Tuesday

Stocks, Technical Analysis

Cape Lambert Cash Backed

As Dow Jones closed to reach 1997-lows, wiping out ten years of gains in 16 months, it is time again to stock up on companies that are cash-backed and whose fundamentals are unimpaired by the banking fallout. No doubt all businesses will be fundamentally affected in the short term - but with the mass-closure and decline in mining and exploration activities, the supply demand of commodities will eventually favour mining companies in the medium-long term. Perhaps not in 2009 but there is certainly light at the end of the tunnel for cash-backed, zero-debt companies, with low cash-burn. Companies that are able to switch to hibernation mode for the next 2-3 years. We have been shareholders of CFE since November lows at an entry price of 20c and 22c. Since then, it has gone up to a high of 30c, and is now back down to 22.5c (intraday low) after a series of corporate activities including the opportunistic acquisition of cash-flow positive CopperCo. The recent market crash have indiscriminately savaged CFE’s share price - more susceptible now that its cash safety factor is slightly reduced. We have refrained from buying CFE in our public portfolio, hoping to get a better entry price (hopefully below our personal entrypoint). With each acquisition (although most likely value-adding), the cash-backing per share becomes lower. We are bullish on CFE for the following reasons:

• Zero debt
• Cash-backing of 32c per share (ie 209 mil cash after recent shopping-spree)
• 80 mil milestone payment from divestment of assets to Chinese (many have written this off completely)
• Tony loaded up at 18c back in December ($176k worth)
• Good management (CEO Tony Sage lives up to his name)
• CopperCo assets are cash-flow positive thus giving CFE an actual business (as long as there are no significant cash requirements to maintain this asset, we are bullish on copper in the long term)

Having said that, CFE does not really have a business prior to the acquisition of Copperco. Tenements regardless of prospectivity have been completely written off for now; so unless a miner is a profitable producer (which CopperCo claims to be), be prepared for years of negative cashflow and zero funding. Stay well clear of explorers with no/low net cash regardless of its tenements. One of our fellow investors (and fellow shareholder of CFE) have also recently emailed Tony regarding its recent strategic holding in GFE - having researched this previously unknown iron explorer and found no apparent value.

Our associate asked:

” I have been slowly accumulating shares in CFE because I am confident of the outlook for CFE. One thing I can’t figure out is why CFE obtained a significant position in GFE, a company although is chaired by you, but has no real prospects for income”.

Tony’s reply was brief and to-the-point:

“It will have significant value soon..”

Kind regards

Tony Sage
Executive Chairman

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