC (6.3) (12.3) (14.0) (13.4) (13.7) (12.3) (11.9) (9.7) (9.8) (7.4)

By‐products, net 7.5 16.3 23.3 27.9 27.3 24.5 27.9 21.5 22.2 13.9

Co‐products, net 13.2 28.9 34.3 36.6 36.5 37.1 37.3 30.2 27.4 19.1

Cash Costs (36.9) (93.1) (105.3) (108.1) (110.3) (110.5) (110.2) (105.6) (78.5) (40.9)

Royalties (3.7) (7.1) (9.4) (11.5) (11.7) (10.6) (10.5) (8.4) (7.0) (4.4)

Dep'cn & Amort'sn (41.9) (54.4) (50.3) (52.9) (52.9) (52.9) (52.9) (52.9) (52.9) (37.0)

E B I T 14.4 26.3 52.6 79.7 80.3 64.4 66.0 25.6 22.6 20.9

Project Cap.Ex (4.7)

Sus Cap. Ex (3.1) (5.7) (5.7) (5.7) (5.7) (5.7) (5.7) (4.3)

Net Project Cashflow 51.5 77.6 97.2 126.9 127.4 111.6 113.1 72.8 71.3 57.9


Figure 13 shows Beer & Co’s revenue projections by product. It shows that, despite the range of products, revenue is dominated by copper

Rocklands is dominated by copper, with by‐product credits from gold in copper concentrate, cobalt concentrate and magnetite concentrate

Figure 13 : Rocklands Revenue by product

$A 0m

$A 50m

$A 100m

$A 150m

$A 200m

$A 250m

2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Copper Ingot Copper in Conc (net) Gold in Cu conc

Cobalt Magnetite


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Figure 14 shows Beer & Co’s projections of financial outcomes for CDU.

Figure 14 : Beer & Co’s projected financials for CDU AUD m 2015‐16 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Sales revenue 0 97 181 218 252 255 238 240 193 161 103

Cost of Goods Sold 0 (37) (93) (105) (108) (110) (110) (110) (106) (79) (41)

Royalties 0.0 (3.7) (7.1) (9.4) (11.5) (11.7) (10.6) (10.5) (8.4) (7.0) (4.4)

Corporate Costs (6.4) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0)

Other Operating Expenses (21.3) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Dep'cn & Amort'sn (1) (43) (55) (51) (54) (54) (54) (54) (54) (54) (38)

EBIT (28.4) 8.6 20.7 47.9 76.6 79.1 64.9 67.9 28.9 26.8 26.1

Interest Expense (3.8) (6.3) (0.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Tax Expense 2.0 (0.7) (5.9) (14.4) (23.0) (23.7) (19.5) (20.4) (8.7) (8.0) (7.8)

NPAT (30.3) 1.6 13.8 33.5 53.6 55.3 45.5 47.5 20.2 18.7 18.3

Shares on issue 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m

Earnings per Share (10.1c) 0.4 c 3.5 c 8.5 c 13.6 c 14.0 c 11.5 c 12.1 c 5.1 c 4.8 c 4.6 c


Figure 12 shows Beer & Co’s analysis includes the current equity issue, of 78.86m shares at 80c each to raise $63.1m, in the shares on issue as at 30 June, 2015.

Valuation

Figure 15 shows the asset by asset detail of Beer & Co’s base case valuation of CDU.

Beer & Co’s valuation is dominated by the 10 years in the Reserves

Figure 15 : Beer & Co’s valuation of CDU

5‐May‐16

risk : 100% Product per share

Rocklands Reserves 100% $ 372m $ 372m 94 c 120 c

Franking Credits 60% $ 19m $ 11m 3 c 3 c

Extensions 65% $ 32m $ 20m 5 c 6 c


Corporate 100% ($ 30m) ($ 30m) (8c) (7c)

Equity raised 100% $ 80m $ 80m 20 c 3 c

Cash balance 100% ($ 75m) ($ 75m) (19c) (18c)

TOTAL $ 411m $ 384m 97 c 108 c

Shares on issue 272.3m F P O shares 0.0m Options

122.0m 2015 ‐ 16 0.0m Ops. Ex'd

30 June 2015discount rate = 12.0 %


Figure 15 shows that

Our valuation is dominated by the 10 years of Rocklands reserves;

Beer & Co has given full value to this project (ie. we have not risked it) as the project is developed and mostly commissioned, so we feel that development and commissioning risks have been mitigated and start‐up issues are allowed for in our cashflows;

Our valuation uses the last balance sheet, 30 June, 2015, as the basis, and CDU has already issued 37.5m in the current financial year (to Rich Lead Investment), in addition to the 79m being currently issued; and

Net debt is taken from the 30 June 2015 balance sheet, and the current equity raising will significantly reduce this debt level.

Extension

Figure 15 also shows that Beer & Co has given a value for extensions of mine life. This recognises the Resources that are not included in the Reserves. CDU has further potential from other mineralisation.

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Sensitivity

The major sensitivity in Beer & Co’s valuation is to commodity prices, especially copper prices, which Figure 13 shows is the dominant revenue stream.

Valuation is sensitive to commodity prices.

Most values are above the placement price

Figure 16 : Sensitivity of Beer & Co valuation


Figure 16 shows that at today’s prices, Beer & Co’s valuation of CDU is about 60c/share, or less than the price at which equity is being raised.

Figure 16 also shows that any improvement in the copper price brings our valuation over the price of the current equity raising.

Beer & Co expects the Rocklands project to generate revenue in the September quarter of 2016

In Beer & Co’s view, the Rocklands project is effectively de‐risked.

Beer & Co initiates research on CDU with a BUY, Medium Risk, recommendation

Beer & Co understands that while the near term copper prices may be subdued, our long term price projection, of US$ 2.95/lb, is at the low end of projections.

Conclusions

CDU has been suspended from trading since early August 2015 as it has sought financing to bring the Rocklands copper project into production.

CDU has developed its mining operations and nearly all the process plant in in place and most of it has been commissioned.

CDU has undertaken extensive metallurgical testwork, especially in relation to native copper.

CDU announced the results of its DFS on 3 March, 2016. This was the first publicly announced review of the economics of Rocklands, even though CDU had completed internal studies and reviews.

Beer & Co’s valuation of CDU, net of financing, is $420m, which is a significant discount to the capital invested, of $637m. This contributed to a change in management, which has led to ASX announcements on Reserves, Feasibility and a formal prospectus for the current capital raising.

This increased discipline gives Beer & Co confidence.

As a result of the work undertaken and the nearness to production, Beer & Co rates CDU as a medium risk.

Beer & Co’s base case valuation is based the Reserves reported by CDU on 11 December 2015, of 27.7Mt, which is sufficient for a 10 year project life. CDU’s estimates of Resources are of a significantly greater volume of material.

Beer & Co’s base case valuation is a useful premium to the current share price. However, it does require improvement in the copper price, which we, and all other analysts, expect.

Final Comment

Beer & Co initiates research on CDU with a BUY, Medium Risk, recommendation.

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Cudeco : Introduction

Background

At the start of 2002, Australian Mining Investments (AUM.ASX) had a coal operation in Gunnedah. In February 2002, it announced the acquisition of the Mt Norma copper prospect, with further contiguous tenements. Mt Norma, which is 30km South‐East of Cloncurry, had significant copper oxide mineralisation.

On 15 April 2002, Wayne McCrae became a Director of AUM and later in April his business colleagues, Tim Koitka and Tom Pickett also became Directors of AUM.

Mt Norma was subsequently brought into operation to produce copper sulphate pentahydrate.

In November 2005, AUM announced the acquisition of tenements about 17km to the west of Cloncurry. The 54km2 area covered many identified copper projects, including Rocklands, Double Oxide, Lennet Ann, Lady Ruby, First Try, Rainden, Oceania Group and Butcher Bird.

The area was surrounded by Xstrata (now Glencore), with Ernest Henry nearby.

It had last been drilled in 1992 by CRA (now Rio Tinto), but an intercept of 32m at 1.27% Cu in 1981 – 82 was not of sufficient interest. Since 1992, it had been held by a private prospector who had refused to deal with big companies.

CDU was able to acquire this project as it was not a big company, but rather had empathy with the prospector.

Rocklands

Figure 17 shows that the Rocklands project is located 17km west of Cloncurry in N‐W Queensland.

Figure 17 : Rocklands copper project, near Cloncurry, N‐W Queensland

Source : CDU Annual Report, 2010

Having acquired the project, CDU almost immediately (subject to the west season) began an aggressive drill programme; in the 2009 Annual Report, CDU stated that a total of 15 drill rigs, comprising 5 RC rigs, 9 diamond core and 1 RAB) were employed on the Rocklands project.

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During this time, CDU reported many spectacular intercepts, including :

18m at 2.045% Cu, 10m at 6.38% Cu and 22m at 1.22% Cu in April 2006;

20m at 2.28% Cu, from 1m and 78m at 2.31% Cu in May 2006;

33m at 3.86% Cu, 18m at 2.83% Cu and 46m of intense native copper in June 2006.

Geology

Within the Rocklands tenement area, there are many surface expressions of mineralisation, such as shown in Figure 18.

Figure 18 : Surface mineralisation at Rocklands

Source : CDU geology presentation, November 2010

After basic geological mapping, extensive soil sampling was done, including some RAB drilling, to define targets. Drilling showed significant mineralisation just below the surface.

In addition to surface geology, extensive use was able to be made of geophysical techniques, including :

Ground magnetics;

Air‐borne magnetics;

Sub‐audio magnetics;

Induced Polarisation (IP);

Down Hole Electro‐Magnetics;

Gravity survey and

Down‐hole IP

In their DFS, CDU described the geology at Rockland as copper‐cobalt‐gold mineralisation is hosted in a series of subparallel, east south east trending, steeply dipping zones. Mineralised lodes occur within a metamorphosed sedimentary succession of siltstone, sandstone/quartzite, quartz magnetite/jaspilite lenses, calcareous beds and calc‐silicates of Proterozoic age.

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Figure 19 shows areas of mineralisation within Rocklands.

Figure 19 : Identified mineralisation at Rocklands

Source : CDU geology presentation, November 2010

CDU further describe the geology, as

“Copper is the dominant mineralisation at Rocklands, lesser amounts of cobalt and gold. Copper mineralisation extends from surface to depth with overlapping oxide, secondary and primary styles of copper mineralisation.

Mineralisation appears to be associated with and controlled by steeply dipping, west northwest trending, linear, structures that cut the shallow dipping metasedimentary sequence at a high angle.

Orientation and grade of the known mineralised zones are clearly influenced by a combination of steeply dipping structurally controlled features, which may be spatially associated with largely sub vertical dolerite dykes, and shallowly dipping favourable lithological units.

Controlling structures are sub‐vertical and strike in a north‐northwest orientation.

Copper mineralisation extends from surface and is open at depth with overlapping oxide, secondary and primary styles. Primary sulphide mineralisation occurs at the base of a thick secondary mineralisation sequence of native copper and chalcocite with a minor complete oxidation zone.

Figure 20 : Rocklands ore‐bodies

Source : CDU Annual report, 2010

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As shown in Figure 20, the main area of defined mineralisation occurs as a number of sub‐parallel structures over a corridor strike length of 3 km, 1.7 km wide and up to 0.64 km down dip, which excludes Solsbury Hill, Fairfield and nearby domains situated immediately to north of the main zone. There are a total of 38 currently defined domains, including Solsbury Hill and Fairfield.

Resource Estimates

June 2006

On 29 June, 2006, CDU announced a Mineral Resource Estimate of 59Mt of Inferred resources, grading 2.04% of copper equivalent (Cu eq), which was revised to an Inferred Resource of 25Mt plus an Exploration target of 34Mt.

This was done after just over 15 months of drilling.

However, CDU recognised that the system was large and required significantly more drilling to have a basis for feasibility assessment.

August 2010

CDU continued drilling and in August 2010, after completing a total of 268,000m of drilling, announced an upgraded resource estimate, the detail of which is shown in Figure 21.

Figure 21 : CDU Resource Estimate, August 2010

Copper cut‐off Copper Cobalt Gold Copper Cobalt Gold

0.15% Cu 31 Mt 0.67 % 308 ppm 0.11 g/t 210 kt 9,579 t 110 koz






0.80% Cu 3 Mt 1.36 % 187 ppm 0.08 g/t 41 kt 561 t 8 koz




0.80% Cu 2 Mt 1.45 % 201 ppm 0.08 g/t 29 kt 402 t 5 koz





Contained Metal

Contained Metal

Contained Metal


Measured

Indicated

Inferred

Source : CDU ASX announcement, 18 August 2010, Beer & Co

The resource estimate was headlined by CDU as being 30.94Mt of Measured + Indicated Resources, grading 1.24% Cu eq, using a cut‐off of 0.80% Cu.eq (note that the cut‐offs shown in Figure 3 are for copper, rather than copper equivalent grades).

May 2011

The next updated Mineral Resource Estimate was announced on 25 May 2011, with the headline of 30.3Mt at 1.70% Cu eq.

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This revision is the result of a further 37,000m of drilling, increasing the total to 305,000m. Figure 22 shows the detail of the May 2011 Resources estimate.

Figure 22 : CDU Revised Resource Estimate, May 2011


0.2 % 47.2 Mt 0.41 % 353 ppm 0.10 g/t 2.94 % 194 kt 16,662 t 152 koz 1,388 kt


0.8 % 13.8 Mt 1.10 % 597 ppm 0.19 g/t 3.53 % 152 kt 8,239 t 84 koz 487 kt














Contained Metal







Measured

Source : CDU ASX announcement, 25 May 2011, Beer & Co

Figure 22 shows some revisions in detail, compared with Figure 5, especially with the inclusion of magnetite as a product, and the use of copper equivalent cut‐off grades, as opposed to copper only.

This means that the results are not directly comparable. However, Beer & Co’s analysis shows a significant increase in the value of the contained copper + cobalt + gold.

November 2013

Figure 23 : CDU Revised Resource Estimate, November 2013






















Measured Contained Metal




CDU next updated the Mineral Resource Estimate in November 2013, as shown in Figure 23.

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In addition to the Cu‐Co‐Au resource, CDU also advised of a separate Inferred Resource estimate for magnetite of

328Mt at 14.3% Fe3O4, using a cut‐off grade of 10% Fe3O4; or

102Mt at 19.5% Fe3O4, using a cut‐off grade of 15% Fe3O4; or

26Mt at 26.6.3% Fe3O4, using a cut‐off grade of 20% Fe3O4.

CDU did not provide a further updated resources estimate. .

Mineralogy / Metallurgy

Reserves

On 11 December 2015, CDU announced its maiden Reserves estimate. Figure 24 shows the detail of that statement.

Figure 24 : CDU’s Maiden Ore Reserves Estimate


PROVED, IN‐PIT






Chalcopyrite 13.4 Mt 0.71 % 339 ppm 0.15 g/t 10.1 % 95 kt 10 kt 65 kt 1,356 kt


Sub‐Total, Proved, In‐Pit 20.8 Mt 0.74 % 366 ppm 0.14 g/t 7.5 % 155 kt 17k lb 97 koz 1,565 kt



PROVED ‐ STOCKPILES








Sub‐Total, Stockpiles 2.2 Mt 1.02 % 529 ppm 0.16 g/t 2.7 % 22 kt 3k lb 11 koz 60 kt



PROBABLE








Sub‐Total, Probable 4.7 Mt 0.45 % 233 ppm 0.11 g/t 5.0 % 21 kt 2k lb 17 koz 237 kt



TOTAL RESERVES 27.7 Mt 0.72 % 356 ppm 0.14 g/t 6.7 % 198.4 kt 21.8k lb 124.8 koz 1,862 kt




Metal Grades Contained Metal

Source : CDU ASX announcement, 11 December 2015

Figure 24 shows that 32% of the contained copper is in the form of native copper.

Native Copper

Figure 25 shows that the native copper at Rocklands sometimes comes in the form of massive nuggets, up to 40t in weight, but other times is it more smeared.

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Figure 25 : massive nuggets of native copper at Rocklands

Source : CDU ASX announcement, 29 June 2015

Figure 26 : Native Copper at Rocklands

Source : CDU Presentation to AGM, November 2010

For prospectors and small scale artisanal miners, native copper is exciting as it can be

easily seen and distinguished from waste; and

readily sold, as copper scrap.

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However, for a professional, large scale operation, native copper poses many challenges :

due to its softness, drilling does not accurately assess the grade; and

it not easily recovered in conventional processing.

In addition, native copper is not amenable to assaying as a product, and so sales will tend be at a significant discount to its true copper value.

Finally, native copper will be found in many forms, ranging from massive, as shown in Figure 25, to large dendritic structures to finer structures.

Figure 27 : Native copper on stockpiles


CDU has spent significant time, and money, working on this problem; in March 2011, it announced it had spent 4 years working with 5 different labs on metallurgy.

Figure 28 shows the flow‐sheet for the crushing circuit that has been developed to treat the different ore‐types, with a particular focus on the native copper.

Figure 28a : Crushing flow‐sheet, for native copper recovery


Native copper is recovered through 4 processes :

1. All ore, other than the massive nuggets, is crushed through the primary crusher;

2. Crushed material is sorted by a grizzly that separates the very coarse fraction, over 40mm;

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3. The material is then crushed by High Pressure Grinding Rolls (HPGR) and processed through jigs, which capture the coarse (> 1mm) materials

Figure 29 shows 2 pieces of native copper taken from the stockpile shown in Figure 27, demonstrating the finer dendritic nature and the impact of the HPGR

4. The remaining material is processed through spirals and shaker tables to capture the fines (< 1mm).

Figure 28b : Gravity separation flow‐sheet, for native copper recovery


In Figure 29, the first piece shows clear signs of flattening, without being smeared.

Fig 29 : Native copper from stockpile The second piece clearly shows the dendritic nature which has not been affected by the HPGR as its thickness is less than the 10mm gap between the 2 HPGR rolls.

Figure 30 shows the grizzly / scalping operation, while Figure 31 shows open containers native copper collected at Rocklands.

To produce as consistent product, and receive fair value, CDU has installed a 1 tonne an hour (9kt/yr) melting furnace, as shown in Figure 32, which also shows the copper ingots produced.


Figure 30 : Scalping native copper ore at Rocklands


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Figure 31 : Native copper collected at Rocklands


Other Product

Figure 24 shows that, apart from native copper, the Rocklands operation is intended to process 5 other minerals to produce 3 other products, being :

A copper‐gold concentrate;

A cobalt concentrate; and

A magnetite concentrate.

Oxide Copper

Figure 24 shows that the Reserves at Rocklands include 1.0Mt of oxide copper. This is insufficient material to justify the capital cost for a dedicated process to maximise the revenue from oxide copper ores.

Instead, the oxide copper ore will be processed in the same circuit as the primary copper, but the slurry will be sulphidised to enhance recoveries.

Metallurgical testwork has shown that a recovery of about 65% of the copper contained in the oxide copper ores can be expected to be recovered.

Primary Copper, and Gold

The bulk of the value of the Rocklands project is in the primary copper.

The Rockland project will process this material using standard processes, with the gold in the ore reporting to the copper concentrate.

Metallurgical testwork has shown that Rocklands should expect :

Recovery of 92% of the copper contained in the bornite and chalcocite ores to a copper concentrate grading 32% copper in concentrate; and

Recovery of 95% of the copper contained in the chalcopyrite ores to a copper concentrate grading 32% copper in concentrate; and

Recovery of 75% of the gold.

Cobalt

Figure 24 shows that Rocklands has about 10kt of contained cobalt in Reserves. This compares with estimated global consumption of about 92kt in 2015.

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Many newer generation batteries, including some types of lithium ion batteries, use cobalt in their cathode :

Lithium – cobalt – oxide batteries tend to be used in mobile phones, laptops and cameras;

Lithium – nickel – manganese – cobalt – oxide batteries tend be used in power tools and some Electric Vehicles, with the cathode being equal portions of Ni, Mn and Co; and

Lithium – nickel – cobalt – aluminium – oxide, or NCA, batteries tend to be used in Electric Vehicles and grid storage, but not consumer products.

There are 2 other types of lithium ion batteries that do not use cobalt :

Lithium titanate, which are compact, even though lower in voltage and energy density, and so find application in e‐bikes; and

Lithium ferro‐phosphate, or LFP, batteries that have a long life, even though low voltage.

Metallurgical testwork has shown that Rocklands should expect to recover 65% of the cobalt into a cobalt‐pyrite concentrate grading 1% cobalt. The concentrate is significantly pyrite, with 50% of the cobalt – pyrite concentrate being sulphur.

The refiner of the cobalt‐pyrite concentrate uses the sulphur for energy to roast the concentrate and also produce sulphuric acid to leach the resulting Fe‐Co sinter.

Magnetite

The orebody at Rocklands is a termed an Iron Oxide Copper Gold orebody.

Figure 24 showed that the Reserves include 1.86Mt of iron in magnetite, or 2.57Mt of magnetite. It can be recovered using magnetic separation.

Metallurgical testwork has shown that Rocklands should expect to recover 42% of the contained magnetite into a concentrate of 68% iron.

Summary Results

Figure 33 summarises the metallurgical results from the testwork undertaken by CDU and announced as part of the Definitive Feasibility Study on the Rocklands project.

Figure 33 : Metallurgical results

Recovery Grade

Bornite to Copper Conc 92 % 32 %

Chalcocite to Copper Conc 92 % 32 %

Chalcopyrite to Copper Conc 95 % 32 %

Copper Oxides to Copper Conc 65 % 32 %

Native Copper 95 % 95 %

Gold to copper conc 75 %

Cobalt to Co‐pyrite Conc 65 % 1.0 %

Magnetite 42 % 68 %

Source : CDU 3 March 2016, Beer & Co

Rocklands Development

CDU acquired the Rocklands project in 2005 and began exploration immediately.

Development Starts

CDU first lodged it Mining Licence Application (MLA) in August 2006 and it was finally granted in late 2011. At least part of the reason for the delay was that the grant of a Mining Licence in Queensland requires a feasibility study and CDU needed further time to refine the project development, including metallurgy.

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On 1 March 2011, CDU announced it had entered into a contract with SinoSteel for the supply of the process plant components and structures.

Approval from the Department of Environment and Heritage Protection (DEHP) was given in April 2012 and CDU mobilised to site and began development immediately.

Figure 18 is taken from CDU’s 2013 Annual Report, and so is dated around September 2013. It shows mine development well underway.

On 9 August 2013, CDU announced that it was commissioning the crushing circuit and the power house, and that the crushing circuit had been prioritised as it was expected to have the greatest potential need for refinement.

Figure 34 : Mine development at Rocklands

Source : CDU Annual Report 2013

Development Delayed

In that same report, of 2013, CDU reported that the development was behind schedule as prices quoted were well above what was regarded by the company as acceptable.

Given that 2013 was about the peak of the boom in demand for development for iron ore and LNG projects, this is unsurprising.

In the 2014 Annual Report, CDU reported that

The major infrastructure (road, rail load‐out and port handling) was all but complete;

Process plant was all but complete, with preliminary commissioning expected in late 2014;

Over 1Mt of ore had been mined. .

Management Changed

Figure 35 shows that the CDU share price jumped when it was announced, in April 2012, that project development had started.

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Figure 35 : CDU share price v copper price

$ 4,000/t

$ 4,500/t

$ 5,000/t

$ 5,500/t

$ 6,000/t

$ 6,500/t

$ 7,000/t

$ 7,500/t

$ 8,000/t

$ 8,500/t

$ 9,000/t

$ 0.00

$ 1.00

$ 2.00

$ 3.00

$ 4.00

$ 5.00

$ 6.00

3‐Jan‐12 3‐Jul‐12 3‐Jan‐13 3‐Jul‐13 3‐Jan‐14 3‐Jul‐14 3‐Jan‐15 3‐Jul‐15 3‐Jan‐16

CDU share price Copper price


Figure 35 also shows that the CDU share price fell from $3.70 at the start of June 2013 to under $1.50 by the end of July, 2013.

It also shows that this fall in the CDU share price was not associated with a fall in the copper price.

Up to that time, CDU had not filed, with the ASX for public announcement, any form of economic analysis or feasibility study on the Rocklands project.

CDU had raised al the funds required by placement with a range of Chinese companies, including the project constructor, SinoSteel, eg :

25 March 2011 : 6.25m at $4.00 ($25m) to a Hong Kong based resources company, Oceanwide Investments

27 April 2011 : off‐take agreement signed with Oceanwide, with agreement to subscribe for a further 14.95m at $3.80 ($56.8m)

While the 25 March tranche was completed, Oceanwide failed to settle the second tranche

31 October 2011 : 23.977m placed at $3.60 ($86.3m) to Hong Kong based investment firm, New Apex Asia;

27 November 2012 : 7.6m placed at $4.50 ($34.2m) to SinoSteel in lieu of cash payment for work done at Rocklands

8 December 2011 : 8.0m placed at $4.00 ($32m) to M&G Investments, which already held 22.6m, including some bought on market, to go to 30.5m shares or 15.86%

M&G subsequently began selling in June 2013 and on 23 August 2013 filed that it had less than 5% of CDU

19 March 2013 : 5.0m placed at $3.45 ($17.25m) to Oceanwide;

19 March 2013 :6.377m placed at $3.45($22m) to SinoSteel in lieu of cash payment for work done at Rocklands;

30 October 2013 : $50m under‐written right issue announced, of 20m shares at $2.50, of which $6.5m was taken up by existing shareholders.

On 7 April, 2014, CDU announced that China’s Mingsehn Bank had approved a US$ 100m facility.

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CDU raised more equity :

$1.07m to SinoSteel for work done at Rocklands

2.4m at $1.30 ($3.16m) to a shipping firm for work done

5.6m at $1.50 ($8.4m) to SinoSteel for work done;

24m at $1.25 ($30m) to Oceanwide, after receiving FIRB approval to go to 19.9% of CDU’s issued capital.

On 4 May 2015, CDU announced that it had agreed to place 40m new shares, at $1.25 each to Hong Kong based investor, Focus Sun Holdings, of which

4m shares ($5m) was issued immediately; and

The balance, of 36m shares ($45m) was subject to both FIRB and shareholder approval.

FIRB approval was given on 12 June 2015.

On 30 June, 2015, CDU announced that the shareholder meeting had REJECTED the equity placement to Focus Sun Holdings.

On 23 July 2015, a major shareholder, New Apex Asia Investment, which was the employer of one of CDU’s Directors, “Tony” WU Zhao Hui, filed a notice under s230D of the Corporations Act to remove Wayne McCrae as a Director of CDU.

Mr McCrae subsequently resigned the following day.

Further Delays

On 4 August 2015, CDU requested a trading halt to enable it to finalise financing for the development of the Rocklands project.

CDU is still in suspension from that trading halt.

On 17 September, 2015, CDU announced that it would undertake a rights issue to raise $83.3m at 60c a share, under‐written by one‐third each by China Oceanwide, SinoSteel and Infinitus Group. The first two together held 34.7% of CDU stock while Infinitus is a group of smaller Hong Kong based investors.

Due to the potential impact on the holdings of substantial shareholders, CDU sought clearance from the Take‐Overs Panel.

On 30 September 2015, CDU announced that it needed to review its asset valuations before it could file its Annual Report.

On 13 October, ASIC determined that, as CDU had not filed its Annual Report by 30 September, it would need to prepare a full prospectus to undertake the equity raising.

This rendered consideration by the Take‐Overs Panel redundant.

On 17 November, CDU announced that Rich Lead Investment Pte Ltd, a Singapore based investor, would subscribe for 37.5m shares at 80c each, to raise $30m.

CDU announced its maiden Resources estimate on 11 December 2015.

On 5 February 2016 a prospectus was issued, but ASIC issued a stop order on that prospectus on 12 February.

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CDU announced its maiden Resources estimate on 11 December 2015.

On 5 February 2016 a prospectus was issued, but ASIC issued a stop order on that prospectus on 12 February.

On 3 March 2016, CDU published the Definitive Feasibility Study. While CDU had internal economic analysis of Rocklands, this was the first filed with the ASX for public information.

On 11 April 2016, CDU filed a replacement prospectus.

Beer & Co Analysis

Beer & Co’s analysis is very heavily informed by CDU’s DFS, though our modelling has been from the ground up so that we are able to assess the impact of a range of different assumptions on commodity prices and other potential factors.

Background

The operations are nearly completed. Figure 36 shows that mine at Rocklands is developed, ready to blast ore.

Reference to Figure 24 shows that the stockpiles are oxide copper or native copper, while sulphidic ore is still in pit, so that it does not oxidise.

Figure 36 : Rocklands mine is developed


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Figure 38 shows the detail of the purpose of the $63m raising.

It shows that only about $16m is needed to spent on” in the ground” activities, while $28.2m are activities that are a one‐off payment, and so can be done virtually immediately.

The balance are funds to be expended but are associated with the start of operations rather than funds that need to be spent before operations can be started.

Figure 38 : Use of funds Immediate Construction Incidental

Capital costs realted to process plant construction

SinoSteel for Electrial, etc $ 12.0m $ 12.0m

Fire Supression System $ 1.5m $ 1.5m

Sapre parts and other $ 4.0m $ 4.0m

$ 17.5m

Mining and processing activities

Environmental bond $ 6.5m $ 6.5m

Commissioning ‐ SinoSteel $ 2.3m $ 2.3m

‐ Honeywell $ 0.6m $ 0.6m

Mining plant & equipment $ 1.0m $ 1.0m

$ 10.3m

Shareholder loan repayments $ 4.0m $ 4.0m

Payments to SinoSteel outstanding $ 16.9m $ 16.9m

Working Capital

Mining $ 3.5m $ 3.5m

Processing $ 5.6m $ 5.6m

Commercial $ 0.9m $ 0.9m

Corporate $ 1.1m $ 1.1m

Finance $ 0.3m $ 0.3m

Other $ 2.2m $ 2.2m

$ 13.6m

Offer Costs $ 0.7m $ 0.7m

TOTAL of Rights Issie $ 63.1m $ 28.2m $ 16.3m $ 18.6m


For this reason, Beer & Co expects that the time from closing the offer to processing ore for first product should be only about 2 months, given that much of the commissioning has already been affected.

Operations

Figure 39 : Beer & Co’s projections of Rocklands mining & processing LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Ore mined 25,530 kt 1,238 kt 3,600 kt 3,450 kt 2,550 kt 2,640 kt 3,900 kt 3,900 kt 3,000 kt 1,253 kt 0 kt

Waste moved 127,698 kt 2,970 kt 16,400 kt 16,550 kt 17,450 kt 17,360 kt 16,100 kt 16,100 kt 17,000 kt 7,768 kt 0 kt

Ore Processed 27,730 kt 1,650 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 3,000 kt 2,080 kt

Oxide Copper 1,040 kt 322 kt 600 kt 98 kt 0 kt 0 kt 0 kt 0 kt 20 kt 0 kt 0 kt

Head grade ‐ Cu 1.02 % 0.81 % 0.81 % 0.00 % 0.00 % 0.00 % 0.00 % 0.58 % 0.00 % 0.00 %

Recovery 63 % 65 % 65 % 65 % 65 % 65 % 65 % 65 % 65 % 65 %

Native Copper 5,140 kt 660 kt 931 kt 523 kt 416 kt 393 kt 538 kt 585 kt 774 kt 321 kt 0 kt

Head grade ‐ Cu 1.42 % 1.37 % 1.34 % 1.34 % 1.34 % 1.34 % 1.34 % 0.82 % 0.75 % 0.00 %

Recovery 92 % 95 % 95 % 95 % 95 % 95 % 95 % 95 % 95 % 95 %

Primary Copper 21,550 kt 668 kt 1,469 kt 2,379 kt 2,584 kt 2,607 kt 2,462 kt 2,415 kt 2,206 kt 2,679 kt 2,080 kt

Head grade ‐ Cu 0.60 % 0.62 % 0.63 % 0.63 % 0.63 % 0.63 % 0.63 % 0.56 % 0.47 % 0.46 %

Recovery 94 % 95 % 95 % 95 % 95 % 95 % 95 % 95 % 95 % 95 %


The data in Figure 39 on ore mined, waste moved and ore processed comes directly from the DFS, though Beer & Co has adjusted for a start‐up in the September quarter.

Otherwise, Beer & Co also allows for a start‐up period, shown in the first year having poorer recoveries.

Figure 39 clearly shows a pattern in working through oxide material and constraining native copper ores to ensure a blend to the mill.

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It also shows that, as CDU currently has 2.2Mt in stockpiles, Beer & Co has allowed for the processing operations to being ahead of the re‐commencement of mining, saving near term costs.

Figure 40 shows the production output from the processing operations in Figure 39.

Figure 40 : Beer & Co’s projections of Rocklands output LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Copper Concentrate 390,303 t 18,551 t 36,925 t 45,852 t 48,127 t 48,589 t 45,893 t 45,014 t 36,469 t 36,892 t 27,991 t

contained copper 124,761 t 5,800 t 11,816 t 14,673 t 15,401 t 15,548 t 14,686 t 14,405 t 11,670 t 11,805 t 8,957 t

Grade : copper in conc. 32 % 31 % 32 % 32 % 32 % 32 % 32 % 32 % 32 % 32 % 32 %

contained gold 137,350 oz 5,138 oz 11,082 oz 15,567 oz 18,455 oz 18,077 oz 16,310 oz 17,781 oz 11,428 oz 14,181 oz 9,331 oz

Grade : gold in copper conc 11 g/t 9 g/t 9 g/t 11 g/t 12 g/t 12 g/t 11 g/t 12 g/t 10 g/t 12 g/t 10 g/t

Copper Ingot 60,202 t 8,608 t 12,118 t 6,636 t 5,280 t 4,981 t 6,822 t 7,421 t 6,047 t 2,287 t 0 t

Cobalt Conccentrate 50,319 t 81,614 t 73,260 t 71,194 t 70,621 t 74,022 t 75,131 t 58,637 t 50,172 t 33,720 t

Coblat in Co conc. 6,387 t 1,109k lb 1,799k lb 1,615k lb 1,570k lb 1,557k lb 1,632k lb 1,656k lb 1,293k lb 1,106k lb 743k lb

Conc grade 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 %

Magentite Concentrate 1,148 kt 30 kt 95 kt 134 kt 143 kt 145 kt 141 kt 139 kt 119 kt 117 kt 85 kt


Figure 41 shows the detail of Beer & Co’s cost estimates.

Figure 41 : Beer & Co’s projections of costs for Rocklands operations

LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

WASTE REMOVAL $ 254m $ 5.0m $ 26.1m $ 30.8m $ 35.0m $ 36.7m $ 34.1m $ 34.1m $ 36.0m $ 16.6m $ 0.0m

AUD /t ore 10.0 4.0 7.3 8.9 13.7 13.9 8.7 8.7 12.0 13.2 0.0

AUD /t material 2.0 1.7 1.6 1.9 2.0 2.1 2.1 2.1 2.1 2.1 0.0

ORE EXTRACTION $ 72m $ 3.1m $ 9.2m $ 9.9m $ 7.5m $ 7.8m $ 10.9m $ 10.9m $ 8.6m $ 3.6m $ 0.0m

AUD /t ore 2.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

MINE OVERHEAD $ 28m $ 1.5m $ 3.7m $ 3.6m $ 3.4m $ 3.4m $ 3.7m $ 3.7m $ 3.5m $ 1.5m $ 0.0m

AUD /t ore 1.1 1.2 1.0 1.1 1.3 1.3 1.0 1.0 1.2 1.2 0.0

PROCESSING $ 306m $ 17.7m $ 32.0m $ 33.4m $ 33.2m $ 33.2m $ 33.2m $ 33.2m $ 33.2m $ 33.2m $ 23.7m

AUD /t ore 11.0 10.7 10.7 11.1 11.1 11.1 11.1 11.1 11.1 11.1 11.4

SITE G & A $ 31m $ 2.0m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 3.3m $ 2.5m

AUD /t ore 1.1 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.2

TRANSPORT $ 207m $ 7.4m $ 18.7m $ 24.2m $ 25.5m $ 25.7m $ 25.0m $ 24.8m $ 20.9m $ 20.2m $ 14.6m

AUD /t ore 7.5 4.5 6.2 8.1 8.5 8.6 8.3 8.3 7.0 6.7 7.0

AUD /t Product 129 129 129 129 129 129 129 129 129 129 129


There are 2 areas in which Beer & Co’s estimates differ from those in the CDU’s DFS

Beer & Co uses slightly different classifications :

Our site G & A expense is strictly site G & A and does not include corporate overheads, which we have included separately in our valuation; and

The cost of ocean freight is included in our transport costs rather than as part of the TC / RC cost;

Beer & Co uses a different suite of commodity prices

Our assumptions are shown more clearly in a later section, but we assume the AUD‐USD rate to stay flat at 0.750, and

we are less bullish on oil prices, with prices rising only to US$ 55/bbl, which has a significant impact on the cost of energy in our analysis.

Beer & Co has checked and matched our estimates against those in the DFS using the commodity price assumptions given by CDU in the DFS.

Figure 42 shows the detail of Beer & Co’s estimates of the All‐In Costs for Rocklands in terms of c/lb of copper.

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Figure 42 : Beer & Co’s projections of costs for Rocklands, in US c/lb of copper US c/lb LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Waste 48 c/lb 14 c/lb 43 c/lb 50 c/lb 58 c/lb 61 c/lb 54 c/lb 53 c/lb 69 c/lb 40 c/lb 0 c/lb

Mining 14 c/lb 9 c/lb 15 c/lb 16 c/lb 12 c/lb 13 c/lb 17 c/lb 17 c/lb 17 c/lb 9 c/lb 0 c/lb

Mine Overhead 5 c/lb 4 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 7 c/lb 4 c/lb 0 c/lb

Processing 58 c/lb 49 c/lb 52 c/lb 55 c/lb 55 c/lb 55 c/lb 53 c/lb 52 c/lb 64 c/lb 80 c/lb 90 c/lb

Site Admin 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 5 c/lb 5 c/lb 7 c/lb 8 c/lb 10 c/lb

Transport 39 c/lb 20 c/lb 31 c/lb 40 c/lb 42 c/lb 43 c/lb 40 c/lb 39 c/lb 40 c/lb 49 c/lb 56 c/lb

TC/RC 21 c/lb 17 c/lb 20 c/lb 23 c/lb 22 c/lb 23 c/lb 19 c/lb 19 c/lb 19 c/lb 24 c/lb 28 c/lb

net by‐product credit (40c/lb) (21c/lb) (27c/lb) (38c/lb) (46c/lb) (45c/lb) (39c/lb) (43c/lb) (41c/lb) (54c/lb) (53c/lb)

co‐products (57c/lb) (36c/lb) (47c/lb) (56c/lb) (60c/lb) (61c/lb) (59c/lb) (58c/lb) (58c/lb) (66c/lb) (72c/lb)

Royalties 16 c/lb 10 c/lb 12 c/lb 15 c/lb 19 c/lb 19 c/lb 17 c/lb 16 c/lb 16 c/lb 17 c/lb 17 c/lb

Sustaining Capital 8 c/lb 0 c/lb 5 c/lb 9 c/lb 9 c/lb 9 c/lb 9 c/lb 9 c/lb 11 c/lb 10 c/lb 0 c/lb

TOTAL 118 c/lb 72 c/lb 115 c/lb 126 c/lb 122 c/lb 128 c/lb 122 c/lb 114 c/lb 150 c/lb 121 c/lb 75 c/lb


Figure 42 shows that costs are low in the first year as high grade stockpiles are exploited and rise over time due to increasing transport distances and lower grades.

Projected Cashflows

Figure 43 shows Beer & Co’s projected cashflows for the Rocklands project. It also details Beer & Co’s commodity prices assumptions.

Figure 43 : Beer & Co’s projected cashflows for Rocklands

AUD m 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

AUD/USD 0.750 0.750 0.750 0.750 0.750 0.750 0.750 0.750 0.750 0.750

Copper $ 5,188/t $ 5,563/t $ 6,375/t $ 7,375/t $ 7,563/t $ 6,688/t $ 6,500/t $ 6,500/t $ 6,500/t $ 6,500/t

Gold $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz $ 1,250/oz

Cobalt $ 12.3/lb $ 14.3/lb $ 16.3/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb $ 17.5/lb

Iron (magnetite) $ 64/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t $ 65/t

Copper ‐ TC / RC $ 109/t $ 113/t $ 94/t $ 75/t $ 75/t $ 75/t $ 75/t $ 75/t $ 75/t $ 75/t

Copper Revenue 82.4 148.0 174.1 201.1 204.9 189.0 186.3 150.5 121.2 77.6

Cu TC / RC (6.3) (12.3) (14.0) (13.4) (13.7) (12.3) (11.9) (9.7) (9.8) (7.4)

By‐products, net 7.5 16.3 23.3 27.9 27.3 24.5 27.9 21.5 22.2 13.9

Co‐products, net 13.2 28.9 34.3 36.6 36.5 37.1 37.3 30.2 27.4 19.1

Cash Costs (36.9) (93.1) (105.3) (108.1) (110.3) (110.5) (110.2) (105.6) (78.5) (40.9)

Royalties (3.7) (7.1) (9.4) (11.5) (11.7) (10.6) (10.5) (8.4) (7.0) (4.4)

Dep'cn & Amort'sn (41.9) (54.4) (50.3) (52.9) (52.9) (52.9) (52.9) (52.9) (52.9) (37.0)

E B I T 14.4 26.3 52.6 79.7 80.3 64.4 66.0 25.6 22.6 20.9

Project Cap.Ex (4.7)

Sus Cap. Ex (3.1) (5.7) (5.7) (5.7) (5.7) (5.7) (5.7) (4.3)

Net Project Cashflow 51.5 77.6 97.2 126.9 127.4 111.6 113.1 72.8 71.3 57.9


Beer & Co’s projections are basically for current prices for the AUD‐USD, gold and iron ore. Figure 44 shows Beer & Co’s copper price projections in graphical form.

Figure 44 : Historical copper price v. Beer & Co’s projections

$ 2,000/t

$ 3,000/t

$ 4,000/t

$ 5,000/t

$ 6,000/t

$ 7,000/t

$ 8,000/t

$ 9,000/t

$ 10,000/t

Jun. 06 Dec. 07 Jun. 09 Dec. 10 Jun. 12 Dec. 13 Jun. 15 Dec. 16 Jun. 18 Dec. 19 Jun. 21 Dec. 22

historical copper prices

projected copper prcies


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It shows that Beer & Co projects a recovery in copper prices, though not in immediate future due to the start‐up of a range of projects including Las Bamabs (450kt/yr), Cerro Verde expansion (180kt/yr), Sentinel (270kt/yr), Buena Vista expansion (190kt/yr) and Grasberg expansion (340kt/yr).

Beer & Co expects that

the production increases will take some time to come into production;

expected annual demand increases for primary copper is nearly 600kt, so the increase in supply, net of projected falls due to grade etc, covers the projected increase in demand over the period, but little more; and

stocks are generally low, and dominated by Shanghai.

Beer & Co tests the sensitivity of our conclusions to our commodity price assumptions.

Figure 42 shows that by‐product credits are significant. However. Figure 45 shows that, despite this, the revenue from Rocklands Is dominated by copper.

Figure 45 : Projected revenue by commodity

$A 0m

$A 50m

$A 100m

$A 150m

$A 200m

$A 250m

2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Copper Ingot Copper in Conc (net) Gold in Cu conc

Cobalt Magnetite


Valuation of CDU

Projected CDU Financials

Figure 43 showed Beer & Co’s projected financial outcomes for CDU’s Rocklands project. Figure 30 shows Beer & Co’s financial outcomes for CDU, which is substantially the Rocklands project.

Figure 46 shows

Beer & Co’s analysis includes the current equity issue, of 78.86m shares at 80c each to raise $63.1m, before costs, in the shares on issue as at 30 June;

Depreciation and Amortisation expense is very high as an investment of over $400m is written off over a 10 year mine life, with amortisation expense high in the first year as the stockpile is drawn down.

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Figure 46 : Beer & Co’s projected financials for CDU AUD m 2015‐16 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Sales revenue 0 97 181 218 252 255 238 240 193 161 103

Cost of Goods Sold 0 (37) (93) (105) (108) (110) (110) (110) (106) (79) (41)

Royalties 0.0 (3.7) (7.1) (9.4) (11.5) (11.7) (10.6) (10.5) (8.4) (7.0) (4.4)

Corporate Costs (6.4) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) (5.0)

Other Operating Expenses (21.3) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Dep'cn & Amort'sn (1) (43) (55) (51) (54) (54) (54) (54) (54) (54) (38)

EBIT (28.4) 8.6 20.7 47.9 76.6 79.1 64.9 67.9 28.9 26.8 26.1

Interest Expense (3.8) (6.3) (0.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Tax Expense 2.0 (0.7) (5.9) (14.4) (23.0) (23.7) (19.5) (20.4) (8.7) (8.0) (7.8)

NPAT (30.3) 1.6 13.8 33.5 53.6 55.3 45.5 47.5 20.2 18.7 18.3

Shares on issue 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m 394.3m

Earnings per Share (10.1c) 0.4 c 3.5 c 8.5 c 13.6 c 14.0 c 11.5 c 12.1 c 5.1 c 4.8 c 4.6 c


The total amount subject to depreciating and amortisation in Figure 46 is just over $500m, compared to the total investment in Rocklands of $637m shown in Figure 31 due to the write‐off of $118m in the June 2015 accounts.

Figure 48 shows Beer & Co’s projected operations and capital cashflows.

It shows a total of $42m in sustaining capital, but zero for exploration, which we address later.

Figure 47 : Total invested in Rocklands

Project Pre‐Development $ 83.8m

Process Plant $ 276.9m

Land & Buildings $ 17.0m

Mining Equipment, etc $ 46.3m

Mine Development

pre‐strip $ 62.6m

ore stocks $ 17.6m

T S F $ 5.2m

Infrastructure $ 55.0m

Rehabilitation $ 6.2m

Roads $ 3.1m

$ 149.8m

Sub‐Total $ 489.9m

Expenditure until positive cashflow $ 63.7m

TOTAL PROJECT COST $ 637.4m


Figure 48 : Beer & Co’s projected cashflows for CDU

AUD m 2015‐16 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 2023‐24 2024‐25 2025‐26

Net Cashflow from operations (6.3) 51.3 75.9 99.0 130.3 132.8 118.6 121.6 82.5 80.5 63.9

Interest Paid / Received (3.7) (6.3) (0.8) 1.1 2.7 4.6 6.3 7.8 9.0 9.9 11.0

Taxes Paid 0.0 0.0 0.0 0.0 0.0 0.0 (12.4) (15.8) (11.9) (1.6) (7.1)

OPERATING CASHFLOW (31.4) 20.2 80.2 95.0 131.4 139.7 115.4 113.3 87.4 86.2 72.7

Exploration + Feasibility 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Maintenace Capex 0.0 0.0 (3.1) (5.7) (5.7) (5.7) (5.7) (5.7) (5.7) (4.3) 0.0

Expansion Capex (56.3) (4.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

INVESTING CASHFLOW (56.3) (4.7) (3.1) (5.7) (5.7) (5.7) (5.7) (5.7) (5.7) (4.3) 0.0

NET CASHFLOW (88) 15 77 89 126 134 110 108 82 82 73


Figure 48 shows that Beer & Co projects that CDU does not pay tax for an extended period of time due to the $140m in unrecognised tax losses.

Partly due to this tax shield, Figure 48 shows that Beer & Co projects strong cashflows for CDU.

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Beer & Co base case valuation of CDU

Figure 49 shows the asset by asset detail of Beer & Co’s base case valuation of CDU.

Figure 49 : Beer & Co’s valuation of CDU

5‐May‐16


Rocklands Reserves 100% $ 372m $ 372m 94 c 120 c


Extensions 65% $ 32m $ 20m 5 c 6 c


Corporate 100% ($ 30m) ($ 30m) (8c) (7c)

Equity raised 100% $ 80m $ 80m 20 c 3 c

Cash balance 100% ($ 75m) ($ 75m) (19c) (18c)

TOTAL $ 411m $ 384m 97 c 108 c

Shares on issue 272.3m F P O shares 0.0m Options

122.0m 2015 ‐ 16 0.0m Ops. Ex'd

30 June 2015discount rate = 12.0 %


Figure 49 shows that

Our valuation is dominated by the 10 years of Rocklands reserves;

Beer & Co has given full value to this project (ie. we have not risked it) as the project is developed and mostly commissioned, so we feel that development and commissioning risks have been mitigated and start‐up issues are allowed for in our cashflows;

Our valuation uses the last balance sheet, 30 June, as the basis, and CDU has already issued 37.5m in the current financial year (to Rich Lead Investment), in addition to the 79m being currently issued;

Net debt is taken from the 30 June 2015 balance sheet, and the current equity raising will significantly reduce this debt level.

Extension

Figure 49 also shows that Beer & Co has given a value for extensions of mine life.

Figure 23 shows that estimated total Resources for Rocklands is up to 236Mt, while Figure 50 shows the estimated Measured + Indicated Resources.

Figure 50 : Rocklands M + I Resources

Copper Cobalt Gold Fe3O4

0.2 % 145 Mt 0.23 % 241 ppm 0.08 g/t 2.9 %

0.4 % 75 Mt 0.46 % 319 ppm 0.13 g/t 3.0 %

0.8 % 25 Mt 0.99 % 460 ppm 0.21 g/t 3.5 %


Measured + Indicated


Naively subtracting Reserves from M + I Resources using a cut‐off grade of 0.4% gives mineralisation as shown in Figure 51.

Beer & Co modelling gives an estimated all in cost of $37.0/t of ore.

Figure 51 : Residual mineralisation


47 Mt 0.31 % 296 ppm 0.12 g/t 3.0 %

Source : Beer & Co

This amount includes royalties and sustaining capital, but excludes by‐product credits and TC/RC.

Figure 52 shows the data used by Beer & Co to derive a value for in‐ground ore. Applying this to particular grades give a value that can be compared with the cost.

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If the net value of a given grade of ore is greater than the all‐in costs, then processing that material adds value.

The value of the grades shown in Figure 51 is $39/t, which is greater than the cost.

Figure 52 : Deriving a value for ore

Copper Cobalt Gold Magnetite

Price $A 8,667/t $A 51,441/t $A 1,667/oz $A 87/t

Recovery 92 % 65 % 75 % 42 %

Conc grade 32 % 68 %

TC / RC $A 100/t $A 10,288/t $A 13/oz

Paid 96.5 % (1.0g/t)

Source : Beer & Co

Figure 53 shows the volume and grade of mineralisation assumed by Beer & Co in deriving our valuation of extensions to the mine life at Rocklands.

Figure 53 : Extension to Rocklands


30 Mt 0.40 % 300 ppm 0.12 g/t 4.0 %

Source : Beer & Co

Beer & Co’s valuation for the extra mineralisation is very modest when compared with the potential, especially at higher metal prices, and if the volume justifies a significant expansion of the processing plant.

Sensitivity Analyses

Commodity Prices

Commodity prices are the major issue in Beer & Co’s valuation, in particular our assumption on copper prices, given the dominance of copper as a proportion of revenue as shown in Figure 45.

While there is a number of major projects currently at either the commissioning or advanced construction stage, Figure 54 shows the projection by independent commodity analysts and shown by Rio Tinto.

Figure 54 : Projected copper demand and supply

Source : Wood MacKenzie, Rio Tinto, January 2016

Figure 54 shows a small near term surplus, but deficits after that as there is very little to follow the current crop of projects.

Figure 55 shows the sensitivity of Beer & Co’s valuation of CDU to different projected commodity prices.

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Figure 55 : Sensitivity of Beer & Co valuation


Figure 55 shows that at today’s prices, Beer & Co’s valuation of CDU is about 60c/share, or less than the price at which equity is being raised.

Figure 55 also shows that any improvement in the copper price brings our valuation over the price of the current equity raising.

Beer & Co understands that while the near term copper prices may be subdued, our long term price projection, of US$ 2.95/lb, is at the low end of projections.

Conclusions

Summary

CDU has been suspended from trading since early August 2015 as it has sought financing to bring the Rocklands copper project into production.

CDU has developed its mining operations and nearly all the process plant in in place and most of it has been commissioned.

CDU has undertaken extensive metallurgical testwork, especially in relation to native copper.

CDU announced the results of its DFS on 3 March, 2016. This was the first publicly announced review of the economics of Rocklands, even though CDU had completed internal studies and reviews.

Beer & Co’s valuation of CDU, net of financing, is $420m, which is a significant discount to the capital invested, of $637m. This contributed to a change in management, which has led to ASX announcements on Reserves, Feasibility and a formal prospectus for the current capital raising.

This increased discipline gives Beer & Co confidence.

As a result of the work undertaken and the nearness to production, Beer & Co rates CDU as a medium risk.

Beer & Co’s base case valuation is based the Reserves reported by CDU on 11 December 2015, of 27.7Mt, which is sufficient for a 10 year project life. CDU’s estimates of Resources are of a significantly greater volume of material.

Beer & Co’s base case valuation is a useful premium to the current share price. However, it does require improvement in the copper price, which we, and all other analysts, expect.

Final Comment

Beer & Co initiates research on CDU with a BUY, Medium Risk, recommendation.

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Beer& Co ResearchCuDeco Limited (DCU.ASX)

Year ended June 2014‐15 2015‐16 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22

Section 1 - P&L Commodity price assumptions

Sales revenue $A m 0 0 97 181 218 252 255 238 Year ended June 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22

Interest revenue $A m 0 0 0 0 1 3 5 6 AUD/USD 0.750 0.750 0.750 0.750 0.750 0.750

Other revenue $A m 0 0 0 0 0 0 0 0 Copper USD /t 5,188 5,563 6,375 7,375 7,563 6,688

Total Revenue $A m 0 0 97 181 219 255 260 245 Gold USD /oz 1,250 1,250 1,250 1,250 1,250 1,250

Cobalt USD /lb 12 14 16 18 18 18

Cost of Goods Sold $A m 0 0 (37) (93) (105) (108) (110) (110) Iron (magnetite) USD /t 64 65 65 65 65 65

Royalties $A m 0 0 (4) (7) (9) (12) (12) (11) Copper ‐ TC / RC USD /t 109 113 94 75 75 75

Corporate Costs $A m (7) (6) (5) (5) (5) (5) (5) (5)

Exploration Expense $A m 0 0 0 0 0 0 0 0 Operations

Other Operating Expenses $A m (124) (21) 0 0 0 0 0 0 Ore mined ' 000t 1,238 3,600 3,450 2,550 2,640 3,900

Total Operating Expenses $A m (131) (28) (46) (105) (120) (125) (127) (126) Ore Procesed ' 000t 1,650 3,000 3,000 3,000 3,000 3,000

Oxide Copper ' 000t 322 600 98 0 0 0

EBITDA $A m (131) (28) 51 76 99 130 133 119 Head grade ‐ Cu 1.02 % 0.81 % 0.81 % 0.00 % 0.00 % 0.00 %

Dep'cn & Amort'sn $A m (1) (1) (43) (55) (51) (54) (54) (54) Native Copper ' 000t 660 931 523 416 393 538

EBIT $A m (131) (28) 9 21 48 77 79 65 Head grade ‐ Cu 1.42 % 1.37 % 1.34 % 1.34 % 1.34 % 1.34 %

Interest Expense $A m 0 (4) (6) (1) 0 0 0 0 Primary Copper ' 000t 668 1,469 2,379 2,584 2,607 2,462

Other $A m 0 0 0 0 0 0 0 0 Head grade ‐ Cu 0.60 % 0.62 % 0.63 % 0.63 % 0.63 % 0.63 %

Pre‐Tax Profit $A m (131) (32) 2 20 48 77 79 65

Tax Expense $A m 0 2 (1) (6) (14) (23) (24) (19) Product

NPAT $A m (131) (30) 2 14 34 54 55 45 Copper Concentrate tonnes 18,551 36,925 45,852 48,127 48,589 45,893

contained copper tonnes 5,800 11,816 14,673 15,401 15,548 14,686

Section 2 - Key Data contained gold ounces 5,138 11,082 15,567 18,455 18,077 16,310

Ordinary shares ‐ year end m 272 394 394 394 394 394 394 394 Copper Ingot tonnes 8,608 12,118 6,636 5,280 4,981 6,822

Fully diluted shares on issue m 272 394 394 394 394 394 394 394 Coblat in Co conc. ' 000 lb 1,109 1,799 1,615 1,570 1,557 1,632

Weighted # shares m 245 326 394 394 394 394 394 394 Magentite Concentrate ' 000t 30 95 134 143 145 141

Earnings per Share (53.7c) (10.1c) 0.4 c 3.5 c 8.5 c 13.6 c 14.0 c 11.5 c

Dividends Per Share 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c Reserves

Section 3 - Balance Sheet Copper Cobalt Gold Fe3O4 Copper Cobalt Gold

Cash $A m 4 19 15 40 134 258 385 483 Proved ‐ In Pit 20.8 Mt 0.74 % 366 ppm 0.14 g/t 7.5 % 154 kt 17k lb 94 koz

Receivables $A m 1 1 26 25 34 38 37 35 Stockpiles 2.2 Mt 1.02 % 533 ppm 0.16 g/t 2.7 % 22 kt 3k lb 11 koz

Inventory $A m 5 5 12 13 17 18 18 17 Sub‐Total, Proved 23.0 Mt 0.77 % 382 ppm 0.14 g/t 7.0 % 176 kt 19k lb 105 koz

Other $A m 0 0 0 0 0 0 0 0 Probable 5.0 Mt 0.45 % 232 ppm 0.11 g/t 5.0 % 23 kt 3k lb 18 koz

CURRENT ASSETS $A m 9 25 53 79 185 315 440 535 TOTAL 28.0 Mt 0.71 % 355 ppm 0.14 g/t 6.7 % 199 kt 22k lb 123 koz

Inventories $A m 18 11 0 0 0 0 0 0 Cash Costs Summary

P , P & E $A m 245 257 244 230 216 202 188 174 USD c/lb LoM 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22

Mining Properties / Exploration $A m 170 9 9 9 9 9 9 9 Waste 48 c/lb 14 c/lb 43 c/lb 50 c/lb 58 c/lb 61 c/lb 54 c/lb

Other $A m 4 187 178 169 160 151 142 132 Mining 14 c/lb 9 c/lb 15 c/lb 16 c/lb 12 c/lb 13 c/lb 17 c/lb

NON‐CURRENT ASSETS $A m 436 465 431 408 385 362 339 316 Mine Overhead 5 c/lb 4 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb

TOTAL ASSETS $A m 445 489 484 487 570 677 779 851 Processing 58 c/lb 49 c/lb 52 c/lb 55 c/lb 55 c/lb 55 c/lb 53 c/lb

Site Admin 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 6 c/lb 5 c/lb

Payables $A m 41 20 20 24 28 30 32 32 Transport 39 c/lb 20 c/lb 31 c/lb 40 c/lb 42 c/lb 43 c/lb 40 c/lb

Debt $A m 20 47 46 0 0 0 0 0 TC/RC 21 c/lb 17 c/lb 20 c/lb 23 c/lb 22 c/lb 23 c/lb 19 c/lb

Other $A m 1 0 0 0 0 0 0 0 net by‐product credit (40c/lb) (21c/lb) (27c/lb) (38c/lb) (46c/lb) (45c/lb) (39c/lb)

CURRENT LIABILITIES $A m 62 67 66 24 28 30 32 32 co‐products (57c/lb) (36c/lb) (47c/lb) (56c/lb) (60c/lb) (61c/lb) (59c/lb)

Royalties 16 c/lb 10 c/lb 12 c/lb 15 c/lb 19 c/lb 19 c/lb 17 c/lb

Long Term Debt $A m 59 21 0 0 0 0 0 0 Sustaining Capital 8 c/lb 0 c/lb 5 c/lb 9 c/lb 9 c/lb 9 c/lb 9 c/lb

Other $A m 0 0 0 0 0 0 0 0 TOTAL 118 c/lb 72 c/lb 115 c/lb 126 c/lb 122 c/lb 128 c/lb 122 c/lb

Provisions $A m 6 6 6 6 6 6 6 6

NON‐CURRENT LIABILITIES $A m 65 27 6 6 6 6 6 6 Asset based Valuation

TOTAL LIABILTIES $A m 127 93 72 31 34 37 38 39

NET ASSETS $A m 318 396 412 457 536 640 741 812 6‐May‐16


Accumulated Profit (Loss) $A m (219) (249) (248) (234) (200) (147) (91) (46) Rocklands Reserves 100 % $ 372m $ 372m 94 c 120 c

Reserves $A m 59 73 88 119 164 215 260 287 Franking Credits 60 % $ 19m $ 11m 3 c 3 c

Contributed Equity $A m 479 572 572 572 572 572 572 572 Extensions 65 % $ 32m $ 20m 5 c 6 c

Total Equity $A m 318 396 412 457 536 640 741 812 Franking Credits 39 % $ 14m $ 5m 1 c 1 c

Corporate 100 % ($ 30m) ($ 30m) (8c) (7c)

Section 4 - Cashflow Equity raised 100 % $ 80m $ 80m 20 c 3 c

Net Cashflow from operations $A m (7) (6) 51 76 99 130 133 119 Cash balance 100 % ($ 75m) ($ 75m) (19c) (18c)

Interest Paid / Received $A m 0 (4) (6) (1) 1 3 5 6 TOTAL $ 411m $ 384m 97 c 108 c

Taxes Paid $A m 0 0 0 0 0 0 0 (12) Shares on issue 272.3m F P O shares 0.0m Options

Change in Working Capital $A m 40 (21) (25) 5 (5) (2) 2 3 122.0m 2015 ‐ 16 0.0m Ops. Ex'd

OPERATING CASHFLOW $A m 33 (31) 20 80 95 131 140 115 Financial Ratios

Year ended June 2015‐16 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21

Exploration + Feasibility $A m 0 0 0 0 0 0 0 0 Revenue $A m 0 97 181 219 255 260

Maintenace Capex $A m 2 0 0 (3) (6) (6) (6) (6) EBITDA $A m (131) (28) 51 76 99 130

Expansion Capex $A m 0 (56) (5) 0 0 0 0 0 EBIT $A m (131) (28) 9 21 48 77

PPE Acquisitions (Total Capex) $A m 2 (56) (5) (3) (6) (6) (6) (6) NPAT (reported) $A m (131) (30) 2 14 34 54

PPE Divestments $A m 0 0 0 0 0 0 0 0 Adjusted EPS (cps) (53.7c) (10.1c) 0.4 c 3.5 c 8.5 c 13.6 c

INVESTING CASHFLOW $A m 2 (56) (5) (3) (6) (6) (6) (6) EPS Growth (%) 81 % 104 % 767 % 143 % 60 %

DPS (c) 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c

Change in Equity $A m 0 89 0 0 0 0 0 0 Dividend Yield (%) 0 % 0 % 0 % 0 % 0 % 0 %

Dividends Paid $A m 0 0 0 0 0 0 0 0 PE adj. (x) x (2.6) (11.0) 273.2 31.5 13.0 8.1

Change in Debt $A m 78 (11) (21) (46) 0 0 0 0 EV / EBITDA (x) x (3) (17) 9 5 3 1

FINANCING CASHFLOW $A m 78 79 (21) (46) 0 0 0 0 EV / EBIT (x) x (3) (16) 54 19 6 2

Gearing (%) 14 % 10 % 0 % 0 % 0 % 0 %

MAJOR SHAREHOLDERS Return on Assets (6%) 2 % 4 % 8 % 11 % 10 %

China Oceanwide International Investment Co Ltd 54.859m 17.4 % Return on Equity (8%) 0 % 3 % 6 % 8 % 7 %

Rich Lead Invetment Pte Limited 37.500m 11.9 % EBITDA Margin (%) n/a n/a 53 % 42 % 45 % 52 %

New Apex Asia Investmetn Limited 23.087m 7.3 % Interest Cover (x) x n/a (7.6) 1.4 22.3 n/a n/a

SinoSteel Equipment and Engineering Co Limited 17.310m 5.5 %

2015‐16 2016‐17 2017‐18 2018‐19 2019‐20 2020‐21 2021‐22

Free Cashflow $A m (88) 15 77 89 126 134 110

Net Cashflow $A m (9) (6) 31 89 126 134 110

May 2016

discount rate = 12.0 % 30 June 2015

Mineral grades Contained Metal

Cudeco (CDU.ASX)


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rocklands mostly developed 30kt/yr copper from later in 2016 · 2016. 5. 11. · cudeco limited...

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