Metals & Mining For FCA purposes this is a Marketing Communication
Metals & Mining 9 April 2015 Industry Update
Treading Water
We revise our recommendations and target prices on the back of our new commodity price forecasts. Q1 was another tough quarter - a brief bounce was short lived, as a dive in copper and iron ore dragged down the sector once again. We still expect little respite through this year with a headwind of depressed prices and downward earnings momentum. Despite some improvement in businesses and lower input costs, we retain our view that only the strong will survive through what appears to be close to the bottom of the cycle. We tweak our stock picks, keeping with a theme of value and high quality assets; we recommend Acacia, Petra and Highfield Resources.
● Quality & value. We retain Acacia Mining as our pick, a quality company going through a pivotal year with lots potential for substantial cash generation if it can deliver. We continue with Petra Diamonds, with its peer-leading management and assets plus steady growth profile. We include Dalradian Resources as our choice of the gold juniors and elevate Highfield Resources to a pick as the best play in the potash space, both companies with quality, high return assets in developed jurisdictions. We retain our caution amongst the copper players and avoid iron ore.
● Downgrades aplenty. We expect further earnings downgrades this year and retain our caution, expecting "riskier" stocks, to remain under pressure. The sector continues to price-in discounted gold and industrial prices, at an average 8% discount to spot (implied prices $1,107/oz gold, $2.69/lb copper, $59/t iron ore). Our TPs increase by an average of 2%. We are cautious but see value in some shares on a 1-3 year view, reflected by a number of Buy recommendations.
● M&A over-rated. We expect the spotlight to continue for the rest of the year on cost- cutting, free cashflow, balance sheets and shareholder returns. M&A is likely to remain in focus as stretched finances may offer opportunities in times of distress, although there are limited quality assets on offer, in our view. We are ever cognisant of grade remaining a key attribute and those with low margin assets are likely remain under Analysts pressure. Cailey Barker Tel: +44 (0)20 7260 1420 ● Commodities nearing bottom. Fx remains a key driver. For gold, we retain our [email protected] $1,200/oz flat spot price based model, due to ongoing volatility, mixed directional Phil Swinfen signals, and a de-coupling from logical fundamental indicators. We expect industrials to Tel: +44 (0)20 7260 1430 [email protected] remain subdued, with building surpluses and weakening Chinese demand; we chop our
This research was prepared iron ore forecasts (2015 NUMe $2.71/lb Cu, $55/t Fe). Diamonds are likely to remain and approved by flattish in the ST due to rolling liquidity constraints. Other commodities are generally
Numis Securities Limited subdued, failing to respond to what may appear ambitious long term fundamentals. The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com For FCA purposes this marketing communication has not been prepared in accordance with legal requirements designed to promote the independence of investment research Registered No 02285918. Authorised and and is not subject to any prohibition on dealing ahead of the dissemination of such Regulated by The Financial Conduct research. Important disclosures are on pages 70 to 74 relating to Numis Securities Authority. A Member of the London Limited, analyst certification, other requirements which restrict dealing ahead, relevant Stock Exchange investment banking relationships, potential conflicts of interest and additional disclosures. See www.numis.com/x/regulatory.html for other disclosures. 9 April 2015
Contents
Treading Water ______4
Stocks ______6
Rocks vs. Stocks ______8
Beta ______9
RSI ______10
Volatility Reigns ______11
Economy ______12
Commodities ______13
Gold ______14
Silver ______15
Copper ______16
Nickel ______17
Iron Ore ______18
Ferrochrome ______19
Diamonds ______20
Tungsten ______21
Uranium ______22
Potash ______23
Priced as at 7am on 7th April 2015; Exchange Rate £/$: 1.50, £/ZAR: 9.50.
Key sources are company data, including annual reports and analysts’ presentations.
Numis acts as an adviser/broker to Aureus Mining, Berkeley Resources, Caledonia Mining, Chaarat Gold, Condor Gold, International Ferro Metals, Highfield Resources, Highland Gold, First Quantum Minerals and Wolf Minerals.
2 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Figure 1: Research Universe Company Ticker Rec. Share Target Return RSI Market P/NAV P/E P/CFEV/EBITDA EBITDA FCF Net Debt/ Gearing Growth Divi ROE LN Price Price Cap 2015F 2015F 2015F Margin Yield EBITDA CF Yield £ £ % £m x x x x % % x % % % % GOLD & SILVER Fresnillo FRES BUY 7.10 10.00 41 46 5,228 1.2 105.4 15.2 15.5 35 -5 1.4 46 -10 0.5 3 Randgold Resources RRS HOLD 48.52 51.00 5 50 4,505 1.9 39.0 15.8 15.2 27 3 -0.4 0 33 0.8 3 Acacia Mining ACA BUY 2.70 3.70 37 61 1,109 1.4 17.0 6.2 5.3 31 3 -0.6 6 -7 1.1 5 Centamin Egypt CEY HOLD 0.60 0.60 0 54 691 1.0 8.4 4.7 4.0 37 11 -1.1 0 17 3.8 8 Hochschild HOC HOLD 0.88 0.85 -3 54 323 4.4 197.5 2.6 5.0 31 -14 2.5 52 97 0.0 -1 Highland Gold* HGM BUY 0.41 0.80 96 58 133 0.7 7.9 2.7 4.6 31 5 2.5 36 -34 6.2 3 Timmins Gold TMM BUY 0.90 1.75 94 42 87 0.4 27.1 9.9 3.9 20 0 -0.8 5 -11 0.0 3 Aureus Mining* AUE BUY 0.24 0.40 69 57 87 0.7 14.2 4.6 5.4 42 -36 2.6 48 529 0.0 3 Dalradian DALR BUY 0.49 0.90 83 49 80 0.5 n.a. n.a. n.a. 0 -45 0.7 0 41 0.0 -5 Condor Gold* CNR BUY 0.64 0.90 42 64 29 0.5 n.a. n.a. n.a. 0 -10 2.3 0 32 0.0 n.m. Chaarat Gold* CGH BUY 0.08 0.24 193 28 22 0.3 n.a. n.a. n.a. 0 0 0.3 0 -56 0.0 -15 Caledonia Mining* CMCL BUY 0.39 0.75 95 64 20 0.4 6.0 3.0 0.5 23 -20 -1.3 0 -27 9.1 6 Minera IRL MIRL BUY 0.03 0.10 208 54 8 0.3 n.a. n.a. 172.9 -8 -254 181.9 42 91 0.0 -4 Polyus Gold PGIL N/C 1.91 - - 44 5,784 - 15.1 10.9 8.3 44 4 0.4 112 13 1.2 -6 Polymetal POLY N/C 5.86 - - 60 2,474 - 11.5 6.4 6.6 42 8 1.1 152 9 3.3 -16 Kirkland Lake KGI N/C 3.00 - - 67 240 - 20.4 5.2 6.7 29 -14 0.4 57 271 0.0 4 Pan African PAF N/C 0.12 - - 52 215 - 10.7 9.0 5.6 24 0 0.4 3 -46 6.0 10 Petropavlovsk POG N/C 0.06 - - 55 184 - 3.0 0.6 5.3 -15 24 2.2 101 -50 0.0 0 Shanta Gold SHG N/C 0.09 - - 22 41 - 2.4 2.7 2.7 18 59 0.5 71 -8 0.0 8 Amara Mining AMA N/C 0.15 - - 57 63 - n.a. n.a. n.a. -6 -2 -6.0 0 -182 0.0 -12 Avocet Mining AVM N/C 0.05 - - 46 10 - n.a. 1.1 5.4 -7 -607 5.7 63 -217 0.0 -66 Average (Producers) 52 1,408 1.3 32.4 6.3 16.1 18.9 -66 0.6 46 52 2.1 2 Average (Non-Producers) 50 35 0.4 n.a. n.a. n.a. n.a. n.a. n.a. 17 34 0.0 -16 COPPER Antofagasta ANTO REDUCE 7.31 6.00 -18 55 7,207 1.0 14.2 5.5 4.0 47 10 -0.1 21 47 2.5 10 First Quantum Minerals* FQM ADD 8.80 10.00 14 65 5,281 0.6 17.4 4.1 8.9 34 -2 3.3 59 154 2.8 5 Kaz Minerals KAZ REDUCE 2.16 1.90 -12 50 965 0.7 29.8 5.6 7.0 39 -94 8.6 167 543 0.3 2 Central Asia Metals CAML N/C 1.75 - - 64 195 - 7.8 6.4 4.5 63 6 -1.1 0 20 6.4 37 EMED EMED N/C 0.04 - - 42 54 - n.a. n.a. n.a. n.a. -16 -16.0 26 143 9.7 -35 Rambler RMM N/C 0.11 - - 26 16 - 4.4 2.4 2.2 37 58 0.5 29 -35 0.0 16 Average 50 2,286 0.8 14.7 4.8 5.3 35 -6 2.2 64 124 3.1 2 DIVERSIFIED BHP Billiton BLT N/C 14.57 - - 45 81,159 - 15.0 6.4 6.4 44 7 1.1 41 -19 5.6 13 Rio Tinto RIO N/C 28.04 - - 47 52,159 - 13.7 7.3 6.9 41 8 1.0 46 -12 5.3 13 Glencore GLEN N/C 2.88 - - 51 37,638 - 17.1 5.1 9.1 5 1 3.4 102 10 4.0 5 Anglo American AAL N/C 10.15 - - 40 14,222 - 12.7 4.0 6.1 26 -2 2.0 58 -11 5.4 -9 Vedanta VED N/C 4.90 - - 48 1,316 - n.a. 1.2 6.4 36 25 2.2 94 -42 7.8 0 Average 46 37,299 14.6 4.8 7.0 30 8 1.9 68 -15 5.6 5 GEMSTONES Petra Diamonds PDL BUY 1.83 2.50 37 54 941 0.5 14.9 6.2 6.3 41 -1 0.3 27 45 1.2 16 Gemfields GEM BUY 0.53 0.75 43 65 284 0.7 20.1 5.4 4.5 47 3 -0.2 9 18 0.0 3 Gem Diamonds GEMD N/C 1.40 - - 44 193 - 9.5 3.3 2.8 38 30 -0.9 10 -5 2.2 11 IRON ORE / COAL / STEEL Ferrexpo FXPO HOLD 0.65 0.60 -8 63 383 0.6 6.5 2.1 4.9 24 40 2.0 119 -37 6.3 11 Evraz EVR N/C 1.92 - - 56 2,893 - 9.4 3.0 4.6 22 30 2.3 309 0 3.4 -34 New World Resources NWR N/C 0.01 - - 39 54 - n.a. 1.4 11.2 1 -159 9.3 256 -121 0.0 0 Asia Resource Minerals ARMS N/C 0.14 - - 46 33 - n.a. n.a. 27.9 14 -359 32.5 66 0 0.0 -15 Coal of Africa CZA N/C 0.01 - - 46 20 - n.a. n.a. n.a. n.a. -87 12.4 2 0 0.0 -13 MINERAL SANDS Sierra Rutile SRX N/C 0.20 - - 21 102 - 18.7 5.1 4.9 28 -6 1.0 23 206 0.0 -5 Kenmare Resources KMR N/C 0.04 - - 44 100 - n.a. 3.0 6.4 9 -36 4.2 54 n.a. 1.8 -11 Base Resources BSE N/C 0.06 - - 19 35 - 40.3 1.8 5.3 37 -193 3.2 112 -579 0.0 -9 PLATINUM Lonmin LMI N/C 1.21 - - 40 707 - 74.1 7.0 6.7 -11 -34 0.4 5 -215 0.1 -10 Aquarius AQP N/C 0.09 - - 31 137 - n.a. 5.3 4.0 12 -3 -1.3 25 92 0.7 -14 FERROCHROME International Ferro Metals* IFL BUY 0.04 0.25 590 44 20 0.1 n.a. 2.2 0.0 6 -6 -6.2 29 95 0.0 -2 Afarak AFRK N/C 0.33 - - 99 84 - 55.9 n.a. 12.5 7 -7 0.3 7 0 0.0 2 POTASH Highfield Resources* HFR.AX BUY A$1.70 A$3.00 76 90 A$428 0.6 n.a. n.a. n.a. 0 -33 1.3 87 142 0.0 -29 Sirius Minerals SXX N/C 0.10 - - 75 210 - n.a. n.a. n.a. n.a. -4 3.1 4 -17 0.0 -8 OTHER Wolf Minerals WLFE BUY 0.20 0.23 16 49 160 0.7 n.a. 19.3 23.2 6 -19 -2.8 27 154 0.0 1 Berkeley Resources* BKY BUY 0.12 0.40 233 54 22 0.3 n.a. n.a. n.a. 0 -17 0.0 0 143 0.0 -29 COMMODITY / FX SPOT FY13 FY14 FY15 FY16 FY17 LT RSI DATE COMPANY EVENT Gold $/oz 1,211 1,412 1,266 1,205 1,200 1,200 1,200 58 10-Apr Vedanta Q4 prod results Silver $/oz 16.9 23.9 19.1 16.7 17.6 18.6 18.5 54 15-Apr Fresnillo Q1 prod results Platinum $/oz 1,175 1,487 1,385 1,161 1,243 1,330 1,500 57 16-Apr Ferrexpo Q1 IMS Palladium $/oz 770 726 803 759 802 747 600 50 21-Apr Rio Tinto Q1 prod results Copper $/lb 2.76 3.33 3.11 2.71 2.89 2.92 2.50 57 21-Apr Polymetal Q1 prod results Lead $/lb 0.86 0.97 0.95 0.83 0.89 0.90 0.90 65 22-Apr BHP Billiton Q3 prod results Zinc $/lb 0.97 0.87 0.98 0.95 0.95 0.95 0.95 66 22-Apr Hochschild Q1 prod results Nickel $/lb 5.67 6.82 7.66 5.97 6.41 6.98 8.00 35 23-Apr Acacia Mining Q1 results Aluminium $/lb 0.81 0.84 0.85 0.80 0.81 0.82 0.85 50 23-Apr Anglo American Q1 IMS Ferrochrome $/lb 1.08 1.16 1.19 1.08 1.17 1.24 1.20 10 28-Apr Aquarius Q3 prod results Iron ore $/t 49 135 97 55 59 60 60 20 29-Apr Antofagasta Q1 prod results Thermal Coal $/t 57 81 72 60 62 66 75 34 29-Apr Petropavlvosk FY & Q1 prod results Uranium $/lb 39 39 34 39 41 48 60 66 30-Apr KAZ Minerals Q1 prod results Diamonds (polished) $/ct 133 140 145 134 136 140 187 46 05-May Glencore Q1 prod results Potash $/t 305 379 297 303 300 300 300 - 07-May Randgold Q1 results Tungsten (APT) $/mtu 258 372 357 264 313 406 450 20 11-May Lonmin H1 results USD / GBP 1.49 1.56 1.65 1.50 1.50 1.50 1.50 49 13-May Centamin Q1 results CAD / USD 1.24 1.03 1.10 1.25 1.25 1.25 1.25 42 14-May Vedanta FY results ZAR / USD 11.79 9.65 10.85 11.87 11.13 10.13 9.50 44 18-May Centamin Capital Markets Day AUD / USD 1.30 0.97 0.90 0.76 0.75 0.75 0.75 49 21-May Polymetal Investor Day Source: Numis Securities Research, Bloomberg and company data
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Treading Water
Q1 was another tough quarter - a brief bounce was short lived, as a dive in copper and iron ore dragged down the sector once again. We still expect little respite through this year with a headwind of depressed prices and downward earnings momentum. Despite some improvement in businesses and lower input costs, we retain our view that only the strong will survive through what appears to be close to the bottom of the cycle.
Stock Picks: Acacia, Petra, Highfield.
Gold: We retain Acacia Mining as our top pick. A quality company which still has to prove its stripes, but has plenty potential for high reward. We continue to like Randgold as a best in class gold play but the shares looks pricey at these levels. On the small cap end, we like recently initiated Dalradian, a developer which offers an attractive, low cost, high grade project in new and prospective gold belt and first world country.
Silver: During the quarter we removed Fresnillo from our pick list after a few negative updates, despite its premium production profile and superior asset portfolio.
Copper: We are cautious on the space but prefer First Quantum, which is not a pick due to a challenging year of project build out, peak capex and political risk.
Diamonds: Petra remains our preferred play; quality with steady production growth.
Others: As our favoured juniors, we continue to like Highfield and Berkeley, both with highly attractive projects in developed jurisdictions. Highfield has completed a DFS on its flagship project with low capex/opex and a very high 52% IRR; lots of value upside and looks set to be the next cab off the rank in the potash world. Avoid iron ore.
Table 1: Recommendation & Target Price Changes (Average +2%, Gold +3%) Company New Rec Old Rec New TP (£) Old TP (£) Change (%) Price (£) Return (%) Fresnillo BUY BUY 10.00 9.00 10 7.10 41 Randgold Resources HOLD HOLD 51.00 49.00 4 48.52 5 Acacia Mining BUY BUY 3.70 3.40 8 2.70 37 Centamin Egypt HOLD HOLD 0.60 0.60 0 0.60 0 Hochschild HOLD HOLD 0.85 0.75 12 0.88 (3)
Highland Gold* BUY BUY 0.80 0.80 0 0.41 95 ilver
S Timmins Gold BUY BUY 1.75 1.60 9 0.90 94
Aureus Mining* BUY BUY 0.40 0.40 0 0.24 67 old & old
G Dalradian BUY BUY 0.90 0.90 0 0.49 84 Condor Gold* BUY BUY 0.90 0.90 0 0.64 41 Chaarat Gold* BUY BUY 0.24 0.23 4 0.08 200 Caledonia Mining* BUY BUY 0.75 0.75 0 0.39 92 Minera IRL BUY BUY 0.10 0.10 0 0.03 233 Average 4 76
Antofagasta REDUCE REDUCE 6.00 6.00 0 7.31 (18)
First Quantum Minerals* ADD BUY 10.00 10.50 (5) 8.80 14 opper
C Kazakhmys REDUCE SELL 1.90 1.80 5 2.16 (12) Petra Diamonds BUY BUY 2.50 2.50 0 1.83 37 Gemfields BUY BUY 0.75 0.70 7 0.53 42
Ferrexpo HOLD HOLD 0.60 0.60 0 0.65 (8)
ther Highfield Resources* BUY BUY A$3.00 A$3.00 0 A$1.70 76 O International Ferro Metals* BUY BUY 0.25 0.25 0 0.04 525 Wolf Minerals* BUY ADD 0.23 0.23 0 0.20 15 Berkeley Resources* BUY BUY 0.40 0.35 13 0.12 233 Average (all) 3 82
* is a corporate broking client of Numis Securities Source: Numis Securities Research, Bloomberg
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Commodity Forecasts: Soggy Bulks Key changes: Iron ore -30%, Nickel -22%, Diamonds -7%, Tungsten -16%
We continue with our flat spot price based model for gold and silver due to ongoing volatility, mixed directional signals and a de-coupling from logical fundamental indicators. Gold stays flat while we tweak silver as remains over sold. Nickel looks under pressure on weaker demand and we re-balance our forecasts. Iron ore has fallen through the floor on over-supply and weak demand and we see little respite, pulling our LT price down to $60/t, from $80/t. We forecast weaker ST diamond prices on lower liquidity and inventory draw, weaker tungsten prices on a lack of demand.
Table 2: Commodity Price Forecasts 2015 YTD 2015F 2016F 2017F 2018F LT Gold New $/oz 1,219 1,205 1,200 1,200 1,200 1,200 Old $/oz 1,200 1,200 1,200 1,200 1,200 Change (%) 0 0 0 0 0 Silver New $/oz 16.7 16.7 17.6 18.6 18.5 18.5 Old $/oz 16.9 18.5 18.5 18.5 18.5 Change (%) (2) (5) 1 0 0 Copper New $/lb 2.65 2.71 2.89 2.92 2.69 2.50 Old $/lb 2.75 2.97 2.80 2.61 2.50 Change (%) (1) (3) 4 3 0 Zinc New $/lb 0.94 0.95 0.95 0.95 0.95 0.95 Old $/lb 0.99 0.95 0.95 0.95 0.95 Change (%) (5) 0 0 0 0 Lead New $/lb 0.82 0.83 0.89 0.90 0.90 0.90 Old $/lb 0.91 0.95 0.93 0.91 0.90 Change (%) (9) (6) (3) (1) 0 Nickel New $/lb 6.53 5.97 6.41 6.98 7.52 8.00 Old $/lb 7.63 8.23 8.15 8.06 8.00 Change (%) (22) (22) (14) (7) 0 Ferrochrome, contract New $/lb 1.08 1.08 1.17 1.24 1.25 1.20 Old $/lb 1.14 1.20 1.25 1.25 1.20 Change (%) (6) (2) (1) 0 0 Platinum New $/oz 1,195 1,161 1,243 1,330 1,420 1,500 Old $/oz 1,275 1,360 1,411 1,466 1,500 Change (%) (9) (9) (6) (3) 0 Iron ore (China 62% CFR) New $/t 63 55 59 60 60 60 Old $/t 75 89 88 86 80 Change (%) (27) (33) (32) (31) (25) Diamonds (rough index) New $/ct 224 227 246 247 243 215 Old $/ct 245 259 256 252 224 Change (%) (7) (5) (4) (4) (4) Potash (KCl, MOP) New $/t 305 303 300 300 300 300 Old $/t 300 300 300 300 300 Change (%) 1 0 0 0 0 Tin New $/t 18,370 12,761 15,375 16,521 18,250 20,000 Old $/t 20,500 21,500 21,667 20,778 20,000 Change (%) (38) (28) (24) (12) 0 Tungsten - APT New $/t 281 264 313 406 450 450 Old $/t 315 381 438 453 450 Change (%) (16) (18) (7) (1) 0 Uranium New $/lb 38 39 41 48 55 60 Old $/lb 38 43 50 57 60 Change (%) 3 (3) (4) (3) 0
Source: Numis Securities Research, Bloomberg
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Stocks Margins Improving but FCF Yields Still Low P/NAV P/E Hochschild 2.8 Fresnillo 115 Randgold 1.8 Kazakhmys 79 Acacia Mining 1.3 Randgold Ferrexpo 1.2 38 Fresnillo 1.1 Antofagasta 32 Centamin 1.0 Timmins 24 Antofagasta 1.0 Highfield 23 Average 0.8 Gemfields 21 Wolf Minerals 0.8 First Quantum 20 Gemfields 0.7 Acacia Mining 17 Aureus 0.7 Petra Diamonds Highland 0.6 15 First Quantum 0.6 Average 14 Petra Diamonds 0.6 Aureus 13 Highfield 0.5 Centamin 11 Condor 0.5 Ferrexpo 9 Kazakhmys 0.5 Highland 8 Caledonia 0.5 Caledonia 7 Timmins 0.4 Minera Minera 0.3 (3) Dalradian 0.3 Chaarat (4) Chaarat 0.3 Berkeley (6) Berkeley 0.2 Inter Ferro Metals (7) Inter Ferro Metals 0.1 Condor (15) Dalradian (27) 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x Wolf Minerals(44) -60x -35x -10x 15x 40x 65x 90x 115x P/CF FCF Yield
Wolf Minerals 53 Inter Ferro Metals 48% Randgold 16 Ferrexpo 23% Fresnillo 13 Aureus 13% Acacia Mining 8 Centamin 12% Centamin 7 Acacia Mining Antofagasta 7 11% Kazakhmys 6 Wolf Minerals 9% Gemfields 5 Antofagasta 9% First Quantum 4 First Quantum 8% Caledonia 4 Hochschild 7% Average 4 Randgold 5% Hochschild 3 Timmins 3% Petropavlovsk 3 Gemfields 3% Highland 2 Petra Diamonds 0% Ferrexpo 2 Average -2% Inter Ferro Metals 1 Petra Diamonds 0 Fresnillo -6% Highfield 0 Dalradian -15% Berkeley (6) Berkeley -16% Chaarat (6) Caledonia -16% Aureus (10) Highfield -17% Condor (16) Condor -35% Minera (16) Kazakhmys -38% Highland -49% -30x -20x -10x 0x 10x 20x 30x -60% -40% -20% 0% 20% 40% 60% EV/EBITDA EBITDA Margin Wolf Minerals 16 Gemfields 48% Randgold 15 Petra Diamonds Fresnillo 15 44% Antofagasta 7 Aureus 42% Acacia Mining 6 Randgold 41% Petra Diamonds 6 Centamin Centamin 6 37% Gemfields 5 Antofagasta 35% Timmins 5 Petropavlovsk 35% Caledonia 4 Fresnillo 35% Highfield 4 Aureus 3 First Quantum 33% First Quantum 2 Kazakhmys 32% Average 1 Highland 32% Kazakhmys 1 Hochschild 1 Acacia Mining 31% Berkeley 0 Highfield 31% Ferrexpo (0) Average 30% Highland (0) Inter Ferro Metals (1) Hochschild 29% Petropavlovsk (2) Caledonia 24% Chaarat (5) Ferrexpo 23% Minera (7) Timmins Condor (16) 21% Dalradian (32) Wolf Minerals 16% Inter Ferro Metals 7% -40x -30x -20x -10x 0x 10x 20x Minera 6% 0% 10% 20% 30% 40% 50% 60% Source: Numis Securities Research, Bloomberg, Company Data
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Stocks Finances Improving, Growth/Cost Down, Divi Up Net Debt/EBITDA Gearing Kazakhmys 9.5 Ferrexpo 122% First Quantum 4.3 Kazakhmys 83% Ferrexpo 3.7 First Quantum 59% Highfield 2.5 Hochschild 52% Berkeley 2.3 Aureus 46% Condor 2.3 Fresnillo 46% Petropavlovsk 2.3 Highfield 43% Hochschild 2.2 Minera 41% Highland 2.1 Highland 36% Fresnillo 1.3 Average 32% Inter Ferro Metals 1.1 Antofagasta 29% Average 0.8 Inter Ferro Metals 28% Petra Diamonds 0.4 Wolf Minerals 28% Chaarat 0.3 Petra Diamonds 23% Antofagasta Gemfields 9% 0.3 Acacia Mining 6% Gemfields (0.1) Timmins 5% Acacia Mining (0.7) Dalradian 0% Randgold (0.7) Berkeley 0% Centamin (1.0) Condor 0% Caledonia (1.5) Caledonia 0% Wolf Minerals (2.4) Chaarat 0% Aureus (11.0) Centamin 0% Randgold 0% -15x -10x -5x 0x 5x 10x 15x 0% 20% 40% 60% 80% 100% 120% 140% Growth Dividend Yield Inter Ferro Metals 211% Vedanta 10% Kazakhmys 90% Highland Gold 9% Antofagasta 68% Ferrexpo 9% First Quantum 56% Caledonia 9% Fresnillo 52% Central Asia Metals 7% Acacia Mining 47% Pan African Ferrexpo 44% 7% Caledonia 43% BHP Billiton 6% Timmins 28% Anglo American 5% Average 25% Rio Tinto 5% Condor 22% Glencore Xstrata 5% Petra Diamonds 16% Average 4% Centamin 16% Evraz 4% Wolf Minerals 16% Antofagasta 3% Highfield 11% Polymetal 3% Randgold 9% Polyus Gold Gemfields 2% 1% Fresnillo Berkeley -1% 1% Highland -4% First Quantum 1% Chaarat -6% Acacia Mining 1% Dalradian -34% NAV/EPS Randgold 1% Aureus -35% 2014F-2015F Kazakhmys 0% Minera Petropavlovsk 0% -91% -100% -50% 0% 50% 100% 150% 200% 250% 0% 2% 4% 6% 8% 10% 12% Implied Prices Total Cash Cost & All-In Sustaining Cost Hochschild 1,263 Harmony 1,242 Centamin 1,236 Minera 1,500 1,172 Randgold 1,193 Acacia 1,105 Condor 1,134 IAMGold 1,000 1,101 Minera IRL 1,130 Petropavlovsk 1,080 Acacia 1,118 500 Highland 1,115 Sibanye 1,069 Average 1,107 Gold Fields 0 1,060 Fresnillo 1,097 Gold AngloGold 04 06 08 10 12 FY 1,026 Aureus 1,078 ($/oz) Centamin TCC 14 1,006 Timmins 1,070 Kinross AISC 1,006 Chaarat 1,061 Average Gold 975 Dalradian 988 Caledonia 911 Caledonia 969 Agnico Eagle 954 Antofagasta 281 Goldcorp 949 Average 269 Copper Newmont 927 Kazakhmys 270 (c/lb) Highland 899 First Quantum 256 Polymetal 893 Wolf 389 ($/mtu APT) Barrick 864 Highfield 234 ($/t KCl) Polyus 825 Inter Ferro Metals 113 ($/t FeCr) Other Newcrest 819 Ferrexpo 59 ($/t Fe) Yamana 807 Berkeley 46 ($/lb U3O8) Randgold 805 H1 '14 Eldorado 779 FY14$/oz $/oz 0 500 1,000 1,500 2,000 0 200 400 600 800 1,000 1,200 Source: Numis Securities Research, Bloomberg, Company Data
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Rocks vs. Stocks Miners Rout Miners Losing to Market Miners Follow Copper Spiral Continuing to fall away from the broader market Equities continue to follow coper, albeit with more volatile swings 20,000 7,500 11,000 30,000
28,000 7,000 10,000 26,000 6,500 9,000 24,000
22,000 6,000 8,000 15,000 20,000 5,500 7,000 18,000 5,000 6,000 16,000
4,500 14,000 5,000 12,000 10,000 4,000 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 4,000 10,000 2010 2011 2012 2013 2014 2015 FTSE 350 Mining (LS) FTSE 100 (RS) Copper ($/t, LS) FTSE 350 Mining (RS)
Gold Equities Losing to Gold UK Gold Miners Mixed bag Equities underperform gold, 30-50% discount, UK better than NA CEY best performer, ACA & RRS flat, POG in doldrums 200
150
100
50
Implied 30-50% discount to spot
0 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Gold (£/oz) Numis Gold Index (re-based) HUI Index Petropavlovsk Centamin Acacia Mining Randgold
Gold Safer but Equities Oversold Miners Losing to US Dollar Historically gold has a better return but equities can outperform After a period of consolidation, reverse correlation restarts as $ rockets 6,000 550 100
5,000 95
4,000 450 90
3,000 85
2,000 350 80
1,000 75
0 250 70 1960 1970 1980 1990 2000 2010 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Stoxx 600 Basic Resources (LS) Dollar Index (RS) HUI/Barrons Mining Index Gold Source: Numis Securities Research, Bloomberg, Barrons
8 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Beta Back in Gold, AWOL in Base Metals Beta Returning as Gold/Equities Reconnect LT Chart – HUI vs Gold Equities once again offer significant leverage to the gold price Correlation broke down in 2011 but is returning 3.0 0.90 700 $2,000 2.8 0.80 Equities lost thier way in 2011 $1,800 2.6 600 $1,600 2.4 0.70 500 $1,400 2.2 $1,200 400 2.0 0.60 $1,000 1.8 300 $800 0.50 1.6 200 $600 1.4 0.40 $400 100 1.2 $200 1.0 0.30 0 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 HUI Gold Index Beta R2 HUI Index Gold 12m Chart – HUI vs Gold Correlation returns to equities
300 $1,500
$1,450
$1,400 250 $1,350
$1,300
200 $1,250
$1,200
$1,150 150 $1,100
$1,050
100 $1,000 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 HUI Index Gold
Base Metal Equities – Beta Disappearing Dislocation Closed – Copper Follows the Pain Trail Volatility abounds. Equities and copper price follow own path Base metals driven by the macro, equities focused on staying alive
1.1 1.00 210 11,000
190 10,000 1.0 0.90 170 0.80 Correlation re-established again 9,000 0.9 150 0.70 8,000 0.8 130 0.60 7,000 110 0.7 0.50 6,000 90 0.6 0.40 70 5,000
0.5 0.30 50 4,000 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 TSX Base Metals Beta R2 TSX/S&P Base Metals LME Copper R2 ranges from 0 to 10. Determines % of the equities’ movement that is explained by the underlying index/benchmark. 0 = no correlation, 100= full correlation. Measure of “goodness of fit” of the data. Higher R-squared (>75) indicates a more useful Beta data. Thus R2 and Beta must be used in conjunction
Beta indicates how sensitive the measured equity is to the underlying market (index or commodity). A high Beta (above 1) indicates that the equity is more volatile than the underlying, whilst a Beta of less than 1 indicates less volatility than the market.
Source: Numis Securities Research, Bloomberg,
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RSI Most Commodities Have Rebalanced
Commodity/Index 90 Day RSI Trajectory Latest RSI 100 90
FTSE 350 Mining 41 80 70 60 50 FTSE 100 41 40 30 20 10
FTSE All Share Mining 41 0 -10 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 FTSE 350 Mining Oversold Overbought HUI Index 36
S&P/TSX Metals Mining 51 80 80
60 60 Gold 46 40 40
Silver 54 20 20
0 0 Platinum 47 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 FTSE All Share Mining Oversold Overbought Palladium 34
80 80
Copper 56 60 60
40 40 Nickel 28 20 20
0 0 Zinc 54 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 FTSE 100 Oversold Overbought Lead 53 80 80
Iron Ore 24 60 60
40 40 Coking Coal 23 20 20
0 0 Thermal Coal 17 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
HUI Index Oversold Overbought Overbought >70 Oversold<30
RSI Trend Close to Oversold: 80 80
Coking and thermal coal appear hugely oversold. Nickel, and iron 60 60
ore now oversold. 40 40
Volatility Remains: 20 20 0 0 Commodities remain volatile swinging between overbought and Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 S&P/TSX Metals Mining Oversold Overbought oversold on a monthly basis.
General Explanation. A technical momentum indicator that compares the 100 100
magnitude of recent gains to recent losses in order to attempt to determine if 80 80 an asset/stock/metal/index is overbought or oversold. Traders generally 60 60 consider the market overbought approaching 70 and over, and oversold when 40 40 approaching 30 or below. 20 20
0 0 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Iron Ore Oversold Overbought Source: Numis Securities Research, Bloomberg
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RSI Volatility Reigns
80 80 80 80 60 60 60 60 40 40 40 40
20 20 20 20
0 0 0 0 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Gold Oversold Overbought Silver Oversold Overbought
80 80 80 80
60 60 60 60
40 40 40 40
20 20 20 20
0 0 0 0 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Platinum Oversold Overbought Palladium Oversold Overbought
80 80 80 80
60 60 60 60
40 40 40 40
20 20 20 20
0 0 0 0 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Copper Oversold Overbought Nickel Oversold Overbought
80 80 80 80
60 60 60 60
40 40 40 40
20 20 20 20
0 0 0 0 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Zinc Oversold Overbought Lead Oversold Overbought
100 100 80 80 80 80 60 60 60 60 40 40 40 40
20 20 20 20
0 0 0 0 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Thermal Coal Oversold Overbought Coking Coal Oversold Overbought Source: Numis Securities Research, Bloomberg
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Economy Oil hits US, China Faltering, Eurozone Fighting Back Manufacturing PMI Industrial Production (YoY %) Eurozone gathering pace, China flat, US softening China on a slippery slope, Eurozone fighting back, US picking up 60 15 Expansion
55 5
50
-5 45
Contraction 40 -15 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 China USA Eurozone China USA Eurozone
Leading Indicators GDP Growth (YoY %) Pointing down - not a great trend (except India), Europe sliding China down, US recovery slows, Eurozone soggy 15 10
10 5
5
0 0
-5 -5 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 China India USA Europe OECD China USA Eurozone
Housing Trends (YoY %) Auto Sales (YoY %) China shows a big slowdown, US mixed, Eurozone dead Mixed bag, broadly sideways but green-shoots in US 50 0.5
40 0.4 0.3 30 0.2 20 0.1 10 0.0 0 -0.1 -10 -0.2 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 -20 -0.3 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 China USA Eurozone China USA Eurozone US: Manufacturing output growth continues to slow in the US lead by contraction in oil and coal sector and negative effects of the dollar.
Eurozone: Q1 saw an increase in activity with the Eurozone PMI growing at the fast rate for four years fuelled by growth in German industrial output. The ECB’s QE programme is now set against a backdrop of economic growth, but Greek exit fears still hang heavily on recovery.
China: China manufacturing PMI continues to flat-line, although overall growth remains resilient and broadly in line with the 7.5% growth target for 2014. Chinese economic data continues to cause concern with PMI remaining below 50 and house prices continue to deteriorate. Authorities have begun to introduce more stimulus measures with cuts in rates in recent weeks.29 of the 31 Chinese provinces have lowered their 2015 GDP targets.
Source: Numis Securities Research, Bloomberg, Longview Economics
12 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Commodities Grim Reading Commodity 5 year 4 year 3 Year 2 Year 1 Year 6m Coking Coal -30% -66% -46% -34% -1% -2% Gold 6% -17% -29% -26% -8% -2% Silver -5% -56% -49% -41% -16% -2% Palladium 53% -4% 13% -5% -5% -5% Aluminium -22% -32% -14% -5% 3% -7% Thermal Coal -23% -48% -40% -22% -16% -7% Zinc -10% -11% 5% 13% 7% -8% Copper -21% -35% -28% -19% -8% -9% Lead -14% -33% -10% -13% -11% -13% Platinum -31% -36% -31% -28% -21% -13% Tin -8% -47% -25% -27% -26% -16% Nickel -49% -51% -28% -23% -19% -21%
Iron Ore -14% -70% -64% -62% -55% -32% 6m 1 Year Coking Coal -2% Zinc 7% Gold -2% Aluminium 3% Silver -2% Coking Coal -1% Palladium -5% Palladium -5% Aluminium -7% Gold -8% Thermal Coal -7% Copper -8% Zinc -8% Lead -11% Copper -9% Silver -16% Lead -13% Thermal Coal -16% Platinum -13% Nickel -19% Tin -16% Platinum -21% Nickel Tin -26% -21% -55% Iron Ore -32% Iron Ore -60% -40% -20% 0% 20% -40% -20% 0%
2 Year 3 Year Zinc 13% Palladium 13% Aluminium -5% Zinc 5% Palladium -5% Lead -10% Lead -13% Aluminium -14% Copper -19% Tin -25% Thermal Coal -22% Nickel -28% Nickel -23% Copper -28% Gold -26% Gold -29% Tin -27% Platinum -31% Platinum -28% Thermal Coal -40% Coking Coal -34% Coking Coal -46% Silver -41% Silver -49% Iron Ore -62% Iron Ore -64% -80% -60% -40% -20% 0% 20% -80% -60% -40% -20% 0% 20%
4 Year 5 Year Palladium 53% Palladium -4% Gold 6% Zinc -11% Silver -5% Gold -17% Tin -8% Aluminium -32% Zinc -10% Lead -33% Lead -14% Copper -35% Iron Ore -14% Platinum -36% Tin -47% Copper -21% Thermal Coal -48% Aluminium -22% Nickel -51% Thermal Coal -23% Silver -56% Coking Coal -30% Coking Coal -66% Platinum -31% Iron Ore -70% Nickel -49% -80% -60% -40% -20% 0% -60% -40% -20% 0% 20% 40% 60%
Palladium, Gold Best; Nickel, Iron Ore & Coal Grim. The down turn in commodities across the board makes grim reading. The charts above plot the change in commodity prices from current back to 5 years. Palladium has been the only clear winner. The data represents a snapshot in time so the peaks and troughs are not captured here. Returns can be made by getting in and out quickly – hardly useful for companies building a long-term sustainable business. Either way, the graphs above show that most commodities are at 5 year lows – a good entry point?
Source: Bloomberg
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Gold Neutral on Limited Drivers Money Supply Remains the Key Driver Historical Prices Indicate Room to Trend Upwards FRB’s tightening fiscal policy weighing down but outperforms copper TMS-adjusted price average of c.$1,400/oz, above current price 10,000
Peak ~$8,000/oz
Average $1,400/oz
1,000
Ranges from $800-2,000/oz
100 1982 1987 1992 1997 2002 2007 2012 1960 1970 1980 1990 2000 2010 Gold TMS-adj TMS ($bn) TMS YoY % Gold/Copper Investment Appetite Continues to Wane Physical Mixed but Irrelevant (3% of 175kt Inventory) Net long positions down at 169t; shorts up; ETF’s flat at 1,675 Rising jewellery demand, less central bank purchases, more supply 3,500 5,000 2,000 Supply 1,100 4,000 3,000 3,000 900 1,000 Long 2,000 2,500 700 1,000 500 2,000 0 0 -1,000 300 1,500 -2,000 1,000 100 -3,000 1,000 -4,000 -100 Demand -5,000 2,000 500 -300 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Short -500 0 Mine production Scrap Hedging 2005 2007 2009 2011 2013 2015 Jewellery & Industrial Central Bank Retail Investment Net Non-Commercial Positions (t, LS) ETFs (t, RS) Gold price TCC AISC
Seasonal Trends Clouded; Indian Wedding Season Fails Interest Rates Relationship Decoupled Indian wedding season: Sept; Chinese New Year: Late Jan-Mid Feb US bond yields fall back again, now on same short-term trend as gold 2,000 8
1,750 7
1,500 6
1,250 5
1,000 4
750 3
500 2
250 1
0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2000 2002 2004 2006 2008 2010 2012 2014
Seasonal trend since 1985 2013 gold price (normalised) Gold ($/oz, LS) US 10 Year Yield (%, RS)
Market Balance (t) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD 2014 LT Supply (Production, Scrap) 2,947 3,372 3,194 3,072 3,423 4,105 4,346 4,509 4,455 4,254 3,181 % movement -11.6% 14.4% -5.3% -3.8% 11.4% 19.9% 5.9% 3.8% -1.2% -4.5% 0.0% Demand (Physical & Monetary) 3,136 3,147 3,128 3,104 3,805 3,685 4,245 4,692 4,583 3,977 3,311 % movement -5.9% 0.4% -0.6% -0.8% 22.6% -3.2% 15.2% 10.5% -2.3% -13.2% 0.0% Surplus (Deficit) (189) 225 66 (33) (382) 420 101 (183) (128) 277 (130) Gold Price ($/oz) 363 409 444 604 695 872 972 1,225 1,572 1,669 1,266 1,200 Total Cash Cost ($/oz) 216 281 328 405 469 468 625 743 841 734 754 All-In Sustaining Cost ($/oz) 929 1,114 1,047 1,002 Free Cash Flow M argin 24% 29% 37% 21% Source: Numis Securities Research, Bloomberg, FRB Statistics, GFMS, Company Data
14 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Silver Gold’s Poor Cousin A Cheaper, More Volatile & Illiquid Gold Gold-Silver Ratio - Silver Seemingly Oversold Tracker with volatile peaks and troughs; sheep mentality to remain Trading at 74:1 currently, above 60:1 historic average
50 100
2,000 90 40 80
1,500 70 Historic Average (60:1) 30 60
1,000 50 20 40
30 10 500 20
10 0 0 1970 1980 1990 2000 2010 0 Silver ($/oz, LS) Gold ($oz, RS) 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Historical Prices Paint a Bear LT Picture Investment Appetite Remains Strong Tracker currency (uncertain) vs industrial commodity (normal); $7/oz Long positons & ETF’s sideways, net neutral - shorts at all-time highs 80 700 100 Long 60 600
40 500
Historic Average ($7/oz) 20 400 10 0 300
-20 200
-40 100 Short 1 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 -60 0 2007 2008 2009 2010 2011 2012 2013 2014 2015
Inflation Adjusted Silver Price Spot Silver Price Net Non-Commercial Positions (Moz, LS) ETFs (Moz, RS) Physical Market Remains in Increasing Surplus Cost Floors Irrelevant as Secondary Producers Dominant Mine supply increasing, lower scrap, jewellery/industrial demand flat 70% supply is through by-product credits from base metal/gold mines 1,250 50 Supply Copper 1,000 40 20% Primary 29% 750 30
500 20
250 10
0 0
-250 10 Demand -500 20 2004 2006 2008 2010 2012 2014 Gold Mine production (Moz) Scrap Hedging 13% Lead/Zinc Jewellery & Industrial Central Bank Retail Investment 38% Silver price ($/oz) Total Cash Cost Market Balance (Moz) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD 2014* LT Supply (Production, Scrap) 872 954 916 887 906 912 1,071 1,038 1,005 978 874 % movement 2.7% 9.4% -4.0% -3.1% 2.1% 0.7% 17.4% -3.1% -3.1% -2.7% 0.0% Demand (Physical & Monetary) 897 962 1,082 1,029 1,171 998 1,158 1,057 1,072 1,091 0 % movement 5.6% 7.2% 12.5% -4.9% 13.8% -14.8% 16.0% -8.7% 1.4% 1.8% 0.0% Surplus (Deficit) (25) (8) (166) (141) (265) (86) (87) (20) (66) (113) 874 Silver Price ($/oz) 6.7 7.3 11.5 13.4 15.0 14.7 20.2 35.1 31.2 23.8 19.1 18.5 Total Cash Cost ($/oz) 3.7 3.7 2.6 3.9 5.9 5.3 5.9 8.1 9.2 9.3 9.4 Cash M argin 45% 49% 77% 71% 60% 64% 71% 77% 71% 61% 51% *YTD 2014 to October. Source: Numis Securities Research, Bloomberg, Company Data, GFMS
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Copper Balanced but Vulnerable Prices and Inventories Rebound off 6 year Lows Market Tight with Apparent Surplus to Come Prices bounce off lows; stocks re-build; China off-exchange? Balanced in 2014,switching to surplus in 2015 but supply risk remains
5.00 1000 26,000 1,500 Surplus 24,000 1,000 4.00 750 22,000 500
20,000 0 3.00 500
18,000 -500 Deficit 2.00 250 16,000 -1,000
14,000 -1,500 1.00 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2008 2009 2010 2011 2012 2013 2014 Surplus/Deficit (RS) Refined Production Refined Demand Demand at 2.5% pa LME SHFE COMEX Copper ($/lb, LS) Demand at 5% pa China Continues to be Key Driver Investment Appetite Looks Shaky Correlation to China PMI; industrial activity running out of steam Net long positons spike, weak PMI data, reduced trading activity 12,000 65 500 900 11,000 450 800 60 10,000 400 700 9,000 55 350 600 8,000 300 500 7,000 50 250 400 6,000 200 300 45 5,000 150 200 4,000 40 100 100 3,000 50 0 2,000 35 0 -100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 LME 3m Copper ($/t, LS) China PMI (RS) Comex Positions (kt, RS) Copper Price (c/lb, RS) Chinese Consumption Remains High Backwardation Narrows as Premiums Fall Consumption continues to rise but stalls this year Backwardation narrows to $25/t, Shanghai physical premia remains low
1,000 9,000 1,000 225
8,500 900 175 8,000 750 125 800 7,500 75 Contango 700 7,000 500 25 6,500 600 -25 250 6,000 Backwardation 500 -75 5,500 0 -125 400 5,000 Jun-11 Jun-12 Jun-13 Jun-14 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 China Refined Consumption China Refined Production LME Stocks (kt, LS) Shanghai Stocks (kt, LS) LME Copper Price Contango/Backwdation Shanghai Premium ($/t, RS) Market Balance (kt) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Refined Production 14,844 15,364 15,196 15,277 15,878 16,607 17,350 18,026 18,236 18,473 19,044 19,697 20,314 21,024 21,693 22,362 23,128 23,911 24,720 % movement 3.5% 3.5% -1.1% 0.5% 3.9% 4.6% 4.5% 3.9% 1.2% 1.3% 3.1% 3.4% 3.1% 3.5% 3.2% 3.1% 3.4% 3.4% 3.4% Refined Demand 15,160 14,759 15,012 15,673 16,903 16,938 17,520 18,093 18,001 17,447 19,218 19,888 20,107 21,013 21,684 22,248 23,006 23,581 24,171 % movement 7.3% -2.6% 1.7% 4.4% 7.8% 0.2% 3.4% 3.3% -0.5% -3.1% 10.2% 3.5% 1.1% 4.5% 3.2% 2.5% 2.5% 2.5% 2.5% Surplus (Deficit) (317) 605 184 (396) (1,025) (331) (170) (67) 235 1,026 (174) (191) 207 11 9 114 122 330 549 Long Term Copper Price ($/lb) 0.82 0.72 0.71 0.81 1.30 1.61 3.04 3.23 3.12 2.34 3.42 4.00 3.61 3.33 3.11 2.71 2.89 2.92 2.50 Copper Price ($/t) 1,814 1,580 1,559 1,780 2,866 3,554 6,711 7,113 6,877 5,165 7,538 8,828 7,959 7,333 6,863 5,978 6,366 6,430 5,512 C1 cost ($/lb) 1.06 1.00 1.12 1.40 1.55 1.61 1.50 Source: Numis Securities Research, Bloomberg, SNL Metals & Mining
16 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Nickel LT Supply Squeeze not a Driver Yet Ban Rally Reversed to 6 Year Low Weaker Demand Growth, Neutral Market for next 3yrs LME stocks continue to build, short term supply abundant Deficit of 250kt by 2020. Long term supply growth looking shaky 22,000 500 2,600 400
21,000 450 2,400 300 20,000 Surplus Indonesian Export Ban 400 2,200 200 19,000 Announced 2,000 100 18,000 350 1,800 0 17,000 300 1,600 -100 16,000 250 15,000 1,400 -200 200 14,000 1,200 -300 150 13,000 Deficit 1,000 -400 12,000 100 2006 2008 2010 2012 2014 2016 2018 2020 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
LME Stocks (kt, RS) Nickel Price ($/t, LS) Open Interest (kt) Surplus/Deficit (RS) Refined Supply Consumption Demand
China Stainless Steel Continues Waiver China Dominates Consumption & Refining Question marks over level of domestic stocks, China economy weaker Supply patterns likely to change 2013 Nickel Refinery 3,200 22,000 2013 Refined Nickel Mine Production (Mt) Consumption (Ktpa) Production (Ktpa) 21,000 2.5 3,000 800 800 20,000 2.0 19,000 2,800 600 1.5 600 18,000
2,600 17,000 1.0 400 400 16,000 2,400 0.5 15,000 200 200 14,000 0.0
2,200 0
2007 2008 2009 2010 2011 2012 2013 13,000 2006
0
India
RoW
China
Japan
Russia Taiwan
2,000 12,000 Indonesia Philippines Russia Europe
RoW
Brazil
N.America
China Japan
Australia China RoW Russia
Europe
South Korea South Canada Australia Stainless Steel Price ($/t, LS) Nickel Price ($/t, RS)
Indonesia Gone, Philippines Fills the Gap Falling Chinese Nickel Pig Iron Production may Fuel Deficit No Indo exports, replaced by lower grade ore from Philippines NPI production to depend on lower grade Philippines ore
9 600 Export Ban 8
7 500 6
5 400 4
3 300 2
1 200 0
Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15
2013
2014F 2015F 2016F 2017F 2018F 2019F Indonesia Imports (Mt Ni) Philippine Imports ROW Imports China NPI (Kt)
Market Balance (kt) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Refined Supply 1,349 1,460 1,399 1,355 1,436 1,664 1,856 1,985 1,885 1,864 1,988 2,082 2,106 2,136 2,106 % movement - 8.3% -4.2% -3.1% 6.0% 15.8% 11.6% 6.9% -5.0% -1.1% 6.7% 4.7% 1.1% 1.4% -1.4% Consumption Demand 1,375 1,354 1,333 1,315 1,427 1,661 1,729 1,801 1,868 1,941 2,017 2,095 2,177 2,262 2,350 % movement -1.5% -1.5% -1.4% 8.5% 16.4% 4.1% 4.1% 3.7% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% Surplus (Deficit) (26) 107 65 40 9 2 127 184 17 (77) (28) (13) (71) (126) (244) Long Term Nickel Price ($/lb) 10.55 16.41 9.66 6.66 9.89 10.39 7.96 6.82 7.66 5.97 6.41 6.98 7.52 7.97 8.00 Nickel Price ($/t) 23,263 36,171 21,302 14,676 21,810 22,911 17,552 15,031 16,893 13,161 14,129 15,382 16,585 17,562 17,637 Source: Numis Securities Research, Bloomberg, Anglo American, Wood Mackenzie, Glencore , Bloomberg
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 17 9 April 2015
Iron Ore Avoid as Oversupply Swamp gets Deeper Prices at 10 Year Low – Further Pain to come Prolonged Period of Surplus on Large Expansions China’s war on pollution could shut more steel mills Chinese demand growth soft, Awash with low cost supply from majors 180 30% 2,000 400 No Premium for Quality 350 160 25% 300 1,500 140 20% 250 200 120 15% 1,000 150
100 10% 100
$/tonne 50 80 5% 500 Surplus 0
60 0% -50 Deficit 0 -100 40 -5% 2006 2008 2010 2012 2014 2016 2018 2020 2012 2013 2014 2015 Iron Ore Supply (Mt, LS) Surplus/Deficit (RS) Import Demand Fines 62% Fines 58% Premia 58% vs 62% Coking Coal – 6 yr Low, Shrinking Steel Output Port Inventories Level Off, Plenty of Tonnes Around Production cuts so far a mere drop in the ocean Coking coal stocks at Chinese ports building, iron ore flat
350 200% 180
150 160 300 175% 140 250 130 150% 120
200 110 100 125% 80 150 90 100% 60 100 40 70 75% 50 20
50 0 0 50% Jan-2013 Jul-2013 Jan-2014 Jul-2014 Jan-2015 2011 2012 2013 2014 2015 Premium (RS) Coking Coal ($/t, LS) Thermal Coal ($/t, LS) Iron ore Mt (LHS) Coking Coal Mt (LHS) Fines 62% (RHS)
Prices Plummet but Aus Exports Remain Strong China Steel Usage Continues to Grow – But for How Long? BHP & Rio etc still pulling in decent margins, no incentive to pullback China steel use per capita is still growing, outstripping the world ave
900 900 40 170 800 850 150 800 35 700 750 130 600 30 700 110 500 650 25 400 600 90 550 300 20 500 70 200 450 15 50 100 400 02/2012 08/2012 02/2013 08/2013 02/2014 08/2014 02/2015 2007 2008 2009 2010 2011 2012 2013
Port Hedland Exports Mt (LHS) Fe 62% Fines China $/t (RHS) World Avg (kg, LS) China Taiwan China Steel Production (Mt) Market Balance (Mt) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total supply 633 684 750 889 974 1,065 1,095 1,210 1,269 1,330 1,429 1,479 1,482 1,468 1,473
% movement - 8.0% 9.7% 18.5% 9.6% 9.3% 2.8% 10.5% 4.9% 4.8% 7.4% 3.5% 0.2% -0.9% 0.3% Import Demand 633 684 750 889 974 1,065 1,095 1,210 1,234 1,259 1,284 1,310 1,336 1,362 1,390
% movement 8.0% 9.7% 18.5% 9.6% 9.3% 2.8% 10.5% 2.0% 2.0% 2.0% 2.0% 2.0% 1.9% 2.1% Surplus (Deficit) 35 71 145 169 146 106 83 Long Term Iron Ore Price ($/t) 70 78 129 80 147 168 129 135 97 55 59 60 60 60 60 Source: Numis Securities Research, World Steel Association, World Bank, Bloomberg
18 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Ferrochrome Neutral on Margin Pressure Both Contract and China Spot under Pressure Peak Surplus Expected to Decline Benchmark $1.08/lb vs China $80/lb; remains in gentle decline Peak surplus of 280kt, declining into LT deficit, consumption levels up 800 25 2.50 Surplus 600 20 15 2.00 400 10 200 5 1.50 0 0
1.00 -200 5 10 -400 0.50 Deficit 15 -600 20
0.00 -800 25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2003 2005 2007 2009 2011 2013 2015 2017
Market Balance (kt, LS) Stocks Weeks of Consumption (kt, RS) European Benchmark Charge Chrome ($/lb, 50%) China Import CIF China to Build out Production Capacity Capacity Utilisation Gently Increasing Chinese production to increase, SA gentle YoY growth, rest flat Capacity at +70% and expected to increase further as demand picks up 14 2.0 90% 1.8 80% 12 1.6 70% 10 1.4 60% 1.2 8 50% 1.0 40% 6 0.8 30% 4 0.6 0.4 20% 2 0.2 10%
0 0.0 0% 2003 2005 2007 2009 2011 2013 2015 2017 2003 2005 2007 2009 2011 2013 2015 2017 China (Mt) South Africa Kazakhstan India RoW Utilisation (%, RS) Ferrochrome Price ($/lb, LS) China Driving Demand Increase Stainless Steel Production Expected to Rise Further Demand to increase across board due to higher SS production Set to increase further around world if construction activities improves 14 60 14 50
12 50 12 40 10 10 40 8 30 8 30 6 6 20 20 4 4 10 2 10 2
0 0 0 0 2003 2005 2007 2009 2011 2013 2015 2017 2003 2005 2007 2009 2011 2013 2015 2017
China (Mt, LS) Asia China (Mt, LS) Europe Europe India Japan USA RoW Stainless Steel (Mt, RS) RoW FCr Consumption (Mt, RS) Market Balance (Mt) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Supply 5.4 6.0 6.1 6.6 7.7 7.5 6.1 8.8 8.9 9.0 10.4 11.4 11.9 12.3 12.7 12.9 % movement 23.9% 10.2% 1.3% 7.9% 18.2% -3.5% -18.0% 42.9% 1.3% 1.2% 15.3% 9.8% 4.6% 3.6% 3.2% 1.6% Consumption 5.5 6.0 5.9 6.8 7.6 6.8 7.0 8.5 8.7 9.0 10.2 11.1 11.7 12.2 12.7 13.2 % movement 9.9% 8.4% -1.6% 15.3% 11.7% -11.1% 3.0% 22.5% 1.5% 4.1% 13.2% 8.8% 5.5% 4.3% 4.2% 4.1% Surplus (Deficit) (102) (12) 164 (258) 138 712 (834) 232 218 (23) 164 283 193 121 (1) (321) Long Term Ferrochrome Price ($/lb) 1.0 1.1 0.74 0.71 0.91 1.80 0.92 1.24 1.25 1.22 1.16 1.19 1.08 1.17 1.24 1.20 Source: Numis Securities Research, Bloomberg, CRU
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 19 9 April 2015
Diamonds Liquidity Drought Starting to Bite Price Level Looks Sustainable Despite Uncertainty Best Fundamentals with Flat Supply & Increasing Demand Polished & rough show recent weakness; liquidity tight Demand increasing with no supply response; increasing deficit & prices 25 100 350 20 80
300 15 60
250 10 40
5 20 200 Surplus 0 0
150 -5 20 Decficit -10 40 100 2004 2006 2008 2010 2012 2014 2016 2018 2005 2007 2009 2011 2013 2015 2017 2019 Jewellery Demand ($bn, RS) Surplus (Deficit) Rough Price Index Polished Price Index Supply ($bn, LS) Rough Demand ($bn, LS) Supply Constraints Leads to Unhealthy Industry Top Producers Dominate but Margin is Key Less reserves/production, less exploration, no major discoveries Top 3 producers 60% supply; Canada high rock value but low margin
Resources Reserves Production Exploration Discovery 250 Rock Value (Mcts) (Mcts) Spend ($m) (years ago) (Mcts) Rio Tinto (30%) 300
200 2,023 2,584 160 1,085 15 150 1,663 2,316 134 150 75 Dominion (24%) 520 25
Average grade (cpht)gradeAverage Alrosa (72%) 100
De Beers (23%) 2 50 Petra (73%) Gem (58%) 2000 2012 2000 2012 2004 2013 2008 2012 2000 2013 Lucara (68%) 0 0 250 500 750 1,000 1,250 1,500 Russia Botswana DRC Australia South Africa Canada RoW Average value ($/ct) Margin in Brackets Demand Driven on US with China/India to Rise Demand Drivers show Plenty of Reasons to be Bullish US primary driver (37%), China rises (18%) as middle class grow Increasing population, spending, jewellery demand/value, plus China 150% 100% 10% 13% 90% 15% 125% 5% 80% 16% 8% 9% 100% 8% 70% 5% 7% 10% 60% 18% 14% 75% 9% 50% 3% 50% 13% 18% 40% 30% 25% 48% 20% 37% 34% 0% 10% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0% 2000 2012 2017 Disposable Income (China) GDP (China) Middle Class (China) Luxury Goods Value USA China/HK India Japan Gulf Europe RoW GDP/Capita Jewellery Demand Population Market Balance 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Production (Mcts) 159 177 176 168 163 120 128 123 128 134 143 149 157 161 165 Production ($bn) 10.2 11.6 12.0 11.9 12.7 8.3 11.4 14.1 12.6 15.5 17.5 17.0 19.4 19.9 20.1 % movement 0.0% 11.0% -0.4% -4.5% -3.0% -26.2% 6.7% -4.3% 4.2% 4.3% 7.3% 4.0% 5.4% 2.2% 2.7% Rough Demand ($bn) 15.3 17.3 18.0 17.8 19.0 13.0 15.0 15.0 15.0 16.0 17.0 18.0 18.9 19.7 20.5 Jew ellery Demand ($bn) 62.8 71.3 74.0 73.3 78.2 67.2 73.5 74.0 74.7 77.6 83.0 88.0 92.4 96.1 100.0 % movement 0.0% 13.5% 3.8% -0.9% 6.7% -14.1% 9.4% 0.7% 0.9% 3.9% 7.0% 6.0% 5.0% 4.0% 4.0% Surplus (Deficit) (5.0) (5.7) (5.9) (5.9) (6.3) (4.7) (3.6) (0.9) (2.4) (0.5) 0.5 (1.0) 0.5 0.2 (0.4) Rough Diamond Price Index 123 138 129 143 166 144 215 257 226 230 243 227 246 247 243 Polished Diamond Price Index 113 122 125 127 131 113 123 153 147 140 145 134 136 140 143 Source: Numis Securities Research, Bloomberg, Company Data, Bain & Co, Kimberley Process, WWW Diamond Forecasts Ltd, Metals Economic Group
20 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Tungsten Fundamentals Good but Weak Price Response Yet to see Meaningful Price Response Peak Deficit as Projects Slow to Respond to Demand Directionless price decline and no solid rise yet as forecast Small 80kt market, peak 4kt deficit due to flat production/rising demand 500 200,000 20,000 500
15,000 400 150,000 400 10,000
300 5,000 300 100,000 0 200 -5,000 200
50,000 -10,000 100 100 -15,000 Deficit 0 0 -20,000 0 2004 2006 2008 2010 2012 2014 2003 2005 2007 2009 2011 2013 2015 2017 APT Europe ($/mtu, LS) Concentrate China (RMB/t, RS) Market Balance (t W, LS) Tungsten Price (APT $/mtu, RS)
Production Growth in 2016-18 as Projects Start Demand for ‘Strategic Metal’ to Rise 4-5% Projects in Canada, Oz & UK start-up; main producer China flat Market to rise 4-5% to 100kt in 2017 as China steel production grows 120,000 120,000 2,000
100,000 100,000 1,500
80,000 80,000
60,000 1,000 60,000
40,000 40,000 500 20,000 20,000 0 0 0 2004 2006 2008 2010 2012 2014 2016 2018 2004 2006 2008 2010 2012 2014 2016 2018 China (t W, LS) Europe China Canada Vietnam Russia UK Spain Australia RoW USA RoW Japan Steel Production (Mt, RS) New Supply Drags Continues to Disappoint Global Cost Curve Dictated by China Projects delayed by 2-3 yrs due to financing, permitting etc Average $140-150/mtu, new projects at similar level (Wolf $109/mtu) 18,000 300 16,000 Wolfram Camp 14,000
12,000 Cantung
10,000 200 Pasta Bueno Los Santos Mittersill 8,000 Average ($140-150/mtu) 6,000
4,000 100 2,000 Chinese Producers 0
2013 2014 2015 2016 2017 2018+ Panasquiera Original Current 0 Market Balance (t W) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Supply 57,200 51,100 55,500 55,700 54,357 64,680 66,020 76,920 83,555 80,155 79,350 80,850 86,750 92,000 100,250 105,250 % movement 5.0% -10.7% 8.6% 0.4% -2.4% 19.0% 2.1% 16.5% 8.6% -4.1% -1.0% 1.9% 7.3% 6.1% 9.0% 5.0% Demand 53,100 52,700 62,550 72,500 68,100 66,100 52,400 70,750 79,600 76,150 80,000 84,850 89,450 94,800 100,150 105,500 % movement 5.0% -0.8% 18.7% 15.9% -6.1% -2.9% -20.7% 35.0% 12.5% -4.3% 5.1% 6.1% 5.4% 6.0% 5.6% 5.3% Surplus (Deficit) 4,100 (1,600) (7,050) (16,800) (13,743) (1,420) 13,620 6,170 3,955 4,005 (650) (4,000) (2,700) (2,800) 100 (250) Long Term Tungsten Price (APT $/mtu) 62 84 221 260 248 249 203 243 430 385 372 357 284 363 438 450
Source: Numis Securities Research, Bloomberg, Company Data, Tungsten Market Research Ltd
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 21 9 April 2015
Uranium Bright Future but a Slow Starter Building Momentum from 9 year Low Deficit by 2019, Widening Supply Gap Utilities well covered, opportunistic buying on spot market only New mine pipeline slow, mothballed mines, lower secondary supplies 260 50 80 70% Surplus Fukushima 210 60% 70 25 50% 160 60 40% 110 0 50 30% 60 Deficit 40 -25 20% 10
30 10% -40 -50 2012 2014 2016 2018 2020 2022 20 0% 2010 2011 2012 2013 2014 2015 Primary Production (Mlbs) Mines under development Contract Premia (RS) U3O8 Spot ($/lb, LS) U3O8 Term Planned Mines Secondary Supply Surplus/Deficit (RS) Total demand Contracting Activity Modest, Utilities yet to Return Prices Below Marginal Cost, No New Supply Spot vol normal, LT vol only 50% of annual reactor requirements Most producers under-water, incentive price for new production c$70/lb U O Term $49/lb 300 50 3 8 World avg prod cost $44/lb 250 250 45 240 250 190Mlbs 40 90th percentile $37/lb 2005-2012 200 194 35 200 avg LT volume U3O8 spot $39/lb 30 150 150 130 25 120 20 100 82 15
54 55 U3O8) ($/lbCashCost 43 50 43 50 10 36 35 42 50 24 20 5
0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 10 20 30 40 50 60 70 80 90 100 110 120 Long-term market (Mlbs U3O8) Spot market Cumulative Production (Mlbs U3O8) World Electricity Demand Only Going One Way Global Reactor Build-out will Underpin LT Demand
China, Russia, India are key. Nuclear 11% of world’s generation Price catalyst – Japan restarts. 73 new reactors req. 50Mlbs U3O8 400 250 Current Reactors Operable 309 reactors 35,000 32,150 48 350 Offline Total: 434 Reactors 30,000 200 300 171 Mlbs U O required 3 8 35 25,000 250 18 150 19,005 ROW Japan 172 reactors
TWh 20,000 200 118 100 15,000 reactorsNumber of 150 22 10,085 73 reactors 31 10,000 100 5,710 57 50 (Mlbs)RequiredU3O8 121 5,000 50 29 57 23 0 0 0 1980 1990 2011 2035 Under Construction Planned Proposed OECD Non-OECD ROW China Russia India USA Saudi Arabia U3O8 Req'd Market Balance 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Production (existing & new ) 103 107 114 132 141 141 152 156 147 147 152 160 171 175 184 188 190 196 % movement -4.6% 3.9% 6.5% 15.8% 6.8% 0.0% 7.8% 2.6% -5.8% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.6% Secondary Supply 58 51 51 54 50 45 49 52 35 34 33 32 31 30 30 30 30 30 Total Consumption 177 174 167 169 172 160 165 167 155 166 177 188 199 209 220 231 242 253 % movement 1.1% -1.7% -4.0% 1.2% 1.8% -7.0% 3.1% 1.2% -7.2% 7.0% 6.6% 6.2% 5.8% 5.5% 5.2% 4.9% 4.7% 4.5% Surplus (Deficit) (16) (16) (2) 17 19 26 36 41 27 15 8 4 3 (4) (6) (13) (22) (27) Long Term Spot Uranium Price ($/lb) 48 99 64 47 46 56 49 39 34 39 41 48 55 60 60 60 60 60 Term Uranium Price ($/lb) 50 91 83 66 61 67 60 54 46 ------Source: Numis Securities Research, Bloomberg, World Nuclear Association, Bloomberg, Cameco IAEA
22 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Potash Under ST Pressure Prices Continue to Look Under Pressure Supply Set to Grow Alongside Capacity Utilisation Drifting lower since 2011 peak, bottoming out for now 60Mt market, supply +3% pa, capacity +2.5% pa, utilisation 75%
1,000 100 100
90 800 80
80 600 60 70 40 400 60
20 200 50
0 40 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 MOP $/t, Standard FOB Vancouver Production (Mt, LS) Capacity Utilisation (%, RS) Top 4 Dominate Supply with Challenging Growth Canada & FSU Have all the Cards Top 4 = 80%, Canada/FSU 60%, high capex/development issues Canada & FSU have largest and highest grade reserves globally
Others, 4% 5,000 40% China, 13% Former BPC (Uralkali & 4,000 Belaruskali), 30% 31% APC, 3% 3,000 SQM, 3% 20% 2,000
ICL, 8% 10% 1,000
Canpotex 0 0%
K+S (inc. Potash (Agrium, US
RoW
Chile Brazil
One), 10% Mosiac, Potash China
Russia Belarus
Crop), 28% Canada Germany Reserves (Mt, LS) Grade (% KCl, RS)
Demand Growth of 3% pa Driven by Americas Demand Drivers show Plenty of Reasons to be LT Bullish 95% agriculture use with Americas 40% consumers & China 14% Increasing population, middle class & diet, less arable land, biofuels 120% North America, RoW, 18% 19% 100%
80%
60%
40%
China, 14% 20% Other Asia, 19% 0%
-20% 2003 2005 2007 2009 2011 2013 Potash Consumption Harvested Land per Person India, 7% Population Meat Consumption (BRIC) South America, GDP/Capita Biofuels 23% Harvested Land Market Balance (Mt) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Supply 46.9 52.6 55.4 49.8 57.2 55.2 33.8 55.2 56.5 52.5 53.0 57.0 61.6 63.4 65.4 67.3 % movement 5.0% 12.2% 5.3% -10.1% 14.9% -3.5% -38.8% 63.3% 2.4% -7.1% 1.0% 7.5% 8.1% 3.0% 3.0% 3.0% Capacity 55.9 58.4 59.1 59.6 62.3 64.7 66.6 67.2 69.4 70.5 76.9 80.5 82.5 84.6 86.7 88.9 % movement 5.0% 4.5% 1.2% 0.8% 4.5% 3.9% 2.9% 0.9% 3.3% 1.6% 9.1% 4.7% 2.5% 2.5% 2.5% 2.5% Utilisation (%) 84 90 94 84 92 85 51 82 81 74 69 71 75 75 75 76 Long Term Potash Price ($/t) 113 125 159 175 201 578 624 332 435 459 379 297 300 300 300 300 Source: Numis Securities Research, Bloomberg, USGS, IFA, K+S, Company Data
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 23 Metals & Mining For FCA purposes this is a Marketing Communication
Acacia Mining 9 April 2015 Estimate Changes
BUY The Money Tree
We maintain our BUY recommendation and increase our TP to 370p, from 340p, Current Share Price 270p due to our new commodity price forecasts and changes to our model. Remains our Target Price 370p gold pick. Market Capitalisation £1.1bn Shares In Issue 410m ● Company Snapshot. Mid-tier African gold producer with three operating mines in RIC/BLBG ACAA.L/ACA LN Tanzania and exploration properties in Kenya. Spun out of Barrick in April 2010 Avg. Daily Volume (3M) 665,245 (previously named African Barrick). ABX owns 64%. Current share price(s) timed at 7:00AM on 07/04/15 ● Share Price Investment Thesis. Buly is key – Group production of +750kozpa at AISC of <$900/ 340 ozover 5 years; Buly at 350kozpa at AISC <$900/oz from current 200koz by end 2015 320 300 (50koz grade/productivity, 60koz Upper East, 40koz CIL expansion). Key is achieving 280 sustainable reserve grade of 9.5g/t. LT potential for +400kozpa with exploration to 260 240 firm up an additional 5Moz. We believe establishing additional production centres to 220 200 provide operational flexibility will be key. North Mara at 250kozpa at $900/oz with 180 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 Gokona underground to bring CFs forwards, reduce footprint and ease illegal mining Acacia Mining issues. Buzwagi on 5 year LOM plan. FCF focus – New management are driving Relative to UK Market costs down, improving efficiencies and rationalising the business. We expect to see Performance (%) 1M 3M 12M continued better numbers with a few speed bumps on the way. Barrick - Barrick is Absolute 11 2 9 likely to reduce its interest further at some point, caping potential gains.
Relative 11 -6 4 ● Guidance - 2015: 750-800koz (up 9%) at TCC of $695-725/oz and AISC of Source: Datastream (relative to UK-DS Market index) $1,050-1,100/oz (down 5%). H2 weighted with Buly 300-330koz at $950-1,000/oz. Capex $220-240m.
● Preview Q1 (23 Apr). Flat quarter with production of 180koz at a cash cost of $737/oz and AISC of $1,069/oz (Q4 181koz at $744/oz, AISC $1,088/oz). Buly flat at 66koz with elevated tonnages maintained as Upper East and CIL expansion commissioning; North Mara and Buzwagi flat with marginally lower planned grades. FY guidance maintained. Financials: EPS of $0.06 (Q1/Q4 2014 $0.05), up q-o-q on higher gold prices and y-o-y on higher production. EBITDA up sharply q-o-q at $67m. Balance sheet flat Analysts with minimal $2m in FCF, up at $292m (debt $142m). We look to see how the Buly Cailey Barker CIL expansion is performing plus Upper East (Buly) and Gokona underground (North Tel: +44 (0)20 7260 1420 [email protected] Mara).
Phil Swinfen ● Tel: +44 (0)20 7260 1430 Valuation. Blend of 1.5x NAV/5x P/CF (middle of 1-2x NAV/5-15x P/CF range for [email protected] golds).
This research was prepared ● Risks. Medium - Tanzanian politics, social unrest at North Mara, VAT receivables & and approved by back tax claims, operational delivery risk, Barrick interest Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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24 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Acacia Mining 9 April 2015
Figure 1: Model summary Acacia Mining Ticker ACA.L Market Capitalisation £1,107m Financial Year End Dec BUY Current Share Price £2.70 Enterprise Value (EV) £1,007m Reporting Currency US$ £3.70 Implied Return 37% Net Debt (Cash) -$150m Shares in Issue 410m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) - Underlying 0.26 0.22 0.24 0.44 0.44 Bulyanhulu (100%) 10% 72% 960 2.34 1.56 EPS Growth 79% -15% 9% 82% 1% Buzwagi (100%) 10% 10% 128 0.31 0.21 P/E 15.6x 18.4x 16.8x 9.2x 9.2x North Mara (100%) 10% 23% 305 0.74 0.50 CFPS ($/sh) 0.46 0.71 0.66 0.90 0.94 Nyanzaga (100%) 12% 4% 48 0.12 0.08 P/CFPS 8.9x 5.7x 6.1x 4.5x 4.3x Sub-total 1,441 3.51 2.34 FCFPS ($/sh) (0.34) 0.07 0.14 0.45 0.47 Cash & Equivalents 22% 292 0.71 0.47 P/FCFPS n.m 62.3x 28.2x 9.1x 8.5x Debt (11%) (142) (0.35) (0.23) FCF Yield -9% 2% 4% 11% 12% Corporate G&A / Other (20%) (263) (0.64) (0.43) EV/EBITDA 5.5x 6.0x 5.2x 4.0x 4.0x Total 1,328 3.24 £2.16 EBITDA Margin 30% 27% 31% 37% 40% Current NAV Multiple (Implied) 1.25x Dividend Per Share ($/sh) 0.13 0.03 0.04 0.06 0.12 Cash Flow Value $/sh £/sh Dividend Yield 3.3% 0.8% 1.1% 1.4% 2.9% CFPS (1 year forward) 0.72 0.48 Return on Assets (ROA) -32% 3% 4% 6% 6% Current P/CF multiple (implied) 5.6x Return on Equity (ROE) -40% 5% 5% 8% 7% Blended Valuation Target Multiple Weight Return on Capital Employed (ROCE) -41% 5% 6% 10% 10% NAV valuation 1.75x 50% £3.78 Net Debt/EBITDA -0.5x -0.6x -0.6x -0.9x -1.3x Cash Flow valuation 7.5x 50% £3.61 Gearing (Debt/Equity) 7% 7% 6% 4% 3% VALUATION £3.69 Interest Cover n.m -0.1x 0.0x 0.0x 0.0x Shares Outstanding (m) 410 410 410 410 410 Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Income Statement 2013 2014 2015F 2016F 2017F Base case gold price forecast 2.16 0.24 0.66 Revenue 929 930 930 1,002 958 Base case +10% 3.05 0.39 0.88 Cost of Sales (561) (563) (574) (561) (511) Base case -10% 1.25 0.09 0.44 G&A (32) (41) (38) (36) (35) Flat gold price (at spot $1,200/oz) 2.02 0.24 0.66 Exploration (17) (18) (20) (20) (21) News Catalysts H2 14 H1 15 H2 15 2016 Other (43) (55) (10) (10) (10) Buly CIL expansion starts EBITDA 276 253 288 375 381 Upper East production starts DD&A (153) (125) (136) (111) (91) Gokona u/g feasibility (North Mara) EBIT (921) 124 152 264 290 Gokona u/g production starts Net Interest Expense (8) (9) (7) (7) (4) PBT (929) 115 145 257 286 Reserves & Resources (attributable) Gold Copper Gold Eq EV/oz Non-Recurring Items/Other (40) 1 0 0 0 Reserves (P&P) Moz / Mlbs 12.5 427 13.5 112 Taxes/Recovery 188 (26) (47) (77) (105) Resources (M&I) Moz / Mlbs 24.3 683 25.9 58 Net Profit (Loss) - attributable (781) 90 99 180 181 Production & Cost (attributable) 2014 2015F 2016F 2017F Minority Interest (17) (0) 0 0 0 Gold Production 000oz 719 768 822 762 Cashflow 2013 2014 2015F 2016F 2017F Silver Production 000oz 289 314 322 337 Net Profit (Loss) (798) 90 99 180 181 Copper Production 000t 6 6 6 6 DD&A 153 125 136 111 91 Gold Eq. Production 000oz 757 802 860 801 Non Recurring/Other 877 58 53 84 109 EV/oz Production $/oz AuEq 1,996 1,884 1,757 1,887 Working Cap. Changes (41) 20 (10) 2 10 Total Cash Cost (net by-products) $/oz 732 729 661 681 Cash Flow From Operations 187 290 271 370 387 All-in Sustaining Cost $/oz 1,105 1,073 942 907 Capital Expenditure (373) (247) (229) (191) (186) Acquis./Investments (14) (10) 0 0 0
Attrib. Gold Production ('000oz) Total Cash Cost / AISC ($/oz AuEq) Cash Flow From Investing (387) (257) (229) (191) (186) 900 1500 Equity Issues (Net of Costs) 0 0 0 0 0 Net Borrowings 142 0 (15) (30) (20) 800 1250 Dividends Paid & Other (60) (19) (18) (23) (49) 700 Cash Flow From Financing 82 (19) (33) (53) (69)
600 1000 Net Change in Cash (119) 11 9 126 132 Free Cash Flow (141) 27 59 183 195 500 750 Balance Sheet 2013 2014 2015F 2016F 2017F 400 Cash & Equivalents 282 294 303 429 561
300 500 Total Current Assets 676 671 717 838 946 PP&E & Mining Interests 1,281 1,425 1,519 1,599 1,694 200 250 Deferred taxation 51 51 51 51 51 100 Other 424 436 436 436 436
0 0 Total Assets 2,432 2,583 2,723 2,924 3,126 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F Short Term Debt 0 14 14 14 14 Bulyanhulu Buzwagi North Mara Tulawaka Current Liabilities 183 215 241 238 224 Nyanzaga Total Cash Cost AISC Long Term Debt 142 128 113 83 63 Assumptions (Real) 2014 2015F 2016F 2017F LT Other Long Term Liabilities 179 239 239 239 239 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Total Liabilities 505 581 593 560 525 Copper Price ($/lb) 3.11 2.71 2.89 2.92 2.50 Shareholder Equity 1,927 2,002 2,130 2,364 2,601 Exchange Rate (US$:£) 1.65 1.50 1.50 1.50 1.50 Total Liab. & S/Holder Equity 2,432 2,583 2,723 2,924 3,126 Working Capital 493 457 476 600 722 Net Debt (Cash) (140) (152) (176) (332) (484) Source: Company & Numis Securities Research
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 25 1 Metals & Mining For FCA purposes this is a Marketing Communication
Antofagasta 9 April 2015 Estimate Changes
REDUCE Red Light
We maintain our REDUCE recommendation and £6 TP, despite our revised Current Share Price 731p commodity price forecasts and changes to our model. Target Price 600p Market Capitalisation £7.2bn ● Company Snapshot. FTSE100 major copper producer with four operating mines in Shares In Issue 986m Chile, producing 700ktpa, plus three development projects. Also has the Twin Metals RIC/BLBG ANTO.L/ANTO LN Project in USA and water and transport distribution. 65% owned by Luksic Group. Avg. Daily Volume (3M) 3,363,323 Net Cash/(Debt) (m) (12/15F) $(495.3)m ● Investment Thesis. A stable and conservative business with steady, mostly brownfield Current share price(s) timed at 7:00AM on 07/04/15 growth. Given high capex requirements over the next few years, repeat special Share Price dividends are unlikely, in our view, but may be higher than 35% payout. ST growth 900 - Immediate production plan is to reach 900kt by 2018 due to brownfield expansions 850 at Centinela Concentrates (Esperanza, 105ktpd debottlenecking; 10-12ktpa Cu from 800 750 end 2015, capex $110m), Los Pelambres (15% increase to 205ktpd; 95ktpa Cu from 700 +2018, feasibility end 2016), Centinela Cathodes (50ktpa from H2 2016, maintains El 650 Tesoro at 100ktpa, capex $636m), Centinela moly plant (2.4ktpa from H2 2016, capex 600 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 $125m). Antucoya is progressing on schedule and budget. LT growth - Centinela Antofagasta second concentrator (140ktpa Cu & 150kozpa Au, capex $2.7bn, likely +2019, not Relative to UK Market in our model). Los Pelambres has potential to be doubled but full evaluation and Performance (%) 1M 3M 12M permitting is expected to take a number of years. Twin Metals has been bought and Absolute -1 3 -13 undergoing evaluation but likely one for the future.
Relative -2 -5 -17 ● Guidance. 2015: 710kt copper (less 8kt loss for protect +/- flooding disruptions), Source: Datastream (relative to UK-DS Market index) 250koz gold, 7.5kt moly at C1 cost of $1.50/lb net by-products ($1.85/lb gross), Capex $1.3bn.
● Preview Q1 (29 Apr). Production down 14% q-o-q and 5% y-o-y at 161kt copper (Q4 187kt, Q1 2014 170kt) due to production disruptions from the protests and flooding. Gold and moly also down at 64koz and 1.9kt (Q4 82koz & 2.4kt). Cash costs up 6% q-o-q at $1.88/lb (gross) and $1.49/lb (net). Tonnages and grades down across the board. 2015 guidance expected maintained for now, with losses expected to be made Analysts up in the year. Antucoya on track for start-up this quarter. Cailey Barker Tel: +44 (0)20 7260 1420 ● Valuation. Blend of 1x NAV/15x P/E (top of 7-15x P/E range for copper producers). [email protected] Phil Swinfen ● Risks. Low - Proposed tax changes in Chile (being evaluated, with $105-150m Tel: +44 (0)20 7260 1430 [email protected] deferred tax provision), Chilean politics.
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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26 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Antofagasta 9 April 2015
Figure 1: Model summary Antofagasta Ticker ANTO.L Market Capitalisation £7,207m Financial Year End Dec REDUCE Share Price £7.31 Enterprise Value (EV) £7,208m Reporting Currency US$ £6.00 Implied Return -18% Net Debt (Cash) $2m Shares in Issue 986m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) - Underlying 0.67 0.47 0.34 0.74 0.78 Los Pelambres (60%) 8% 54% 6,000 6.09 4.06 EPS Growth (36%) (30%) (26%) 114% 6% Centinela Concs (Esperanza) (70%) 8% 24% 2,735 2.77 1.85 P/E 21.6x 27.9x 31.8x 14.9x 14.0x Centinela Cathodes (El Tesoro) (70%) 8% 4% 409 0.42 0.28 CFPS ($/sh) 1.73 1.85 1.25 1.93 2.14 Michilla (74%) 8% 0% 14 0.01 0.01 P/CFPS 6.3x 5.9x 8.8x 5.7x 5.1x Antucoya (70%) 10% 8% 874 0.89 0.59 FCFPS ($/sh) 0.27 0.18 (0.08) 0.97 1.01 Centinela exploration 4% 500 0.51 0.34 P/FCFPS 40.8x 61.9x (132.0)x 11.3x 10.9x Nokomis (Twin Metals, 100%) 1% 100 0.10 0.07 FCF Yield 2% 2% -1% 9% 9% Railway & other transport (100%) 8% 1% 72 0.07 0.05 EV/EBITDA 4.8x 5.8x 6.9x 4.1x 3.6x Water concession (100%) 8% 5% 592 0.60 0.40 EBITDA margin 45% 42% 35% 46% 48% Sub-total 11,297 11.46 7.64 Dividend Per Share ($/sh) 0.95 0.22 0.12 0.26 0.27 Corporate G&A / Other 10% (3%) (319) (0.32) (0.22) Dividend Yield 6.58% 1.65% 1.10% 2.35% 2.50% Investments (book value) 2% 216 0.22 0.15 Return on Assets (ROA) 10% 7% 5% 10% 10% Cash & equivalents 21% 2,375 2.41 1.61 Return on Equity (ROE) 14% 11% 7% 14% 14% Debt (21%) (2,376) (2.41) (1.61) Return on Capital Employed (ROCE) 19% 14% 9% 16% 16% Total 11,193 11.35 £7.57 Net Debt/EBITDA -0.5x 0.0x 0.3x -0.1x -0.3x Current NAV multiple (Implied) 0.97x Gearing (Debt/Equity) 15.9% 29.6% 28.8% 21.2% 15.4% Earnings Value $/sh £/sh Interest Cover -35.0x -36.8x -12.5x -21.8x -23.6x EPS - 12 months forward 0.47 0.31 Shares Outstanding (m) 986 986 986 986 986 Current P/E multiple (implied) 23.6x Income Statement 2013 2014 2015F 2016F 2017F Blended Valuation Target Multiple Weight Revenue 5,972 5,290 4,652 5,646 5,795 NAV valuation 1.00x 50% £7.57 Cost of sales (2,905) (2,828) (2,775) (2,789) (2,748) Earnings valuation 15.0x 50% £4.66 G&A (83) (73) (72) (73) (74) VALUATION £6.11 Exploration write-down (275) (168) (160) (182) (200) Sensitivity Analysis Valuation NAV/sh 16F EPS 16F CFPS EBITDA 2,702 2,222 1,645 2,603 2,772 Base case metal price forecast £6.11 £7.57 $0.74 $1.93 DD&A (518) (606) (613) (613) (645) Base case +10% £7.06 £9.47 $0.98 $2.37 Excpetional items (12) 24 0 0 0 Base case -10% £5.15 £5.65 $0.50 $1.49 EBIT 2,172 1,640 1,032 1,990 2,127 Flat copper price (at spot $2.70/lb) £6.54 £8.48 $0.59 $1.67 Net finance income (expense) (89) (66) (67) (75) (71) Growth catalysts H1 15 H2 15 2016 2017 PBT 2,084 1,574 965 1,915 2,056 Antucoya first production Q2 Tax (844) (723) (347) (594) (653) Centinela Concs optimisation (105ktpd) Net Profit (Loss) 1,240 851 618 1,321 1,403 Centinela 2nd Concentrator PFS (140-150ktpa) Profit attributable to equity 660 460 340 727 772 Los Pelambres EIA submission & feas study (205ktpd) Profit attributable to minority interest 580 391 278 594 631 Encuentro Oxides start production H2 Cashflow 2013 2014 2015F 2016F 2017F Reserves (attributable) Tonnes Grade Metal EV/lb Net profit (loss) 1,240 851 618 1,321 1,403 Copper reserves (P&P): Cu-equiv 2,739 Mt 0.58% 15,885kt $0.31 /lb Working capital change 179 100 1 (29) (4) Copper resources (M&I): Cu-equiv 2,401 Mt 0.55% 13,315kt $0.37 /lb DD&A 506 595 613 613 645 Production & cost 2014 2015F 2016F 2017F 2018F Non-recurring/other (219) 275 0 (2) 66 Copper prod (kt) - consolidated 705 704 779 788 828 Cash Flow From Operations 1,706 1,821 1,232 1,903 2,111 Gold production (koz) 271 254 245 255 259 Capital expenditure (1,441) (1,646) (1,314) (944) (1,117) EV per lb Cu prodn ($/lb Cu) 6.96 6.97 6.30 6.22 5.92 Acquis./investments/adjustments 399 411 829 0 0 C1 Cash Cost (gross by-products) 1.86 1.86 1.66 1.55 1.48 Cash Flow From Investing (1,041) (1,235) (485) (944) (1,117) C1 Cash Cost (net by-products) 1.43 1.50 1.34 1.23 1.15 Borrowings (515) 1,002 0 (400) (400) All-in Sustaining Cost ($/lb) 1.92 1.95 1.77 1.66 1.58 Dividends paid (3,281) (1,748) (412) (239) (467)
Copper (kt) / Gold (koz) C1 Cost / AISC ($/lb Cu) Other 1,951 419 0 0 0
900 2.25 Cash Flow From Financing (1,846) (326) (412) (639) (867) Net Change in Cash (1,181) 259 335 321 127 800 2.00 Free Cash Flow 265 175 (82) 959 994 700 1.75 Balance Sheet 2013 2014 2015F 2016F 2017F 600 1.50 Cash & equivalents 2,685 2,375 1,881 2,203 2,331 500 1.25 Other current assets 1,516 1,287 1,247 1,446 1,400 400 1.00 PP&E & mining interests 7,425 8,227 8,928 9,259 9,731 300 0.75 Investments 195 216 216 216 216 200 0.50 Other non-current assets 569 711 711 711 644
100 0.25 Total Assets 12,390 12,815 12,982 13,835 14,321
0 0.00 Short-term debt 341 285 285 285 285 11 12 13 14 15F 16F 17F 18F 19F 20F Other current liabilities 790 879 840 1,010 960 Los Pelambres Centinela Concs (Esperanza) Centinela Cathodes (El Tesoro) Long-term debt 1,033 2,092 2,092 1,692 1,292 Michilla Antucoya Total gold C1 Cash Cost AISC Other non-current liabilities 1,904 1,810 1,810 1,810 1,810 Assumptions (Real) 2014 2015F 2016F 2017F LT Total Liabilities 3,726 4,780 4,742 4,511 4,061 Copper Price ($/lb) 3.11 2.71 2.89 2.92 2.50 Shareholder equity 6,725 6,174 6,287 6,882 7,397 Molybdenum Price ($/lb) 11.45 8.37 9.01 9.41 10.00 Minority interest 1,939 1,861 1,954 2,441 2,862 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Total Liab. & Equity 12,390 12,815 12,982 13,835 14,321 Silver Price ($/oz) 19.08 16.69 17.59 18.60 18.46 Working Capital 605 386 385 414 418 Exchange rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Net Debt (Cash) (1,311) 2 495 (227) (754) Source: Company & Numis Securities Research
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Aureus Mining 9 April 2015 Estimate Changes
BUY On the Cusp of Production
We maintain our BUY recommendation and 40p TP, despite our revised commodity Current Share Price 24p price forecasts and changes to our model. Target Price 40p Market Capitalisation £88m ● Company Snapshot. Aureus is an AIM and TSX-listed gold explorer and developer Shares In Issue 367m focused in Liberia. Its main asset is the 120kozpa New Liberty project expected to RIC/BLBG AUE.L/AUE LN start production in May 2015, becoming Liberia's first commercial gold mine. Other Avg. Daily Volume (3M) 822,249 advanced exploration prospects exist within the sizeable 1,470km² licence portfolio. Broker Yes Current share price(s) timed at 7:00AM on 07/04/15 ● Investment Thesis. Aureus is firmly on the way to becoming a African junior gold Share Price producer with financing complete and development started. Robust project - New 35 Liberty has a 0.9Moz reserve with a high grade of 3.4g/t (1.7Moz resource). Standard 30 open pit and 1.1Mtpa gravity/CIL operation is envisaged. Following the new mine plan 25 in February 2015, LOM production is expected to be 107kozpa over 8 years (119kozpa 20 first 6 years), at a cash costs of $692/oz (AISC $789/oz). The new plan included an 15 additional starter pit so the project will have increased operational flexibility through 10 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 the provision of a larger stockpile and more working faces, plus access to higher grade Aureus Mining ore earlier. - Project capex was estimated at $152m (inc. contingency). Relative to UK Market Fully financed Fully funded following recent $18m equity raising. c$24m in potential "dead money" Performance (%) 1M 3M 12M due to debt service requirements and contingencies. Exploration upside - Additional Absolute 7 24 -22 production potential from Ndablama (plus possibly the 180koz Weaju prospect),
Relative 6 14 -26 30-40km away with resources of 0.9Moz, grading 1.7g/t. Initial testwork is encouraging
Source: Datastream (relative to UK-DS Market index) and pit optimisation will be taken this year; with a shallow dip and decent thickness we should see low strip ratios. Also further potential to increase mine life or go underground at New Liberty.
● Guidance. 2015: 60koz.
● Preview Q1. First gold pour now scheduled for the end May (full pelt July). We forecast capex of c.$55m required to complete construction. We forecast cash of $40m and debt of $90m at end Q1, following the recent $15m raising to cover the cost delays Analysts from Ebola. Cailey Barker Tel: +44 (0)20 7260 1420 ● Valuation. Blend of 1x NAV/5x P/CF (bottom of 1-2x NAV/5-15x P/CF range for golds). [email protected] Phil Swinfen ● Risks. Low - Project delivery, Liberian politics. Tel: +44 (0)20 7260 1430 [email protected]
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28 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Aureus Mining 9 April 2015
Figure 1: Model summary Aureus Mining Ticker AUE.L Market Capitalisation £88m Financial Year End Dec BUY Share Price £0.24 Enterprise Value (EV) £118m Reporting Currency US$ £0.40 Implied Return 67% Net Debt (Cash) $46m Shares in Issue 367m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) (0.03) (0.01) 0.03 0.01 (0.00) New Liberty (90%) 12% 107% 204 0.56 0.37 EPS Growth 41% 58% 303% -61% -141% Exploration Properties (inc. Ndablama/Weaju) 26% 50 0.14 0.09 P/E n.m n.m 13.7x 35.5x n.m Sub-total 254 0.69 0.46 CFPS ($/sh) (0.02) (0.01) 0.08 0.08 0.06 Investments (Stellar Diamonds) 0% 1 0.00 0.00 P/CFPS n.m n.m 4.7x 4.4x 5.6x Cash & Equivalents 21% 40 0.11 0.07 FCFPS ($/sh) (0.21) (0.34) (0.10) 0.04 0.03 Debt (45%) (86) (0.23) (0.16) P/FCFPS n.m n.m n.m 8.1x 12.7x Corporate G&A / Other (10%) (18) (0.05) (0.03) FCF Yield -60% -95% -29% 12% 8% Total 190 0.52 £0.35 EV/EBITDA n.m n.m 5.8x 5.0x 6.6x Current NAV Multiple (Implied) 0.69x EBITDA Margin 0% 0% 42% 26% 19% Cash Flow Value $/sh £/sh Dividend Per Share ($/sh) 0.00 0.00 0.00 0.00 0.00 CFPS (2 year forward) 0.08 0.06 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% Current P/CF multiple (implied) 4.4x Return on Assets (ROA) -4% -1% 3% 1% -1% Blended Valuation Target Multiple Weight Return on Equity (ROE) -5% -2% 4% 1% -1% NAV valuation 1.25x 50% £0.43 Return on Capital Employed (ROCE) -6% -2% 5% 3% 1% Cash Flow valuation 7.5x 50% £0.41 Net Debt/EBITDA 4.3x -8.1x 2.4x 1.8x 2.4x VALUATION £0.42 Gearing (Debt/Equity) 0% 42% 46% 39% 35% Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Interest Cover n.m n.m -0.3x -0.5x -1.4x Base case gold price forecast 0.35 0.01 0.08 Shares Outstanding (m) 221 286 367 367 367 Base case +10% 0.47 0.04 0.10 Income Statement 2013 2014 2015F 2016F 2017F Base case -10% 0.24 0.01 0.06 Revenue 0 0 73 140 139 Flat gold price (at spot $1,200/oz) 0.35 0.02 0.08 Cost of Sales 0 0 (39) (100) (108) News Catalysts Q4 14 Q1 15 Q2 15 Q3 15 G&A (4) (4) (4) (4) (4) New Liberty construction Exploration 0 0 0 0 0 New Liberty revised mine schedule Other (5) (1) (0) (0) (0) Ndablama resource update EBITDA (9) (5) 30 36 27 Ndablama scoping study DD&A (0) (1) (15) (26) (25) New Liberty production starts EBIT (9) (6) 16 9 2 Net Interest Expense 0 (0) (4) (4) (3) Reserves & Resources (attributable) Tonnage Grade Gold EV/oz PBT (9) (6) 12 5 (1) Reserves (P&P) Moz 8 3.4 0.8 214 Non-Recurring Items/Other 2 2 (2) (1) (1) Resources (M&I) Moz 17 2.7 1.4 129 Taxes/Recovery 0 0 0 0 0 Resources (Total) Moz 35 2.5 2.5 70 Net Profit (Loss) - attributable (7) (4) 10 4 (2) Production & Cost 2014 2015F 2016F 2017F Minority Interest 0 0 2 1 1 Gold Production (consolidated) 000oz 0 61 115 111 Cashflow 2013 2014 2015F 2016F 2017F Gold Production (attributable) 000oz 0 55 103 100 Net Profit (Loss) (7) (4) 12 5 (1) EV/oz Production (attributable) $/oz Au 0 3,250 1,721 1,775 DD&A 0 1 15 26 25 Cash Operating Cost $/oz 0 602 821 870 Non Recurring/Other 2 (1) 4 4 3 Total Cash Cost (net by-products) $/oz 0 638 858 907 Working Cap. Changes (0) 1 2 (1) (0) All-in Sustaining Cost $/oz 0 689 922 978 Cash Flow From Operations (5) (4) 28 30 24 Capital Expenditure (42) (94) (66) (14) (13) Gold Production ('000oz, 100% basis) Total Cash Cost / AISC ($/oz Au) Acquis./Investments (8) (7) (8) (8) (8)
175 1250 Cash Flow From Investing (50) (101) (74) (22) (22) Equity Issues (Net of Costs) 15 25 14 0 0 150 Net Borrowings 0 75 19 (11) (11) 1000 Dividends Paid & Other 0 (1) 0 0 0 125 Cash Flow From Financing 15 99 33 (11) (11)
750 Net Change in Cash (40) (6) (12) (3) (8) 100 Free Cash Flow (47) (98) (38) 16 10
75 Balance Sheet 2013 2014 2015F 2016F 2017F 500 Cash & Equivalents 39 33 21 18 9 50 Total Current Assets 45 38 27 23 14
250 PP&E & Mining Interests 96 196 255 250 247 25 Deferred taxation 0 0 0 0 0 Other 25 34 34 34 34 0 0 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F Total Assets 166 267 315 307 295 New Liberty Total Cash Cost AISC Short Term Debt 0 1 0 0 0 Current Liabilities 7 12 14 12 11 Assumptions (Real) 2014 2015F 2016F 2017F LT Long Term Debt 0 75 95 83 73 Gold Price ($/oz) 1,412 1,266 1,200 1,200 1,200 Other Long Term Liabilities 0 0 0 0 0 Exchange Rate (US$:£) 1.56 1.65 1.50 1.50 1.50 Total Liabilities 7 87 109 95 84 Shareholder Equity 159 180 206 211 211 Total Liab. & S/Holder Equity 166 267 315 307 295 Working Capital 38 26 13 11 3 Net Debt (Cash) (39) 43 74 66 64 Source: Company & Numis Securities Research
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Berkeley Resources 9 April 2015 Estimate Changes
BUY Game Changer on the Horizon
We maintain our BUY recommendation but increase our TP to 40p, from 35p, due Current Share Price 12p to our updated commodity prices and changes to our model. Target Price 40p Market Capitalisation £22m ● Company Snapshot. Berkeley is an AIM/ASX listed uranium developer focused on Shares In Issue 180m Spain. The company’s flagship asset is the Salamanca Project in Western Spain where RIC/BLBG BKY.L/BKY LN a DFS is underway. Permitting is well advanced and we estimate first production in Avg. Daily Volume (3M) 22,733 2018 depending on uranium prices. Current share price(s) timed at 7:00AM on 07/04/15 ● Share Price Investment Thesis. Low capex and opex, robust resource, simple open pit 20 shallow mining, low-risk jurisdiction, uranium developer with regional hub model, 18 first production should coincide with a higher price environment. Regional Hub - 16 Salamanca is composed of three separate deposits: Retortillo, Alameda and recently 14 defined Zona 7. Plans to build a centralised processing plant at Retortillo with heap 12 leach at each site, for competitive opex and capex and growth flexibility. Resource 10 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 doubled. New Zona 7 resource brings total resource to 88Mlbs at 469ppm, better than Berkeley Resources most African projects. Satellite Promoted. Zona 7 (10km away) is now the largest Relative to UK Market deposit within Salamanca and higher grade (589ppm). Scoping study due Q2 2015 to Performance (%) 1M 3M 12M integrate into DFS with potential to defer Retortillo/Alameda capex as Zona 7 likely to Absolute 7 -20 -23 jump queue being high-grade, shallow and low pre-strip. Timeline drag will be that Zona
Relative 6 -26 -27 7 needs permitting. Existing PFS plan. 3.3Mlbs U3O8 p.a, cash costs $25/lb (AISC c.
Source: Datastream (relative to UK-DS Market index) $29/lb), mid-low on cost curve. Initial capex for Retortillo is $95m. Growth Potential - Lots more satellite potential (eg. Gambuta) within trucking distance. Zona 7 resource remains open. Balance sheet. A$16m cash and comfortable.
● News Catalysts: Zona 7 scoping study (Q2), Resource update (Q2).
● Uranium Market. Currently challenging but excellent long term fundamentals due a projected doubling of electricity consumption by 2030 and increased contribution from nuclear requiring a substantial world reactor build-out. New mine supply is constrained by new project delays, cancelled expansions and mothballing of existing operations, Analysts whilst secondary supply is dwindling due to the end of the Russian HEU programme. Phil Swinfen Restart of Japanese reactors is now rolling out - four so far, twenty under review. Tel: +44 (0)20 7260 1430 [email protected] Restarts drawn-out and onerous process but ultimately key market catalyst to prompt Cailey Barker unavoidable resumption of U3O8 contracting volumes, as despite inventory build up, Tel: +44 (0)20 7260 1420 utilities typically plan 3-5 years out to secure feed. 2014 contract volumes triple 2013's [email protected] low. Major reactor build-out in China (under pressure to cut pollution) also underpins This research was prepared demand story. Our LT price is $60/lb vs spot at $39/lb. and approved by ● Numis Securities Limited Valuation. 0.5x NAV, middle of 0.25-1x P/NAV range for pre-producers. The London Stock Exchange Building ● 10 Paternoster Square Risks. Low - Project delivery risk, environmental approval and permitting in Spain, London EC4M 7LT project financing, uranium market. +44 (0)20 7260 1000 [email protected] www.numis.com
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30 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Berkeley Resources 9 April 2015
Figure 1: Model summary Berkeley Resources Ticker BKY Market Capitalisation £22m Financial Year End June BUY Share Price £0.12 Enterprise Value (EV) £13m Reporting Currency A$ £0.40 Implied Return 233% Net Debt (Cash) -$10m Shares in Issue 180m
Valuation Key Metrics 2014 2015F 2016F 2017F 2018F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS (A$/sh) (0.04) (0.04) (0.04) (0.03) 0.03 Salamanca 10% 104% 241 1.25 0.84 EPS Growth 33% 5% 1% 29% 195% Sub-total 241 1.25 0.84 P/E n.m n.m n.m n.m 8.6x Cash & Equivalents 4% 10 0.05 0.03 CFPS ($/sh) (0.04) (0.04) (0.04) (0.03) 0.05 Debt 0% 0 0.00 0.00 P/CFPS n.m n.m n.m n.m 4.4x Corporate G&A / Other (8%) (19) (0.10) (0.06) FCFPS ($/sh) (0.04) (0.04) (0.04) (0.39) 0.04 Total 232 1.21 £0.81 P/FCFPS n.m n.m n.m n.m 5.1x Current NAV Multiple (Implied) 0.15x FCF Yield -18% -18% -16% -172% 20% EV/EBITDA n.m n.m n.m n.m 1.2x Valuation EBITDA Margin 0% 0% 0% 0% 26% NAV valuation NAV risk multiple 0.50x £0.39 Dividend Per Share ($/sh) 0.00 0.00 0.00 0.00 0.00 VALUATION £0.39 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% Return on Assets (ROA) -20% -25% -16% -6% 6% Return on Equity (ROE) -21% -26% -16% -10% 9% Sensitivity Analysis NAV (£/sh) Return on Capital Employed (ROCE) -21% -26% -17% -7% 8% Base case U3O8 price forecast 0.81 Net Debt/EBITDA 0.0x 1.7x 4.4x -5.0x 1.7x Base case +10% 0.47 Gearing (Debt/Equity) 0% 0% 0% 59% 49% Base case -10% 0.27 Interest Cover n.m n.m n.m n.m -0.2x LT U3O8 price ($60/lb) 0.36 Shares Outstanding (m) 180 180 264 347 347 Income Statement 2014 2015F 2016F 2017F 2018F Revenue 0 0 0 0 80 Cost of Sales 0 0 0 0 (54) News Catalyst (CY) 2014 2015 2016 2017 2018 G&A (2) (1) (2) (2) (4) Permitting Exploration (7) (7) (8) (8) (3) Zona 7 Scoping Study Other 1 0 0 0 (0) Zona 7 in-fill drilling EBITDA (8) (7) (10) (10) 21 DFS DD&A 0 0 0 0 (9) Construction & Engineering EBIT (8) (7) (10) (10) 12 Production Net Interest Expense 0 0 0 0 (3) Reserves & Resources (attributable) Mt Grade ppm U3O8 EV/lb PBT (8) (7) (9) (10) 9 Reserves (P&P) Mlbs - - - - Non-Recurring Items/Other 0 0 0 0 0 Resources (M&I) Mlbs 34 423 32 0.42 Taxes/Recovery (0) 0 0 0 0 Resources (Total) Mlbs 85 469 88 0.15 Net Profit (Loss) - attributable (7) (7) (9) (10) 9 Production & Cost 2017F 2018F 2019F 2020F Minority Interest 0 0 0 0 0
U3O8 production Mlbs 0.00 1.15 1.47 3.25 Cashflow 2014 2015F 2016F 2017F 2018F EV/lb Production (attributable) $/lb 0.0 11.6 9.1 4.1 Net Profit (Loss) (7) (7) (9) (10) 9 C1 Cash Cost $/lb 0 30 28 26 DD&A 0 0 0 0 9 All-in Sustaining Cost $/lb 0 36 37 27 Non Recurring/Other (1) (0) 0 0 0 Working Cap. Changes 0 0 0 0 0 U3O8 Production ('000 lb, 100% basis) C1 Cash Cost / AISC ($/lb) Cash Flow From Operations (7) (7) (9) (10) 18 4,000 40 Capital Expenditure (0) (0) 0 (127) (3) Acquis./Investments (0) (0) 0 0 0 35 Cash Flow From Investing (0) (0) 0 (127) (3) Equity Issues (Net of Costs) 0 0 38 45 0 3,000 30 Net Borrowings 0 0 0 55 0
25 Dividends Paid & Other (0) 0 0 0 (5) Cash Flow From Financing (0) 0 38 100 (5) 2,000 20 Net Change in Cash (7) (8) 29 (36) 11 Free Cash Flow (7) (8) (9) (136) 16 15 Balance Sheet 2014 2015F 2016F 2017F 2018F Cash & Equivalents 20 13 41 5 16 1,000 10 Total Current Assets 21 14 42 6 16 PP&E & Mining Interests 2 2 2 129 122 5 Deferred taxation 0 0 0 0 0 Other 14 15 15 15 15 0 0 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F Total Assets 37 30 59 149 153 Retortillo Alameda C1 Cash Cost ASIC Short Term Debt 0 0 0 0 0 Current Liabilities 1 1 1 1 1 Assumptions (Real) 2014 2015F 2016F 2017F LT Long Term Debt 0 0 0 55 50
Uranium U3O8 price ($/lb) 34 39 41 48 60 Other Long Term Liabilities 0 0 0 0 0 Exchange Rate (A$:US$) 0.90 0.76 0.75 0.75 0.75 Total Liabilities 1 1 1 56 51 Exchange Rate (US$:£) 1.65 1.50 1.50 1.50 1.50 Shareholder Equity 36 29 57 93 102 Total Liab. & S/Holder Equity 37 30 59 149 153 Working Capital 19 12 41 4 15 Net Debt (Cash) (20) (13) (41) 50 34 Source: Company & Numis Securities Research
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Caledonia Mining Corp 9 April 2015 Estimate Changes
BUY Building a Golden Future
We maintain our BUY recommendation and 75p TP, despite our new commodity Current Share Price 39p price forecasts and changes to our model. Target Price 75p Market Capitalisation £20m ● Company Snapshot. Caledonia Mining is an AIM/TSX-listed junior gold producer Shares In Issue 52m focused in Zimbabwe. Its flagship asset is the low cost, cash-generative Blanket mine, RIC/BLBG CALq.L/CMCL LN which is fully indigenised and potentially being expanded to 75-80kozpa by 2021, from Avg. Daily Volume (3M) 11,298 the current 40kozpa. Broker Yes Current share price(s) timed at 7:00AM on 07/04/15 ● Investment Thesis. Low cost growth - Blanket is a historic mine with excellent Share Price infrastructure, being expanded to 75-80kozpa by developing down-dip extensions 65 below 750m via a central shaft and the No.6 Winze, plus making minor modifications 60 55 to the under-utilised plant. Cash is king - Caledonia has c.$27m in cash and no debt. 50 Growth comes at a very low $70m in capex, which will be funded internally. Blanket is 45 40 an efficient, low-cost and cash generative mine with AISC of c.$900/oz, well below the 35 industry average (a function of low power and labour costs, plus natural ventilation in a 30 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 dry mine). Caledonia pays an 8% yield. Upside potential - We see potential to increase Caledonia Mining Corp production by 10-15kozpa from satellite properties, subject to more work. There is also Relative to UK Market potential for further operational efficiencies. M&A potential - Longer term, Caledonia Performance (%) 1M 3M 12M will have a decent cash pile and a hungry plant, putting it in a strong position to pick Absolute 3 -1 -12 up distressed assets in Zimbabwe.
Relative 2 -9 -17 ● Guidance. 2015: 42koz (NUMe 42koz). Source: Datastream (relative to UK-DS Market index) ● Preview Q1. Production of 10koz, slightly down q-o-q. 2015 guidance maintained. EPS of 3.5c, up q-o-q on WIP and higher gold price.
● Valuation. Blend of 1x NAV/5x P/CF (bottom of 1-2x NAV/5-15x P/CF range for golds).
● Risks. High - Zimbabwe: Caledonia has navigated through Zimbabwean political challenges and pioneered a successful indigenisation structure. Recent new marketing law for gold sales to state owned Fidelity is working out ok so far but there is always Analysts a risk of political or legal change, in our view. Cailey Barker Tel: +44 (0)20 7260 1420 [email protected]
Phil Swinfen Tel: +44 (0)20 7260 1430 [email protected]
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange
32 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Caledonia Mining Corp 9 April 2015
Figure 1: Model summary Caledonia Mining Ticker CMCL.L Market Capitalisation £20m Financial Year End Dec BUY Share Price £0.39 Enterprise Value (EV) £9m Reporting Currency C$ £0.75 Implied Return 92% Net Debt (Cash) -$21m Shares in Issue 52m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS (Adjusted, $/sh) 0.28 0.12 0.11 0.20 0.35 Blanket (49%) 14% 108% 96 1.75 0.93 EPS Growth -43% -57% -6% 74% 77% Exploration Properties 0% 0 0.00 0.00 P/E 2.6x 6.0x 6.4x 3.7x 2.1x Sub-total 96 1.75 0.93 CFPS ($/sh) 0.28 0.26 0.21 0.31 0.46 Cash & Equivalents 24% 21 0.39 0.21 P/CFPS 2.6x 2.8x 3.5x 2.4x 1.6x Debt 0% 0 0.00 0.00 FCFPS ($/sh) 0.06 0.13 (0.15) (0.12) 0.10 Corporate G&A / Other (31%) (28) (0.51) (0.27) P/FCFPS 12.9x 5.5x n.m n.m 7.6x Total 89 1.63 £0.87 FCF Yield 8% 18% -20% -16% 13% Current NAV Multiple (Implied) 0.45x EV/EBITDA 1.3x 1.0x 1.1x 0.7x 0.5x Cash Flow Value $/sh £/sh EBITDA Margin 20% 28% 24% 31% 39% CFPS (1 year forward) 0.23 0.12 Dividend Per Share ($/sh) 0.05 0.07 0.05 0.05 0.04 Current P/CF multiple (implied) 3.1x Dividend Yield 7.5% 10.2% 6.6% 6.6% 5.1% Blended Valuation Target Multiple Weight Return on Assets (ROA) -4% 7% 7% 11% 16% NAV valuation 1.00x 50% £0.87 Return on Equity (ROE) -11% 6% 7% 10% 15% Cash Flow valuation 5.0x 50% £0.62 Return on Capital Employed (ROCE) 15% 18% 14% 22% 31% VALUATION £0.75 Net Debt/EBITDA -1.8x -1.6x -1.1x -0.3x -0.3x Gearing (Debt/Equity) 3% 0% 0% 0% 0% Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Interest Cover 0.0x 0.0x 0.0x 0.0x 0.0x Base case gold price forecast 0.87 0.20 0.31 Shares Outstanding (m) 52 52 52 52 52 Base case +10% 1.06 0.28 0.40 Income Statement 2013 2014 2015F 2016F 2017F Base case -10% 0.70 0.12 0.21 Revenue 65 59 62 75 92 Flat gold price (at spot $1,200/oz) 0.99 0.15 0.24 Cost of Sales (32) (36) (40) (45) (50) H1 15 H2 15 2016 2017 G&A (8) (7) (7) (7) (7) Tramming loop on 750m level Exploration 0 0 (0) (1) (1) Start Sinking Central Shaft (800tpd) Other (13) 1 0 1 1 No. 6 Winze Project (500tpd) starts production EBITDA 13 16 15 23 36 Mining of AR Main/South below 750m starts DD&A (3) (4) (5) (4) (4) Complete Central Shaft H2 EBIT 10 12 11 18 32 Net Interest Expense (0) (0) 0 0 0 Reserves & Resources (attributable) Tonnage Grade Gold EV/oz PBT 9 12 11 19 32 Reserves (P&P) Moz 3 3.7 0.3 39 Non-Recurring Items/Other (3) (3) (2) (3) (4) Resources (M&I) Moz 4 3.8 0.5 27 Taxes/Recovery (10) (5) (3) (6) (10) Resources (Total) Moz 10 4.2 1.4 10 Net Profit (Loss) - attributable (3) 5 6 10 18 Production & Cost 2014 2015F 2016F 2017F Minority Interest 3 2 2 3 4 Gold Production 000oz 42 42 49 60 Cashflow 2013 2014 2015F 2016F 2017F Gold Production (attributable) 000oz 20 21 24 30 Net Profit (Loss) (0) 8 8 13 22 EV/oz Production (attributable) $/oz Au 660 654 561 457 DD&A 3 4 5 4 4 Cash Operating Cost $/oz 652 695 650 560 Non Recurring/Other 25 4 3 5 10 Total Cash Cost (net by-products) $/oz 743 760 717 627 Working Cap. Changes (5) 2 (1) (1) (2) All-in Sustaining Cost $/oz 969 949 885 770 Cash Flow From Operations 15 14 11 16 24 Capital Expenditure (12) (7) (19) (22) (19) Gold Production ('000oz, 100% basis) Total Cash Cost / AISC ($/oz Au) Acquis./Investments 0 0 0 0 0 75 1,250 Cash Flow From Investing (12) (7) (19) (22) (19) Equity Issues (Net of Costs) 0 0 0 0 0 Net Borrowings 0 (1) 0 0 0 1,000 Dividends Paid & Other (8) (4) (3) (3) (2)
50 Cash Flow From Financing (7) (5) (3) (3) (2) 750 Net Change in Cash (5) 2 (10) (9) 3 Free Cash Flow 3 7 (8) (6) 5 Balance Sheet 2013 2014 2015F 2016F 2017F 500 Cash & Equivalents 25 27 16 8 11 25 Total Current Assets 36 36 28 22 28
250 PP&E & Mining Interests 33 38 52 70 85 Deferred taxation 0 0 0 0 0 Other 0 0 0 0 0 0 0 2009* 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F Total Assets 70 74 80 92 113 Blanket Cash Costs AISC Short Term Debt 2 0 0 0 0 Current Liabilities 8 6 6 7 9 Assumptions (Real) 2014 2015F 2016F 2017F LT Long Term Debt 0 0 0 0 0 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Other Long Term Liabilities 10 10 10 10 10 Exchange Rate (US$:£) 1.65 1.50 1.50 1.50 1.50 Total Liabilities 18 16 17 18 19 Exchange Rate (C$:US) 0.91 0.80 0.80 0.80 0.80 Shareholder Equity 52 58 63 74 94 Total Liab. & S/Holder Equity 70 74 80 92 113 Working Capital 29 30 22 14 19 Net Debt (Cash) (23) (27) (16) (8) (11) Source: Company & Numis Securities Research
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Centamin Egypt 9 April 2015 Estimate Changes
HOLD Egyptian Yield
We maintain our HOLD recommendation and 60p TP, despite our revised Current Share Price 60p commodity price forecasts and changes to our model. Target Price 60p Market Capitalisation £691m ● Company Snapshot. TSX/LSE-listed Mid-tier Egyptian gold producer. Main asset Shares In Issue 1,152m is the world class, 450-500kozpa Sukari gold mine. Also has some earlier stage RIC/BLBG CEY.L/CEY LN exploration properties in Burkina Faso (Ampella) and Ethiopia. Avg. Daily Volume (3M) 8,204,692 Net Cash/(Debt) (m) (12/15F) $225.9m ● Investment Thesis. World class mine - Sukari has a 15Moz resource in a mine life of Current share price(s) timed at 9:00AM on 07/04/15 +20 years. It is the first and only commercial gold mine in the country, held in a 50% Share Price production sharing agreement with the government. Ramping up - Stage 4 10Mtpa 80 plant expansion is complete ($330m). The original 5Mtpa plant had been running 75 70 at +15-20% of nameplate capacity so there is potential for 11-12Mtpa in our view. 65 60 Underground is key - Productivity is up to 1Mtpa although there is potential to push this. 55 Grade is key, originally expected to average 8-10g/t, but closer to 6.5-7g/t in the short 50 45 term. Geology is tricky but potential is evident, with real upside from a second Ptah 40 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 decline (not in LOM plan). We expect to see the operation surprise to the upside with Centamin Egypt potential to beat on plant throughput or underground grade. - Reducing Relative to UK Market Cash & divi capex and no debt leaves plenty cash available. Dividend policy of 15-30% of FCF Performance (%) 1M 3M 12M (2-4% yield). Profit sharing payments expected to start H2 2016. Legal cases - 2 cases Absolute 1 -7 12 regarding legitimacy of its exploitation licence by a private individual and fuel subsidy.
Relative 1 -14 6 Likely to take some time to resolve although a recent new law to restrict third party
Source: Datastream (relative to UK-DS Market index) challenges may quicken the process.
● Guidance. 2015: 420koz at cash operating cost of $700/oz (exc. royalties and fuel subsidy), AISC $950/oz. From H2 hits the longer term rate of 450-500kozpa at $700/ oz (AISC $850-900/oz).
● Preview Q1 (13 May). Q1 produced 108koz, 16% down q-o-q but better than guided, with open pit grades moving down temporarily in line with the mine plan. FY guidance is maintained but looks well on track to beat it as expected (NUMe 445koz). Financials Analysts - EPS of 1.4c, down q-o-q on lower production and y-o-y on lower gold prices (NPAT Cailey Barker $17m, 2014 Q1 1.9c), EBITDA of $45m, up y-o-y but down q-o-q. Balance sheet Tel: +44 (0)20 7260 1420 [email protected] remaining strong, up at $181m has capex falls away and FCF is generated. Cash
Phil Swinfen operating costs $733/oz, up q-o-q on lower grades and ounces. No material updates Tel: +44 (0)20 7260 1430 expected on legal cases with a hopeful change around on the new law to restrict third [email protected] party challenges.
This research was prepared and approved by ● Valuation. Blend of 1x NAV/5x P/CF (bottom of 1-2x NAV/5-15x P/CF range for golds). Numis Securities Limited The London Stock Exchange Building ● Risks. Moderate-High: Legal cases, Egyptian politics. 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange
34 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Centamin Egypt 9 April 2015
Figure 1: Model summary Centamin Egypt Ticker CEY.L Market Capitalisation £685m Financial Year End Dec HOLD Share Price £0.60 Enterprise Value (EV) £577m Reporting Currency US$ £0.60 Implied Return 0% Net Debt (Cash) -$163m Shares in Issue 1,142m
Valuation Key Metrics 2014 2015F 2016F 2017F 2018F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) - Underlying 0.07 0.08 0.10 0.05 0.05 Sukari (100%) 12% 92% 974 0.84 0.56 EPS Growth (57%) 14% 26% (48%) (6%) Sub-total 974 0.84 0.56 P/E 12.5x 11.0x 8.7x 16.9x 18.0x Corporate G&A / Other 12% (7%) (76) (0.07) (0.04) CFPS ($/sh) 0.10 0.18 0.19 0.13 0.13 Cash & Equivalents 15% 163 0.14 0.09 P/CFPS 9.1x 5.1x 4.9x 6.7x 7.1x Debt 0% 0 0.00 0.00 FCFPS ($/sh) 0.04 0.10 0.11 0.06 0.06 Total 1,061 0.92 £0.61 P/FCFPS 21.8x 8.6x 8.4x 14.3x 14.4x Current NAV multiple (Implied) 0.98x FCF Yield 5% 12% 12% 7% 7% Cash Flow Value $/sh £/sh EV/EBITDA 5.2x 4.1x 3.6x 3.4x 2.9x CFPS - 12 month forward 0.18 0.12 EBITDA margin 35% 37% 37% 36% 36% Current P/CF multiple (implied) 5.1x Dividend Per Share ($/sh) 0.02 0.03 0.03 0.02 0.02 Blended Valuation Target Multiple Weight Dividend Yield 2.2% 3.5% 3.6% 2.1% 2.1% NAV valuation 1.00x 50% £0.61 Return on Assets (ROA) 6% 6% 8% 4% 4% Cash Flow valuation 5.0x 50% £0.58 Return on Equity (ROE) 6% 7% 8% 4% 4% VALUATION £0.60 Return on Capital Employed (ROCE) 6% 7% 8% 8% 9% Net Debt/EBITDA -1.0x -1.2x -1.1x -1.2x -1.3x Sensitivity Analysis Valuation NAV/sh 15F EPS 15F CFPS Gearing (Debt/Equity) 0% 0 0 0 0 Base case gold price forecast £0.60 £0.61 $0.10 $0.19 Interest Cover n.m n.m n.m n.m n.m Base case +10% £0.65 £0.77 $0.14 $0.22 Shares Outstanding (m) 1,132 1,142 1,142 1,142 1,142 Base case -10% £0.51 £0.47 $0.06 $0.14 Income Statement 2014 2015F 2016F 2017F 2018F Flat gold price (at spot $1200/oz) £0.56 £0.60 $0.11 $0.19 Revenue 473 536 597 632 665 News catalysts H2 14 H1 15 H2 15 2016 Cost of sales (358) (411) (445) (470) (488) Court cases G&A (16) (16) (16) (17) (17) Stage 4 (plant expansion: 10Mt p.a.) Other (14) (16) (18) (19) (20) Sukari resource update EBITDA 165 196 218 227 240 Sukari full run rate (450-500kozpa @ $700/oz) DD&A 84 103 100 101 100 EBIT 84 93 118 126 140 Reserves & Resources (attributable) Tonnes Grade Gold EV/oz Net finance income (expense) (2) 1 2 5 10 Reserves (P&P) 217 Mt 1.10 g/t 7.7 Moz 112 PBT 82 94 121 132 150 Resources (M&I) - inc. Ampella 411 Mt 1.13 g/t 14.9 Moz 58 Non-Recurring Items/Other 0 0 0 0 0 Resources (M, I&I) - inc. Ampella 502 Mt 1.15 g/t 18.5 Moz 47 Tax / Payment to EMRA (0) 0 (3) (71) (93) Production & cost 2014 2015F 2016F 2017F 2018F Net Profit (Loss) - attributable 82 94 118 61 57 Gold production (koz) 377 445 493 507 521 Minority Interest (0) 0 (0) 0 (0) EV/oz production ($/oz AuEq) 2,293 1,943 1,755 1,706 1,659 Cashflow 2014 2015F 2016F 2017F 2018F Cash Operating Cost ($/oz) 729 692 694 699 698 Net Profit (Loss) 82 94 118 61 57 Total Cash Cost ($/oz) 766 728 730 734 734 Working Cap. change (59) 4 (3) (3) (3) All-in Sustaining Cost ($/oz) 1,006 947 908 877 858 DD&A 84 103 100 101 100 Non Recurring/Other 5 (1) (3) (6) (10) Attrib. Gold Eq Production ('000oz) Total Cash Cost ($/oz AuEq) Cash Flow From Operations 112 200 211 152 144 600 1,250 Capital Expenditure (65) (81) (89) (81) (73) Acquis./investments/adjustments (14) (30) (30) (10) (5)
500 Cash Flow From Investing (79) (111) (120) (91) (78) 1,000 Borrowings 0 (0) 0 0 0 Capital stock 50 0 0 0 0 400 Dividends paid & other (61) (31) (49) (31) (12) 750 Cash Flow From Financing (12) (31) (49) (31) (12) 300 Net Change in Cash 21 58 43 31 54 500 Free Cash Flow 47 119 122 72 71 200 Balance Sheet 2014 2015F 2016F 2017F 2018F Cash & Equivalents 163 231 235 265 320 250 100 Total Current Assets 293 354 403 438 498 PP&E & Mining Interests 929 907 897 877 849
0 0 Deferred taxation 0 0 0 0 0 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F Other 148 178 209 220 225 Sukari (100% basis) Total cash costs AISC Total Assets 1371 1440 1508 1535 1573 Short Term Debt 0 0 0 0 0 Assumptions (Real) 2014 2015F 2016F 2017F LT Current Liabilities 34 41 43 45 48 Gold Price (US$/oz) 1,266 1,205 1,200 1,200 1,200 Long Term Debt 0 0 0 0 0 GBPUSD exchange rate 1.65 1.50 1.50 1.50 1.50 Other Long Term Liabilities 3 3 3 3 3 Total Liabilities 37 44 46 49 51 Shareholder Equity 1333 1395 1462 1486 1522 Minority interest (0) (0) (0) (0) (0) Total Liab. & Equity 1371 1440 1508 1535 1573 Working Capital 132 119 123 126 129 Net Debt (Cash) (163) (231) (235) (265) (320) Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Chaarat Gold 9 April 2015 Estimate Changes
BUY DFS Abound
We maintain our BUY recommendation but increase our TP to 24p, from 23p, due Current Share Price 8p to our new commodity price forecasts and changes to our model. Target Price 24p Market Capitalisation £22m ● Company Snapshot. Chaarat is an AIM-quoted junior gold developer focused in Shares In Issue 273m Kyrgyzstan. Its flagship asset is the 6.1Moz Chaarat gold project, with the resource RIC/BLBG CGH.L/CGH LN contained within the Tulkubash (oxide) and Kiziltash (sulphide & refractory) deposits. Avg. Daily Volume (3M) 174,102 DFS is expected mid 2015. Net Cash/(Debt) (m) (12/13F) $11.2m Broker Yes ● Investment Thesis. Potential outweighs challenges - World Class potential +10Moz Current share price(s) timed at 7:00AM on 07/04/15 deposit (current resource 6km of total 40km strike) with decent grades of +3g/t (1.7g/ Share Price t Tulkubash), healthy mineable widths up to 20m, and relatively simple and consistent 20 geology. Topographically challenging location with a seasonally harsh climate, limited 18 16 infrastructure and steeply dipping, predominantly refractory ore. Strategic partner 14 likely - Given scale and financing requirements, plus close proximity to China, a 12 10 strategic partner seems the likely solution to develop the project. The DFS should 8 make the project more robust and put Chaarat in a stronger bargaining position with 6 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 Shandong and other potential strategic investors. DFS Making progress - Being Chaarat Gold Relative to UK Market undertaken by China Nonferrous (NFC), Chaarat's 9% shareholder - expected to complete mid 2015, which will keep costs down and align the company with a potential Performance (%) 1M 3M 12M development partner. DFS will define operating parameters; Initial assumptions are for Absolute -8 -34 -29 a 250kozpa, with the option to develop in 2 stages. Initial stage will be a 120kozpa heap Relative -8 -39 -32 leach - a sizeable 5Mtpa operation with low grade (0.9g/t), low strip (2:1) and cash
Source: Datastream (relative to UK-DS Market index) costs of $550-600/oz; Second stage will be open pit/underground to process refractory ore by POX/Biox. Phase 1 will have ore transported through a 10km long tunnel to the plant, so will take c.3 years to complete. We conservatively estimate start-up in 2019, with capex of $200-250m for stage 1 and $150m for stage 2. A resource update for Tulkubash is expected over the coming months. Funded to complete - recent raised $5m to Fasanara Capital (26%), which is sufficient to last until Q1 2016.
● Valuation. 0.75x NAV (middle of 0.5-1x NAV range for gold pre-producers). Analysts Cailey Barker ● Risks. High: Kyrgyzstan politics, metallurgy & mining, limited infrastructure & Tel: +44 (0)20 7260 1420 [email protected] topographically challenging, project delivery.
Phil Swinfen Tel: +44 (0)20 7260 1430 [email protected]
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange
36 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Chaarat Gold 9 April 2015
Figure 1: Model summary Chaarat Ticker CGH.L Market Capitalisation £22m Financial Year End Dec BUY Share Price 8p Enterprise Value (EV) £17m Reporting Currency US$ 24p Implied Return 193% Net Debt (Cash) -$8m Shares in Issue 273m
Valuation Key Metrics 2013 2014F 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m £m p/sh EPS ($/sh) (0.06) (0.02) (0.03) (0.03) (0.03) Chaarat (100%) 14% 109% 151 101 34 EPS Growth -25% 57% -10% -23% 15% Exploration properties 0% 0 0 0 P/E n.m n.m n.m n.m n.m Sub-total 151 101 34 CFPS ($/sh) (0.02) (0.02) (0.03) (0.03) (0.03) Cash & Equivalents 6% 8 5 2 P/CFPS n.m n.m n.m n.m n.m Debt 0% 0 0 0 FCFPS ($/sh) (0.10) (0.03) (0.04) (0.20) (0.36) Corporate G&A / Other (14%) (20) (13) (4) P/FCFPS n.m n.m n.m n.m n.m Total 140 93 31 FCF Yield -1% 0% 0% -2% -3% Current NAV Multiple (Implied) 0.26x EV/EBITDA n.m n.m n.m n.m n.m VALUATION Target Multiple 0.75x 24p EBITDA Margin 0% 0% 0% 0% 0% Dividend Per Share ($/sh) 0.00 0.00 0.00 0.00 0.00 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% Return on Assets (ROA) -22% -11% -14% -6% -4% Return on Equity (ROE) -23% -11% -15% -6% -6% Return on Capital Employed (ROCE) -23% -11% -15% -7% -7% Net Debt/EBITDA 0.8x 1.2x 0.3x 5.9x -4.2x Gearing (Debt/Equity) 0% 0% 0% 0% 49% Interest Cover n.m n.m n.m n.m n.m Shares Outstanding (m) 250 262 273 300 300 Sensitivity Analysis NAV (p/sh) 15F EPS 15F CFPS Income Statement 2013 2014F 2015F 2016F 2017F Base case gold price forecast 31 (0.03) (0.03) Revenue 0 0 0 0 0 Base case +10% 46 (0.03) (0.03) Cost of Sales 0 0 0 0 0 Base case -10% 16 (0.03) (0.03) G&A (6) (4) (4) (4) (4) Flat gold price (at spot $1,200/oz) 30 (0.03) (0.03) Exploration (9) (3) (4) (7) (7) News Catalysts H1 15 H2 15 2016 2019 EBITDA (15) (7) (8) (11) (11) Tulkubash resource update DD&A 0 0 0 0 0 DFS completes EBIT (15) (7) (8) (11) (11) Financing Net Interest Expense 0 0 0 1 1 Construction/Development PBT (14) (7) (8) (10) (10) Production starts Non-Recurring Items/Other 0 0 0 0 0 Taxes/Recovery 0 0 0 0 2 Reserves & Resources (attributable) Gold Silver Gold Eq EV/oz Net Profit (Loss) - attributable (14) (7) (8) (10) (9) Reserves (P&P) Moz 2.6 0 2.6 10 Minority Interest 0 0 0 0 0 Resources (M&I) Moz 5.2 0 5.2 5 Cashflow 2013 2014F 2015F 2016F 2017F Resources (M, I&I) Moz 6.1 0 6.1 4 Net Profit (Loss) (14) (7) (8) (10) (9) Production & Cost (attributable) 2016F 2017F 2018F 2019F DD&A 0 0 0 0 0 Gold Eq. Production 000oz 0 0 0 120 Non Recurring/Other 5 0 0 0 0 EV/oz Production $/oz AuEq 0 0 0 215 Working Cap. Changes 3 2 0 0 0 Total Cash Cost (net by-products) $/oz 0 0 0 585 Cash Flow From Operations (6) (5) (8) (10) (9) All-in Sustaining Cost $/oz 0 0 0 720 Capital Expenditure (19) (4) (3) (50) (100) Acquis./Investments 0 1 5 1 0
Attrib. Gold Eq Production ('000oz) Total Cash Cost / AISC ($/oz AuEq) Cash Flow From Investing (19) (4) 2 (49) (100) 250 1000 Equity Issues (Net of Costs) 0 5 0 120 0 Net Borrowings 0 0 0 0 75 Dividends Paid & Other 0 0 0 0 0 200 750 Cash Flow From Financing 0 5 0 120 75 Net Change in Cash (25) (3) (5) 60 (34) 150 Free Cash Flow (25) (9) (11) (60) (109) 500 Balance Sheet 2013 2014F 2015F 2016F 2017F
100 Cash & Equivalents 11 8 2 63 29 Total Current Assets 14 8 2 63 29 250 PP&E & Mining Interests 51 52 50 100 200 50 Deferred taxation 0 0 0 0 0 Other 0 0 0 0 0 0 0 Total Assets 65 60 53 163 229 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F Short Term Debt 0 0 0 0 75 Heap Leach Open Pit (POX) Kiziltash (U/G) Total Cash Cost AISC Current Liabilities 2 1 1 1 76 Long Term Debt 0 0 0 0 0 Assumptions (Real) 2014F 2015F 2016F 2017F LT Other Long Term Liabilities 0 1 1 1 1 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Total Liabilities 2 1 1 2 77 Silver Price ($/oz) 19.08 16.69 17.59 18.60 18.46 Shareholder Equity 63 59 51 161 153 Exchange Rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Total Liab. & S/Holder Equity 65 60 53 163 229 Working Capital 12 7 2 62 (47) Net Debt (Cash) (11) (8) (2) (63) 46 Source: Company & Numis Securities Research
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 37 1 Metals & Mining For FCA purposes this is a Marketing Communication
Condor Gold 9 April 2015 Estimate Changes
BUY Dotting the i's and crossing the t's
We maintain our BUY recommendation and 90p TP despite our revised commodity Current Share Price 64p price forecasts and changes to our model. Target Price 90p Market Capitalisation £29m ● Company Snapshot. AIM-listed gold developer focused on Nicaragua. PFS Shares In Issue 46m completed Nov 2014 on its flagship 2.3Moz La India gold project. Focus of the PFS RIC/BLBG CNR.L/CNR LN on the Indicated 830koz resource but Condor's all about options including mining of Avg. Daily Volume (3M) 101,561 satellite pits, underground mining and a district scale exploration play. A clear take-out Broker Yes target for a larger player. Current share price(s) timed at 7:00AM on 07/04/15
● Share Price Investment Thesis. High Grade Simplicity. Robust resource of 2.3Moz Au of 140 which 900koz is open-pittable at a high grade of 3.1g/t, well above peers (1.7g/t). 120 Reserve 675koz at 3g/t Au. Simple mining, low capex, lower quartile AISC, excellent 100 infrastructure with roads and power, lower risk jurisdiction. Takeover Target. Given the 80 project's high-grade and advance stage, we believe Condor could be a take-over target 60 for a larger player. PFS options. Base case - 0.8Mpta mill, 79kozpa, 9 year LOM, 40 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 AISC of $690/oz and capex $110m. PFS included two PEA scenarios - A: including Condor Gold satellite pits and B: satellites + underground. Scenario "A" is based on a larger plant Relative to UK Market and increases production by 25% (1.2Mtpa plant, 97kozpa, 8 year LOM, capex $127m, Performance (%) 1M 3M 12M AISC $685/oz). Scenario B boosts gold production to 137koz pa but comes with a Absolute 10 3 -9 capex of $169m. Our View. We base our valuation on Scenario A as we believe it does Relative 9 -5 -14 not make sense to exclude satellite pits - 100kozpa, 9 year LOM, $130m capex, AISC
Source: Datastream (relative to UK-DS Market index) of $740/oz, start up 2018, 30% IRR. We see Condor defining a modest, high-grade open pit as a foundation and expanded from there. District play. Real upside is the scalability of a new district play - numerous untested targets within trucking distance - 75% of the district is unexplored. Cash to keep busy. £6.4m placing in Q3 2014, £3.5m from the IFC, a strong endorsement of the project. Current Activity- focused on the de-risking the project through permitting and land acquisition and working on all the soft issues before moving into the BFS and significant expenditure.
● Valuation. 0.75x NAV (middle of 0.5-1x NAV range for gold pre-producers). Analysts Phil Swinfen ● News Catalysts. On-going exploration - Drilling at La India for depth and strike Tel: +44 (0)20 7260 1430 [email protected] extensions and exploration drilling at Real de la Cruz.
Cailey Barker ● Tel: +44 (0)20 7260 1420 Risks. Moderate. Project delivery, financing, opex and capex changes, NGO activity. [email protected]
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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38 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Condor Gold 9 April 2015
Figure 1: Model summary Condor Ticker CNR.L Market Capitalisation £26m Financial Year End Dec BUY Share Price 64p Enterprise Value (EV) £23m Reporting Currency £ 90p Implied Return 41% Net Debt (Cash) -£4m Shares in Issue 41m
Valuation Key Metrics 2012 2013 2014F 2015F 2016F Net Asset Value Disc Rate NAV (%) $m £m p/sh EPS (£/sh) (0.11) (0.08) (0.09) (0.06) (0.04) La India 12% 78% 76 51 97 EPS Growth -54% 25% -2% 24% 33% Resources not in mine plan 29% 28 19 36 P/E n.m n.m n.m n.m n.m Exploration properties 10% 10 7 13 CFPS (£/sh) (0.06) (0.07) (0.07) (0.06) (0.04) El Salvador projects 0% 0 0 0 P/CFPS n.m n.m n.m n.m n.m Sub-total 114 76 146 FCFPS (£/sh) (0.19) (0.21) (0.08) (0.06) (0.34) Cash & Equivalents 4% 4 2 5 P/FCFPS n.m n.m n.m n.m n.m Debt 0% 0 0 0 FCF Yield -29% -34% -13% -10% -53% Corporate G&A / Other (22%) (21) (14) (27) EV/EBITDA n.m n.m n.m n.m n.m Total 97 64 124 EBITDA Margin 0% 0% 0% 0% 0% Current NAV Multiple (Implied) 0.52x Dividend Per Share (£/sh) 0.00 0.00 0.00 0.00 0.00 VALUATION Target Multiple 0.75x 93p Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% Return on Assets (ROA) n.m n.m n.m n.m n.m Return on Equity (ROE) n.m n.m n.m n.m n.m Sensitivity Analysis NAV (p/sh) Return on Capital Employed (ROCE) n.m n.m n.m n.m n.m Base case gold price forecast 124 Net Debt/EBITDA 0.8x 0.8x 1.7x 2.3x 7.6x Base case +10% 170 Gearing (Debt/Equity) 0% 0% 0% 0% 97% Base case -10% 63 Interest Cover n.m n.m n.m n.m n.m Flat gold price (at spot $1,200/oz) 121 Shares Outstanding (m) 31 37 41 48 75 News Catalysts 2014 2015 2016 2017 2018 Income Statement 2012 2013 2014F 2015F 2016F PFS Completed Revenue 0 0 0 0 0 Exploration results Cost of Sales 0 0 0 0 0 BFS G&A (3) (3) (3) (3) (3) Funding Exploration 0 0 0 0 0 Construction EBITDA (3) (3) (3) (3) (3) Production DD&A 0 0 0 0 0 Reserves & Resources (La India attributable) Gold EV/oz EBIT (3) (3) (3) (3) (3) Reserves (P&P) Moz 0.7 51 Net Interest Expense 0 0 0 0 0 Resources (M&I) Moz 1.1 31 PBT (3) (3) (3) (3) (3) Resources (M, I&I) Moz 2.3 15 Non-Recurring Items/Other 0 0 0 0 0 Production & Cost (attributable) 2016F 2017F 2018F 2019F Taxes/Recovery 0 0 0 0 0 Gold Production 000oz 0 0 82 88 Net Profit (Loss) - attributable (3) (3) (4) (3) (3) EV/oz Production $/oz Au - - 414 384 Minority Interest (0) (0) (0) 0 0 Operating Cash cost (C1) $/oz 0 0 608 778 Cashflow 2012 2013 2014F 2015F 2016F Total Cash Cost (C2) $/oz 0 0 648 815 Net Profit (Loss) (3) (3) (4) (3) (3) All-in Sustaining Cost $/oz 0 0 742 917 DD&A 0 0 0 0 0 Non Recurring/Other 1 1 0 0 0
Attrib. Gold Production ('000oz) Total Cash Cost / AISC ($/oz ) Working Cap. Changes 0 (1) 0 0 0 Cash Flow From Operations (2) (3) (3) (3) (3) 140 Capital Expenditure (4) (5) (1) 0 (22) Acquis./Investments 0 0 0 0 0 120 1000 Cash Flow From Investing (4) (5) (1) 0 (22) Equity Issues (Net of Costs) 7 7 6 5 43 100 Net Borrowings 0 0 0 0 60 750 Dividends Paid & Other 0 0 0 0 0 80 Cash Flow From Financing 7 7 6 5 103 Net Change in Cash 1 (1) 3 2 78 60 500 Free Cash Flow (6) (8) (3) (3) (25) Balance Sheet 2012 2013 2014F 2015F 2016F 40 Cash & Equivalents 2 2 5 7 85 250 Total Current Assets 3 3 6 8 86 20 PP&E & Mining Interests 0 0 0 0 22 Deferred taxation 0 0 0 0 0 0 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Other 10 15 14 14 14 La India (open pit) Feeders La India (underground) Total Assets 13 18 21 23 122 Artisanal Total Cash Cost AISC Short Term Debt 0 0 0 0 0 Current Liabilities 1 1 1 1 1 Assumptions (Real) 2013 2014F 2015F 2016F LT Long Term Debt 0 0 0 0 60 Gold Price ($/oz) 1,412 1,266 1,205 1,200 1,200 Other Long Term Liabilities 0 0 0 0 (0) Silver Price ($/oz) 23.9 19.1 16.7 17.6 18.5 Total Liabilities 1 1 1 1 61 Exchange Rate (US$/£) 1.56 1.65 1.50 1.50 1.50 Shareholder Equity 13 18 20 22 62 Total Liab. & S/Holder Equity 13 18 21 23 122 Working Capital 2 3 5 7 85 Net Debt (Cash) (2) (2) (5) (7) (25) Source: Company & Numis Securities Research
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Dalradian Resources 9 April 2015 Estimate Changes
BUY The Golden Shamrock
We maintain our BUY recommendation and 90p TP, despite our new commodity Current Share Price 49p price forecasts and changes to our model. Target Price 90p Market Capitalisation £80m ● Company Snapshot. Dalradian is an AIM/TSX-listed gold developer based in Shares In Issue 162m Northern Ireland. Its flagship asset is the high grade 3.5Moz Curraghinalt project, which RIC/BLBG DALR.L/DALR LN is undergoing a PFS, expected to produce 162kozpa at an AISC of <$700/oz from Avg. Daily Volume (3M) 24,693 2019. Current share price(s) timed at 7:00AM on 07/04/15 ● Share Price Investment Thesis. We view Dalradian as a rare investment opportunity for low-risk, 65 high-grade exposure in the junior gold space. After successfully defining an attractive 60 and sizeable project in under 4 years, it is now de-risking it through permitting and 55 50 feasibility. The project is one of the few high grade gold projects in the world, located 45 40 in a developed jurisdiction with low costs/capex and excellent infrastructure. We see 35 plenty of upside potential in what could well become a new gold belt. Grade is king - 30 Dec- 14 Jan- 15 Feb- 15 Mar- 15 Apr- 15 Curraghinalt has a decent 3.5Moz resource at a high grade of 9.3g/t (diluted). The 2014 Dalradian Resources revised PEA envisaged a conventional 620ktpa shallow underground/CIL operation. Relative to UK Market Cash costs and capital intensity are bottom quartile at $485/oz and $86/oz (capex Performance (%) 1M 3M 12M $250m). A PFS is expected to be completed by the year end, which is investigating a Absolute -11 28 n/a number of potential options which should enhance the project. Location, Location -
Relative -11 18 n/a Strong government and local community support. Like its neighbour, Northern Ireland is pro-investment and mining friendly. It has already approved use of explosives for Source: Datastream (relative to UK-DS Market index) DALR's underground program and we expect to see a similar success story as Wolf Minerals has enjoyed. With strong support and first world infrastructure we think that it would be when, rather than if, the project gets developed. Plenty of upside - We see plenty of upside, including a reduction in NI tax to 12% (TBA soon), increased mine life, plus exploration upside - open in all directions on a largely unexplored 12km gold trend, which we ascribe no value to. We believe the region has potential to become a major +10Moz gold district. Value to be had - The shares are trading behind its high grade peers and we would expect a re-rating as it moves through the stages of feasibility and Analysts de-risks towards production. We see plenty of newsflow this year to drive the shares Cailey Barker with exploration results, permitting, underground development, resource update and Tel: +44 (0)20 7260 1420 PFS results. [email protected] Phil Swinfen ● Valuation. 0.5x P/NAV (bottom of 0.5-1x P/NAV range for gold pre-producers). Tel: +44 (0)20 7260 1430 [email protected] ● Risks. Low: Project development, financing, permitting.
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange
40 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Dalradian Resources 9 April 2015
Figure 1: Model summary Dalradian Resources Ticker DALR.L Market Capitalisation £80m Financial Year End Dec BUY Share Price £0.49 Enterprise Value (EV) £58m Reporting Currency C$ £0.90 Implied Return 84% Net Debt (Cash) -$33m Shares in Issue 163m
Valuation Key Metrics 2014 2015F 2016F 2017F 2018F Net Asset Value Disc Rate NAV (%) $m C$/sh £/sh EPS (C$/sh) (0.06) (0.04) (0.06) (0.04) (0.05) Curraghinalt (100%) 10% 111% 530 3.70 1.97 EPS Growth 77% 36% -67% 42% -44% Exploration Properties 0% 0 0.00 0.00 P/E n.m n.m n.m n.m n.m Sub-total 530 3.70 1.97 CFPS (C$/sh) (0.04) (0.03) (0.03) (0.02) (0.05) Cash & Equivalents 7% 33 0.23 0.12 P/CFPS n.m n.m n.m n.m n.m Debt 0% 0 0.00 0.00 FCFPS (C$/sh) (0.12) (0.21) (0.15) (0.44) (0.68) Corporate G&A / Other (18%) (87) (0.61) (0.32) P/FCFPS n.m n.m n.m n.m n.m Total 476 C$3.32 £1.76 FCF Yield -13% -23% -16% -48% -74% Current NAV Multiple (Implied) 0.28x EV/EBITDA n.m n.m n.m n.m n.m VALUATION Target Multiple 0.50x C$1.66 £0.88 EBITDA Margin 0% 0% 0% 0% 0% Dividend Per Share (C$/sh) 0.00 0.00 0.00 0.00 0.00 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% Return on Assets (ROA) -8% -6% -10% -5% -4% Return on Equity (ROE) -9% -6% -10% -5% -7% Return on Capital Employed (ROCE) -9% -7% -10% -5% -5% Net Debt/EBITDA 4.2x 2.3x 0.3x 0.7x -9.8x Gearing (Debt/Equity) 0% 0% 0% 0% 97% Sensitivity Analysis NAV (£/sh) 18F EPS 18F CFPS Interest Cover n.m n.m n.m n.m n.m Base case gold price forecast 1.76 (0.05) (0.05) Shares Outstanding (m) 120 163 174 326 326 Base case +10% 2.28 (0.05) (0.05) Income Statement 2014 2015F 2016F 2017F 2018F Base case -10% 1.37 (0.05) (0.05) Revenue 0 0 0 0 0 Flat gold price (at spot $1,200/oz) 1.70 (0.05) (0.05) Cost of Sales 0 0 0 0 0 News Catalysts H1 15 H2 15 2016 2017 G&A (7) (6) (11) (11) (12) EIA preparation & submission Exploration 0 0 0 0 (10) UG development Other 0 0 0 0 0 Resource update EBITDA (7) (6) (11) (11) (22) Pre-Feasibility Study Q4 DD&A 0 0 0 0 0 Definitive Feasibility Study & Permitting EBIT (7) (6) (11) (11) (22) Financing & Construction Net Interest Expense 0 0 0 0 0 Reserves & Resources (attributable) Tonnage Grade Gold EV/oz PBT (7) (6) (11) (11) (22) Reserves (P&P) Moz 0 0.0 0.0 0 Non-Recurring Items/Other 0 0 0 0 0 Resources (M&I) Moz 3 10.4 1.0 88 Taxes/Recovery 0 0 0 0 6 Resources (Total) Moz 11 9.9 3.5 25 Net Profit (Loss) - attributable (7) (6) (11) (11) (17) Production & Cost 2017F 2018F 2019F 2020F Minority Interest 0 0 0 0 0 Gold Production (consolidated) 000oz 0 0 221 171 Cashflow 2014 2015F 2016F 2017F 2018F Gold Production (attributable) 000oz 0 0 221 171 Net Profit (Loss) (7) (6) (11) (11) (17) EV/oz Production (attributable) $/oz Au 0 0 401 517 DD&A 0 0 0 0 0 Cash Operating Cost $/oz 0 0 323 345 Non Recurring/Other 1 1 5 5 (0) Total Cash Cost (net by-products) $/oz 0 0 402 426 Working Cap. Changes 1 0 0 0 0 All-in Sustaining Cost $/oz 0 0 479 519 Cash Flow From Operations (5) (5) (6) (6) (17) Capital Expenditure (9) (30) (20) (138) (206) Gold Production ('000oz, 100% basis) Total Cash Cost / AISC ($/oz Au) Acquis./Investments (1) 0 0 0 0
250 750 Cash Flow From Investing (10) (30) (20) (138) (206) Equity Issues (Net of Costs) 38 19 15 148 0 Net Borrowings 0 0 0 0 222 200 Dividends Paid & Other 0 0 0 0 0 Cash Flow From Financing 38 19 15 148 222 500 150 Net Change in Cash 23 (15) (11) 4 (1) Free Cash Flow (14) (35) (26) (144) (223) Balance Sheet 2014 2015F 2016F 2017F 2018F 100 Cash & Equivalents 30 14 4 8 6 250 Total Current Assets 33 18 7 11 10
50 PP&E & Mining Interests 49 79 99 237 443 Deferred taxation 0 0 0 0 0 Other 2 2 2 2 2 0 0 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Total Assets 84 98 107 249 454 Curraghinalt Total Cash Cost AISC Short Term Debt 0 0 0 0 0 Current Liabilities 3 3 3 3 3 Assumptions (Real) 2017F 2018F 2019F 2020F LT Long Term Debt 0 0 0 0 222 Gold Price ($/oz) 1,200 1,200 1,200 1,200 1,200 Other Long Term Liabilities 0 0 0 0 0 Silver Price ($/oz) 18.6 18.5 18.5 18.5 18.5 Total Liabilities 3 3 3 3 225 Exchange Rate (US$:£) 1.50 1.50 1.50 1.50 1.50 Shareholder Equity 80 95 104 245 229 Exchange Rate (C$:US$) 1.25 1.25 1.25 1.25 1.25 Total Liab. & S/Holder Equity 84 98 107 249 454 Working Capital 30 15 4 8 7 Net Debt (Cash) (30) (14) (4) (8) 216 Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Ferrexpo 9 April 2015 Estimate Changes
HOLD Pellet Protection
We maintain our HOLD recommendation and 60p TP, despite our revised Current Share Price 65p commodity price forecasts and changes to our model. Target Price 60p Market Capitalisation £383m ● Company Snapshot. FTSE250 iron ore producer in Ukraine. 6th largest pellet Shares In Issue 589m producer in the world with integrated logistics capability and 20Bnt in resources. RIC/BLBG FXPO.L/FXPO LN Steadily increasing production from its 12Mtpa Poltava (FPM) and Yeristovo (FYM) Avg. Daily Volume (3M) 1,110,586 mines; with blue sky from Belanovskoye (FBM). Also owns 14% of Ferrous Resources. Net Cash/(Debt) (m) (12/15F) $(506.4)m Current share price(s) timed at 7:00AM on 07/04/15 ● Investment Thesis. Pellet premium - Production gently ticking up as plant upgrades Share Price have been made, increasing to 12Mtpa. C1 costs are down below $40/t, helped by 180 more efficient FYM ore, cost savings and fx devaluation ($4/t per 10% UAH), although 160 140 expected to see inflationary increases (>10%) into 2016. Produces a premium quality 120 pellet and remains competitive on the global pellet cost curve (c.$20/t premium to 100 80 China 62% CFR price, comprising $29/t pellet premium, $7.5/t for 65%, less $13/ 60 t freight). No impact from Ukraine issues at present. We estimate AISC of c.$60/t 40 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 (C1 $40/t, plus $4/t G&A, $6/t sustaining capex, $9/t freight to border), plus $7/t for Ferrexpo debt interest and tax, leaving a small margin at current iron ore prices. Relative to UK Market Business improvement - All now complete - Quality upgrade programme (100% 65% pellets Performance (%) 1M 3M 12M by end 2015), 12Mtpa capacity upgrade, Mine Life Extension (2038), plus marketing, Absolute 18 18 -58 cost and logistics improvements. 10Mtpa concentrator at FYM has been postponed
Relative 17 9 -60 until market improves, with modest capex expenditure to continue (NUMe 2019/20,
Source: Datastream (relative to UK-DS Market index) $850m capex, phased development likely). Balance sheet holding - Well managed and conservative keeping net debt to EBITDA within its financial parameters; further refinancing expected ($576m to repay by April 2016 from bank amortisation and re- financed Eurobond). Consistent dividend payer (5% yield).
● Guidance. 2015: 11.5-12Mt (12Mtpa run rate by year end).
● Preview Q1 IMS (16 Apr). Production up 2.5% y-o-y at 2.8Mt, a quarterly record. High grade 65% Fe pellets are now at 85%, up 48% y-o-y. We forecast a small premium to Analysts benchmark prices; pellet premiums being maintained. C1 costs continuing to fall at $36/ Cailey Barker t, down y-o-y; continuing to benefit from higher production volumes and fx devaluation. Tel: +44 (0)20 7260 1420 [email protected] Net debt up down slightly at $650m.
Phil Swinfen ● Tel: +44 (0)20 7260 1430 Valuation. Blend of 1x NAV/7x P/E (bottom of 7-12x P/E range for bulk miners). [email protected] ● Risks. High: Ukraine politics - access & supply lines, VAT receivables, legal case. This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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42 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Ferrexpo 9 April 2015
Figure 1: Model summary Ferrexpo Ticker FXPO.L Market Capitalisation £381m Financial Year End Dec HOLD Share Price £0.65 Enterprise Value (EV) £833m Reporting Currency US$ £0.60 Implied Return -8% Net Debt (Cash) $678m Shares in Issue 585m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) 0.45 0.30 0.11 0.18 0.15 Poltava (FPM) & Yeristovo (FYM) 12% 355% 1,686 2.88 1.92 EPS Growth 22% -33% -63% 64% -19% Sub-total 1,686 2.88 1.92 P/E 2.2x 3.2x 8.8x 5.4x 6.7x Investments (Ferrous - 14.4%) 0 0.00 0.00 CFPS ($/sh) 0.86 0.73 0.40 0.48 0.40 Cash & Equivalents 132% 627 1.07 0.71 P/CFPS 1.1x 1.3x 2.4x 2.1x 2.5x Debt (275%) (1,305) (2.23) (1.49) FCFPS (£/sh) (0.06) 0.09 0.31 0.23 0.21 Corporate G&A (112%) (533) (0.91) (0.61) P/FCFPS n.m 10.6x 3.2x 4.2x 4.7x Total 475 0.81 £0.54 FCF Yield -7% 9% 32% 24% 21% Current NAV Multiple (Implied) 1.20x EV/EBITDA 2.5x 2.5x 5.5x 4.7x 5.6x Earnings Value $/sh £/sh EBITDA Margin 32% 36% 23% 24% 20% EPS (1 year forward) 0.13 0.09 Dividend Per Share ($/sh) 0.13 0.13 0.05 0.06 0.04 Current P/E multiple (implied) 7.6x Dividend Yield 13.6% 13.5% 5.0% 5.7% 4.6% Blended Valuation Target Multiple Weight Return on Assets (ROA) 9% 8% 3% 7% 6% NAV valuation 1.0x 50% £0.54 Return on Equity (ROE) 15% 24% 8% 12% 9% Earnings valuation 7.0x 50% £0.60 Return on Capital Employed (ROCE) 19% 27% 13% 18% 15% VALUATION £0.57 Net Debt/EBITDA 1.3x 1.4x 2.3x 1.6x 1.5x Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Gearing (Debt/Equity) 59% 182% 122% 63% 49% Base case iron ore price forecast 0.54 0.18 0.48 Interest Cover -0.1x -0.1x -0.3x -0.2x -0.1x Base case +10% 1.55 0.28 0.60 Shares Outstanding (m) 585 585 585 585 585 Base case -10% (0.47) 0.08 0.35 Income Statement 2013 2014 2015F 2016F 2017F Flat iron ore price (at spot $50/t) (1.06) 0.02 0.28 Revenue 1,581 1,388 998 1,107 1,119 News Catalysts 2014 2015 2016 2017 Cost of Sales (773) (648) (529) (588) (670) Yeristovo concentrator decision Selling and distribution expenses (336) (312) (290) (300) (270) Poltava Quality upgrade project G&A and Other operating expenses (71) (20) (40) (40) (48) Poltava mine life extension project EBITDA 506 496 225 268 222 Yeristovo concentrator production (stage 2) 2020 DD&A 100 82 81 85 87 Reserves & Resources Tonnage Grade Iron EV/t EBIT 401 409 140 179 131 Reserves (P&P) Mt 1,491 32% 477 2.62 Net Interest Expense (64) (49) (63) (51) (28) Resources (M&I) Mt 4,721 32% 1,511 0.83 Exceptionals and Other (32) (107) 3 3 3 Resources (Inferred) Mt 2,088 31% 647 1.93 PBT 305 252 80 132 106 Production & Cost (attributable) 2014 2015F 2016F 2017F Taxes/Recovery (42) (70) (14) (24) (19) Poltava (FPM) Mt pellets 7.6 7.8 8.2 8.2 Net Profit (Loss) 262 176 65 106 86 Yerostovo (FYM) Mt pellets 3.4 3.8 3.8 3.8 Minority Interest 2 6 1 2 1 Belanovskoye Mt conc 0.0 0.0 0.0 0.0 Cashflow 2013 2014 2015F 2016F 2017F Total Mt Fe 11.0 11.6 12.0 12.0 Net Profit (Loss) 262 176 65 106 86 C1 Cost $/t Fe 46 37 43 48 DD&A 100 82 81 85 87 All-in Sustaining Cost $/t Fe 71 56 62 65 Non Recurring/Other (26) 43 35 24 2
Fe Production (Mt) C1 Cost / AISC ($/t) Working Cap. Changes (103) (15) 69 (5) 0 15 100 Cash Flow From Operations 233 286 251 210 174 Capital Expenditure (271) (233) (70) (75) (53) 75 Investments/Sale of Assets (87) 9 2 1 (0) 10 Cash Flow From Investing (357) (224) (68) (74) (53) 50 Equity Issues (Net of Costs) 0 0 0 0 0
5 Net Borrowings 7 274 (354) (400) (100) 25 Dividends Paid & Other (89) (80) (29) (33) (26) Cash Flow From Financing (82) 193 (383) (433) (126) 0 0 Net Change in Cash (206) 234 (200) (297) (5) 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Poltava (FPM) Yerostovo (FYM) C1 Cost AISC Free Cash Flow (38) 54 181 135 122 Group EBITDA ($m) EBITDA Margin Balance Sheet 2013 2014 2015F 2016F 2017F 100% Cash & Equivalents 390 627 426 129 124 750 Total Current Assets 915 932 738 447 442 75% PP&E 1,534 926 915 906 872 500 Other 483 277 203 203 204 50% Total Assets 2,932 2,135 1,856 1,556 1,517 250 Short Term Debt 101 248 0 0 0 25% Current Liabilities 211 329 82 83 83 Long Term Debt 928 1,056 951 551 451 0 0% 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Other Long Term Liabilities 58 32 43 54 65 EBITDA EBITDA Margin Total Liabilities 1,197 1,417 1,075 687 598 Assumptions (Real) 2014 2015F 2016F 2017F LT Shareholder Equity 1,735 718 781 868 919 Iron Ore Price ($/t 62% Fe) 97 55 59 60 60 Total Liab. & S/Holder Equity 2,932 2,135 1,856 1,556 1,517 Iron Ore Price Received ($/t) 116 77 82 82 82 Working Capital 704 602 656 364 359 Exchange Rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Net Debt (Cash) 639 678 524 421 326 Source: Company & Numis Securities Research
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First Quantum Minerals 9 April 2015 Estimate Changes
ADD Building Through the Cycle From Buy We downgrade to an ADD recommendation and decrease our TP to £10.00, from Current Share Price 880p £10.50, due to our revised commodity price forecasts and changes to our model. Target Price 1,000p Market Capitalisation £5.3bn ● Company Snapshot. TSX/LSE-listed major +400ktpa global copper producer with 7 Shares In Issue 601m operating mines and 5 development projects across 8 countries. It's flagship assets RIC/BLBG FQM.L/FQM LN are the Kansanshi & Sentinel mines in Zambia and the Cobre Panama project. Avg. Daily Volume (3M) 29,915 Net Cash/(Debt) (m) (12/15F) $(4,846.2)m ● Investment Thesis. Superior growth - Plans to grow to 1.1Mtpa by 2018, from the Broker Yes current +400ktpa; 2015: ramp-up of 300ktpa Sentinel project and Zambia smelter, Current share price(s) timed at 7:00AM on 07/04/15 Enterprise nickel in H2 2015, Kansanshi 60-70kpta sulphide expansion 2017, 320ktpa Share Price Cobre Panama project Q4 2017 ($6.4bn). Longer term: Haquira & Taca Taca. Best 1600 in Class - FQM is a leader in the copper space, having developed 5 mines in last 1400 1200 10 years, on time and budget, and at costs well below industry norms. It has a track 1000 record of adding value at its projects and has been able to exceed expectations and 800 re-invent itself from the DRC/Zambia into a global player. Challenging year - With 600 development project build out, smelter constraints and power issues in Zambia, plus 400 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 build up of activities at Cobre Panama, we see 2015 as a big and challenging year for First Quantum Minerals Relative to UK Market FQM, operationally and financially. Debt has been restructured and covenants relaxed; should be ample headroom ($2bn) but we are in a period of peak capex, so will need Performance (%) 1M 3M 12M to be well managed, in our view (gearing 60%, Net Debt/EBITDA 3.5x). Absolute 12 -3 -19 ● Guidance. 2015: 410-440kt copper (560-640kt inc. Sentinel), 32-40kt nickel, Relative 11 -11 -23 218-247koz gold; C1 cost $1.30-1.55/lb Cu and $4.80-5.30/lb Ni. Capex $1.2-1.4bn. Source: Datastream (relative to UK-DS Market index) ● Preview Q1. Better quarter at 118kt copper, up 12% q-o-q, gold flat at 56koz and nickel down at 4.8kt (Q4 2014 105kt Cu, 56koz Au, 10kt Ni). C1 costs slightly 8% y-o-y at $1.44/lb Cu and $6.74/lb Ni (Q4 2014 $1.33/lb). Kansanshi flat but should see ore coming though from Sentinel. Ravensthorpe down following leach tank failure. Others relatively flat with grades and tonnage holding up ok. Financials - EPS $0.16 (NPAT $94m), up q-o-q (Q4 2014 $0.13) and EBITDA of $315m. Restructured balance sheet Analysts to remain debt heavy: net debt of $5.7bn ($0.6bn cash). We look to see the progress Cailey Barker on ramp up of Sentinel and the smelter. Tel: +44 (0)20 7260 1420 [email protected] ● Valuation. Blend of 1X NAV/12x P/E (upper end 7-15x P/E range for coppers). Phil Swinfen Tel: +44 (0)20 7260 1430 ● [email protected] Risks. High: Zambian tax, politics & outstanding VAT, power supply & prices, Zambian smelter constraints, capex overruns & balance sheet, project delivery. This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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44 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange First Quantum Minerals 9 April 2015
Figure 1: Model summary First Quantum Minerals Ticker FQM.L Market Capitalisation £5,199m Financial Year End December ADD Share Price £8.80 Enterprise Value (EV) £1,502m Reporting Currency US$ £10.00 Implied Return 14% Net Debt (Cash) $5,546m Shares in Issue 591m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS - underlying ($/sh) 0.96 0.80 0.67 1.39 2.06 Kansanshi (80%) 10% 29% 3,099 6.45 4.30 EPS Growth (18%) (17%) (16%) 276% 48% Guelb Moghrein (100%) 10% 3% 288 0.60 0.40 P/E 13.8x 16.5x 19.6x 9.5x 6.4x Kevitsa (100%) 8% 13% 1,391 2.89 1.93 CFPS ($/sh) 1.55 1.26 3.09 4.63 4.24 Ravensthorpe (100%) 8% 14% 1,437 2.99 1.99 P/CFPS 8.5x 10.5x 4.3x 2.9x 3.1x Sentinel (95%) 10% 17% 1,807 3.76 2.51 FCFPS ($/sh) (2.96) (1.47) (0.35) 1.12 0.39 Enterprise (100%) 12% 15% 1,608 3.35 2.23 P/FCFPS (4.5)x (9.0)x (37.7)x 11.8x 34.2x Haquira (100%) 10% 9% 961 2.00 1.33 FCF Yield -22% -11% -3% 8% 3% Las Cruces (100%) 8% 12% 1,244 2.59 1.73 EV/EBITDA 8.8x 10.3x 10.1x 6.5x 4.8x Cayeli (100%) 10% 2% 242 0.50 0.34 EBITDA margin 38% 40% 33% 36% 41% Pyhasalmi (100%) 8% 4% 446 0.93 0.62 Dividend Per Share ($/sh) 0.28 0.04 0.13 0.28 0.41 Cobre Panama (100%) 12% 32% 3,371 7.01 4.67 Dividend Yield 2.1% 0.3% 1.0% 2.1% 3.1% Taca Taca Project (100%) 437 0.91 0.61 Return on Assets (ROA) 3% 6% 2% 4% 6% Sub-total 16,331 33.97 22.65 Return on Equity (ROE) 6% 10% 4% 8% 10% Corporate G&A / Other 11% (2%) (254) (0.53) (0.35) Return on Capital Employed (ROCE) 7% 5% 4% 7% 10% Cash & Equivalents 4% 436 0.91 0.60 Net Debt/EBITDA 2.5x 3.9x 3.5x 2.1x 1.5x Debt (57%) (5,982) (12.44) (8.30) Gearing (Debt/Equity) 44.8% 59.3% 59.4% 47.2% 41.8% Total Net Asset Value 10,531 21.91 £14.60 Interest Cover 18.8x 12.9x 6.4x 13.3x 17.8x Current NAV multiple (Implied) 0.60x Shares Outstanding (m) 560 590 596 596 596 Earnings Value $/sh £/sh Income Statement 2013 2014 2015F 2016F 2017F EPS - 1 year forward 0.67 0.45 Revenue 3,553 3,542 4,203 5,911 7,084 Current P/E multiple (implied) 19.6x Cost of sales (2,419) (2,544) (3,354) (4,454) (4,927) Blended Valuation Target Multiple Weight G&A (123) (116) (107) (28) (28) NAV valuation 1.00x 50% £14.60 Other (116) (41) (82) (21) (22) Earnings valuation 12.0x 50% £5.38 EBITDA 1,352 1,413 1,379 2,104 2,924 VALUATION £9.99 DD&A 477 594 720 697 818 Sensitivity Analysis Valuation NAV/sh 15 EPS 15 CFPS EBIT 895 841 659 1,407 2,106 Base case metal price forecast £9.99 £14.60 $0.67 $3.09 Non-Recurring Items/Other - - - - - Base case +10% £14.03 £22.02 $0.75 $3.21 Net finance income (expense) 5 11 10 (53) (116) Base case -10% £7.30 £8.55 $0.75 $3.21 PBT 899 852 669 1,354 1,990 Using flat $2.50/lb Cu; $6.50/lb Ni £7.54 £12.00 $0.40 $2.71 Tax (370) 141 (201) (406) (597) News catalysts 2014 2015 2016 2017 Net Profit (Loss) - attributable 459 835 401 829 1,225 Sentinel starts production Q3 Minority Interest 71 159 68 118 168 Smelter starts up (Zambia) Q4 Cashflow 2013 2014 2015F 2016F 2017F Enterprise starts production H2 Net profit (loss) 530 993 468 948 1,393 Kansanshi sulphide expansion (60-70ktpa) Working capital change (65) 15 118 1,100 298 Cobre Panama starts production Q4 DD&A 477 594 720 697 818 Reserves (attributable) Tonnes Grade Metal EV / lb Non-recurring/other (72) (859) 532 14 19 Copper reserves (P&P): Cu-equiv 1,389 Mt 0.64% 8,875kt Cash Flow From Operations 869 744 1,839 2,759 2,528 Nickel reserves (P&P): Ni-equiv 358 Mt 0.64% 2,282kt Capital expenditure (2,802) (2,647) (1,545) (2,035) (2,363) Combined reserves: Cu-equivalent 1,747 Mt 0.93% 16,177kt $0.06 /lb Acquis./investments/adjustments 4,069 (111) 776 - (190) Production & cost 2014 2015F 2016F 2017F 2018F Cash Flow From Investing 1,267 (2,758) (769) (2,035) (2,553) Copper production (kt) - cons'd 428 576 731 838 1,122 Borrowings 3,677 1,909 281 (260) (167) Copper production (kt) - equity 331 485 633 653 689 Capital stock 2,274 188 - - - Nickel production (kt) 46 42 87 85 81 Other (7,701) (437) - - - Gold production (koz) 227 239 254 329 481 Cash Flow From Financing (1,750) 1,659 281 (260) (167) EV per lb Cu-equiv prodn ($/lb Cu) 3.08 2.11 1.61 1.56 1.48 Net Change in Cash 386 (356) 1,351 464 (191) C1 Cost ($/lb Cu) 1.35 1.42 1.47 1.27 1.17 Free Cash Flow (1,933) (1,903) 294 724 165 C1 Cost ($/lb Ni) 4.37 5.10 3.94 3.84 3.65 Balance Sheet 2013 2014 2015F 2016F 2017F All-in Sustaining Cost ($/lb Cu) 1.69 1.72 1.62 1.42 1.33 Cash & equivalents 695 436 1,417 1,325 1,134 All-in Sustaining Cost ($/lb Ni) 6.34 7.40 4.37 4.29 4.11 Other current assets 1,933 1,678 1,883 3,813 4,305 Copper / Gold Production - Consolidated (kt/koz) C1 Cost / AISC ($/lb Cu) PP&E & mining interests 11,986 14,719 15,544 18,109 19,654 1,400 2.00 Investments 58 33 33 33 33 1,200 Other non-current assets 800 957 (0) - - 1,000 1.50 Total Assets 15,471 17,824 18,878 23,281 25,126 800 1.00 Short-term debt 1,046 23 23 23 23 600 Other current liabilities 759 674 967 4,069 4,859 400 0.50 Long-term debt 3,027 5,929 6,240 5,774 5,608 200 Other non-current liabilities 2,597 1,134 1,134 1,161 1,179 0 0.00 Total Liabilities 6,383 7,736 8,341 11,003 11,645 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Kansanshi Guelb Moghrein Frontier Kevitsa Sentinel Haquira Shareholder equity 7,968 8,913 9,305 10,840 11,899 Cayeli Pyhasalmi Cobre Panama Las Cruces Total gold AISC Minority interest 1,120 1,175 1,232 1,438 1,582 Nickel Production - Consolidated (kt) C1 Cost / AISC ($/lb Ni) Total Liab. & Equity 15,471 17,824 18,878 23,281 25,126 100 10.00 Working Capital 1,004 989 870 (300) (598) 80 8.00 Net Debt (Cash) 3,379 5,546 4,846 4,472 4,497 60 6.00 Assumptions (Real) 2014 2015F 2016F 2017F LT 40 4.00 Copper Price ($/lb) 3.11 2.71 2.89 2.92 2.50 20 2.00 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 0 0.00 Nickel Price ($/lb) 7.66 5.97 6.41 6.98 8.00 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ravensthorpe Kevitsa Enterprise C1 Cost Exchange rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Source: Company & Numis Securities Research
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Fresnillo 9 April 2015 Estimate Changes
BUY Investing in a Downturn
We maintain our BUY recommendation and increase our TP to £10, from £9, due to Current Share Price 710p our new commodity price forecasts and changes to our model. Target Price 1,000p Market Capitalisation £5.2bn ● Company Snapshot. FTSE 100 company and world’s largest primary silver producer Shares In Issue 737m with 5 operating mines and 3 development projects in Mexico. Flagship assets are the RIC/BLBG FRES.L/FRES LN Fresnillo/Saucito mines and the Herradura district gold mines. 75% owned by Peñoles. Avg. Daily Volume (3M) 1,676,016 Net Cash/(Debt) (m) (12/14F) $(738.5)m ● Investment Thesis. Preferred silver play - A conservative, well run company with a Current share price(s) timed at 7:00AM on 07/04/15 superior growth profile and premium quality assets that sit on the bottom of the cost Share Price curve. Gold revenue now switched to 55% following $450m acquisition of Newmont's 1100 44% in Herradura district mines. Superior growth - LT target of 65Mozpa Ag and 1000 +750kozpa Au by 2018 (more likely 80Mozpa, 1.3Mozpa or 2-2.5Mozpa AuEq). 900 800 Saucito II started H2 2014 (10Mozpa Ag, 35kozpa Au, $235m capex), San Julian H2 700 2015 (10Mozpa Ag, 45kozpa Au, $515m capex), Fresnillo & Cienega optimisation 600 projects (2017, 10Mozpa at $170m and 20kozpa at $55m), Pyrites plant (4Mozpa 500 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 Ag, 18kozpa Au, $105m), Mega Centauro pit and Centauro Deep at Herradura Fresnillo (2019/20, 280/225kozpa, $155/365m), Juanicipio (2018, 10Mozpa Ag, 30kozpa Au, Relative to UK Market $300m), Orisvyo (2018, 136kozpa, $350m). More projects likely with sizeable $225m Performance (%) 1M 3M 12M exploration budget. Balance sheet tight - Net debt of $350m as YE, post Newmont Absolute 1 -12 -21 acquisition and $800m in senior notes. Hedge on 44% on Herradura projects. Peak
Relative 0 -19 -25 capex in 2015/6, we estimate an additional $300m in debt will be needed. High margin
Source: Datastream (relative to UK-DS Market index) business with low cost operations (Fresnillo AISC $9/oz, Saucito $7/oz, EBITDA margin 45%). Little risk and divi with 4-4.5% (inc. special). Chinks in armour - 2013/14 were difficult years, with land issues, tax changes, plus labour and cost pressures against falling grades and rising capex. Conducting a group wide review of its land rights and community relations but outside of this we now see limited risks.
● Guidance. 2015: 45-47Moz silver (inc. Silverstream) and 670-685koz gold. Capex $700m.
Analysts ● Preview Q1 (15 Apr). Production down q-o-q at 11.3Moz silver (inc. Silverstream) and Cailey Barker 326koz gold (Q4 2014 12.2Moz Ag, 360koz Au). Production from Saucito slightly lower Tel: +44 (0)20 7260 1420 [email protected] as the expansion ramps up, Fresnillo still struggling with tonnage and lower grades.
Phil Swinfen Herradura and Cienega flat. Tel: +44 (0)20 7260 1430 [email protected] ● Valuation. Blend of 2x NAV/15x P/CF (top of 1-2x NAV/5-15x P/CF range for silvers).
This research was prepared ● Risks. Low: Land issues, Mexican tax. and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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46 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Fresnillo 9 April 2015
Figure 1: Model summary Fresnillo Ticker FRES.L Market Capitalisation £5,232m Financial Year End Dec BUY Share Price £7.10 Enterprise Value (EV) £5,463m Reporting Currency US$ £10.00 Implied Return 41% Net Debt (Cash) $347m Shares in Issue 737m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) 0.33 0.15 0.09 0.18 0.27 Fresnillo (100%) 8% 33% 2,370 3.22 2.14 EPS Growth -68% -55% -37% 94% 48% Saucito (100%) 8% 32% 2,239 3.04 2.03 P/E 32.3x 72.4x 115.5x 59.6x 40.2x Cienega (100%) 8% 4% 269 0.37 0.24 CFPS ($/sh) 1.03 0.77 0.68 0.97 1.29 Herradura (100%) 8% 23% 1,613 2.19 1.46 P/CFPS 10.4x 13.8x 15.7x 11.0x 8.3x Soledad & Dipolos (100%) 8% 0% 0 0.00 0.00 FCFPS ($/sh) (0.17) (0.41) (0.54) (0.61) (0.21) Noche Buena (100%) 8% 2% 149 0.20 0.13 P/FCFPS n.m n.m n.m n.m n.m Juanicipio (56%) 10% 4% 312 0.42 0.28 FCF Yield -2% -4% -5% -6% -2% San Julian (100%) 10% 9% 611 0.83 0.55 EV/EBITDA 7.5x 9.6x 10.7x 7.4x 5.7x Orisyvo (100%) 10% 4% 308 0.42 0.28 EBITDA Margin 45% 40% 35% 41% 41% Sub-total 7,871 10.68 7.12 Dividend Per Share ($/sh) 0.69 0.12 0.05 0.07 0.13 Silverstream Contract 3% 198 0.27 0.18 Dividend Yield 6.5% 1.1% 0.5% 0.7% 1.2% Cash & Equivalents 6% 449 0.61 0.41 Return on Assets (ROA) 6% 3% 2% 3% 4% Debt (11%) (796) (1.08) (0.72) Return on Equity (ROE) 8% 4% 3% 5% 8% Corporate G&A / Other (9%) (637) (0.86) (0.58) Return on Capital Employed (ROCE) 12% 7% 5% 9% 12% Total 7,086 9.62 £6.41 Net Debt/EBITDA -0.6x 1.1x 1.4x 1.6x 1.5x Current NAV Multiple (Implied) 1.11x Gearing (Debt/Equity) 31% 35% 46% 60% 56% Cash Flow Value $/sh £/sh Interest Cover 0.0x -0.3x -0.2x -0.1x -0.1x CFPS (1 year forward) 0.75 0.50 Shares Outstanding (m) 730 737 737 737 737 Current P/CF multiple (implied) 14.2x Income Statement 2013 2014 2015F 2016F 2017F Blended Valuation Target Multiple Weight Revenue 1,615 1,414 1,481 1,789 2,333 NAV valuation 2.0x 50% £12.82 Cost of Sales (608) (597) (771) (893) (1,223) Cash Flow valuation 15.0x 50% £7.50 G&A (62) (68) (70) (71) (73) VALUATION £10.16 Exploration (208) (169) (170) (172) (176) Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Other (7) (13) 42 81 101 Base case silver price forecast 6.41 0.09 0.68 EBITDA 730 567 511 734 963 Base case +10% 8.09 0.20 0.86 DD&A (239) (295) (313) (353) (450) Base case -10% 4.70 (0.02) 0.50 EBIT 488 246 198 381 512 Flat silver price (at spot $17/oz) 5.86 0.13 0.73 Net Interest Expense (15) (72) (41) (54) (57) News Catalysts 2015 2016 2017 2018 PBT 473 174 157 327 456 San Julian starts production H2 Non-Recurring Items/Other (90) 77 0 0 0 Cienega optimisation project (5ktpd) Taxes/Recovery (122) (134) (89) (195) (260) Fresnillo optimisation (10ktd) / pyrites plant projects Net Profit (Loss) - attributable 240 108 68 132 195 Herradura Mega Centauro / Centauro Deep projects 2019/20 Minority Interest 21 9 0 0 0 Juanicipio / Orisivyo projects Cashflow 2013 2014 2015F 2016F 2017F Reserves & Resources (attributable) Silver Gold Gold Eq EV/oz Ag Net Profit (Loss) 261 117 68 132 195 Reserves (P&P) Moz 475 19.5 26.8 306 DD&A 239 295 313 353 450 Resources (M&I) Moz 1,287 23.5 43.3 189 Employee Profit Sharing (55) (20) (29) (36) (44) Production & Cost (attributable) 2014 2015F 2016F 2017F Non Recurring/Other (33) (87) 29 36 44 Silver Production (inc Silverstream) 000oz 44,802 45,972 58,037 74,716 Working Cap. Changes 34 (183) (79) (116) (136) Gold Production 000oz 596 674 747 795 Cash Flow From Operations 446 122 302 369 510 Gold Eq. Production 000oz 1,179 1,344 1,635 2,003 Capital Expenditure (572) (426) (701) (817) (664) EV/oz Production $/oz AuEq 6,948 6,095 5,011 4,091 Acquisitions & Exploration 87 (213) 341 47 49 Total Cash Cost (silver, by-product) $/oz Ag 4.9 6.3 6.7 7.4 Cash Flow From Investing (485) (638) (360) (771) (615) Total Cash Cost (gold, by-product) $/oz Au 552 698 674 690 Equity Issues (Net of Costs) 346 (44) 0 0 0 All-in Sustaining Cost (silver) $/oz Ag 7.9 8.4 8.0 8.4 Net Borrowings 794 0 270 370 (30) All-in Sustaining Cost (gold) $/oz Au 894 1,005 998 985 Dividends Paid & Other (465) (533) (39) (54) (98)
Attrib. Silver Production (Moz) Total Cash Cost / AISC ($/oz AgEq) Cash Flow From Financing 676 (577) 231 316 (128) 75 12.5 Net Change in Cash 638 (1,097) 173 (86) (233) 10.0 Free Cash Flow (126) (304) (399) (448) (154) 50 7.5 Balance Sheet 2013 2014 2015F 2016F 2017F Cash & Equivalents 1,252 449 328 242 9 5.0 25 Total Current Assets 1,773 1,178 1,142 1,198 1,131 2.5 PP&E & Mining Interests 1,838 1,969 2,358 2,822 3,035 0 0.0 Silverstream Contract 373 392 348 305 258 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Fresnillo Cienega Herradura Soledad & Dipolos Deferred taxation 56 58 56 53 52 Saucito Juanicipio San Julian Noche Buena Other 416 537 493 450 402 Orisyvo Total Cash Cost AISC Attrib. Gold Production ('000oz) Total Cash Cost / AISC ($/t AuEq) Total Assets 4,084 3,742 4,049 4,522 4,620 1,000 1250 Short Term Debt 41 0 0 0 0 1000 750 Current Liabilities 144 140 147 173 203 750 Long Term Debt 795 796 1,066 1,436 1,406 500 500 Other Long Term Liabilities 473 504 504 504 504 250 Total Liabilities 1,412 1,440 1,718 2,114 2,114 250 Shareholder Equity 2,672 2,302 2,331 2,409 2,507 0 0 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Total Liab. & S/Holder Equity 4,084 3,742 4,049 4,522 4,620 Assumptions (Real) 2014 2015F 2016F 2017F LT Working Capital 1,629 1,038 995 1,025 928 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Net Debt (Cash) (415) 347 738 1,194 1,397 Silver Price ($/oz) 19.1 16.7 17.6 18.6 18.5 Exchange Rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Gemfields 9 April 2015 Estimate Changes
BUY A Uniquely Colourful Story
We maintain our BUY recommendation but increase our TP to 75p, from 70p, due Current Share Price 53p to our new commodity price forecasts and changes to our model. Target Price 75p Market Capitalisation £287m ● Company Snapshot. AIM-listed Gemfields is the world's largest producer of coloured Shares In Issue 541m gemstones. Main assets: the producing Kagem emerald mine in Zambia, Montepuez RIC/BLBG GEM.L/GEM LN ruby mine in Mozambique, early stage sapphires in Sri Lanka and the Fabergé luxury Avg. Daily Volume (3M) 173,356 jewellery brand. A mining stock with unique luxury retail exposure. Current share price(s) timed at 7:00AM on 07/04/15
Share Price ● A fast growing business levering 60 Investment Thesis. First Mover Advantage. 55 experience to consolidate the highly fragmented coloured gemstone industry. 50 Gemfields has introduced mechanised mining, security of supply, a consistent 45 marketing message and a proprietary grading system to take control of the industry 40 and stimulate demand. World-class Mines - Kagem produces 20% of the world's 35 emeralds and Montepuez has the potential to match this with rubies. Kagem has Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 Gemfields reached a steady production plateau, Montepuez has recently started ramp up from Relative to UK Market trial to full-scale mining. Coloured Gems - Produces a mix of stones which are sold at separate lower and higher quality auctions. Higher quality emeralds and rubies 10% of Performance (%) 1M 3M 12M production but 80% of revenues. Emeralds well established, but only two ruby auctions Absolute 5 15 42 so far. Potential for rubies to become flagship asset. Prices Up - Gemfields has seen Relative 5 5 35 a 12-fold increase in received emerald prices since 2009 and demand continues to Source: Datastream (relative to UK-DS Market index) improve. Luxury Exposure - Owns 100% of luxury brand, Fabergé, which provides direct access to market coloured stones and has historically provided some protection from broader commodity weakness. Hollywood Actress, Mila Kunis is Gemfields brand ambassador. Solid Footing - Decent balance sheet, cash $50m, $86m inventory and $30m debt. Scope for further acquisitions.
● Guidance. FY15 Kagem 25-30Mcts emeralds, Montepuez 8Mcts rubies.
● Production 5.6Mcts emeralds broadly in-line with previous Analysts Preview - Q1 Production. quarter. Grade 200cpt and likely to be below 300cpt average run-rate. Unit operating Phil Swinfen Tel: +44 (0)20 7260 1430 costs $2.20/ct, up 10% from previous quarter. Production 2.3Mcts rubies, down 30% [email protected] as mining focuses on lower volume, higher quality areas. Unit costs $1.8/ct in line with Cailey Barker previous quarter. Looking for more guidance on auction plan (and content) and news Tel: +44 (0)20 7260 1420 [email protected] on the ramp up at Montepuez as the operation transitions to full scale mining.
● This research was prepared Valuation. TP blend 1x NAV/7.5x CF. (middle of 5-15x CF range for gem producers). and approved by ● Risks. Moderate. Gemstone mining highly variable, grade volatility, limited free Numis Securities Limited The London Stock Exchange Building float (Pallinghurst 74%), technical challenges for UG mining at Kagem. Zambian 10 Paternoster Square Government ban on emerald auctions outside Zambia. Mooted Zambian tax changes. London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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48 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Gemfields 9 April 2015
Figure 1: Model summary Gemfields Ticker GEM.L Market Capitalisation £287m Financial Year End June BUY Share Price £0.53 Enterprise Value (EV) £274m Reporting Currency US$ £0.75 Implied Return 29% Net Debt (Cash) -$20m Shares in Issue 541m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) (0.05) 0.02 0.04 0.04 0.04 Kagem Emeralds (75%) 12% 55% 350 0.65 0.43 EPS Growth -115% 130% 139% 3% 1% Montepuez Rubies (75%) 14% 37% 233 0.43 0.29 P/E n.m 49.0x 20.5x 19.8x 19.7x Sub-total 583 1.08 0.71 CFPS ($/sh) (0.04) 0.10 0.15 0.15 0.16 Gemstone Inventories 10% 62 0.11 0.08 P/CFPS n.m 8.0x 5.4x 5.4x 5.0x Faberge inventory & brand 16% 100 0.18 0.12 FCFPS (£/sh) (0.10) 0.05 0.02 0.02 0.03 Exploration & other licences 1% 5 0.01 0.01 P/FCFPS n.m 14.7x 41.4x 37.0x 31.3x Cash & Equivalents 8% 50 0.09 0.06 FCF Yield -13% 7% 2% 3% 3% Debt (5%) (30) (0.06) (0.04) EV/EBITDA n.m 2.7x 4.6x 4.4x 4.2x Corporate G&A (22%) (139) (0.26) (0.17) EV/SALES 8.8x 2.6x 2.2x 2.0x 1.8x Total 631 1.16 £0.77 EBITDA Margin 1% 37% 48% 46% 44% Current NAV Multiple (Implied) 0.69x Dividend Per Share ($/sh) 0.00 0.00 0.00 0.00 0.00 Earnings Value $/sh £/sh Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% CPS (1 year forward) 0.15 0.10 Return on Assets (ROA) -6% 2% 4% 4% 4% Current P/CF multiple (implied) 5.4x Return on Equity (ROE) -8% 0% 4% 3% 2% Blended Valuation Target Multiple Weight Return on Capital Employed (ROCE) 0% 16% 22% 22% 22% NAV valuation 1.00x 50% £0.77 Net Debt/EBITDA 0.8x -0.3x -0.2x -0.2x -0.3x Cash flow valuation 7.5x 50% £0.73 Gearing (Debt/Equity) 4% 6% 9% 9% 5% VALUATION £0.75 Interest Cover -0.6x 0.0x 0.0x 0.0x 0.0x Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Shares Outstanding (m) 417 541 541 541 541 Base case gemstone price forecast 0.77 0.04 0.15 Income Statement 2013 2014 2015F 2016F 2017F Base case +10% 0.78 0.04 0.15 Revenue 48 160 184 202 224 Base case -10% 0.61 0.04 0.15 Cost of Sales (35) (75) (77) (90) (107) Flat gemstone price 0.70 0.04 0.15 Gross Profit 14 85 106 112 117 News Catalysts 2014 2015 2016 2017 (33) (48) (49) (50) (50) Kagem - Fibolele & Libwente bulk sampling EBITDA 0 59 89 93 99 Sri Lanka Sapphire business DD&A 20 22 31 31 32 Acquisitions EBIT (20) 37 58 62 67 MRM- plant upgrade Net Interest Expense (0) (1) (2) (1) (1) Expand auction platform Exceptionals and Other 0 (0) (0) 0 0 MRM ramp up PBT (20) 36 56 61 66 Resource (Kagem) Tonnage Grade E+B (Mcts) Taxes/Recovery (3) (20) (26) (26) (29) Reserves (P&P) Mt - - - Net Profit (Loss) (23) 9 21 22 22 Resources (M&I) Mt 2.7 365 1,003 Minority Interest (0) 7 10 13 16 Resources (Inferred) Mt 0.01 24.5 0.22 Cashflow 2013 2014 2015F 2016F 2017F Production & Cost (attributable) 2013 2014 2015F 2016F PAT (23) 16 31 35 38 Gemstone Production (E+B) Mcts 29.9 20.3 23.5 25.0 DD&A 20 22 31 31 32 Gemstone Production (Rubies) Mcts 1.9 6.5 10.8 16.1 Non Recurring/Other 5 23 28 27 29 Gemstone TCC (ROM Em+Ruby) $/ct 1.2 1.8 1.9 1.5 Working Cap. Changes (17) (7) (10) (13) (12) Gemstone AISC (ROM Em+Ruby) $/ct 2.3 3.7 4.1 3.3 Cash Flow From Operations (15) 54 79 80 87 Capital Expenditure (8) (9) (36) (37) (36) Gemstone Production (Mcts) Gemstone Unit Cost ($/ct) 50 4.5 Stripping costs / Other (7) (11) (28) (5) (9) 45 4.0 Cash Flow From Investing (15) (20) (64) (42) (45) 40 3.5 Equity Issues (Net of Costs) 0 0 0 0 0 35 3.0 30 Net Borrowings 9 5 14 0 (10) 2.5 25 2.0 Dividends 0 0 0 0 0 20 15 1.5 Other (1) (5) (4) (10) (10) 10 1.0 Cash Flow From Financing 8 1 10 (10) (20) 5 0.5 Net Change in Cash (26) 26 12 2 (6) 0 0.0 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Free Cash Flow (43) 29 10 12 14 Gemstone Production (E+B) Ruby Production AISC (Em+Rb) Balance Sheet 2013 2014 2015F 2016F 2017F
250 Cash & Equivalents 11 37 50 52 45 Revenue ($m) Inventory 78 89 93 91 98 200 Total Current Assets 97 147 160 167 170 150 PP&E 229 229 253 264 276 Other 52 51 59 63 66 100 Total Assets 379 427 472 493 513 50 Short Term Debt 12 15 15 15 7
0 Current Liabilities 28 62 68 63 56 10 11 12 13 14 15F 16F 17F 18F Long Term Debt 0 2 15 15 13 HQ Emeralds LQ Emeralds Rubies Other Revenue Other Long Term Liabilities 76 73 70 70 70 Assumptions (Real) 2013 2014F 2015F 2016F 2017F Total Liabilities 103 138 154 149 140 High Quality Emeralds ($/ct) 41.9 58.3 51.5 55.1 59.0 Shareholder Equity 275 289 319 345 373 Lower Quality Emeralds ($/ct) 2.87 3.24 3.12 3.38 3.70 Total Liab. & S/Holder Equity 379 427 472 493 513 Rubies ($/ct) 0.0 18.5 18.9 19.7 20.8 Working Capital 70 85 92 104 114 Wt. avg - all gemstones ($/ct) 7.7 15.0 7.6 12.3 12.9 Net Debt (Cash) 0 (20) (20) (21) (25) Exchange Rate (US$/£) 1.56 1.65 1.50 1.50 1.50 Source: Company & Numis Securities Research
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 49 1 Metals & Mining For FCA purposes this is a Marketing Communication
Highfield Resources 9 April 2015 Estimate Changes
BUY Potash in Pamplona
We maintain our BUY recommendation and A$3.00 TP, despite our revised Current Share Price AUD2 commodity price forecasts and changes to our model. Target Price AUc300 Market Capitalisation AUD428,400,000 ● Company Snapshot. ASX-listed potash junior focused in Spain. Its assets comprise Shares In Issue 252m the Muga, Sierra del Perdón and Pintano projects, which are undergoing resource RIC/BLBG HFR.AX/HFR AU definition and feasibility work. Javier is expected to commence production Q2 2017, Avg. Daily Volume (3M) 433,697 producing 1.1Mtpa KCl at $135/t, with one of the lowest capital intensities in the world. Net Cash/(Debt) (m) (06/15F) AUc107.9m Broker Yes ● Investment Thesis. Attractive - Three low-risk, shallow potash projects that can utilise Current share price(s) timed at 7:00AM on 07/04/15 low-capital entry, conventional extraction plus strong local infrastructure and in-country Share Price expertise to fast track development in close proximity to end markets. Muga robust 0.9 - DFS showed an NPV (10%) of $1.42bn and IRR of 52%. Production of 1.12Mtpa 0.8 0.7 over 24 years at an AISC of $135/t, in the middle of the cost curve. Shallow (<300m), 0.6 meaning accessible by twin decline for conventional underground mining and flotation 0.5 processing. Capex of $354m (pre-production $254m), with bottom quartile capital 0.4 intensity of $315/tpa vs. global average of c.$930/tpa. Plenty of upside: increased size 0.3 Apr- 14 May- 14 Jul- 14 Sep- 14 Oct- 14 and grade of resource, higher extraction rates, higher plant recovery and utilisation, Highfield Resources Relative to ASX200I lower capex/opex, plus salt by-products. Mining concession application was lodged in Q4 2014 and MOU signed with two ports and for power. Other projects - We forecast Performance (%) 1M 3M 12M the 82Mt Sierra del Perdón project starting in 2017/18 and Pintano in 2018/19, with Absolute 68 143 347 peak group production at 2.2Mtpa in 2024 at a cash costs of $140/t, in line with global Relative 67 124 325 averages. While of modest grade, the projects are within the same region, all benefiting
Source: Datastream (relative to UK-DS Market index) from competitive advantages with low capital intensity and high IRR's of +40%.
● Potash market. The potash market appears to have bottomed at c.$305/t KCl. Prices are thought to remain subdued in the short-term but rebound in the long-term, as price momentum and demand pick up and inventory levels decline. We remain neutral, forecasting c.$300/t KCl.
● News Catalysts. Q2 - Sierra Del Perdon scoping study (NUMe 400-500ktpa KCl, Analysts capex $250m, NPV 10% $440m, IRR 31%), Pintano drilling results. Cailey Barker Tel: +44 (0)20 7260 1420 ● Valuation. 1x NAV; projects risk-weighted up to 75%. [email protected] Phil Swinfen ● Risks. Moderate: Permitting, keeping on time and budget, financing, project delivery. Tel: +44 (0)20 7260 1430 [email protected]
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange
50 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Highfield Resources 9 April 2015
Figure 1: Model summary Highfield Resources Ticker HFR.AX Market Capitalisation A$428 Financial Year End June BUY Share Price A$1.70 Enterprise Value (EV) A$395 Reporting Currency A$ A$3.00 Implied Return 76% Net Debt (Cash) -A$25 Shares in Issue 252m
Valuation Key Metrics 2014 2015F 2016F 2017F 2018F Net Asset Value Disc Rate NAV (%) $m *$/sh *A$/sh EPS ($/sh) (0.04) (0.07) (0.15) (0.13) 0.09 Muga-Vipasca (25% risk-weighted) 10% 83% 1,185 1.98 2.64 EPS Growth -29% -93% -107% 12% 168% Pintano (75% risk weighted) 10% 14% 206 0.34 0.46 P/E n.m n.m n.m n.m 18.6x Sierra del Perdon (75% risk weighted) 10% 8% 108 0.18 0.24 CFPS ($/sh) (0.03) (0.04) (0.15) (0.13) 0.11 Sub-total 1,500 2.51 3.34 P/CFPS n.m n.m n.m n.m 15.6x Cash & Equivalents 2% 25 0.04 0.06 FCFPS ($/sh) (0.03) (0.18) (0.76) (0.28) (0.02) Debt 0% 0 0.00 0.00 P/FCFPS n.m n.m n.m n.m n.m Corporate G&A / Other (6%) (93) (0.16) (0.21) FCF Yield -2% -11% -45% -16% -1% Total 1,432 2.39 A$3.19 EV/EBITDA n.m n.m n.m n.m 4.0x Current NAV Multiple (Implied) 0.53x EBITDA Margin 0% 0% 0% -305% 38% Earnings Value $/sh A$/sh Dividend Per Share ($/sh) 0.00 0.00 0.00 0.00 0.03 EPS (1 year forward) 0.00 0.00 Dividend Yield 0.0% 0.0% 0.0% 0.0% 1.6% Current P/E multiple (implied) 0.0x Return on Assets (ROA) -10% -9% -18% -16% 10% Blended Valuation Target Multiple Weight Return on Equity (ROE) -11% -9% -49% -45% 25% NAV valuation 1.00x 100% A$3.19 Return on Capital Employed (ROCE) -11% -9% -17% -13% 18% Earnings valuation 0.0x 0% A$0.00 Net Debt/EBITDA 2.1x 5.7x -3.7x -4.8x 3.3x VALUATION A$3.19 Gearing (Debt/Equity) 0% 0% 174% 184% 142% Sensitivity Analysis NAV (A$/sh) 18F EPS 18F CFPS Interest Cover n.m n.m n.m n.m -0.2x Base case potash price forecast 3.19 0.09 0.11 Shares Outstanding (m) 156 462 462 562 562 Base case +10% 3.63 0.12 0.14 Income Statement 2014 2015F 2016F 2017F 2018F Base case -10% 2.68 0.06 0.08 Revenue 0 0 0 20 257 Flat potash price (at spot $305/t) 2.67 0.06 0.08 Cost of Sales 0 0 0 (7) (81) News Catalysts (CY) H2 14 H1 15 H2 15 2017 G&A (5) (6) (6) (15) (15) Muga resource update (M&I) Exploration (1) (13) (60) (61) (61) Muga DFS Other 0 0 0 (0) Sierra del Perdon resource EBITDA (6) (19) (66) (62) 99 Sierra del Perdon Scoping Study DD&A 0 0 0 (1) (10) Muga permits received & financing Q4 EBIT (6) (19) (66) (63) 89 Muga starts construction Q4 Net Interest Expense 0 0 (4) (12) (15) Muga begins production Q2 PBT (6) (19) (70) (75) 73 Reserves & Resources (attributable) Tonnage Grade % Potash EV/t Non-Recurring Items/Other 0 0 0 0 0 Reserves (P&P) Mt KCl 146 21.2 31.0 9.56 Taxes/Recovery 0 0 0 0 (22) Resources (M&I) Mt KCl 281 18.0 50.5 5.87 Net Profit (Loss) - attributable (6) (19) (70) (75) 51 Resources (Total) Mt KCl 572 17.8 101.7 2.91 Minority Interest 0 0 0 0 0 Production & Cost 2016F 2017F 2018F 2019F Cashflow 2014 2015F 2016F 2017F 2018F Potash Production (KCl, MOP) 000t 0 45 535 802 Net Profit (Loss) (6) (19) (70) (75) 51 Salt Production (NaCl) - excluded 000t 0 27 321 524 DD&A 0 0 0 1 10 Potash Eq. Production 000t 0 49 588 975 Non Recurring/Other 1 0 (0) (0) (0) EV/oz Production (attributable) $/t 0 6,648 554 369 Working Cap. Changes 0 1 0 0 0 Total Cash Cost (co-product basis) $/t 0 111 111 112 Cash Flow From Operations (4) (17) (70) (74) 61 All-in Sustaining Cost $/t 0 146 146 137 Capital Expenditure (0) (67) (280) (80) (72) Acquis./Investments (4) (1) 0 0 0 Potash Production (kt KCl, 100% basis) Total Cash Cost / AISC ($/t KCl) Cash Flow From Investing (4) (68) (280) (80) (72) 2,000 200 Equity Issues (Net of Costs) 14 182 0 100 0 Net Borrowings 0 0 250 60 (20) 1,750 Dividends Paid & Other 0 0 0 0 (15)
1,500 150 Cash Flow From Financing 14 182 250 160 (35) Net Change in Cash 5 96 (100) 5 (46) 1,250 Free Cash Flow (4) (84) (350) (155) (10) Balance Sheet 2014 2015F 2016F 2017F 2018F 1,000 100 Cash & Equivalents 12 108 8 13 (33) 750 Total Current Assets 13 108 8 13 (33) PP&E & Mining Interests 0 68 348 428 489 500 50 Deferred taxation 0 0 0 0 0
250 Other 40 40 40 40 40 Total Assets 53 216 396 480 496 0 0 Short Term Debt 0 0 0 0 0 2014 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F Current Liabilities 2 2 2 2 2 Muga-Vipasca Pintano (excluded) Sierra del Perdon (excluded) Long Term Debt 0 0 250 310 290 Assumptions (Real) 2014 2015F 2016F 2017F LT Other Long Term Liabilities 0 0 (0) (0) (0) Potash Price (KCl, MOP - $/t) 379 297 303 300 300 Total Liabilities 2 2 252 312 292 Salt Price (NaCl, $/t) - excluded 50 50 50 50 50 Shareholder Equity 51 214 144 168 204 Exchange Rate (A$:US$) 0.97 0.90 0.76 0.75 0.75 Total Liab. & S/Holder Equity 53 216 396 480 496 Working Capital 11 106 6 11 (35) * post-financing basis Net Debt (Cash) (12) (108) 242 297 323 Source: Company & Numis Securities Research
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 51 1 Metals & Mining For FCA purposes this is a Marketing Communication
Highland Gold 9 April 2015 Estimate Changes
BUY Slow and Steady
We maintain our BUY recommendation and 80p, despite our new commodity price Current Share Price 41p forecasts and changes to our model. Target Price 80p Market Capitalisation £133m ● Company Snapshot. AIM-quoted c.250kozpa junior gold producer focused in Russia Shares In Issue 325m with three operating mines (MNV, Novo & Belaya Gora), two development projects RIC/BLBG HGM.L/HGM LN (Klen & Kekura) and some advanced stage exploration properties. 32% owned by Avg. Daily Volume (3M) 536,592 Roman Abramovich's Millhouse LLC. Net Cash/(Debt) (m) (12/14F) $(239.7)m Broker Yes ● Investment Thesis. Solid, defensive junior with growth, but perceived Russian risk Current share price(s) timed at 7:00AM on 07/04/15 and project delivery risks may continue to cap substantial stock gains. Solid base with Share Price growth - Production to stay 250-300koz from average sized, low cost mines: MNV - 80 flagship mature open pit/underground mine (150kozpa) falling on lower grades, offset 70 60 by higher tonnage and increase open pit mine life. Novo polymetallic underground 50 mine increasing plant throughput (90kozpa AuEq) and Belaya Gora, now a stand- 40 alone operation that is ramping to full capacity (80-100kozpa). Cash costs are low at 30 $650-700/oz; AISC bottom quartile at $850-900/oz, well below the industry average. 20 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 Chukotka focus - Growth is focussed on Klen and Kekura in Chukotka, Far East Highland Gold Relative to UK Market Russia. Klen project design is under state review (start 2017 at 50koz pa) and Kekura is undergoing met testwork, resource extension and upgrade (start 2018 at Performance (%) 1M 3M 12M 180-220koz pa). Other projects Taseevskoye, Unkurtash and Lyubov to remain lower Absolute 5 10 -43 priority. Balance sheet prudence - Well managed, prudent company keeping net debt/ Relative 5 1 -46 EBITDA within limits. Net debt $240m, with $100m undrawn debt facility available.
Source: Datastream (relative to UK-DS Market index) Capex to tick up over next few years as projects build out. Divi payer with 7% yield.
● Guidance. 2015: 270-285koz.
● Preview FY (27 Apr). Production up 11% y-o-y at 259koz, as reported previously. TCC $690/oz, AISC $899/oz. Financials - EPS down y-o-y at $0.12, EBITDA $111m. Net debt down at $240m. We look for more colour on Kekura, with the scoping study now being finalised; expected to have been submitted for state approval of reserves. Analysts ● Cailey Barker Valuation. Blend of 1.25x NAV/5x P/CF (low end of 1-2x NAV/5-15x P/CF range for Tel: +44 (0)20 7260 1420 golds). [email protected] Phil Swinfen ● Risks. Moderate: Perceived Russian risk, project delivery, financing. Tel: +44 (0)20 7260 1430 [email protected]
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange
52 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Highland Gold 9 April 2015
Figure 1: Model summary Highland Gold Ticker HGM.L Market Capitalisation £134m Financial Year End Dec BUY Share Price £0.41 Enterprise Value (EV) £293m Reporting Currency US$ £0.80 Implied Return 95% Net Debt (Cash) $240m Shares in Issue 326m
Valuation Key Metrics 2013 2014F 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) 0.17 0.12 0.08 0.07 0.15 Mnogovershinoye (MNV - 100%) 12% 27% 85 0.26 0.17 EPS Growth -57% -28% -36% -9% 111% Novoshirokinskoye (Novo - 100%) 12% 39% 126 0.38 0.26 P/E 3.7x 5.1x 8.0x 8.8x 4.2x Belaya Gora (100%) 12% 48% 152 0.47 0.31 CFPS ($/sh) 0.29 0.35 0.23 0.23 0.21 Kekura (100%) 14% 53% 170 0.52 0.35 P/CFPS 2.1x 1.8x 2.7x 2.7x 3.0x Klen (100%) 14% 16% 50 0.15 0.10 FCFPS ($/sh) (0.19) 0.13 0.03 (0.29) (0.35) Unkurtash (100%) 14% 11% 36 0.11 0.07 P/FCFPS n.m 4.9x 18.7x n.m n.m Taseevskoye (100%) 14% 6% 20 0.06 0.04 FCF Yield -30% 21% 5% -48% -56% Lyubov (100%) 14% 6% 18 0.06 0.04 EV/EBITDA 2.2x 2.6x 3.0x 3.0x 2.9x Sub-total 656 2.01 1.34 EBITDA Margin 44% 36% 32% 30% 30% Cash & Equivalents 22% 70 0.21 0.14 Dividend Per Share ($/sh) 0.09 0.08 0.04 0.02 0.02 Debt (97%) (309) (0.95) (0.63) Dividend Yield 14.0% 13.4% 6.0% 3.9% 3.5% Corporate G&A / Other (31%) (98) (0.30) (0.20) Return on Assets (ROA) 4% 3% 2% 2% 3% Total 319 0.98 £0.65 Return on Equity (ROE) 7% 5% 3% 3% 5% Current NAV Multiple (Implied) 0.63x Return on Capital Employed (ROCE) 7% 5% 4% 4% 7% Cash Flow Value $/sh £/sh Net Debt/EBITDA 1.9x 2.2x 2.5x 3.6x 4.4x CFPS (1 year forward) 0.23 0.15 Gearing (Debt/Equity) 38% 37% 36% 50% 49% Current P/CF multiple (implied) 2.7x Interest Cover 0.1x -0.1x -0.3x -0.3x -0.2x Blended Valuation Target Multiple Weight Shares Outstanding (m) 325 325 325 325 325 NAV valuation 1.25x 50% £0.81 Income Statement 2013 2014F 2015F 2016F 2017F Cash Flow valuation 5.0x 50% £0.77 Revenue 304 311 307 322 335 VALUATION £0.79 Cost of Sales (150) (182) (191) (207) (215) Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS G&A (19) (17) (18) (19) (19) Base case gold price forecast 0.65 0.08 0.23 Other (3) (1) (0) 0 0 Base case +10% 1.32 0.14 0.30 EBITDA 133 111 97 97 101 Base case -10% (0.04) (0.00) 0.15 DD&A (54) (52) (50) (52) (20) Flat gold price (at spot $1,200/oz) 0.63 0.07 0.23 EBIT 77 59 47 45 81 News Catalysts 2014 2015 2016 2017 Net Interest Expense 5 (4) (15) (16) (20) Belaya Gora starts production (stand-alone) PBT 82 55 32 29 61 Kekura PFS H2 Non-Recurring Items/Other 0 0 0 0 0 Kekura pilot plant starts Taxes/Recovery (27) (15) (7) (6) (13) Klen starts production Net Profit (Loss) - attributable 55 39 25 23 48 Kekura starts production (2017/2018) Minority Interest 0 1 1 1 1 Reserves & Resources (attributable) Gold Silver Gold Eq EV/oz Cashflow 2013 2014F 2015F 2016F 2017F Reserves (P&P) Moz 2.6 0 2.6 169 Net Profit (Loss) 55 40 26 23 49 Resources (M&I) Moz 11.5 0 11.5 38 DD&A 54 52 50 52 20 Production & Cost (attributable) 2014F 2015F 2016F 2017F Non Recurring/Other 1 (3) (1) (1) (1) Gold Eq. Production 000oz 259 275 285 288 Working Cap. Changes (15) 23 (0) (1) (1) EV/oz Production $/oz AuEq 1,700 1,598 1,546 1,529 Cash Flow From Operations 95 113 75 73 67 Total Cash Cost (net by-products) $/oz 690 687 704 704 Capital Expenditure (156) (72) (65) (169) (180) All-in Sustaining Cost $/oz 899 898 903 903 Acquis./Investments (191) (0) 0 0 21
Attrib. Gold Eq Production ('000oz) Total Cash Cost / AISC ($/oz AuEq) Cash Flow From Investing (346) (72) (65) (169) (158) Equity Issues (Net of Costs) 0 0 10 25 20 400 1250 Net Borrowings 298 (0) 0 120 10 Dividends Paid & Other (42) (33) (12) (8) (7) 1000 Cash Flow From Financing 255 (33) (2) 137 23 300 Net Change in Cash 4 7 9 41 (68)
750 Free Cash Flow (61) 41 11 (96) (113) Balance Sheet 2013 2014F 2015F 2016F 2017F 200 Cash & Equivalents 58 70 68 85 (4) 500 Total Current Assets 191 187 186 205 118
100 PP&E & Mining Interests 976 997 1,011 1,128 1,288 250 Deferred taxation 0 2 2 2 2 Other 126 121 121 121 121
0 0 Total Assets 1,293 1,307 1,320 1,456 1,529 05 06 07 08 09 10 11 12 13 14F 15F 16F 17F 18F Short Term Debt 124 175 175 295 305 Mnogovershinoye (MNV) Novoshirokinskoye (Novo) Belaya Gora Klen Kekura Total Cash Cost Current Liabilities 170 224 224 345 356 AISC Long Term Debt 185 134 134 134 134 Assumptions (Real) 2014F 2015F 2016F 2017F LT Other Long Term Liabilities 115 115 115 115 136 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Total Liabilities 471 473 473 594 626 Silver Price ($/oz) 19.1 16.7 17.6 18.6 18.5 Shareholder Equity 822 834 847 862 903 Lead Price ($/lb) 0.95 0.83 0.89 0.90 0.90 Total Liab. & S/Holder Equity 1,293 1,307 1,320 1,456 1,529 Zinc Price ($/lb) 0.98 0.95 0.95 0.95 0.95 Working Capital 20 (37) (38) (140) (238) Exchange Rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Net Debt (Cash) 251 240 241 345 443 Source: Company & Numis Securities Research
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 53
Metals & Mining For FCA purposes this is a Marketing Communication
Hochschild Mining 9 April 2015 Estimate Changes
HOLD Here Comes Inmaculada
We maintain our HOLD recommendation and increase our TP to 85p, from 75p, due Current Share Price 88p to our revised commodity prices forecasts and changes to our model. Target Price 85p Market Capitalisation £324m ● Company Snapshot. FTSE 250, fifth largest primary silver producer with four core Shares In Issue 368m underground mines in Peru and Argentina, plus some exploration projects. 54% owned RIC/BLBG HOCM.L/HOC LN by Chairman Eduardo Hochschild. Avg. Daily Volume (3M) 772,958 Current share price(s) timed at 7:00AM on 07/04/15 ● Investment Thesis. Limited margin - 3 core assets include Pallancata, Arcata and
Share Price Inmaculada in Peru (9 & 6Mozpa AgEq), plus 51% owned San Jose in Argentina 200 (12Mozpa AgEq). These are all underground, high-grade narrow vein mines which 180 160 are highly capital intensive. Despite cost savings, group AISC is still high at c.$17/oz 140 (plus c.$1/oz for debt interest), leaving little FCF margin. HOC expects further savings, 120 100 AISC expected to fall to $15-16/oz with Inmaculada, although it clearly struggles to 80 60 deliver margin. Growth to come. Following Inmaculada starting up in Q2, production 40 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 growth from 22Moz to 29Moz AqEq in 2016. Inmaculada 194kozpa Au at $527/oz, Hochschild Mining AISC $11-12/oz AgEq, capex $373m). Crespo has been postponed from its 2017 start- Relative to UK Market up (2.7Mozpa, $80m capex left), and we view the project as marginal. Also earlier Performance (%) 1M 3M 12M stage 9.6Moz Volcan project in Chile (Andina) and Azuca. Exploration is to focus on Absolute 10 -5 -51 brownfield and resource drilling to improve LOM quality; value accretion likely a way
Relative 10 -12 -53 off. Balance sheet struggle - Following re-financing, HOC has net debt of c.$350m. Hedge of 6Moz Ag at $17.75/oz and 38koz Au at $1,300/oz. Divi is suspended and Source: Datastream (relative to UK-DS Market index) we don't see a re-start until Inmaculada is up and running and the balance sheet is restored. We see decent FCF yields of +5% but still a long haul to pay back all the debt.
● Guidance. 2015: 24Moz silver equivalent (Inmaculada 6-7Moz); AISC $15-16/oz.
● Preview Q1 (22 Apr). Production down y-o-y and q-o-q at 4.5Moz AgEq, comprising 3.3Moz silver and 20koz gold. A seasonally weaker quarter. Arcata and Pallancata lower as higher grade/lower tonnage is mined through 2015 to preserve cash. San Jose slightly down and Ares closed. Inmaculada starting up in Q2. Net debt up at c. Analysts $400m, depending on new facility drawdown. Cailey Barker Tel: +44 (0)20 7260 1420 ● Valuation. Blend of 1.5x NAV/5x P/CF (mid/low end of 1-2x NAV/5-15x P/CF for silver). [email protected] Phil Swinfen ● Risks. Moderate: Tax & labour issues, project delivery, maintaining costs and balance Tel: +44 (0)20 7260 1430 [email protected] sheet.
This research was prepared and approved by
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54 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Hochschild Mining 9 April 2015
Figure 1: Model summary Hochschild Ticker £7.00 Market Capitalisation £323m Financial Year End Dec HOLD Share Price £0.88 Enterprise Value (EV) £558m Reporting Currency US$ £0.85 Implied Return -3% Net Debt (Cash) $353m Shares in Issue 367m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) - Underlying (0.15) (0.15) 0.00 0.04 0.04 Arcata (Peru - 100%) 10% 44% 79 0.21 0.14 EPS Growth -180% 0% 101% 3008% 7% Pallancata (Peru - 100%) 10% 58% 103 0.27 0.18 P/E n.m n.m 1,141.3x 36.7x 34.3x San José (Argentina - 51%) 10% 33% 59 0.15 0.10 CFPS ($/sh) 0.15 0.25 0.49 0.53 0.53 Inmaculada (Peru - 100%) 12% 236% 421 1.09 0.73 P/CFPS 8.5x 5.2x 2.7x 2.5x 2.5x Crespo (Peru - 100%) 12% 5% 10 0.03 0.02 FCFPS ($/sh) (0.52) (0.61) (0.15) 0.09 0.07 Azuca (Peru - 100%) 12% 0% 0 0.00 0.00 P/FCFPS n.m n.m n.m 14.9x 19.8x Dorado (Chile - 100%) 12% 19% 34 0.09 0.06 FCF Yield -39% -46% -11% 7% 5% Sub-total 707 1.83 1.22 EV/EBITDA 4.3x 6.2x 5.2x 4.6x 4.9x Cash & Equivalents 65% 116 0.30 0.20 EBITDA Margin 31% 28% 31% 29% 26% Debt (263%) (469) (1.22) (0.81) Dividend Per Share ($/sh) 0.05 0.01 0.00 0.00 0.00 Corporate G&A / Other (98%) (176) (0.46) (0.30) Dividend Yield 4.0% 0.5% 0.0% 0.0% 0.0% Total 178 0.46 £0.31 Return on Assets (ROA) -8% -4% 0% 1% 1% Current NAV Multiple (Implied) 2.85x Return on Equity (ROE) -14% -7% -1% 1% 1% Cash Flow Value $/sh £/sh Return on Capital Employed (ROCE) -7% -2% 3% 4% 5% CFPS (1 year forward) 0.37 0.25 Net Debt/EBITDA 0.8x 2.6x 2.6x 2.2x 2.2x Current P/CF multiple (implied) 3.5x Gearing (Debt/Equity) 45% 52% 52% 45% 41% Blended Valuation Target Multiple Weight Interest Cover n.m n.m -0.7x -0.5x -0.4x NAV valuation 1.50x 50% £0.46 Shares Outstanding (m) 367 367 385 385 385 Cash Flow valuation 5.0x 50% £1.24 Income Statement 2013 2014 2015F 2016F 2017F VALUATION £0.85 Revenue 622 493 528 626 665 Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Cost of Sales (322) (282) (259) (339) (367) Base case silver price forecast 0.31 0.00 0.49 G&A (57) (46) (40) (40) (50) Base case +10% 0.87 0.06 0.61 Exploration (46) (18) (15) (15) (16) Base case -10% (0.24) (0.06) 0.36 Other (1) (11) (52) (52) (62) Flat silver price (at spot $17/oz) (0.04) (0.00) 0.47 EBITDA 195 136 162 180 170 News Catalysts H1 15 H2 15 2016 2017 DD&A (147) (129) (131) (136) (132) Inmaculada starts production EBIT (79) (27) 56 70 72 Net Interest Expense (41) (41) (37) (35) (32) PBT (120) (68) 19 35 40 Reserves & Resources (attributable) Silver Gold Silver Eq EV/oz Ag Non-Recurring Items/Other 0 0 0 0 0 Reserves (P&P) Moz 81 1.2 152 5.5 Taxes/Recovery (9) (3) (8) (15) (17) Resources (M&I) Moz 241 11.2 910 0.9 Net Profit (Loss) - attributable (134) (69) 0 14 15 Production & Cost (attributable) 2014 2015F 2016F 2017F Minority Interest 6 (2) 10 6 8 Silver Production 000oz 16,166 15,671 17,136 17,143 Cashflow 2013 2014 2015F 2016F 2017F Gold Production 000oz 101 145 203 203 Net Profit (Loss) (129) (71) 11 20 23 Silver Eq. Production (reported) 000oz 22,202 24,371 29,300 29,345 DD&A 147 129 131 136 132 EV/oz Production $/oz AgEq 38 34 29 29 Non Recurring/Other (13) (2) (6) (6) (6) Total Cash Cost (co-product) $/oz Ag 12.1 9.1 10.1 10.9 Working Cap. Changes 59 29 (16) 4 (0) AISC (co-product) $/oz Ag 17.8 15.3 15.0 16.5 Cash Flow From Operations 65 85 121 155 150 Capital Expenditure (259) (315) (187) (131) (135) Attrib. Silver Production (Moz) Total Cash Cost ($/oz AgEq) 25 25.0 Acquisitions & Exploration 41 52 0 0 0 Cash Flow From Investing (218) (263) (187) (131) (135) 20 20.0 Equity Issues (Net of Costs) 72 0 0 0 0
15 15.0 Net Borrowings 314 15 0 (50) (25) Dividends Paid & Other (286) (1) 0 0 0 10 10.0 Cash Flow From Financing 100 14 0 (50) (25)
5 5.0 Net Change in Cash (54) (164) (66) (26) (10) Free Cash Flow (184) (224) (56) 34 26 0 0.0 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Balance Sheet 2013 2014 2015F 2016F 2017F Cash & Equivalents 286 120 54 28 18 Arcata Pallancata San José Ares Selene Inmaculada Azuca Crespo Cash Cost AISC Total Current Assets 546 371 372 337 328 Attrib. Gold Production ('000oz) Total Cash Cost ($/t AuEq) PP&E & Mining Interests 873 1,076 1,138 1,138 1,146
300 1000 Investments 0 0 0 0 0 Deferred taxation 2 2 2 2 2 250 750 Other 312 257 257 257 257 200 Total Assets 1,734 1,706 1,769 1,734 1,732 150 500 Short Term Debt 436 28 0 0 0
100 Current Liabilities 568 149 173 168 168 250 Long Term Debt 0 441 469 419 394 50 Other Long Term Liabilities 195 222 222 222 222 0 0 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Total Liabilities 764 812 863 808 784 Assumptions (Real) 2014 2015F 2016F 2017F LT Shareholder Equity 970 894 905 926 949 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Total Liab. & S/Holder Equity 1,734 1,706 1,769 1,734 1,732 Silver Price ($/oz) 19.1 16.7 17.6 18.6 18.5 Working Capital (22) 222 199 169 160 Exchange Rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Net Debt (Cash) 149 348 415 391 375 Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
International Ferro Metals 9 April 2015 Estimate Changes
BUY Chrome Headwinds
We maintain our BUY recommendation and 25p TP, despite our revised commodity Current Share Price 4p price forecast and changes to our model. Target Price 25p Market Capitalisation £22m ● Company Snapshot. LSE-listed, South African integrated ferrochrome producer. Shares In Issue 554m Produces 265ktpa from its two mines, Letsedi and Sky Chrome, plus third party ores. RIC/BLBG IFL.L/IFL LN Chinese steelmaker JISCO holds 29%, as a strategic shareholder and offtake partner. Avg. Daily Volume (3M) 687,718 Net Cash/(Debt) (m) (06/14F) ZAR(344.2)m ● Investment Thesis. Leverage - Pure, highly leveraged play on South African Broker Yes Ferrochrome. Our NAV increases by 40% for a 10% increase in FeCr price. A Current share price(s) timed at 7:00AM on 07/04/15 turnaround story with furnaces now operating at full load and profits have restarted Share Price after a 5 year gap but margins remain relatively tight, like many SA producers. 12 Realised prices receive discounts of c.25-30% (c.80c/lb) and cash costs are c.65-75c/ 10 lb (R6.50-7.50/lb). Costs key - reduction initiatives have been successfully achieved 8 but likely to have to continue to work hard to keep costs down given rising power 6 prices (12% pa) and labour pressures, even with helpful Rand weakness. However, 4 IFL plans to move to owner-operated and has new cost reduction initiatives; plans 2 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 to improve efficiencies in reductants and power consumption; co-gen plant is yet to International Ferro Metals Relative to UK Market deliver its full potential. Also, Letsedi underground mine has restarted and increased production will help reduce reliance on more costly third party ores. Debt reducing Performance (%) 1M 3M 12M - Net borrowings expected to reduce (c.R450-490m) as cash generation increases, Absolute -7 -10 -67 helped by cumulative tax losses and reduced capex. Has a one year loan from Bank of Relative -7 -17 -69 China, rolled over for another year. Upside - Potential to move to a 60MW DC furnace
Source: Datastream (relative to UK-DS Market index) and a phase II expansion to 100ktpa at a cost of c.R1bn, reducing costs by 12%. BFS Q1 2015, commissioning H1 2017; non-equity financing (partner etc.). Not in our model.
● Guidance. FY15 200-205kt (downgraded from 215-222kt).
● Preview Q3. Production 51kt, up q-o-q following the DMR stoppages, but down y- o-y (Q2 49.8kt). Production costs down q-o-q at R7.47/lb (Q2 R7.82/lb), as better ore supply is utilised, offset by increased power costs. Letsedi underground now on Analysts accelerated schedule and cogen plant to restart shortly. Net borrowings up slightly at Cailey Barker R465m, before coming down after June. Market remaining subdued with recent rollover Tel: +44 (0)20 7260 1420 [email protected] of benchmark prices at $1.08/lb.
Phil Swinfen ● Tel: +44 (0)20 7260 1430 Valuation. TP blend of 1x NAV/7.5x P/E (bottom of 7-12x P/E range for industrials). [email protected] ● Risks. Moderate: South African labour, power supply & prices, ferrochrome market, This research was prepared cash generation and balance sheet. and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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56 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange International Ferro Metals 9 April 2015
Figure 1: Model summary International Ferro Metals Ticker IFL.L Market Capitalisation £20m Financial Year End June BUY Share Price 3.6p Enterprise Value (EV) £52m Reporting Currency ZAR 25p Implied Return 590% Net Debt (Cash) $48m Shares in Issue 554m
Valuation Key Metrics 2014 2015F 2016F 2017F 2018F Net Asset Value Disc Rate Rm $m $/sh £/sh EPS (R/sh) 0.08 (0.37) 0.22 0.34 0.35 Buffelsfontein (100%) 10% 3,895 410 0.74 0.49 EPS Growth 134% (564%) 160% 56% 112% Sub-total 3,895 410 0.74 0.49 P/E 6.5x n.m 2.4x 1.5x 1.5x Corporate G&A / Other 10% (704) (74) (0.13) (0.09) CFPS (R/sh) 0.23 0.09 0.46 0.65 1.16 Cash & Equivalents 49 5 0.01 0.01 P/CFPS 2.2x 5.8x 1.1x 0.8x 0.4x Debt (509) (54) (0.10) (0.06) FCFPS (R/sh) 0.04 (0.34) 0.24 0.45 0.98 Total 2,731 287 0.52 £0.35 P/FCFPS 11.8x n.m 2.2x 1.2x 0.5x Current NAV multiple (Implied) 0.10x FCF Yield 8% -66% 46% 86% 189% Earnings Value R/sh $/sh £/sh EV/EBITDA 3.7x -38.4x 2.2x 1.8x 1.8x EPS - 1 year forward 0.22 0.02 0.02 EBITDA margin 10% -1% 14% 15% 15% Current P/E multiple (implied) 2.4x Dividend Per Share (R/sh) 0.00 0.00 0.00 0.00 0.00 Blended Valuation Target Multiple Weight Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% NAV valuation 1.00x 50% £0.35 Return on Assets (ROA) 1% (7%) 4% 6% 6% Earnings valuation 7.50x 50% £0.12 Return on Equity (ROE) 2% (10%) 6% 8% 8% VALUATION £0.23 Return on Capital Employed (ROCE) 4% (6%) 8% 10% 8% Net Debt/EBITDA 1.7x -27.1x 1.1x 0.3x -1.1x Gearing (Debt/Equity) 25.1% 30.9% 25.7% 16.4% 8.7% Sensitivity Analysis Valuation NAV/sh 16F EPS 16F CFPS Interest Cover 1.9x -2.3x 3.4x 4.8x 6.9x Base case ferrochrome forecast £0.23 £0.35 R0.22 R0.46 Shares Outstanding (m) 554 554 554 554 554 Base case +10% £0.36 £0.55 R0.34 R0.58 Income Statement (Rm) 2014 2015F 2016F 2017F 2018F Base case -10% £0.08 £0.10 R0.10 R0.34 Revenue 2,101 2,022 2,491 2,690 2,813 Flat long-term prices (at $1.08/lb & R9.50) £0.23 £0.35 R0.22 R0.46 Cost of sales (1,870) (2,007) (2,214) (2,352) (2,482) G&A (100) (148) (100) (103) (105) News catalysts (CY) H1 14 H2 14 H1 15 H2 15 Other (25) 2 (0) (0) 0 Letsedi underground restarts EBITDA 202 (19) 337 410 409 Phase II Expansion (DC Furnace, 100ktpa) feasibility study DD&A 107 112 161 174 184 Non-Recurring Items/Other (5) 0 0 0 0 EBIT 105 (132) 176 236 225 Production & cost (equity) 2014 2015F 2016F 2017F 2018F Net finance income (expense) (65) (72) (55) (47) (31) FeCr production (kt) 228 203 242 252 252 PBT 40 (204) 121 189 195 EV/lb production ($/lb Cr) 0.31 0.34 0.29 0.28 0.28 Tax 2 0 0 0 0 C1 Production Cost (R/lb) 6.87 7.75 7.67 7.77 7.77 Net Profit (Loss) - attributable 43 (203) 121 189 195 C1 Production Cost ($/lb Cr) 0.66 0.68 0.66 0.73 0.81 Minority Interest (1) (1) 0 0 0 All-in Sustaining Cost ($/lb Cr) 0.73 0.77 0.71 0.78 0.86 Cashflow 2014 2015F 2016F 2017F 2018F Net Profit (Loss) 42 (204) 121 189 195
Attrib. FeCr Production (kt) Total UnitC1 ProductionOperating Cost Cost / ($/lbAISC Cr)($/lb Cr) Working Cap. change 53 (15) 100 66 (214) DD&A 129 130 179 192 201 300 1.00 Non Recurring/Other (94) 138 (145) (85) 459 Cash Flow From Operations 130 49 255 363 642 0.90 Capital Expenditure (57) (95) (50) (50) (50)
200 0.80 Acquis./investments/adjustments 14 (11) (2) (4) (3) Cash Flow From Investing (43) (107) (52) (54) (53) 0.70 Borrowings (4) 9 (75) (172) (164) Capital stock 0 0 0 0 0 100 0.60 Dividends paid & other (58) (65) (55) (47) (31) Cash Flow From Financing (62) (56) (130) (218) (194) 0.50 Net Change in Cash 25 (113) 73 90 395 Free Cash Flow 24 (188) 132 247 542 0 0.40 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F Balance Sheet 2014 2015F 2016F 2017F 2018F Cash & Equivalents 162 49 122 212 607 Buffelsfontein C1 Production Cost AISC Total Current Assets 731 551 664 801 1,204 Assumptions (Real) 2014 2015F 2016F 2017F LT PP&E & Mining Interests 2,045 2,049 1,938 1,814 1,680 FeCr benchmark ($/lb Cr) 1.16 1.13 1.11 1.21 1.20 Deferred taxation 235 235 235 235 235 Payable discount to benchmark (%) -30% -33% -30% -30% -25% Other 248 242 228 217 204 FeCr realised price ($/lb Cr) 0.81 0.75 0.77 0.84 0.93 Total Assets 3,259 3,077 3,065 3,067 3,324 Exchange rate (US$/ZAR) 10.39 11.43 11.63 10.69 9.50 Short Term Debt 506 509 509 386 222 Exchange rate (US$/£) 1.63 1.57 1.50 1.50 1.50 Current Liabilities 838 872 737 595 654 South Africa inflation (%) 0% 0% 2% 4% 4% Long Term Debt 61 49 49 0 0 Other Long Term Liabilities 103 107 109 112 115 Total Liabilities 1,002 1,028 895 707 769 Shareholder Equity 2,261 2,052 2,174 2,363 2,558 Total Liab. & Equity 3,259 3,077 3,065 3,067 3,324 Working Capital 245 230 330 396 183 Net Debt (Cash) exc fin lease 344 527 378 116 (442) Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Kaz Minerals 9 April 2015 Estimate Changes
REDUCE Red on the Horizon From Sell We upgrade to a REDUCE recommendation and increase our TP to 190p, from 180p, Current Share Price 216p due to our revised commodity price forecasts and changes to our model. Target Price 190p Market Capitalisation £965m ● Company Snapshot. FTSE 250, major copper producer in Kazakhstan. It is Shares In Issue 447m restructuring as KAZ Minerals to produce 80ktpa from its fully integrated business, RIC/BLBG KAZ.L/KAZ LN comprising 5 mines (including Bozymchak mine in Kyrgyzstan). It has three c.100ktpa Avg. Daily Volume (3M) 2,303,740 growth projects: Boschekul and Aktogay, which are scheduled to start in 2015, plus Net Cash/(Debt) (m) (12/15F) $(2,929.5)m the earlier stage Koksay. Current share price(s) timed at 7:00AM on 07/04/15
● Share Price Investment Thesis. Growth to start - Flat to declining production of 80-85ktpa from 400 existing mature mines. Steady growth to 300ktpa in 2018 as Boschekul and Aktogay 350 (Oxide) begin production in Q4 2015 and Aktogay Sulphide in 2017 (we exclude Koksay 300 - 80ktpa Cu, 60kozpa Au). Leverage - Leveraged copper play due to narrow margin. 250 Gross cash costs high at +$3.00/lb due to mature mines, but closer to $1.20-1.40/lb 200 net due to significant by-product credits (4Moz Ag, 40koz Au and 120kt Zn). Costs are 150 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 expected to decline with fx devaluation, plus addition of Boschekul ($0.80-1.00/lb net) Kaz Minerals and Aktogay ($1.20-1.40/lb). - Net debt $1bn with peak capex of $1.6bn Relative to UK Market Balance sheet in 2015 due to high capital intensity growth projects ($2.3bn each) doesn't leave any Performance (%) 1M 3M 12M FCF. Gearing +250% and 7x net debt/EBITDA (2016) looks ugly; no covenants tested Absolute -3 -12 -17 until 2016; we expect further refinancing required. Divi suspended.
Relative -4 -19 -21 ● Guidance. 2015: 80-85kt copper, 90-95kt zinc, 2.25-2.5Moz silver and 42.47koz gold. Source: Datastream (relative to UK-DS Market index) Gross C1 costs $2.80-3.00/lb; project capex of $1.4-1.6bn, sustaining capex $110m.
● Preview FY (30 Apr). Production of 21kt, with lower grades filtering through and a seasonally weaker quarter. Silver and zinc by-products down on lower grades at 700koz and 25kt; gold flat at 11koz. Projects on track for Q4 start-up.
● Valuation. Blend of 1x NAV/10x P/E (middle of 7-12x range for copper miners).
● Moderate: Political risk, project delivery, balance sheet, restructuring plan, Analysts Risks. costs. Cailey Barker Tel: +44 (0)20 7260 1420 [email protected]
Phil Swinfen Tel: +44 (0)20 7260 1430 [email protected]
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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58 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Kaz Minerals 9 April 2015
Figure 1: Model summary KAZ Minerals Ticker KAZ.L Market Capitalisation £965m Financial Year End Dec REDUCE Share Price £2.16 Enterprise Value (EV) £1,873m Reporting Currency US$ £1.90 Implied Return -12% Net Debt (Cash) $962m Shares in Issue 447m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) - Underlying 1.78 0.19 (0.06) 0.17 0.69 Mining Assets (inc. Projects) 12% 196% 4,670 10.45 6.97 EPS Growth 89% -89% -133% 360% 311% Sub-total 4,670 10.45 6.97 P/E 1.8x 16.8x n.m 19.4x 4.7x Cash & Equivalents 40% 965 2.16 1.44 CFPS ($/sh) 0.35 (0.13) 0.23 0.88 1.66 Debt (130%) (3,092) (6.92) (4.61) P/CFPS 9.3x n.m 14.0x 3.7x 1.9x Corporate G&A (7%) (160) (0.36) (0.24) FCFPS ($/sh) (2.04) (2.24) (3.78) (0.99) (0.17) Total 2,383 5.33 £3.55 P/FCFPS n.m n.m n.m n.m n.m Current NAV Multiple (Implied) 0.61x FCF Yield -63% -69% -117% -31% -5% Earnings Value $/sh £/sh EV/EBITDA 4.8x 5.3x n.m 3.7x 2.1x EPS (1 year forward) 0.03 0.02 EBITDA Margin 42% 42% 21% 34% 44% Current P/E multiple (implied) 114.5x Dividend Per Share ($/sh) 0.08 0.00 (0.01) 0.02 0.07 Blended Valuation Target Multiple Weight Dividend Yield 2.5% 0.0% -0.2% 0.5% 2.1% NAV valuation 1.0x 50% £3.55 Return on Assets (ROA) -51% -41% 0% 1% 4% Earnings valuation 10.0x 50% £0.19 Return on Equity (ROE) -123% -112% -1% 3% 13% VALUATION £1.87 Return on Capital Employed (ROCE) 4% 2% 1% 6% 11% Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Net Debt/EBITDA 3.9x 3.8x 15.9x 7.0x 4.0x Base case copper price forecast 3.55 (0.06) 0.23 Gearing (Debt/Equity) 129% 147% 172% 185% 174% Base case +10% 5.52 0.03 0.41 Interest Cover -0.2x -2.8x -1.9x -0.6x -0.1x Base case -10% 1.60 (0.15) 0.05 Shares Outstanding (m) 513 447 447 447 447 Flat copper price (at spot $2.75/lb) 4.46 (0.05) 0.25 Income Statement 2013 2014 2015F 2016F 2017F News Catalysts H1 14 H2 14 2015 2017 Revenue 933 846 829 1,486 2,016 Kazakhmys NewCo restructuring Cost of Sales (577) (456) (588) (902) (1,130) Bozymchak starts production Admin & Selling Expenses (177) (164) (180) (232) (181) Bozshakol commences production H2 Other 14 (132) 0 0 0 Aktogay commences production (oxide) Q4 EBITDA (exc. MET) 389 355 176 503 887 Aktogay commences production (sulphide) DD&A (50) (42) (42) (43) (39) Reserves & Resources (attributable) Copper Gold Cu Eq EV/lb Cu MET (86) (86) (73) (108) (143) Reserves (P&P) Mt / Moz 15.9 9.4 20.6 0.06 EBIT 193 94 62 352 704 Resources (M&I) Mt / Moz 23.4 11.6 29.0 0.04 Net Interest Expense (47) (263) (119) (203) (92) Sales 2014 2015F 2016F 2017F PBT 146 (169) (57) 149 613 Copper kt 84 94 178 239 Taxes/Recovery (56) (65) 29 (75) (306) Silver Moz 3.4 2.5 2.8 3.0 Profit (Loss) from disc'd operations (3,053) (2,128) 0 0 0 Gold koz 35 45 64 80 Net Profit (Loss) - attributable (2,963) (2,362) (29) 75 306 Costs 2014 2015F 2016F 2017F Underlying Profit 911 86 (29) 75 306 C1 cost (gross by-products) $/lb 2.57 2.84 2.27 2.06 Minority Interest 0 0 0 0 0 C1 Cost (net by-products) $/lb 0.85 1.55 1.42 1.29 Cashflow 2013 2014 2015F 2016F 2017F All-in Sustaining Cost $/lb 2.03 2.88 2.35 1.90 Net Profit (Loss) (2,963) (2,362) (29) 75 306
Copper Production (kt) Net Cash Cost / AISC ($/lb Cu) DD&A 50 42 42 43 39 Non Recurring/Other 3,091 2,262 90 278 398 400 4.00 Working Cap. Changes 118 21 13 98 83 Cash Flow From Operations 73 202 (41) 192 416 300 3.00 Capital Expenditure (1,120) (1,203) (1,646) (635) (491) Investments/Sale of Assets 668 1,068 32 23 12 200 2.00 Cash Flow From Investing (452) (135) (1,614) (612) (479) Equity Issues (Net of Costs) 0 0 0 0 0 100 1.00 Net Borrowings 683 (26) 487 391 237 Dividends Paid & Other (42) 0 3 (7) (31) 0 0.00 Cash Flow From Financing 641 (26) 490 383 206 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Net Change in Cash 257 15 (1,165) (37) 143 Core Assets Boschekul Aktogay Cash Cost AISC Free Cash Flow (1,047) (1,001) (1,687) (443) (75) EBITDA Margin Group EBITDA ($m) Balance Sheet 2013 2014 2015F 2016F 2017F 3,000 100% Cash & Equivalents 1,582 1,730 565 528 671 2,500 Total Current Assets 3,545 2,496 1,366 1,586 1,946 75% 2,000 PP&E & Mining Assets 1,693 2,740 4,380 4,972 5,424
1,500 50% Investments in associate 0 0 0 0 0 Assets held for sale 1,018 0 0 0 0 1,000 25% Other (431) 482 482 482 482 500 Total Assets 5,825 5,718 6,227 7,040 7,852 0 0% Short Term Debt 503 181 181 181 181 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F Current Liabilities 746 638 686 1,041 1,340 KAZ Minerals Kazakhmys Copper EBITDA Margin Long Term Debt 2,608 2,911 3,398 3,788 4,025 Assumptions (Real) 2014 2015F 2016F 2017F LT Other Long Term Liabilities 56 65 65 65 65 Copper Price ($/lb) 3.11 2.71 2.89 2.92 2.50 Total Liabilities 3,410 3,614 4,149 4,895 5,431 Silver Price ($/oz) 19.1 16.7 17.6 18.6 18.5 Shareholder Equity 2,416 2,104 2,078 2,145 2,421 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Total Liab. & S/Holder Equity 5,826 5,718 6,227 7,040 7,852 Zinc Price ($/lb) 0.98 0.95 0.95 0.95 0.95 Working Capital 2,799 1,858 679 545 605 Exchange Rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Net Debt (Cash) 954 962 2,614 3,041 3,135 Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Minera IRL 9 April 2015 Estimate Changes
BUY All Rests on Ollachea
We maintain our BUY recommendation and 10p TP, despite our new commodity Current Share Price 3p price forecasts and changes to our model. Target Price 10p Market Capitalisation £7m ● Company Snapshot. AIM/TSX-listed junior gold producer focused in Latin America. Shares In Issue 231m It’s assets comprise the 20kozpa Corihuarmi mine in Peru and the 100kozpa Ollachea RIC/BLBG MIRL.L/MIRL LN project in Peru. Avg. Daily Volume (3M) 355,111 Current share price(s) timed at 7:00AM on 07/04/15 ● Investment Thesis. Growth & upside - Growth to +100kozpa in 2017 at cash costs
Share Price of <$600/oz. Production at Corihuarmi is reducing due to lower grades, offset by higher 14 tonnage and recovery through the pads. Exploration at satellite deposits has extended 12 LOM to H1 2017. Don Nicolas sold for $10m. Ollachea expected to start Q4 2016 (likely 10 later), subject to financing of $165m capex, with construction permit now received. 8 6 Upside from the 0.9Moz Concurayoc Zone, plus potential to extend at depth and along 4 strike; could increase LOM and/or increase production by 20-30kozpa. Financing 2 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 remains key - Cash of $1m at end Q1, plus a $2m working cap facility. A $100m loan Minera IRL facility has been offered by Macquarie but not taken up (inc. consolidating existing Relative to UK Market $30m debt facility), leaving potentially $110m to finance Ollachea. Minera is pursuing Performance (%) 1M 3M 12M a range of avenues - royalty streams, JV partners, offtake and equity. Expected to Absolute -3 22 -58 complete in Q2.
Relative -4 12 -60 ● Guidance. 2015: 22koz (prev. 20koz). Source: Datastream (relative to UK-DS Market index) ● Preview FY. Production at Corihuarmi 23.3koz as announced previously. Cash costs of $874/oz. EPS -18c, down y-o-y (NPAT -$40m). EBITDA $3m. Cash down at $2.5m; $30m in debt. We look for progress on financing for Ollachea. Q1 production down slightly at 5.7koz.
● Valuation. 1x P/NAV (bottom end of 1-2x NAV gold producers).
● Risks. High: Financing and balance sheet, development risk, Argentina & Peru politics. Analysts Cailey Barker Tel: +44 (0)20 7260 1420 [email protected]
Phil Swinfen Tel: +44 (0)20 7260 1430 [email protected]
This research was prepared and approved by
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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60 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Minera IRL 9 April 2015
Figure 1: Model summary Minera IRL Ticker MIRL.L Market Capitalisation £7m Financial Year End Dec BUY Share Price £0.03 Enterprise Value (EV) £23m Reporting Currency US$ £0.10 Implied Return 220% Net Debt (Cash) $24m Shares in Issue 225m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) (0.19) (0.18) (0.02) (0.06) 0.01 Corihuarmi (Peru) 10% 15% 6 0.02 0.02 EPS Growth -969% 7% 88% -214% 119% Ollachea (Peru) 12% 202% 83 0.31 0.21 P/E n.m n.m n.m n.m 3.8x Exploration Properties 0% 0 0.00 0.00 CFPS ($/sh) 0.00 (0.02) (0.01) (0.04) 0.23 Sub-total 90 0.33 0.22 P/CFPS 67.8x n.m n.m n.m 0.2x Cash & Equivalents 8% 3 0.01 0.01 FCFPS ($/sh) (0.02) (0.07) (0.29) (0.51) 0.21 Debt (67%) (28) (0.10) (0.07) P/FCFPS n.m n.m n.m n.m 0.2x Corporate G&A / Other (58%) (24) (0.09) (0.06) FCF Yield -46% -142% -612% -1096% 449% Total 41 0.15 £0.10 EV/EBITDA n.m n.m n.m n.m 0.3x Current NAV Multiple (Implied) 0.30x EBITDA Margin -1% 3% -2% -28% 20% VALUATION Target Multiple 1.0x £0.10 Dividend Per Share ($/sh) 0.00 0.00 0.00 0.00 0.02 Dividend Yield 0.0% 0.0% 0.0% 0.0% 35.4% Return on Assets (ROA) -18% -25% -2% -5% 1% Return on Equity (ROE) -26% -39% -3% -12% -4% Return on Capital Employed (ROCE) 0% 1% 0% -2% 10% Net Debt/EBITDA 4.2x 7.0x 1.5x -28.4x 1.3x Gearing (Debt/Equity) 19% 27% 41% 86% 63% Interest Cover n.m -6.7x n.m n.m -0.4x Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Shares Outstanding (m) 174 225 226 236 236 Base case gold price forecast 0.10 (0.02) (0.01) Income Statement 2013 2014 2015F 2016F 2017F Base case +10% 0.22 (0.02) 0.00 Revenue 36 30 26 24 155 Base case -10% (0.02) (0.02) (0.01) Cost of Sales (23) (21) (20) (20) (75) Flat gold price (at spot $1,200/oz) 0.10 (0.02) (0.01) G&A (8) (7) (5) (5) (5) News Catalysts H1 2014 H2 2014 2015 2016 Exploration (0) (0) (0) (0) (0) Ollachea financing Other 1 1 (0) (3) 0 Ollachea construction permit EBITDA 5 3 2 (5) 74 Cayhua feasibiilty results (Corihuarmi) DD&A (5) (2) (2) (2) (43) Ollachea development EBIT (1) 1 (1) (7) 31 Ollachea production starts H2 Net Interest Expense (31) (7) (4) (9) (12) PBT (32) (6) (4) (16) 19 Reserves & Resources (attributable) Tonnage Grade Gold EV/oz Non-Recurring Items/Other (0) (32) 0 0 0 Reserves (P&P) Moz 10 3.6 1.2 20 Taxes/Recovery (2) (2) 1 5 (6) Resources (M&I) Moz 23 2.4 1.8 13 Net Profit (Loss) - attributable (34) (40) (5) (16) 3 Resources (Total) Moz 44 2.3 3.4 7 Minority Interest 0 0 2 5 10 Production & Cost 2014 2015F 2016F 2017F Cashflow 2013 2014 2015F 2016F 2017F Gold Production (consolidated) 000oz 23 22 19 126 Net Profit (Loss) (34) (40) (3) (11) 13 Gold Production (attributable) 000oz 23 22 19 120 DD&A 5 2 2 2 43 EV/oz Production (attributable) $/oz Au 1,487 1,572 1,798 290 Non Recurring/Other 34 40 2 5 18 Cash Operating Costs $/oz Au 705 806 893 495 Working Cap. Changes (1) (3) (1) 0 (1) Total Cash Cost (net by-products) $/oz 874 903 1,047 561 Cash Flow From Operations 0 (5) (1) (9) 55 All-in Sustaining Cost $/oz 1,172 1,141 1,322 642 Capital Expenditure (4) (10) (63) (112) (5) Exploration & Other (18) 12 (4) (10) (10)
Gold Production ('000oz, 100% basis) Total Cash Cost ($/oz Au) Cash Flow From Investing (22) 2 (67) (122) (15) 125 1500 Equity Issues (Net of Costs) 14 (0) 90 0 0 Net Borrowings 5 5 50 70 (30)
1250 Dividends Paid & Other 0 (2) 0 0 (4) 100 Cash Flow From Financing 19 3 140 70 (34)
1000 Net Change in Cash (3) 0 71 (61) 6 75 Free Cash Flow (4) (15) (65) (121) 50
750 Balance Sheet 2013 2014 2015F 2016F 2017F Cash & Equivalents 3 3 75 13 19 50 500 Total Current Assets 10 12 82 20 51 PP&E & Intangibles 174 136 201 322 294 25 250 Deferred taxation 0 0 0 0 0 Other 7 8 8 8 8
0 0 Total Assets 190 156 291 349 352 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F Short Term Debt 25 28 0 0 0 Corihuarmi Ollachea Total Cash Cost AISC Current Liabilities 40 34 5 4 28 Long Term Debt 0 0 78 148 118 Assumptions (Real) 2014 2015F 2016F 2017F LT Other Long Term Liabilities 19 19 20 25 20 Gold Price ($/oz) 1,266 1,200 1,200 1,200 1,200 Total Liabilities 58 54 103 177 165 Silver Price ($/oz) 19.1 16.9 18.5 18.5 18.5 Shareholder Equity 132 103 189 172 187 Exchange Rate (US$:£) 1.65 1.50 1.50 1.50 1.50 Total Liab. & S/Holder Equity 190 156 291 349 352 Working Capital (30) (22) 78 16 23 Net Debt (Cash) 22 24 3 134 99 Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Petra Diamonds 9 April 2015 Estimate Changes
BUY Sparkling Resilience
We maintain our BUY recommendation and 250p TP despite our revised commodity Current Share Price 183p price forecasts and changes to our model. Target Price 250p Market Capitalisation £943m ● Company Snapshot. FTSE 250 mid-tier diamond producer with 6 operations in South Shares In Issue 515m Africa and Tanzania. Large 300Mct resource base and it's two main mines, Cullinan RIC/BLBG PDL.L/PDL LN and Finsch, make up 75% of revenues. Also some early stage exploration in Botswana. Avg. Daily Volume (3M) 1,074,673 Net Cash/(Debt) (m) (06/14F) $(125.6)m ● Investment Thesis. Preferred diamond play - Long term investment with premium Current share price(s) timed at 9:00AM on 07/04/15 quality management and assets, plus growth into a firm diamond market. Grade Share Price Boost Coming - Gradual production increase to 5Mcts by 2019 and increasing grade 240 as Cullinan and Finsch move into undiluted kimberlite ore (Cullinan grade going to 220 50cpht from 31cpht; 2.2Mcts pa, Finsch 60cpht, from 37cpht; 2Mcts pa) which should 200 180 increase margins. Production to increase by 2019 at Kimberley underground (100kcts), 160 Koffiefontein (105kcts) and Williamson (300kcts). Upside beyond FY19 with excess 140 ore handing capacity at Cullinan and Finsch. Fancy upside - Revenues H2 weighted 120 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 due to seasonality, with more tenders. Upside for specials from Cullinan (average 1-2 Petra Diamonds pa at c.$15-25m), which go straight to the bottom line. - Costs Relative to UK Market Balance sheet steady well controlled despite inflation, labour and power issues. Margins to increase to 50%, Performance (%) 1M 3M 12M from 40%. Funds continue to be well managed and we see limited pressure to execute Absolute -2 -5 23 growth plans which are fully funded; peak capex this year. First Divi- 2p for FY15, Relative -3 -12 17 starter yield of only 1% but progressive policy in place.
Source: Datastream (relative to UK-DS Market index) ● Guidance. FY15: Production 3.3Mcts (June YE). Cullinan - price $130/ct, Finsch - price $90/ct.
● Preview - Interims (Late Feb). Production 835kcts, a return to a similar level as Q1 and on track for FY15 guidance of 3.3Mcts and target of 5Mcts by FY19. Sales 1,053kcts, up y-o-y (Q3 2014 905kcts). Sales revenue $137m. Results will be H2 weighted due to the usual seasonal timing of tenders, which should see a solid finish to FY15. Continued ramp up at Finsch and Cullinan. Further potential grade volatility at Cullinan. We expect Analysts the diamond market to have firmed from the dip in Q1 but with overall growth remaining Phil Swinfen muted. Short-term issues with mid-stream manufacturers and cutters being squeezed Tel: +44 (0)20 7260 1430 [email protected] to persist, but long term underpinned by US market and continued growth from China.
Cailey Barker ● Tel: +44 (0)20 7260 1420 Valuation. Blend of 1x NAV/5x P/CF (bottom of 5-15x P/CF range for diamond miners). [email protected] ● Risks. Low: South Africa labour & power. Delivery on growth programme. This research was prepared and approved by
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62 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Petra Diamonds 9 April 2015
Figure 1: Model summary Petra Diamonds Ticker PDL.L Market Capitalisation £943m Financial Year End June BUY Share Price £1.83 Enterprise Value (EV) £955m Reporting Currency US$ £2.50 Implied Return 37% Net Debt (Cash) $19m Shares in Issue 515m
Valuation Key Metrics 2014 2015F 2016F 2017F 2018F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) 0.10 0.13 0.26 0.37 0.45 Cullinan (74%) 10% 47% 1,383 2.56 1.58 EPS Growth 54% 29% 105% 43% 24% Finsch (74%) 10% 44% 1,289 2.39 1.47 P/E 30.6x 23.7x 11.6x 8.1x 6.5x Williamson (75%) 10% 6% 171 0.32 0.20 CFPS ($/sh) 0.38 0.35 0.56 0.78 0.70 Koffiefontein (74%) 10% 5% 155 0.29 0.18 P/CFPS 7.7x 8.4x 5.3x 3.8x 4.2x Kimberley U/G (74%) 10% 1% 37 0.07 0.04 FCFPS ($/sh) (0.10) (0.07) 0.04 0.26 0.40 Fissures (74%) 10% (0%) (2) (0.00) (0.00) P/FCFPS (30.9)x (45.4)x 76.9x 11.2x 7.4x Sub-total 3,033 5.61 3.46 FCF Yield -3% -2% 1% 9% 14% Corporate G&A / Other 10% (3%) (83) (0.15) (0.10) EV/EBITDA 9.9x 8.9x 5.8x 4.0x 3.0x Cash & equiv (est) 5% 153 0.28 0.17 EBITDA margin 36% 36% 49% 55% 56% Debt (est) (6%) (172) (0.32) (0.20) Dividend Per Share ($/sh) 0.00 0.03 0.04 0.04 0.09 Total 2,931 5.42 £3.35 Dividend Yield 0.0% 1.0% 1.2% 1.5% 3.1% Current NAV multiple (Implied) 0.55x Return on Assets (ROA) 6% 7% 12% 16% 18% Earnings value $/sh £/sh Return on Equity (ROE) 11% 12% 21% 24% 23% Cash flow per share (12 months forward) 0.36 0.22 Return on Capital Employed (ROCE) 13% 13% 19% 25% 26% Current P/CF multiple (implied) 8.2x Net Debt/EBITDA 0.7x 0.2x 0.2x -0.2x -0.7x Blended valuation Target Multiple Weight £/sh Gearing (Debt/Equity) 25% 27% 26% 15% 4% NAV valuation 1.00x 50% £3.35 Interest Cover 21.9x 18.3x 25.5x 38.5x 117.5x Cash flow valuation 7.5x 50% £1.66 Shares Outstanding (m) 511 515 515 515 515 VALUATION £2.51 Income Statement (US$m) 2014 2015F 2016F 2017F 2018F Sensitivity Analysis Valuation NAV/sh 16F EPS 16F CFPS Revenue 472 500 586 722 843 Base case diamond price forecast £2.51 £3.35 $0.26 $0.56 Cost of sales (320) (343) (321) (350) (404) Base case +10% £2.51 £3.36 $0.26 $0.56 G&A (14) (15) (14) (14) (15) Base case -10% £2.50 £3.33 $0.25 $0.55 Other (10) (1) 1 1 1 Flat diamond prices (Rough Index @ 180) £1.92 £2.87 $0.14 $0.34 EBITDA 170 181 288 399 470 News catalysts FY 14 FY 15 FY 16 DD&A 42 39 37 42 45 Potential value-add from 'specials' EBIT 128 142 251 358 425 Cullinan - C-Cut production starts Net finance income (expense) (4) (14) (4) (4) (0) Finsch - development of Block 5 SLC PBT 124 129 247 354 424 Finsch - development of SWC Non-Recurring Items/Other (16) 0 0 0 0 Koffiefontein - Production from Ebenhaezer pit Tax (41) (44) (69) (99) (109) Reserves & Resources (attributable) Tonnes Grade Carats EV$/ct Net Profit (Loss) - attributable 50 64 132 189 234 Reserves (P&P) 94 Mt 42 Mt 40 Mt 39 Minority Interest 18 20 46 66 82 Resources (M&I) 352 Mt 47 Mt 165 Mt 9 Cashflow (US$m) 2014 2015F 2016F 2017F 2018F Production & cost (cons) 2014 2015F 2016F 2017F 2018F Net Profit (Loss) 68 85 178 255 316 Diamonds produced (kct) 3,110 3,306 3,301 3,870 3,918 Working Cap. change 20 46 3 3 0 EV$/ct production 497 468 468 400 395 DD&A 42 43 37 42 45 Total Cash Cost ($/ct) 79 78 70 73 78 Non Recurring/Other 67 9 70 100 1 All-in Sustaining Cost ($/ct) 84 84 76 78 82 Cash Flow From Operations 196 182 287 400 362 Capital Expenditure (209) (229) (196) (120) (85) Diamond Production ('000ct) Total Cash Cost / AISC ($/ct) Acquis./investments/adjustments (2) 92 0 0 0 5,000 120 Cash Flow From Investing (211) (137) (196) (120) (85) Borrowings 12 38 27 (60) (116) 100 4,000 Capital stock 3 (4) (1) (1) 0 Dividends paid & other 7 0 (37) (47) (31) 80 Cash Flow From Financing 22 34 (11) (107) (146) 3,000 Net Change in Cash 7 79 80 172 131 60 Free Cash Flow (13) (47) 91 280 277
2,000 Balance Sheet (US$m) 2014 2015F 2016F 2017F 2018F 40 Cash & Equivalents 34 159 171 245 376 Total Current Assets 168 280 303 389 521 1,000 20 PP&E & Mining Interests 839 959 1,118 1,196 1,236 Deferred taxation 30 29 29 29 29
0 0 Other 62 2 3 3 4 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Total Assets 1,099 1,270 1,452 1,617 1,790 Cullinan Finsch Fissures Williamson Short Term Debt 34 54 54 54 54 Kimberley U/G Koffiefontein Total Cash Cost AISC Current Liabilities 106 131 145 160 162 Assumptions 2014 2015F 2016F 2017F 2018F Long Term Debt 159 197 224 164 49 Diamond Price (weighted avg, $/ct) 138 130 167 188 213 Other Long Term Liabilities 202 216 217 218 220 Cullinan - average $/ct (real) 185 169 155 167 178 Total Liabilities 467 543 585 542 430 Finsch - average $/ct (real) 99 88 124 144 170 Shareholder Equity 596 676 780 934 1,146 Polished Price Index 144 138 135 138 141 Minority interest 36 50 87 141 214 Rough Price Index 238 234 236 249 245 Total Liab. & Equity 1,099 1,270 1,452 1,617 1,790 South Africa & Tanzania inflation 0.0% 0.0% 1.9% 4.0% 4.0% Working Capital (2) (48) (51) (54) (54) Exchange rate (US$/ZAR) 10.39 11.43 11.63 10.69 9.63 Net Debt (Cash) 125 37 53 (81) (327)
Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Randgold Resources 9 April 2015 Estimate Changes
HOLD Reaching a Peak
We maintain our HOLD recommendation and increase our TP to £51, from £49, due Current Share Price 4,852p to our new commodity price forecasts and changes to our model. Target Price 5,100p Market Capitalisation £4.5bn ● Company Snapshot. FTSE 100 mid-tier African gold producer. Produces 1.2Mozpa Shares In Issue 93m from 5 mines in Mali (Loulo-Gounkoto, Morila), Cote d'Ivoire (Tongon) and DRC (Kibali). RIC/BLBG RRS.L/RRS LN Also has the Massawa project in Senegal, plus a large exploration portfolio and a Avg. Daily Volume (3M) 613,991 number of JVs with juniors. Net Cash/(Debt) (m) (12/15F) $168.6m Current share price(s) timed at 9:00AM on 07/04/15 ● Investment Thesis. Industry leader - Peer-leading management and assets, with solid Share Price organic growth and upside, while not without its political and technical challenges. 6000 Well-deserved premium rating for an impressive track record in creating shareholder 5500 value. Growth peaking - Loulo-Gounkoto growing to 650-700kozpa moving into higher 5000 4500 grade areas; Kibali is firing on all cylinders with production moving to full 600kozpa 4000 (RRS 45%). Tongon appears the ongoing bug-bear with recovery and power issues 3500 (260-300kozpa). We see upside to 1.3Mozpa at $600/oz (AISC $750-800/oz) on grade, 3000 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 optimisation and minor expansions. Cash to come: M&A or divi? - Capex has peaked Randgold Resources so will come down sharply. RRS want to build the coffers up to $500m to cover the next Relative to UK Market mine build. It recently increased its debt facility to $400m, which appears to be a move Performance (%) 1M 3M 12M to capitalise on a faltering industry; despite its strict filters, M&A could be a real prospect Absolute 5 0 3 this year. We see substantive cash generation and chance of dividend upgrades in
Relative 5 -8 -2 2015. Organic trail - Exploration is now focusing on discovery of elephants and
Source: Datastream (relative to UK-DS Market index) brownfield targets to improve mine plans. We see lots of prospectivity, particularly in Mali and DRC. Political challenges - African political issues are ongoing, particularly in Cote d'Ivoire and the DRC and we could see further wobbles. However, a peer- leading approach to African politics should navigate through the crossfire.
● Guidance. 2015: 1.2-1.26Moz at TCC of $650-700/oz. Capex $330m.
● Preview Q1 (7 May). Production flat q-o-q at 289koz at a cash cost of $693/oz (Q4 2014 287koz at $712/oz). Loulo-Gounkoto slightly up on grade and ratio switches to more Analysts from Loulo; Tongon stays with elevated tonnage and grade with recoveries continuing Cailey Barker to improve with the new crusher and expanded flotation circuit; Morila down slightly Tel: +44 (0)20 7260 1420 [email protected] from a strong Q4 when the pushback started. Kibali down at 166koz as grade comes
Phil Swinfen down. EPS flat q-o-q at $0.48 with a slightly higher gold price (NPAT $45m, Q4 2014 Tel: +44 (0)20 7260 1430 $0.49). Balance sheet up at $114m cash and no debt as Kibali capex comes off but [email protected] VAT receivables remain outstanding.
This research was prepared ● Valuation. Blend of 2x NAV/15x P/CF (top of 1-2x NAV/5-15x P/CF for golds). and approved by Numis Securities Limited ● Risks. Mali, Cote d'Ivoire & DRC politics, mining code & tax. The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT +44 (0)20 7260 1000 [email protected] www.numis.com
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64 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Randgold Resources 9 April 2015
Figure 1: Model summary Randgold Resources Ticker RRS.L Market Capitalisation £4,493m Financial Year End Dec HOLD Share Price £48.52 Enterprise Value (EV) £4,432m Reporting Currency US$ £51.00 Implied Return 5% Net Debt (Cash) -$91m Shares in Issue 93m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS ($/sh) 3.02 2.54 1.90 2.11 2.62 Loulo - Mali (80%) 10% 30% 1,129 12.19 8.13 EPS Growth -35% -16% -25% 11% 24% Gounkoto - Mali (80%) 10% 20% 755 8.15 5.43 P/E 24.1x 28.7x 38.4x 34.4x 27.8x Tongon - Cote D'Ivoire (89%) 10% 20% 768 8.29 5.53 CFPS ($/sh) 5.04 3.43 4.62 5.08 5.65 Morila - Mali (40%) 10% 0% 18 0.20 0.13 P/CFPS 14.4x 21.2x 15.8x 14.3x 12.9x Kibali - DRC (45%) 12% 28% 1,044 11.28 7.52 FCFPS ($/sh) (2.86) 0.94 2.44 3.76 4.59 Massawa - Senegal (83%) 12% 3% 109 1.18 0.78 P/FCFPS n.m 77.6x 29.9x 19.4x 15.8x Sub-total 3,823 41.29 27.52 FCF Yield -4% 1% 3% 5% 6% Cash & Equivalents 2% 91 0.98 0.66 EV/EBITDA 9.1x 8.8x 10.0x 8.8x 7.8x Debt 0% 0 0.00 0.00 EBITDA Margin 31% 33% 27% 28% 32% Corporate G&A / Other (4%) (149) (1.61) (1.07) Dividend Per Share ($/sh) 0.50 0.47 0.60 0.63 0.83 Total 3,765 40.66 £27.10 Dividend Yield 0.7% 0.6% 0.8% 0.9% 1.1% Current NAV Multiple (Implied) 1.79x Return on Assets (ROA) 8% 7% 5% 5% 6% Cash Flow Value $/sh £/sh Return on Equity (ROE) 8% 6% 3% 4% 4% CFPS (1 year forward) 4.73 3.16 Return on Capital Employed (ROCE) 11% 11% 8% 9% 10% Current P/CF multiple (implied) 15.4x Net Debt/EBITDA -0.1x -0.2x -0.4x -0.8x -1.2x Blended Valuation Target Multiple Weight Gearing (Debt/Equity) 0% 0% 0% 0% 0% NAV valuation 2.0x 50% £54.21 Interest Cover 0.1x 0.0x 0.0x 0.0x 0.0x Cash Flow valuation 15.0x 50% £47.34 Shares Outstanding (m) 92 93 93 93 93 VALUATION £50.77 Income Statement 2013 2014 2015F 2016F 2017F Revenue 1,138 1,087 1,074 1,220 1,271 Sensitivity Analysis NAV (£/sh) 15F EPS 15F CFPS Cost of Sales (609) (627) (712) (759) (739) Base case gold price forecast 27.10 1.90 4.62 G&A & Exploration (49) (37) (60) (50) (52) Base case +10% 34.09 2.92 5.78 Share of JV Profits, Other 6 81 140 91 89 Base case -10% 20.13 0.87 3.45 EBITDA 485 504 442 503 569 Flat gold price (at spot $1,200/oz) 26.23 1.90 4.62 DD&A (131) (147) (152) (165) (160) News Catalysts Q1 14 Q2 14 Q3 14 Q4 14 EBIT 355 357 290 337 409 Kibali sulphide production starts Share of JV profits, Net Interest 48 (4) 0 2 1 Cote d'Ivore New Mining Code PBT 402 353 290 339 410 Kibali underground stoping begins Non-Recurring Items/Other (49) (36) (56) (59) (65) Gounkoto u/g trade-off study Taxes/Recovery (77) (82) (58) (85) (102) Tongon float circuit installed Net Profit (Loss) - attributable 277 235 176 196 242 Reserves & Resources (attributable) Gold Silver Gold Eq EV/oz Minority Interest 47 36 56 59 65 Reserves (P&P) Moz 15.0 0 15.0 443 Cashflow 2013 2014 2015F 2016F 2017F Resources (M&I) Moz 22.0 0 22.0 302 Net Profit (Loss) 324 271 232 254 307 Production & Cost 2014 2015F 2016F 2017F DD&A 131 147 152 165 160 Gold Production (consolidated) 000oz 1,147 1,211 1,301 1,307 Non-Cash Items/JV Dividends 79 60 112 141 159 Gold Production (attributable) 000oz 995 1,055 1,126 1,130 Working Cap. Changes (47) (67) (11) (6) (1) EV/oz Production $/oz Au 6,685 6,299 5,905 5,885 Cash Flow From Operations 464 318 428 470 523 Total Cash Cost (net by-products) $/oz 698 684 686 647 Capital Expenditure (exc. JVs) (728) (231) (202) (122) (98) All-in Sustaining Cost $/oz 805 756 757 776 Acquis./Investments 0 9 0 0 0 Cash Flow From Investing (728) (222) (202) (122) (98) Attrib. Gold Eq Production ('000oz) Total Cash Cost / AISC ($/oz AuEq) Equity Issues (Net of Costs) 1 2 0 0 0 Net Borrowings 0 0 0 0 0 1,250 1000 Dividends Paid & Other (73) (53) (137) (110) (127) Cash Flow From Financing (72) (51) (137) (110) (127) 1,000 Net Change in Cash (336) 45 89 238 298 750 Free Cash Flow (264) 87 226 348 425 Balance Sheet 2013 2014 2015F 2016F 2017F 750 Cash & Equivalents 44 91 172 410 708 500 Total Current Assets 406 396 507 754 1,054
500 PP&E (inc. JVs) 2,778 2,932 3,050 3,028 2,985 Deferred taxation 1 0 0 0 0
250 Other 191 205 205 205 205 250 Total Assets 3,377 3,533 3,761 3,987 4,243 Short Term Debt 0 0 0 0 0 Current Liabilities 238 142 153 156 157 0 0 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F Long Term Debt 0 0 0 0 0 Loulo Morila Tongon Gounkoto Other Long Term Liabilities 81 89 89 89 89 Massawa Kibali Total Cash Cost AISC Total Liabilities 319 230 241 245 245 Assumptions (Real) 2014 2015F 2016F 2017F LT Shareholder Equity 3,058 3,303 3,520 3,742 3,998 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Total Liab. & S/Holder Equity 3,377 3,533 3,761 3,987 4,243 Silver Price ($/oz) 19.08 16.7 17.6 18.6 18.5 Working Capital 168 254 354 598 897 Exchange Rate (US$:£) 1.65 1.50 1.50 1.50 1.50 Net Debt (Cash) (44) (91) (172) (410) (708) Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Timmins Gold 9 April 2015 Estimate Changes
BUY Platform for Growth
We maintain our BUY recommendation and increase our TP to C$1.75 from C$1.60, Current Share Price C$0.90 due to our revised commodity price forecasts and changes to our model. Target Price C$1.75 Market Capitalisation C$161,889,480 ● Company Snapshot. TSX/NYSE-listed junior gold producer operating in Mexico. It’s Shares In Issue 180m main asset is the San Francisco gold mine in Sonoro State which produces 120koz RIC/BLBG TMM.TO/TMM CN pa. It recently acquired two development projects, Caballo Blanco and Ana Paula, also Avg. Daily Volume (3M) 642,035 in Mexico. Current share price(s) timed at 9:00AM on 07/04/15 ● Share Price Investment Thesis. Robust producer - San Francisco has a solid production track 2.5 record producing c.120koz pa at an operating cost of below $800/oz. The mine is a
2 simple heap leach operation with very few moving parts. Free Cash Flow to Return. Once growth capex on Caballo Blanco and Ana Paula is spent, Timmins should 1.5 return to generating significant free cash flow, even at current gold prices. Coiled 1 Spring. Timmins is highly leveraged to the gold price. The combination of an unhedged 0.5 Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 producer with strong cash flow and a moderate but stable opex base, provides a Timmins Gold compelling call on gold price recovery. A modest move to $1,300 gold (vs NUMe $1,200) would increase our FY15 EPS forecast by 125%. Growth Story - TMM is a Performance (%) 1M 3M 12M cheap way to buy into a future mid-tier producer. Timmins could potentially double Absolute -15 -32 -43 production within the next two years to 325koz pa. Caballo Blanco and Ana Paula will
Relative -16 -36 -46 be developed to Timmins' own time-line to manage the capital spend. Organic Growth. Timmins is planning to capitalise on drilling success late last year which identified high- Source: Datastream (relative to UK-DS Market index) grade feeders in the San Francisco pit, along strike and down dip. Exploration Play. Timmins has a Mexican focused 200,000ha under-explored land package.
● Guidance. FY guidance remains 115-125koz at $800-850/oz at a stable 25ktpd crushing rate and 0.59g/t head-grade.Preview Q1. Production 29koz gold at $876/oz cash operating cost (after by-product credits). 2,250t processed at 0.59g/t Au head grade.
● Valuation. 1.25x NAV and 7.5x CF (middle of 1-2x NAV and 5-15x CF range for gold Analysts producers). Phil Swinfen Tel: +44 (0)20 7260 1430 ● Risks. Moderate-high. Mexican tax changes, project delivery, financing, security [email protected] issues in Guerrero State. Cailey Barker Tel: +44 (0)20 7260 1420 [email protected]
This research was prepared and approved by
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66 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Timmins Gold 9 April 2015
Figure 1: Model summary Timmins Gold Ticker TMM.TO Market Capitalisation C$162m Financial Year End Dec BUY Share Price C$0.90 Enterprise Value (EV) $116m Reporting Currency $ C$1.75 Implied Return 94% Net Debt (Cash) -£17m Shares in Issue 180m
Valuation Key Metrics 2013 2014 2015F 2016F 2017F Net Asset Value Disc Rate NAV (%) $m C$m C$/sh EPS ($/sh) 0.11 0.06 0.03 0.02 0.04 San Francisco (100%) 8% 54% 282 353 1.23 EPS Growth n.m -46% -49% -29% 83% Ana Paula (100%) 10% 24% 127 159 0.56 P/E 6.8x 12.6x 25.0x 35.0x 19.2x Caballo Blanco (100%) 10% 10% 50 62 0.22 CFPS ($/sh) 0.36 0.20 0.08 0.07 0.11 Resources off-plan, Exploration 18% 95 118 0.41 P/CFPS 2.0x 3.5x 9.0x 10.4x 6.6x Sub-total 554 692 2.42 FCFPS ($/sh) (0.00) (0.02) 0.01 (0.20) (0.35) Cash & Equivalents 5% 28 35 0.12 P/FCFPS n.m n.m 124.4x n.m n.m Debt (2%) (11) (14) (0.05) FCF Yield 0% -2% 1% -23% -39% Corporate G&A / Other (9%) (48) (60) (0.21) EV/EBITDA 2.1x 2.9x 3.9x 3.9x 1.9x Total 522 653 2.28 EBITDA Margin 35% 26% 21% 20% 28% Current NAV Multiple (Implied) 0.39x Dividend Per Share ($/sh) 0.00 0.00 0.00 0.00 0.00 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% Cash Flow Value $/sh C$/sh Return on Assets (ROA) 6% 3% 2% 2% 2% CPS (1 year forward) 0.07 0.09 Return on Equity (ROE) 9% 4% 3% 3% 4% Current P/CF multiple (implied) 10.4x Return on Capital Employed (ROCE) 19% 8% 4% 4% 6% Blended Valuation Target Multiple Weight Net Debt/EBITDA -0.1x -0.4x -0.5x 0.3x 2.0x NAV valuation 1.25x 50% $2.85 Gearing (Debt/Equity) 10% 5% 5% 4% 41% Cash flow valuation 7.5x 50% $0.65 Interest Cover 0.0x -0.1x -0.1x -0.2x -0.3x VALUATION $1.75 Shares Outstanding (m) 144 180 283 340 374 Sensitivity Analysis NAV (p/sh) 15F EPS 15F CFPS Income Statement 2013 2014 2015F 2016F 2017F Base case gold price forecast 2.28 0.02 0.07 Revenue 161 154 143 152 216 Base case +10% 2.81 0.06 0.11 Cost of Sales (88) (98) (105) (112) (143) Base case -10% 1.28 (0.01) 0.03 G&A (11) (14) (10) (10) (12) Flat Gold Price (at spot $1,200/oz) 2.05 0.03 0.07 Other (5) (2) 2 0 0 News Catalysts 2014 2015 2016 2017 2018 EBITDA 57 41 30 30 61 San Francisco mine plan update DD&A (15) (19) (17) (18) (31) San Francisco regional drilling EBIT 41 22 12 12 31 Caballo Blanco - infill, Met testing Net Interest Expense (1) (2) (2) (2) (10) CB & AP - PEA Optimisation, Permitting PBT 40 20 11 10 20 Caballo Blanco - Production (H2) Non-Recurring Items/Other 0 0 0 0 0 Ana Paula - Production Taxes/Recovery (3) (10) (3) (3) (6) Reserves & Resources (La India attributable) Gold EV/oz Net Profit (Loss) - attributable 15 9 7 7 14 Reserves (P&P) Moz 1.6 73 Minority Interest 0 0 0 0 0 Resources (M&I) Moz 4.3 27 Cashflow 2013 2014 2015F 2016F 2017F Resources (M, I&I) Moz 6.6 18 PBT 40 20 11 10 20 Production & Cost (attributable) 2013 2014F 2015F 2016F DD&A 15 19 17 18 31 Gold Production 000oz 120 120 118 125 Non Recurring/Other 8 3 2 2 10 Gold Eq Production 000oz 121 121 119 126 Working Cap. Changes (11) (9) (9) (6) (21) EV/oz Production $/oz Au 962 958 978 925 Cash Flow From Operations 52 33 21 24 41 Operating Cash cost $/oz 717 790 876 861 Capital Expenditure (53) (36) (19) (92) (172) Total Cash Cost $/oz 727 799 885 870 Acquis./Investments 0 (11) 0 0 0 All-in Sustaining Cost $/oz 872 925 999 919 Cash Flow From Investing (53) (47) (19) (92) (172) Equity Issues (Net of Costs) 0 24 0 47 28 Attrib. Gold Production ('000oz) Total Cash Cost / AISC ($/oz ) Net Borrowings 0 (5) 0 0 0 Other (1) (1) (2) (2) 110 400 Cash Flow From Financing (1) 19 (2) 45 138 350 Net Change in Cash (1) 4 (0) (24) 7 1000 Free Cash Flow (0) (3) 1 (69) (131) 300 Balance Sheet 2013 2014 2015F 2016F 2017F
250 750 Cash & Equivalents 23 27 27 3 10 Total Current Assets 82 90 100 82 130 200 PP&E & Mining Interests 180 216 218 292 433 500 150 Deferred taxation 7 6 6 6 6 Other 0 0 0 0 (0) 100 Total Assets 269 312 324 380 569 250 Short Term Debt 16 11 11 11 11 50 Current Liabilities 46 38 42 44 72 0 0 Long Term Debt 0 0 0 0 120 2012 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F Other Long Term Liabilities 58 60 60 60 60 San Francisco Caballo Blanco Ana Paula Total Cash Cost AISC Total Liabilities 104 98 103 105 252 Shareholder Equity 164 214 221 275 317 Assumptions (Real) 2014 2015F 2016F 2017F LT Total Liab. & S/Holder Equity 269 312 324 380 569 Gold Price ($/oz) 1,266 1,205 1,200 1,200 1,200 Working Capital 35 52 58 37 58 Silver Price ($/oz) 19.1 16.7 17.6 17.6 18.5 Net Debt (Cash) (6) (16) (16) 8 121 Exchange Rate (US$/£) 1.65 1.50 1.50 1.50 1.50 Source: Company & Numis Securities Research
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Metals & Mining For FCA purposes this is a Marketing Communication
Wolf Minerals 9 April 2015 Estimate Changes
ADD Tantalizing Tungsten
We maintain our ADD recommendation and 23p TP, despite our new commodity Current Share Price 20p price forecasts and changes to our model. Target Price 23p Market Capitalisation £162m ● Company Snapshot. AIM/ASX-listed emerging UK tungsten producer. It owns the Shares In Issue 808m Hemerdon mine in Devon, the third largest tungsten project in the world, which is fully RIC/BLBG WLFE.L/WLFE LN permitted and financed, starting production in Q3 2015. Avg. Daily Volume (3M) 360,759 Net Cash/(Debt) (m) (06/15F) £(49.9)m ● Investment Thesis. Ready to roll - Wolf successfully completed its A$183m (£99m) Broker Yes equity fundraising which, along with permitting already complete, removes the last Current share price(s) timed at 7:00AM on 07/04/15 significant key risk. Construction commenced in February, marking Hemerdon’s Share Price trajectory to be the first new metal mine in the UK for 45 years. Production is expected to 24 start in Q3 2015. Robust, simple project - Hemerdon has a substantial resource base 22 20 of 145Mt at a moderate grade of 0.19% WO3. A simple 3Mtpa open pit/gravity operation 18 16 is envisaged to produce 345,000 mtu pa at a C1 cost of $109/mtu (net tin credits), 14 at the bottom of the cost curve (AISC c.$180/mtu). Capex is expected to be £123m, 12 10 giving a low capital intensity of $66/tpa. The project is located in a mining town with Apr- 14 Jul- 14 Oct- 14 Jan- 15 Apr- 15 excellent infrastructure, being fully permitted with no environmental concerns. Offtake Wolf Minerals Relative to UK Market and marketing are secured. Plenty of upside - As we roll forward into production, we see a 36% upside to our TP over the next 3 years. Mine life has been extended by Performance (%) 1M 3M 12M 3 years, beyond the current 9 years by expanding the pit and steepening the walls. Absolute 6 42 -6 Wolf has also been given the temporary go-ahead for 24/7 operation for 6 months. Relative 6 31 -10 If it can operate within permitted noise levels, it will apply for a permanent change, Source: Datastream (relative to UK-DS Market index) growing production by 27% to 440,000mtu pa, increasing our TP by 5p. We also see potential for an underground operation, opportunities to optimise the plant and upside from country rock processing and aggregate sales. Assuming this upside, our best case TP increases by 34%. Profit potential - From FY16 onwards, we forecast Wolf has the potential to generate A$60-80m in profits (3-4x P/E), EBITDA of A$100-110m (c.2x EV/EBITDA), FCF of $70-90m (3-4x P/CF) and dividends with a yield of +7%.
● Analysts Attractive LT market. Tungsten is classed as a strategic metal due to its unique properties (used in drill bits etc). The market is forecast to move into deficit with supply Cailey Barker Tel: +44 (0)20 7260 1420 unable to keep up with rising demand and limited projects on the horizon. We are yet to [email protected] see a price response as prices have drifted lower to $255/mtu, on a lack of consistent Phil Swinfen buying, but experts forecast a pick up in H2 (NUMe LT price is $450/mtu). Tel: +44 (0)20 7260 1430 [email protected] ● Preview FY15. Financials academic. We forecast capex spend of A$144m. We expect This research was prepared some fx benefit, with the balance sheet having net debt of A$51m, depending on timing and approved by of debt drawdown and payment of key capital items. Numis Securities Limited ● The London Stock Exchange Building Valuation. Blend of 1x NAV/7x 2016 P/E (bottom of 7-12x P/E range for industrials). 10 Paternoster Square London EC4M 7LT ● Risks. Low: Project delivery, tungsten market. +44 (0)20 7260 1000 [email protected] www.numis.com
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68 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange Wolf Minerals 9 April 2015
Figure 1: Model summary Wolf Minerals Ticker WLFE Market Capitalisation £160m Financial Year End June ADD Share Price £0.20 Enterprise Value (EV) £158m Reporting Currency A$ £0.23 Implied Return 16% Net Debt (Cash) -$4m Shares in Issue 808m
Valuation Key Metrics 2014 2015F 2016F 2017F 2018F Net Asset Value Disc Rate NAV (%) $m $/sh £/sh EPS (A$/sh) (0.04) (0.01) (0.01) 0.04 0.07 Hemerdon 10% 112% 343 0.42 0.28 EPS Growth -22% 73% 51% 839% 86% Sub-total 343 0.42 0.28 P/E n.m n.m n.m 9.4x 5.0x Cash & Equivalents 10% 31 0.04 0.02 CFPS ($/sh) (0.02) (0.01) 0.04 0.07 0.10 Debt (9%) (28) (0.03) (0.02) P/CFPS n.m n.m 10.6x 5.7x 3.8x Corporate G&A / Other (13%) (40) (0.05) (0.03) FCFPS ($/sh) (0.29) (0.19) 0.03 0.06 0.10 Total 306 0.38 £0.25 P/FCFPS n.m n.m 12.0x 5.9x 3.9x Current NAV Multiple (Implied) 0.79x FCF Yield -77% -51% 8% 17% 26% Earnings Value A$/sh £/sh EV/EBITDA n.m n.m n.m 4.7x 3.1x EPS (2 year forward) 0.06 0.03 EBITDA Margin 0% 0% -1% 29% 41% Current P/E multiple (implied) 6.5x Dividend Per Share ($/sh) 0.00 0.00 0.00 0.01 0.02 Blended Valuation Target Multiple Weight Dividend Yield 0.0% 0.0% 0.0% 3.2% 6.0% NAV valuation 1.00x 50% £0.25 Return on Assets (ROA) -1% -3% -1% 12% 20% Earnings valuation 7.0x 50% £0.21 Return on Equity (ROE) -2% -4% -2% 13% 21% VALUATION £0.23 Return on Capital Employed (ROCE) -2% -3% 0% 16% 26% Net Debt/EBITDA 19.4x -6.4x 1.4x -0.1x -0.7x Gearing (Debt/Equity) 0% 31% 25% 6% 0% Sensitivity Analysis NAV (£/sh) 17F EPS 17F CFPS Interest Cover n.m n.m n.m -0.1x 0.0x Base case tungsten price forecast 0.25 0.04 0.07 Shares Outstanding (m) 266 808 808 808 808 Base case +10% 0.30 0.05 0.08 Income Statement 2014 2015F 2016F 2017F 2018F Base case -10% 0.20 0.03 0.05 Revenue 0 0 93 149 185 Flat tungsten price (at spot $255/mtu) 0.04 0.01 0.03 Cost of Sales 0 0 (60) (72) (76) News Catalyst (CY) Q4 14 Q1 15 Q2 15 Q3 15 G&A (5) (8) (10) (8) (8) Geotech Drilling (mine life extension) Exploration 0 0 0 (5) (5) Construction Other 0 0 0 0 0 Commissioning EBITDA (5) (8) 23 64 95 Production starts DD&A 0 0 (23) (21) (20) EBIT (5) (8) (1) 43 76 Reserves & Resources (attributable) Tonnage Grade % Tungsten EV/t Net Interest Expense 2 (1) (3) (2) (0) Reserves (P&P) 000 mtu 36 0.18 6,426 0.04 PBT (4) (9) (4) 40 75 Resources (M&I) 000 mtu 59 0.17 10,174 12.52 Non-Recurring Items/Other 0 0 0 0 0 Resources (Total) 000 mtu 145 0.15 22,298 5.76 Taxes/Recovery 0 1 (1) (8) (15) Production & Cost 2016F 2017F 2018F 2018F Net Profit (Loss) - attributable (4) (9) (4) 32 60 Tungsten Production 000 mtu 287 380 374 356 Minority Interest 0 0 0 0 0 Tin Production 000t 0.44 0.58 0.52 0.44 Cashflow 2014 2015F 2016F 2017F 2018F Tungsten Eq. Production 000t 312 406 396 374 Net Profit (Loss) (4) (9) (4) 32 60 EV/mtu Production (attributable) $/t 824 623 632 663 DD&A 0 0 23 21 20 C1 Cash Cost (net by-products) $/mtu 134 116 122 132 Non Recurring/Other (1) (2) 2 (0) 0 All-in Sustaining Cost $/mtu 184 148 155 167 Working Cap. Changes 0 0 8 0 0 Cash Flow From Operations (4) (11) 29 53 80 Tungsten Production ('000 mtu, 100% basis) C1 Cash Cost / AISC ($/mtu) Capital Expenditure (73) (144) (3) (2) (2) 500 200 Acquis./Investments 0 (13) 0 0 0 Cash Flow From Investing (73) (158) (3) (2) (2) Equity Issues (Net of Costs) 181 0 0 0 0 400 Net Borrowings (17) 82 (15) (40) (14) 150 Dividends Paid & Other 0 (5) (5) (10) (18) Cash Flow From Financing 163 78 (20) (50) (32) 300 Net Change in Cash 84 (86) 5 2 46 100 Free Cash Flow (77) (155) 25 52 78 200 Balance Sheet 2014 2015F 2016F 2017F 2018F Cash & Equivalents 103 18 21 23 69 50 Total Current Assets 122 31 31 33 79 100 PP&E & Mining Interests 120 265 246 226 208 Deferred taxation 0 0 0 0 0 Other 6 20 20 20 20 0 0 2014 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F Total Assets 249 316 297 279 307 Short Term Debt 0 0 0 0 0 Hemerdon Total Cash Cost AISC Current Liabilities 26 20 20 20 20 Assumptions (Real) 2014 2015F 2016F 2017F LT Long Term Debt 0 69 54 14 0 Tungsten Price - APT ($/mtu) 357 264 313 406 450 Other Long Term Liabilities 2 5 5 5 5 Tin Price ($/t) 21,899 12,761 15,375 16,521 20,000 Total Liabilities 28 93 78 38 24 Exchange Rate (A$:US$) 0.90 0.76 0.75 0.75 0.75 Shareholder Equity 221 223 218 241 283 Exchange Rate (US$:£) 1.65 1.50 1.50 1.50 1.50 Total Liab. & S/Holder Equity 249 316 297 279 307 Working Capital 97 11 11 13 59 Net Debt (Cash) (103) 51 33 (9) (69) Source: Company & Numis Securities Research
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9 April 2015
report is offered solely for informational purposes and is not to be construed as Regulatory Notice & Disclaimer a solicitation or an offer to buy or sell securities or related financial instruments, Aureus Mining, Highfield Resources, Wolf Minerals, Condor Gold, Caledonia Mining nor is it to be construed as a recommendation for Numis to effect any transaction Corp, Chaarat Gold, First Quantum Minerals, International Ferro Metals and to buy or sell securities or related financial instruments on behalf of any recipient. Highland Gold are or have been during the 12-month period preceding the date of There is no express or implied understanding between Numis or Numis Securities this research report, a client of Numis. Inc. ("Numis Inc.") and any recipient of this research report that Numis will receive any commission income in connection with this research report. The securities Numis has received compensation for investment banking services from Aureus that may be described in this research report may not be eligible for sale in all Mining, Highfield Resources, Wolf Minerals, Condor Gold, Caledonia Mining Corp, jurisdictions or to certain categories of investors. This research report is based on Chaarat Gold, First Quantum Minerals, International Ferro Metals and Highland information believed to be reliable, but it has not been independently verified and is Gold in the past 12 months. not guaranteed as being accurate. This research report is not guaranteed to be a Numis and/or one or more of its affiliates has managed or co-managed a public complete statement or summary of any securities, markets, reports or developments offering for Aureus Mining and Condor Gold in the past 12 months. referred to in this research report.
Numis and/or one or more of its affiliates may receive or may seek to receive Any statements or opinions expressed in this research report are subject to change compensation for investment banking services from Minera IRL, Aureus Mining, without notice and Numis is not under any obligation to update or keep current Highfield Resources, Wolf Minerals, Condor Gold, Caledonia Mining Corp, Chaarat the information contained herein. All statements and opinions expressed in this Gold, First Quantum Minerals, International Ferro Metals, Centamin Egypt, research report are made as of the date of this research report and are not held out Ferrexpo, Randgold Resources, Fresnillo and Highland Gold in the next 3 months. as applicable thereafter. Neither Numis nor any of its directors, officers, employees, As at the date of this research report, Numis and/or one or more of its affiliates or agents shall have any liability, however arising, for any error, inaccuracy or is making a market in Minera IRL, Aureus Mining, Wolf Minerals, Berkeley incompleteness of fact or opinion in this research report or lack of care in this Resources, Condor Gold, Gemfields, Dalradian Resources, Caledonia Mining Corp, research report's preparation or publication; provided that this shall not exclude Chaarat Gold, First Quantum Minerals, International Ferro Metals, Centamin Egypt, liability to the extent that this is impermissible under the law relating to UK financial Ferrexpo, Randgold Resources, Fresnillo, Highland Gold, Hochschild Mining, services. Acacia Mining and Petra Diamonds. 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The value of any investment or income from any securities or related Analyst Certification financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a The names of the research analysts who prepared this research report are shown positive or adverse effect on the value of or income from any securities or related in bold beside each company comment. They hereby certify that all of the views financial instruments discussed in this research report. expressed herein accurately reflect the research analysts. personal views about any and all of the subject securities and/or issuers. The research analysts who prepared this research report also certify that no part of the research analysts. compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analysts in the research report. Important Disclosure This research report has been prepared and approved by Numis Securities Limited ("Numis"), a securities dealer in the United Kingdom. Numis is not a registered brokerdealer in the United States and therefore is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution solely to "major U.S. institutional investors" in the United States in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended. Any recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Numis Securities Inc. ("Numis Inc"). Numis Inc. may be contacted in writing or by phone: Numis Securities Inc., 275 Madison Avenue, 40th Floor, New York, NY 10016, U.S. phone (212) 277 7300. Numis Inc. is an affiliate of Numis. Under no circumstances should any recipient effect any transaction to buy or sell securities or related financial instruments through Numis.
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The research analysts who prepared this research report receive compensation based upon various factors (such as the general perception of their ability and their commitment to their analytical work) and upon the overall revenues including the investment banking revenues of Numis and/or one or more of its affiliates.
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Additional Disclosure This Numis Securities Limited ("Numis") research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient, even if sent only to a single recipient. This research
70 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Numis believes that its research service as a whole amounts to ‘substantive The following disclosures are addressed to research’ as defined by the FCA non-US-based recipients. Sector Notes (mentioning 6 or more companies) Numis regards this document as research. It has been approved under part IV article 19 of The Financial Services and Markets Act 2000 (Financial Promotion) Our sector notes may contain references to information on companies (e.g. target Order 2005 (the “FPO”) by Numis Securities Limited (“Numis”) for communication prices and recommendations) which has already been published by us (see our in the United Kingdom only to investment professionals as that term is defined in website at http://www.numis.com/x/us-research.html) and consequently, details of article 19(5) of the FPO. Its contents are not directed at, may not be suitable for and our assumptions, the material investment risks and/or the basis for each company.s should not be relied on by anyone who is not an investment professional including target price may not be repeated in these sector notes. retail clients. Numis does not provide investment advisory services to retail clients. This research report is not directed at you if Numis is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You Valuation and Risks should satisfy yourself before reading it that Numis is permitted to provide research For details relating to valuation and risks in printed research, please refer to the concerning investments to you under relevant legislation and regulations.This company comment contained herein. In electronic pieces of research please refer research report is not an offer or a solicitation to buy or sell any security. It does to the relevant company section of the Numis website http://www.numis.com/x/ not constitute a personal recommendation and recipients must satisfy themselves research-sectors.html that any dealing is appropriate in the light of their own understanding, appraisal of risk and reward, objectives, experience, and financial and operational resources. It has not been prepared in accordance with legal requirements designed to promote Ratings Key the independence of research. Non independent research is not subject under the In making a recommendation the analyst should compare his target price with the Markets in Financial Instruments Directive (“MiFID”) to any prohibition on dealing actual share price and then make a recommendation derived from the percentage ahead of the dissemination of research. However, Numis is required by the FCA thus calculated.: to have policies in place to identify and manage the conflicts of interest which As from 14 February 2005, the formula is: may arise in its production, which include preventing dealing ahead.The prices of Buy >= +20% the investments referred to in this research report and the income from them may Add >= +10% to +19.99% go down as well as up and investors may realise losses on them. Neither past Hold 0% to +/-9.99% performance nor forecasts are a reliable indicator of future results. Numis accepts Reduce <= -10% to -19.99% no fiduciary duties to the reader of this research report and in communicating it Sell <= -20% Numis is not acting in a fiduciary capacity. Neither Numis nor any of its directors, officers, employees or agents shall have any liability, howsoever arising, for any Upon the initial establishment of a recommendation and target price for a company, error, inaccuracy or incompleteness of fact or opinion in it or lack of care in its an additional 10 % deviation in the price from the default bands set out above is preparation or publication except where such is caused by its gross negligence, permitted before the recommendation has to be changed in subsequently published wilful default or fraud; nor shall it exclude or restrict any liability it has under the research documents. regulatory system to the extent that to do so is impermissible under the law relating to financial services. Distribution of Ratings All statements and opinions are made as of the date on the face of this document and US Requirement UK Requirement are not held out as applicable thereafter. Research will carry the date of publication 01/01/2014 - 31/12/2014 01/10/2014 - 31/12/2014 or, on research printed overnight, the date on which it was sent to the printers. All Corporate All Corporate Where a price is quoted in research it will generally, in the absence of contrary Securities Clients Securities Clients words, be the latest practicable price prior to distribution or, in the case of research Buy 42.2% 72.8% 45.7% 76.2% printed overnight, the closing price at the close of business. Unless otherwise stated, prices in this research report are derived from quotations on the London Stock Add 23.2% 21.6% 23.1% 18.4% Exchange. A list of significant items which could create a conflict of interest and other Hold 29.2% 5.6% 25.6% 5.4% material interests in relation to research, together with Numis’s policy for managing Reduce 4.3% 0.0% 4.1% 0.0% such conflicts of interest, is set out on the Numis website (www.numis.com/x/ Sell 1.1% 0.0% 1.5% 0.0% regulatory.html). Total 100% 100% 100% 100% The above table shows the The above table shows the split Numis or one or more of its associates or a director or an employee of Numis or of split of recommendations of recommendations based on an associate may from time to time have a position, or may have undertaken or may based on the last all recommendations during undertake an own-account transaction, in a security referred to in this document or recommendation for each the last calendar quarter for in a related security. Such a position or such a transaction may relate to the market research stock during the last all securities and within each making activities of Numis or to other activities of Numis. four calendar quarters. category the proportion of issuers to which Numis supplied Numis or one or more of its associates may from time to time have a broking, material banking services in the advisory or other relationship with a company which is the subject of or referred previous 12 months. to in this research, including acting as that company’s official or sponsoring broker and providing corporate finance or other financial services. It is the policy of Numis For the split of recommendations by sector for the period from 1 Oct 2013 to 30 Sep to seek to act as corporate adviser or broker to many of the companies which 2014, please contact the Research Department of Numis Securities Ltd. are covered by the Research Department. Accordingly companies covered in any research may be the subject of marketing initiatives by the Corporate Finance The following graphs display the three year recommendation, target price and share Department. price history for the subject corporation(s) of this research report. In those instances where the subject corporation(s) have been traded on the London Stock Exchange A company covered in this research may have paid for an analyst’s reasonable or Alternative Investment Market for less than three years, the graph will show the expenses to visit their premises or offered modest hospitality or entertainment; history since the date the subject corporation(s) were admitted to trading. Prices in further details are available on request. the graph(s) below are in pence unless otherwise stated.
Research will specifically identify sources of information for material facts, where these are not regulatory company announcements and published company financial documents. In those cases (but not otherwise) where the subject company has seen a draft of the research report and has suggested factual amendments which are incorporated by the researcher, this will be noted on the research.
In longer pieces of research the risk warnings (if any) attaching to a particular company will be set out; in shorter pieces (typically no more than one-side long) there is a cross-reference to the archive of research on the Numis website where, under the appropriate company name, details of such matters can be viewed.
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Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 71 9 April 2015
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Acacia Mining Antofagasta
Buy 600 Buy 1600
500 1400 Add Add 400 1200
Hold 300 Hold 1000
200 800 Reduce Reduce 100 600
Sell 0 Sell 400 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Aureus Mining Berkeley Resources
Buy 80 Buy 40
70 35 Add Add 60 30 50 Hold Hold 25 40 20 Reduce 30 Reduce 20 15 Sell 10 Sell 10 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Caledonia Mining Corp Centamin Egypt
Buy 180 Buy 140 160 120 Add 140 Add 100 120 Hold 100 Hold 80 80 60 Reduce 60 Reduce 40 40 Sell 20 Sell 20 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Chaarat Gold Condor Gold
Buy 45 Buy 250 40 200 Add 35 Add
30 150 Hold 25 Hold 20 100 Reduce 15 Reduce 50 10 Sell 5 Sell 0 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
72 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 9 April 2015
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Dalradian Resources Ferrexpo
Buy 100 Buy 500 90 400 Add Add 80 70 300 Hold Hold 60 200 Reduce 50 Reduce 100 40 Sell 30 Sell 0 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Jan'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
First Quantum Minerals Fresnillo
Buy 1800 Buy 2200 1600 2000 Add Add 1400 1800 1600 1200 Hold Hold 1400 1000 1200 Reduce 800 Reduce 1000 600 800 Sell 400 Sell 600 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Gemfields Highfield Resources
Buy 80 Buy 350 70 300 Add Add 60 250 50 200 Hold Hold 40 150
Reduce 30 Reduce 100 20 50 Sell 10 Sell 0 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Highland Gold Hochschild Mining
Buy 250 Buy 600
200 500 Add Add 400 150 Hold Hold 300 100 200 Reduce Reduce 50 100
Sell 0 Sell 0 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange 73 9 April 2015
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
International Ferro Metals Kaz Minerals
Buy 50 Buy 1200
40 1000 Add Add 800 30 Hold Hold 600 20 400 Reduce Reduce 10 200
Sell 0 Sell 0 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Minera IRL Petra Diamonds
Buy 70 Buy 300 60 250 Add Add 50 40 200 Hold Hold 30 150 Reduce 20 Reduce 100 10 Sell 0 Sell 50 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History Three Year - Recommendation, Target Price, Share History
Randgold Resources Timmins Gold
Buy 10000 Buy 4.00 9000 3.50 Add Add 8000 3.00 7000 2.50 Hold Hold 6000 2.00
Reduce 5000 Reduce 1.50 4000 1.00 Sell 3000 Sell 0.50 Apr'14 Apr'14 Apr'13 Apr'13 Apr'15 Apr'15 Dec'12 Dec'12 Aug'12 Aug'12 Dec'14 Dec'14 Aug'14 Aug'14 Dec'13 Dec'13 Aug'13 Aug'13 May'12 May'12 Recommendation Price Target Price Recommendation Price Target Price
Created By BlueMatrix Created By BlueMatrix
Source: Numis Securities Research Source: Numis Securities Research
Three Year - Recommendation, Target Price, Share History
Wolf Minerals
Buy 35
30 Add
25 Hold 20 Reduce 15
Sell 10 Apr'14 Apr'13 Apr'15 Dec'12 Aug'12 Dec'14 Aug'14 Dec'13 Aug'13 May'12 Recommendation Price Target Price
Created By BlueMatrix
Source: Numis Securities Research
74 Registered No 02285918. Authorised and Regulated by The Financial Conduct Authority. A Member of the London Stock Exchange