Chatham Rock at record high on new research, Toronto listing plans

BUSINESSDESK: NZAX-listed Chatham Rock Phosphate will seek a further $US10 million in a Toronto Stock Exchange listing in the next three months to support its offshore phosphate mining venture, which Edison Investment Research values at $1.87 a share in a new research report.

By mid-afternoon yesterday, shares in CRP rocketed 47.8% to 34 cents, their highest since listing in 2006, while volume of more than 150,000 shares made it the second-equal highest day's trading since listing.

Edison says the company is weeks away from lodging a mining application to suck phosphate nodules from the sea-floor in 400m of water on the Chatham Rise, 450km east of Christchurch.

It will also require resource consents either under new Exclusive Economic Zone regulations or the existing Continental Shelf Act and hopes to be mining by late 2014, with an investment decision by the end of next year.

The Edison report confirms for the first time CRP's long-expected bid for a place on the mining-heavy Toronto board. It deferred the move at the end of last year owing to difficult global market conditions.

The company raised $US12 million in the last year by other means and brought on Dutch dredging firm Royal Boskalis as a 20% shareholder – a factor "significantly lifting confidence in the mining concept and reducing CRP's standalone risk profile", says Edison, a global equity research service producing independent reports funded by listed companies seeking analyst followings.

CRP is the first New Zealand company to gain exposure using the local Edison service since it was launched earlier this year.

Edison's $1.87 a share valuation is based on a "reference scenario" which assumes a $US150 a tonne global phosphate price and an exchange of 70 US cents. At $US100 a tonne, that value drops to 41 US cents.

At closer to the current exchange rate of 80 US cents, the $US150 a tonne scenario yields a valuation of $1.49 a share, dropping to 7 cents at $US150 a tonne.

Phosphate tracked at below $US100 a tonne between 2003 and 2008, Edison's research shows, and peaked at more than $US400 in 2008 and tracking close to $US200 for the last year.

New Zealand imports all the phosphate used in farm fertiliser from the Western Sahara, a disputed territory governed by Morocco. CRP says it could replace those imports and also start exporting.

The reference scenario also assumes Boskalis will be able to extract phosphate at 70 euros a tonne and Edison says the venture is still faces high technical and regulatory risks.

"If sanctioned, the Chatham Rise project would be the first time that sea floor mining at depth has been undertaken anywhere in the world," it says. "Regulatory risk distils largely to CRP securing marine and mining licences."

Figures produced in the report end at the 2015 financial year and show the company making accumulated start-up losses before production begins of around $6.2 million.

Edison's head of New Zealand research, John Kidd, told BusinessDesk that discounted cashflow modelling over 20 years showed "under the reference (success) scenario" shows that "CRP turns profitable in its first year of operations, being the 2015-16 financial year".

"Under our assumption set, profitability is fairly stable at $50 million to $60 million per annum, including in the 2015-16 year."