New High by Year-End?

MY CONGRATULATIONS TO WHI FOR A FABULOUS REPORT

IN THE PAST I HAVE CRITICISED WHI FOR THEIR LACK OF SUPPORT BUT THIS IS A SUPERBLY STRUCTURED WELL ARGUED REPORT

hERE ARE SOME KEY POINTS -

Lomero-Poyatos Valuation: Although SRK Consulting Ltd (SRK) has estimated an NPV15% of more than €30m from a 17-year, 350,000tpa (8+ year open pit) operation, a larger plant of 500,000tpa to 1Mtpa operation could be considered appropriate for the 20Mt Lomero-Poyatos resource, and estimated NPVs15% of €56m (UKŁ0.56 per share) and €123m (UKŁ1.24 per share) respectively are generated.

Clearly it is in Cambridge’s interests to proceed with a higher-tonnage operation and the company will be seeking to implement a two-stage, short-term strategy to increase the mineable resource before progressing to a bankable feasibility study (BFS – estimated cost UKŁ400,000 as follows):

1) Upgrade the existing resource to Measured status (allowing further upgrade to Reserve status following BFS) through infill drilling (estimated cost UKŁ350,000)

2) Investigate a number of additional exploration targets outside the existing resource (estimated cost €150,000, see section 3.5.1)
Lomero-Poyatos Resource: The existing resource model has a strike length of 1,000m and a down dip length of up to 500m. The ore body dips moderately (30-40˚) to the north and following a gradual increase in grade, the mineralization remains open at depth. This coincides with one of a number of gravity anomalies that Cambridge is keen to investigate further and if drilling is successful, could add significantly to the existing resource. The entire mineralization at Lomero-Poyatos covers a strike length of over 7km and there are a number of other exploration targets that could be mined as secondary open pit operations.

Lomero-Poyatos has one of the highest gold grades of any deposit in the Iberian Pyrite Belt and the current resource as estimated (Inferred and Indicated) by SRK in November 2002 is for more than 20Mt at 3.1g/t gold (2.1Moz), 70g/t Ag (46Moz), 3.3% zinc (675t), 1.2% copper (250t) and 1.2% lead (247t). The total in-ground value is well in excess of UKŁ1 billion.
Cambridge currently estimates recoveries of 75-77% for gold, 50% for copper and 78% for zinc. These are typical for deposits of the Iberian Pyrite Belt.

Although the exact ore treatment route has yet to be finalised, and Cambridge has a number of options available, the currently proposed process is as follows:


N.B. Although the Lomero-Poyatos ore is refractory and gold mineralization is associated with sulphides, the gold is located between (rather than within) sulphide crystals and as such should be relatively well liberated by crushing.

A conservatively estimated 3.15Mt open pit resource could be mined at 350,000tpa in 8+ years with an average strip ratio of 7.5 to 1.

Mining is proposed on a contractual basis at an estimated cost of €1.30/t ore mined, with the use of 5m3 hydraulic excavators and 35 tonne trucks.

CAPEX is limited to a small site establishment fee of approximately €250,000


Cambridge will now concentrate on upgrading the mineable resource, assessing the viability of increasing the capacity of the proposed processing facilities and ensuring the marketability of additional products from a higher tonnage operation.

WHI proposes two new mine models (WHI1 and WHI2), which are based on 500,000tpa and 1Mtpa open pit operations (see table 9).

WHI1 (0.5Mtpa) is modelled on the same total mineable resource as in the SRK model, although the open pit is estimated to be 25% larger (and the underground reserve 19% smaller).

WHI2 (1Mtpa) assumes a larger open pit of 10Mt (the underground component is the same as for WHI1). Although the latter will require further upgrade of the existing resource (to Measured status), this is not considered unreasonable. The grades used in WHI1 and WHI2 are the same as in the SRK model.

As can be seen in table 9, the NPVs for the WHI1 and WHI2 models are robust, representing UKŁ0.56 and UKŁ1.24 (15% discount rate) and UKŁ0.76 and UKŁ1.53 (10% discount rate) per share respectively. This compares with UKŁ0.31 (15% discount rate) and UKŁ0.45 (10% discount rate) per share for the SRK model.

It should be noted that the proposed WHI (and SRK) models consider mining of the massive sulphides (MS) only and as SRK has pointed out in its December 2002 report, it may be possible to also mine the semi-massive sulphides (SMS) at little or no extra cost. Upgrading of the SMS ore is to be considered in the next phase of Cambridge’s metallurgical testwork.



SRK Model WHI1 WHI2
Mine life (years of production only) 17 13 9
Processing plant capacity (000s tonnes) 350 500 1,000
Total resource (000s tonnes) 7,370 7,370 10,000
Open pit mineable resource (000s tonnes)1 3,119 3,898 6,501
Underground mineable resource (000s tonnes)1 2,659 2,162 2,162
Stripping ratio 7.5 7.5 7.5
Processing facility (000s €) 13,285 18,500 24,000
Other capital costs (000s €) 8,050 9,150 10,400
Open pit contract charges (€ per tonne) 1.30 1.20 1.10
Underground contract charges (€ per tonne) 15.00 14.00 13.00
Average annual pre-tax cashflow (000s €)2 5,602 11,959 37,166
After tax IRR (%) 70 113 262
After tax NPV15% (000s €) 30,901 56,117 122,958
After tax NPV10% (000s €) 44,497 75,437 152,003
After tax NPV15% (UKp3/share) 31 56 124
After tax NPV10% (UKp3/share 45 76 153