Buy SMY & AVO; CSM worth >$5

• If we had to pick two stocks, they would be our last two reports : SMY & Avoca
• Preferred buying order for the nickels: 1. Sally Malay, 2. Indep Group, 3. Mincor
• IGO could produce 1,000tNi above expected or ~10,000tNi in 07/08. Tropicana expect > 20moz (range is 20moz to 50moz over the 350km strike length).
• MCR’s 50% increase to 900,000tpa treated by 08/09 appears to be >1.0mtpa.
• CSM’s Gillet worth well above the ~$4m in the IGR (A$70m to A$95m?), Beta Hunt now improving with Vent #, New Ni concentrator at Widgie appears likely.
• This Comment started out based on the visits we (ERA) took during this years’ Diggers and Dealers August 2007 Conference. However, it has been extended following the recent decimation in share prices due to trading on money that did not exist, and requests for our nickel and gold favourites.
• Our (ERA) current favourites are :
• Sally Malay : Recent August 1 report, rose ~10% on report release, plenty of upside potential, Deacon : HUGE, maiden dividend, debt-free, hedging basically gone (actually lost $112m in hedging in 06/07 & still made ~$90m NPAT (cashflow would be even higher)).
• Avoca : Recent August 2 report, rose ~5% on report release, market unfazed by negligible production this year, new Wills supergene discovery, potential new Chalice discovery.
• Independence Group : Steady production from Long/Victor at probably closer to 10,000tpa Ni (quoted as 9,000tNi for conservatism). Tropicana 20moz to 50moz, other new gold areas.
• Mincor : Significant increase in production coming and plenty of exploration upside. Thinks it should recoup its Otter Juan acquisition within one year with ~$6m cashflow just for July 07.
• As for CSM : Wait until the last possible day before accepting, the ideal scenario is that neither offers win as in ERA’s opinion, it should not have embarked on this course of action and could have traded closer to $5/share (due to the manganese market upside). If Pallinghurst looks likely to win, then SELL : if TTY looks likely to win, then BUY.
• There were numerous visits to choose from at Diggers, from which we visited IGO’s Long/Victor Mine; MCR’s Otter Juan, Carnilya & Miitel; and CSM’s new Gillet discovery and new open-cut mining at Armstrong & 132N. Our comment on IGO includes the presentations made by IGO and AGG mainly on Tropicana at the conference, where estimates ranged up to 20moz and beyond.