Post on 19-Oct-2015
description
Selected Gold Equities
Indaba February 2011
3 February 2011
Ambrian Partners Limited Old Change House 128 Queen Victoria Street London EC4V 4BJ United Kingdom
Tel +44 (0)207 634 4700 Fax +44 (0)207 634 4701
Selected Gold Equities 3 February 2011
Contents
Executive Summary 1
Top Picks 2
Gold Peer Comparison 3
A review of the gold market 6
Equity Top Picks 11
Archipelago Resources 12
Avocet 16
Centamin Egypt 20
Chalice Gold Mines 24
Condor Resources 28
Gold One International 32
Hambledon Mining 36
Nyota Minerals 42
Rusoro 46
All prices in this document are as of 3 February 2011
Peter Davey +44 (0)20 7634 4764 peter.davey@ambrian.com
Duncan Hughes +44 (0)20 7634 4775 duncan.hughes@ambrian.com
Adam Kiley +44 (0)20 7634 4777 adam.kiley@ambrian.com
Nick Mellor +44 (0)20 7634 4762 nick.mellor@ambrian.com
Selected Gold Equities 3 February 2011
1
Executive Summary
Gold-focused mining equities performed well in 2010, as the gold price continued
to rally, breaking new highs. In an assessment of share price performance amongst
a global peer group of explorers last year; we feel that many investors had the
opportunity to yield good returns without necessarily having had to be too objective when it came to the question of which particular stocks to have picked.
A large number of junior explorers acquired tenements in gold exploration
hotspots and without a single drillhole their share prices sky rocketed. If the gold price continues its northward trend, this exuberance in the equity markets
will no doubt continue. Whilst we are certainly bullish on the gold price for 2011,
we would prefer to recommend stocks that, in our view, present more tangible
prospects for exploration success than simply being in the right location.
For producers, we found that those that failed to deliver on production guidance
were heavily sold down by the market while those that delivered were rewarded.
Avocet, Gold One and Chalice Gold Mines are our top picks this year. We think that all three companies offer value at their current price. All have presented clear and defined plans as to how they will achieve their goals this
year and we expect that further development of their respective assets throughout
2011 will drive their market valuations higher.
Avocets 2010 was a watershed, as the new Inata mine over delivered and the company found a buyer for its Pacific Rim assets. Now 100% focused in arguably the worlds hottest gold region of West Africa, Avocet is set to continue ramping-up production at Inata and explore its
multiple properties in the region. The company has an aggressive near term target
of doubling reserves at Inata (3Q11). We do not think the implications of this are
yet reflected in the market value. We could even expect further corporate activity
as it will have a substantial war chest post the divestment of the SE Asian assets.
Gold One has continued to improve production and cash costs over the past six months. Provided this trend continues, we think the market might be forced to recognise its achievements and provide a re-rating. We
estimate that the company is trading on a 0.6x multiple to the NPV of our forecast
cash flows. This valuation is substantially below its peer group (even by South
African standards). We feel that sustained operational performance may well
invoke a re-rating for the stock this year.
Chalice Gold Mines has a high grade (5.3g/t) shallow gold deposit that is due to produce 105,000oz pa LOM by 2013. We look forward to hearing more about this enticing prospect as the project is developed in 2011.
Chalice has also planned to spend $20M over the next two years on exploration as
it holds one of the dominant land positions in Eritrea (which is central to the
Arabian Nubian shield that hosts world class gold deposits such as Centamins Sukari and some exciting VMS anomalies).
Ambrian Favoured Gold Stocks
Company
Share
price
Mkt
cap
Reserve
(Moz)*
Resource
(Moz)*
Price Driver
Long-term Technical Risk
Long-term Political Risk
Avocet Mining1,2,3,4 220p 180m 1.3 4.5 Inata performance, double reserve base in
3Q11, further exploration in wider region
Low: off-the-shelf technology Low: licences in place, experienced
operators
Gold One.2 $0.29 A$235 1.5 21.7 Meet production targets, cost guidance Low: actual mined v planned
grade reconciliation
Medium: Strikes last yr
Chalice Gold Mines $0.65 A$138 0.7 0.8 Development of first deposit, additional
exploration discoveries
Low: Exploration unsuccessful Medium: licensing
Note: *Attributable gold equivalent; Ambrian acts as: 1Market Maker, 2Broker, 3Nomad; 4Investment banking client in last 12 months;
Source: Ambrian
Our Gold Price Forecast
Source: Ambrian
Avocet, Gold One and Chalice Gold
Mines are our top picks
0
250
500
750
1000
1250
1500
1Q09 1Q11 1Q13 1Q15
Gold Price (US$/oz)
Selected Gold Equities 3 February 2011
2
Top Picks
Last years Top Picks were based on cash, growth and technical strength. In the case of European Goldfields and Avocet both companys continued to develop their assets on schedule. However Petropavlovsk and Rusoro
failed to deliver on their production targets and were punished by the
market.
Review of Ambrian 2010 Top Picks
Company Price 2010
Price 2011
12M Return
Comment
Avocet 92p 220p 139% Successful ramp up at Inata
European Goldfields 335p 990p 196% Further progress on permitting last year
Petropavlovsk 961p 1068p 11% Management significantly downgraded production 2H10
Rusoro $C0.42 $C0.35 -19% Failure to deliver on production and cashflow issues
Source: Ambrian
With last years picks in mind, we select this years stocks on a different basis. Cash constraints are less of an issue given the recovery in the
capital markets, which leaves us with two key criteria:
1. current price most gold stocks are at hefty premiums so bargains are hard to find; and
2. growth profile many producers have definite growth plans in place.
A summary of our 2011 top picks, as well as a selection of other gold
miners from the universe which we like the potential of, is shown below.
Ambrian 2011 Top Picks
Company Price Recommendation Comment/share price drivers
TOP PICKS
Avocet Mining1,2,3,4 220p BUY, TP: 271p Doubling of reserves at Inata (targeted 3Q11), further exploration & SE Asian asset sales
Chalice Gold Mines A$0.65 BUY, TP: A$0.79 Aggressive exploration program and a valuation on Zara by ENAMCO
Gold One Intl2* A$0.29 BUY, TP: A$0.47 Sustained operational performance to provide a re-rating. 120koz pa target for 2011
OTHER GROWTH STOCKS WE LIKE
Archipelago Res.2 63p BUY, TP: 74p Production imminent and an aggressive exploration programme planned for 2011
Centamin Egypt1,2,4 137p BUY, TP: 174p 2011 production target of 250-290k oz, some U/G production is essential
Condor Resource2,3 5.5p SPEC BUY,TP 7.5p 1H11 from drilling results and upgraded resources
Hambledon 7.4p HOLD,TP 7.5p Management reshuffle and a new mining strategy
Nyota Minerals1,2,3,4 25p HOLD, TP: 27p Price has factored in early drilling success, but confident resource could double
Rusoro2* C$0.35 BUY, TP: C$0.60 Potential for re-rating with stable gold sales/cashflow
Ambrian acts as: 1Market Maker, 2Broker (* agency), 3Nomad; 4Investment banking client in last 12 months; Source: Ambrian
Selected Gold Equities 3 February 2011
3
Gold Peer Comparison
Selected Gold Companies
EV
(US$m) Resource
(Moz)1 EV/Resource
(US$/oz) Reserve (Moz)1
EV/Reserve (US$/oz)
Prodn (000oz pa)2
EV/Prodn (US$/oz)
Producers
Oxus Gold 35 8.1 4 2.5 14 15 2,302
Rusoro Mining 191 16.8 8 2.4 73 229 834
Gold One 282 21.7 13 1.4 190 120 2,353
Serabi Mining 17 0.7 25 0.2 90 8 2,212
Hambledon Mining 57 1.9 31 - - 27 2,104
Galantas Gold 13 0.4 32 - - 4 3,181
Pan African Resources 218 4.9 44 0.7 330 95 2,301
Norseman Gold 166 3.8 44 0.4 395 80 2,073
Vatukoula Gold 229 4.3 53 0.9 266 48 4,747
Cluff Gold 214 3.6 59 0.8 278 80 2,672
Resolute 594 9.4 63 2.5 238 380 1,564
Orosur Mining 70 1.1 67 0.6 115 50 1,398
Allied Gold 575 8.4 69 3.4 169 76 7,604
Yamana Gold 8,787 101.9 86 65.8 134 1,070 8,215
Peninsular Gold 64 0.7 86 0.2 316 14 4,558
Noble Mineral 172 2.0 87 0.6 286 40 4,295
GMA Resources 62 0.7 93 - - 22 2,797
Minera IRL 178 1.8 99 0.1 1,781 30 5,956
Mineral Deposits 284 2.7 104 1.3 216 140 2,027
Highland Gold 771 6.7 115 5.8 133 161 4,786
La Mancha 288 2.4 122 0.8 376 135 2,132
Goldplat 27 0.2 143 - - 21 1,244
Catalpa Resources 318 2.2 145 1.1 289 85 3,740
Anglo Asian Mining 139 1.0 144 0.6 230 78 1,781
Mean 1,046 8 146 4 421 166 4,791
Avocet Mining 726 5.0 146 1.4 512 185 3,925
Adamus Resources 359 1.9 189 1.0 373 100 3,593
CGA Mining 940 4.9 191 1.9 485 200 4,702
Randgold Resources 6,756 27.3 247 15.6 434 406 16,647
Integra 447 1.8 255.7 0.3 1,398 90 4,972
Avion Gold 569 2.1 274 - - 89 6,396
Petropavlovsk 3,342 11.8 284 6.7 501 553 6,042
Centamin Egypt 2,396 7.3 328 4.5 533 225 10,651
Semafo 2,518 7.5 336 2.0 1,259 262 9,609
Centerra Gold 3,635.0 9.7 374.7 7.3 498 679 5,354
Kirkland Lake Gold 940.7 2.3 414.9 1.4 673 86 10,916
Medusa Mining 1,279 2.7 481.7 0.5 2,559 100 12,793
Pre-production
Metals Exploration 71 1.7 41.3 - -
Trans-Siberian Gold 135 1.1 118.4 - -
Gabriel Resources 2,601 16.9 153.6 10.9 10.9
European Goldfields 2,852 18.0 158.5 16.0 178
Perseus Mining 1,047 6.8 154.0 3.9 269
Mean 1,206 8 160 5.3 174
Archipelago Resources 530 1.6 331.3 0.9 589
Pre-BFS
Republic Gold 22 1.9 12
Greystar Resources 184 12.1 15
Kryso Resources 64 2.9 23
Condor Resources 43 1.7 23
Stratex 35 1.1 30
Ariana Resources 12 0.4 31
Signature Metals 50 1.5 34
Chaarat Gold 135 4.0 34
Auryx Gold 69 1.9 36
Shanta Gold 94 2.2 42
GGG Resources 50 1.0 51
Ortac Resources 65 1.1 59
Volta Resources 248 4.1 60
Keegan Resources 315 4.9 64
Oro Gold 25 0.3 85
Nyota Minerals 128 1.3 91
Azumah Resources 127 1.2 106
Gold Road 85 0.7 114
Mean 154 2.0 127
Red 5 198 1.2 171
Chalice Gold 138 0.8 181
African Aura 311 1.5 205
Papillon 108 0.5 207
Gryphon 422 1.5 281
Castle Minerals 33 0.1 328
Ampella Mining 524 1.2 437
Patagonia Gold 540 0.9 606
Note: *JORC only, excludes Russian; 1. Attributable; 2. 2011 Forecast or where no forecast available (last reported production annualised); Source: Company data, gold equivalent on spot prices, Fidessa, Ambrian
Sele
cte
d G
old
Equitie
s 3 F
ebru
ary
2011
4
Peer Group Analysis EV/Attributable Resources
0
3
6
9
12
15
18
21
24
27
0
100
200
300
400
500
600
Republic
Gold
G
reysta
r R
esourc
es
Condor
Resourc
es
Kry
so R
esourc
es
Str
ate
xA
ria
na
Reso
urc
es
Chaara
t G
old
Sig
na
ture
Me
tals
Aury
x G
old
Shanta
Gold
GG
G R
esourc
es
Ort
ac R
esourc
es
Volta R
esourc
es
Keegan R
esourc
es
Oro
Gold
Nyota
Min
era
lsA
zum
ah R
esourc
es
Go
ld R
oa
dM
ean
Chalic
e G
old
Red 5
Afr
ican A
ura
Pa
pill
on
Gry
phon
Castle
Min
era
lsA
mpella
Min
ing
Pata
gonia
Gold
Meta
ls E
xplo
ratio
nT
rans-S
iberia
n G
old
Gabrie
l R
esourc
es
Euro
pean G
old
fie
lds
Pers
eus M
inin
g (
AS
X)
Mean
Arc
hip
ela
go R
esourc
es
Oxus G
old
Rusoro
Min
ing (
TS
X)
Gold
One (
AS
X)
Sera
bi M
inin
gH
am
ble
don M
inin
gG
ala
nta
s G
old
Nors
em
an G
old
Pan A
fric
an R
esourc
es
Vatu
koula
Gold
Clu
ff G
old
Resolu
te
Alli
ed G
old
Oro
sur
Min
ing
Noble
Min
era
lY
am
ana G
old
Pe
nin
su
lar
Go
ldG
MA
Resourc
es
Min
era
IR
LM
inera
l D
eposits
Hig
hla
nd G
old
La M
ancha
Cata
lpa R
esourc
es
Anglo
Asia
n M
inin
gG
old
pla
tA
vo
ce
t M
inin
gM
ean
CG
A M
inin
gA
dam
us R
esourc
es
Randgold
Resourc
es
Inte
gra
Avio
n G
old
Pe
tro
pa
vlo
vsk
Cen
tam
in E
gyp
tS
em
afo
Cen
terr
a G
old
Kirkla
nd L
ake G
old
Medusa M
inin
g
Resource (Moz)EV / Resource (US$/oz)
EV / Resource (US$/oz) Resource ( Moz)
Pre-production(US$178/oz mean)
(US$151/oz median)
Production(US$143/oz mean)
(US$102/oz median)
Pre-BFS(US$125/oz mean)(US$62/oz median)
Pre-production(US$178/oz mean)
(US$151/oz median)
Production(US$143/oz mean)
(US$102/oz median)
Pre-BFS(US$125/oz mean)(US$62/oz median)
Selected Gold Equities 3 February 2011
5
Peer Group Analysis EV/Attributable Reserves For Producers
Source: Fidessa, Company Data, Ambrian Estimates
Peer Group Analysis EV/Production with attributable resources
Source: Fidessa, Company Data, Ambrian Estimates
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Ham
ble
don M
inin
gG
ala
nta
s G
old
GM
A R
esourc
es
Gold
pla
tA
vio
n G
old
Oxus G
old
Rusoro
Min
ing (
TS
X)
Sera
bi M
inin
gO
rosur
Min
ing
Hig
hla
nd G
old
Yam
ana G
old
Alli
ed G
old
Gold
One (
AS
X)
Min
era
l D
eposits
Anglo
Asia
n M
inin
gR
esolu
te
Vatu
koula
Gold
Clu
ff G
old
Noble
Min
era
lC
ata
lpa R
esourc
es
Penin
sula
r G
old
Pan A
fric
an R
esourc
es
Adam
us R
esourc
es
La M
ancha
Nors
em
an G
old
Mean
Randgold
Resourc
es
CG
A M
inin
gC
ente
rra G
old
Petr
opavlo
vsk
Avocet
Min
ing
Centa
min
Egyp
tK
irkla
nd L
ake G
old
Sem
afo
Inte
gra
Min
era
IR
LM
edusa M
inin
g
EV / Reserve (US$/oz)
Peninsular
3Moz resource base
6Moz resource base
Oxus
Goldplat
GMA
Hambledon
Minera IRL Noble Mineral
Vatukoula
Orosur
Allied Gold
Anglo Asian Norseman
Cluff
Catalpa
Kirkland Lake
Median3.3Moz resources
89Kozpa production
AvionIntegra
Pan African
Adamus
Adamus
Gold One
La Mancha
Mineral Deposits
Highland
Avocet
CGA Mining
Centamin
Rusoro
Semafo
Resolute
Randgold
Petropavlovsk
Centerra
Yamana
10
100
1,000
10,000
10 100 1,0002011E production rate (000oz pa)
EV (US$m)Balloon Size
Relatively expensive producers on 2011E's production
Relatively cheap producers on 2011E's production
Regression
Selected Gold Equities 3 February 2011
6
A review of the gold market
Since the Global Financial Crisis (GFC), there has been much structural change in the weighting of the components on either side of the supply/demand balance.
YoY Change in Supply/Demand Categories
2009/2008
2010/2009
Source: WGC, Ambrian Estimates Source: WGC, Ambrian Estimates
Considering supply, in 2009 it was of no surprise that mined production ramped up in response to the rallying gold price. The fact that this growth in supply has not been maintained into 2010, is a poignant bull point. The same is also true of the growth in scrap flooding into the market which flattened off in 2010, despite an ever increasing gold price over the period.
Annual Supply/Demand Balance
Note: We have annualised 4Q10 numbers and added our estimates for official sector sales in 3Q10 and 4Q10 Source: WGC, Ambrian Estimates
-10% -5% 0% 5% 10% 15%
Mine production
Old gold scrap
Official sector sales
Jewellery
Bar & coin retail investment3
Net producer hedging
Industrial & dental
ETFs & similar
-10% -5% 0% 5% 10% 15%
Mine production
Old gold scrap
Official sector sales
Jewellery
Bar & coin retail investment3
Net producer hedging
Industrial & dental
ETFs & similar
-5,000
-4,000
-3,000
-2,000
-1,000
-
1,000
2,000
3,000
4,000
5,000
2004 2005 2006 2007 2008 2009 2010*
(Tonnes)
Old gold scrap
Mined production
Official sector sales
Jewellery
Net producer hedging
Bar & coin investment
Industrial & dental
ETFs & similar
(5yr Trend)Supply/DemandCategory
Selected Gold Equities 3 February 2011
7
In our view, the most significant changes to the demand side of this balance have been the reversal of the Official Sector Sales (Central Banks selling down gold reserves) and the rise in ETF holdings. It is also interesting to see that whilst in 2009, the jewellery sector managed to reduce its exposure to the rallying gold price (scaling back its buying influence by nearly 8% YoY), during 2010, the jewellers had to come back into the fray despite the higher prices (buying was up 4% YoY). Bar and coin investment had an even greater demand impact than ETF holdings during 2010 again demonstrating private investors appetite for physical.
Change in Global ETF Holdings
Source: WGA, Ambrian
In a market where outside observers only have a loose gauge on the physical supply/demand balance and when that balance in-turn, appears to have little bearing on the direction in which the spot price goes; we are not about to over engineer our analysis in this section. That said, we do however think it worthwhile to outline a number of the points that make us, on the whole, bullish for 2011 on the gold price.
We think that the true impact of QE2 has yet to play out. The outcome is likely to involve inflation.
Inflation fear is now back on the agenda. Gold is perceived as a natural hedge. Pertinently in 2010, Chinese authorities gave Lion Fund Management the go ahead for the development of the first physically-backed ETF.
We are worried about inflation in the Western World because deleveraging has not really begun yet and (perhaps with the exception of the US this year), growth outlooks for GDPs still look sluggish. This is already pushing up the cost of financing the regional debt burdens and as a result; the cost of balancing the budget deficits. This is increasing the fears over defaults (most notably in developing Europe). Good for gold, as we have already seen.
In the longer term, as the dollar continues to weaken against a basket of international currencies, we think foreign governments will continue to hedge/diversify their USD reserves. It will take a long time for another formal reserve currency to develop, which is good news for gold. This will also push up the cost of the US balancing its deficit.
Total Central Gold Reserves
Source: WGA, Ambrian
QE2 will likely result in inflation
Even the Chinese have begun developing gold ETFs
Can Western Governments service their debt and at what cost?
Longer term, foreign lenders look to reduce their exposure to the dollars weakening position in the global market
27
28
29
30
31
32
33
34
1Q00 1Q10
(Kt of Au)
Global gold reserves (Kt)
After 10yrs of selling, Central Banks turn net buyers
Selected Gold Equities 3 February 2011
8
The US, EU, JPN and UKs economies remain highly geared but the...
..cost of financing the deficits is growing in line with worries over GDP growth outlook and...
Source: IMF, Ambrian Source: Bloomberg, Ambrian
...inflation fear is now back on the agenda... ...and a good portion of debt needs servicing this year (aggregate bonds due this year)
Source: Bloomberg, Ambrian Source: IMF, Ambrian
...longer term, as the dollar weakening continues, we think foreign governments will continue to hedge/diversify their USD reserves but It will take a long time for another formal reserve currency to
develop, which is good news for gold.
Source: Bloomberg, Ambrian
-12
-10
-8
-6
-4
-2
0
0%
20%
40%
60%
80%
100%
120%
Jan '02 Jan '04 Jan '06 Jan '08 Jan '10
Surplus/Deficit as % of GDPGain in value of outstanding debt securities (% rebased to 2002)
Euro Area Debt (LHS) US Debt (LHS)
Euro Area Surplus/Deficit US Surplus/Deficit
900
1000
1100
1200
1300
1400
1500
0
1
2
3
4
5
6
7
8
9
10
Jan '10 Jul '10 Jan '11
Ireland - 10yr Gov'nt bond yield (%)
Portugal - 10yr Gov'nt bond yield (%)
Gold price (US$/oz) RHS
-4
-2
0
2
4
6
8
10
Jan '06 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11
China (CPI %)
EU (CPI %)
UK (CPI %)
USA (CPI %)
0
5
10
15
20
25
Bank
Government
Bank
Government
2007 2011
Bonds due (as a % of GDP)
0
200
400
600
800
1000
1200
1400
50
60
70
80
90
100
110
Jan '03 Jan '04 Jan '05 Jan '06 Jan '07 Jan '08 Jan '09 Jan '10
X-rate for USD vs. Trade Wt'd basket
Gold price (US$/oz) RHS
Selected Gold Equities 3 February 2011
9
With these points in mind, we thought we would highlight on what we feel is the most important recent change in the physicality of the gold market: Central Banks becoming net buyers of gold.
Some Central Banks hold very large reserves of US dollars, or US dollar-paying debt securities (like those with large budget surpluses e.g. China or those where commodity exports dominate earnings e.g. Russia/Saudi Arabia.) Whilst, the dollars strength has been declining against a basket of global currencies for some time, the battering and extreme volatility the currency has witnessed over the last three years appears to be changing attitudes at some Central Banks.
Coupled with a general fear that Western Governments are going to struggle to reduce their deficits, many Central Bank portfolio managers have opted for investments in gold this year. On this point, our guest commodities research commentator, Ted Arnold, was very interested to note the comments of Yu Yongding, a former director of the PBoCs monetary policy committee. Writing in the Financial Times earlier this year, Mr. Yu said China should give no commitment to support the Eurozone through direct government bond purchases this risks simply throwing good money after bad.
...when one considers what happens if developing
countries continue recent physical buying trends... ...it is little wonder why some are bullish on the
gold price over the longer term.
Note: we note that asset class valuations within reserves have been fluid over time (e.g. gold rising over last ten years vs. bonds). However, our aim here was to focus the reader on the broad difference between the two graphs. Source: Bloomberg, Ambrian
Source: IMF, Ambrian
With the above points in mind, we think it is worth reviewing the graphs on the following page; where it appears as though the net Central Bank selling trend has been reversed of late. This move has occurred with apparently only small changes to individual countrys reserve management policies. As the above graphs demonstrate, there could be a long way to go on this front.
Anyone who follows the spot gold price in detail will no doubt have observed the hugely positive impact that a relatively small amount of Chinese Central Bank buying did in 2Q09. Clearly, sentiment and
0
10
20
30
40
50
60
70
80
90
100
(Gold as a % of Total Government's Reserves)
Time frames are1Q'2000 to 1Q'2010
0
10
20
30
40
50
60
70
80
90
100
(Gold as a % of Total Government's Reserves)
Time frames are1Q'2000 to 1Q'2010
The dollars strength has been declining for a long time
The extreme volatility of the USDs strength recently appears to be changing attitudes at some Central Banks
There are fears that Western Governments are going to struggle to reduce their deficits
Former director of the PBoC takes a dim view
Selected Gold Equities 3 February 2011
10
subsequently, the spot price of gold rallied on this news. This is not something that we foresee happening regularly, as the occurrence was not necessarily normal (in historical terms) for China (either in one off volume terms or the fact that its buying intentions were made so public). The reason for the latter is that the majority of the developing countries choose to transact physical purchases by buying from producers, inter-government trade and purchasing from organisations such as the IMF. This is so as not to destabilise what we have already highlighted is a reasonably finely balanced physical market (where spot prices can rally even with a positive balance on the supply side). Even if Central Bank buying is well managed, what it is does mean however is that; over time, we see good support for the demand side of that balance. We expect this support to continue (given what is at stake from a developing countrys reserves perspective), even if say, Jewellers, scale down their buying as the price rises during a given period.
Putting the Outstanding Central Bank Reserve Volumes in Context
Source: WGA, Ambrian 1
Percentage Changes in a Countys Gold Reserves (weighted by their relation to the total global outstanding in 2008)
Source: WGA, Ambrian
0
5
10
15
20
25
30
35
40
1Q00 1Q02 1Q04 1Q06 1Q08 1Q10
(000't of gold in reserves)
Global gold reserves (Kt)
Upper Limit of difference in Physical Supply vs Demand YoY
Lower Limit of difference in Physical Supply vs Demand YoY
The change in Central Bank holdings since the GFC is far more significant than the differences in the physical supply/demand balance on any given year.
The volume of just how much gold sits in reseves (measured in tens of 000's of tonnes!) is key - given that total annual physical demand or supply has only averaged 4kt annually over the last few years (with the difference in balance only varying by several hundred tonnes).
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
China Russia
IMF
Net sellers over periodGermanyIMFFranceNetherlandsECB
Net buyers over periodChinaRussiaPhilippinesThailandBelarus
UkraineMexicoMauritiusBangladeshTajikistanSurinameCameroon
SwedenGreeceKazakhstanSlovakiaChech Republic
....We conclude high gold prices are here to stay for the time being.
Selected Gold Equities 3 February 2011
11
Equity Top Picks
Selected Gold Equities 3 February 2011
12
Archipelago is fully funded and due to commence production in 1Q11 at its 1.7Moz Toka Tindung gold project in Indonesia. In addition to entering the ranks of being a gold producer, Archipelago has outlined an aggressive exploration programme that should further enhance the projects economics beyond it current valuation.
Asset Resource Interest CY11E production
Toka Tindung, Indonesia 1.77Moz @ 3.4 g/t Au 95% 100,000oz Au
The Toka Tindung Gold Project is set to commence production by the end of 1Q11 and produce 160,000oz Au Eq p.a. Eq over an eight-year project life. Archipelago announced in January 2011 that it had acquired an additional 10% interest in the project, taking its ownership to 95%, with the remaining 5% interest owned by the companys major shareholder Rajawali Corpora (52% - holder of Archipelago).
In January Archipelago secured a US$55m debt facility with a prominent Indonesian bank that should provided sufficient funding to complete construction of the project. As part of the financing package, Archipelago is required to buy 100,000oz gold put options with a floor price of US$900/oz.
The company has committed to spend US$30m on an exploration programme over the next two years that will focus on as yet untested depth and strike extensions of existing deposits, as well as target the large exploration landholding around the Toka Tindung Project area.
Recommendation BUY; Target Price 74.0p
We have calculated the NPV10% for the Toka Tindung Project to be US$405m. We have applied a 1.5x multiple, which is in-line with its peers, to make a target share price of 74p per share. We believe there is vast exploration potential at Toka Tindung and positive results should aid in driving the share price in 2011. We therefore maintain our BUY recommendation.
Financial Forecasts
Yr to Dec (US$m) 11E 12E 13E 14E
Gold sold (000oz) 100 146 154 155
Cash costs (US$/oz) 440 425 425 425
EBITDA 79 109 108 99
Free cashflow 71 57 58 68
EPS (p) 2.6 8.6 6.6 6.0
P/E (x) 24.1 7.1 9.2 10.2
Source: Ambrian estimates
Archipelago Resources
BUY Londons Next Gold Producer
Ambrian acts as Broker to this company
Adam Kiley
+44 (0)20 7634 4777 adam.kiley@ambrian.com
Upcoming Events
First production - 1Q11 US$30m exploration budget - Next 2 years
Price (p)
Target Price (p)
63.0
74.0
Ticker AR.
Market cap (m) 358
Estimated cash (US$m) 48
Debt (US$m)
Debt Facility avg (US$m)
-
55
Attr Reserve (Moz Au) 0.9
Attr Resource (Moz Au) 1.6
EV/Reserve (US$/oz) 589
EV/Resource (US$/oz) 331
52-week (p)
High 65.0
Low 30.0
3M-avg daily vol (000) 331
3M-avg daily val (000) 176
Shares
Basic (m) 569
Fully diluted (m) 581
Top shareholders (%)
Rajawali Group 52.2
Baker Steel 9.1
Columbia Wanger 6.4
Total 67.7
Share Price Performance (p)
Source: Fidessa
25
35
45
55
65
Feb 10 May 10 Aug 10 Nov 10 Feb 11
Selected Gold Equities 3 February 2011
13
Asset Summary
Project Equity Comment
DEVELOPMENT/PRODUCTION
Toka Tindung Indonesia 95% High-quality 1.7Moz gold deposit (open-pittable, 3.4 g/t head grade, free milling),
plant part-constructed, now seeking finance to complete construction
EXPLORATION
Pac Lang gold Vietnam 65% JV with state over historic gold mining area targeting >15 2m wide quartz veins
Thanh Hoa chrome Vietnam Minority1 JV to mine chromite at a 16.6km2 mine in the northern Thanh Hoa province
Cam Thuy-Ba Thuoc gold Vietnam Majority1 JV with state entity in area prospective for Carlin-style gold deposits
Corplex gold/copper Philippines 100%2 Right to acquire licences in a copper- and gold-rich region close to Anglos Boyongan
1: Under negotiation; 2: Right to acquire; Source: Company reports, Ambrian
Toka Tindung (95%) The companys main asset is the Toka Tindung Gold Project, which has reserves and resources of 0.9Moz and 1.7Moz Au respectively. The
company forecasts LOM production of 160,000oz p.a Au Eq over an eight-
year project life, with first gold production scheduled by end 1Q11.
Toka Tindung Resource and Reserve Statement
Category
Tonnes
(Mt)
Grade
(g/t Ag)
Grade
(g/t Au)
Contained
(Moz)
Attributable
(Moz Au Eq)
In-pit reserve 7.6 9.2 3.8 0.9 0.9
Measured 2.2 8.0 3.6 0.3 0.2
Indicated 11.0 8.0 3.2 1.1 1.1
Inferred 2.2 8.0 4.3 0.3 0.3
Total 15.4 8.0 3.4 1.7 1.6
Source: Toka Tindung CPR (Snowden's), Company presentations, Ambrian
The company has committed to spending US$30m on an exploration programme over the next two years, targeting an increase in reserves and resources above current levels. It has identified untested depth and strike extensions (current known mineralised areas) and also intends to explore untested exploration landholdings around the Toka Tindung Project area.
In January 2011 Archipelago acquired an additional 10% interest in the project from the 15% Indonesian minority interest holders. This took its interest in the project from 85% to 95%, with the remaining 5% interest purchased by Archipelagos major shareholder Rajawali Corpora (52%). The 10% interest was purchased for US$4.5m.
Production Forecast
Source: Ambrian forecast
Toka Tindung Open-pit
Development
Source: Company
Committed US$30m to ongoing exploration programme
Selected Gold Equities 3 February 2011
14
Toka Tindung Open-pit Development
Source: Fidessa, Company Data, Ambrian Estimates
US$55m Loan Facility to Complete Project Construction
Archipelago announced a US$55m secured loan facility from a prominent Indonesian bank in January 2011 that will be used to complete construction of the project. The key terms of the facility were:
maturity date nine months from the initial facilitys agreement date; and
an interest rate of 5.5% pa, with interest paid every three months.
Upon maturity of the initial 9-month facility above, a second loan facility of US$55m will be available (if required) to refinance the initial facility, the key terms of which are:
maturity date of four years after the agreement date of the second loan facility; and
an interest rate of 5.75% pa, with interest paid every three months.
As part of the facility agreement, the company is also required to acquire 100,000oz of gold put options with a floor price of US$900/oz over the life of the loan.
Selected Gold Equities 3 February 2011
15
Investment Case
We expect Archipelago to have an exciting 2011 on two fronts: first, we believe it has one of the outstanding gold assets on the AIM market and will make a successful transition from developer to producer by the middle of 2011; and second, we are very bullish on the exploration potential at Toka Tindung as there has been very little exploration over the past decade. With a US$30m exploration budget, we expect the current reserve/resources to expand beyond their current levels and we are hopeful there will be further discoveries outside the current known mineralised zones.
The particulars of the loan agreement were in line with other gold project financing over the past 12-18 months, and buying gold puts at US$900 (approximately US$450 out of the money) are most likely the cheapest option available (as the bank would have required some form of hedging for the loan agreement), while being fully exposed to what management believes will be an increasing gold price in the future.
Recommendation BUY; Target Price 74.0p
We have calculated the NPV10% for the Toka Tindung Project to be US$405m. We have applied a 1.5 multiple before a steady-state of production is achieved as we dont believe the asset should face any major issues during the ramp-up phase due as it is a relatively high-grade open-pit gold mine, that is processed in a CIL facility; this is as easy as it comes for a gold mine. When applied, this increases the NAV to US$608m, or 74p per share.
Financial Forecasts
Source: Ambrian forecast
2011 will see explorer turn producer
Yr to Dec (US$m) 11E 12E 13E 14E
Ore processed (Mt) 1.1 1.6 1.7 1.7
Head grade (g/t) 3.0 3.1 3.1 3.1
Gold sold (000oz) 100 146 154 155
Revenue 146 195 187 177
Cash costs (US$/oz) 440 425 425 425
EBITDA 79 109 108 99
JV Payments (3) (4) (4) (4)
Tax - (24) (25) (22)
Cash Balance 119 176 234 303
PP&E 132 113 91 68
Debt 40 22 4 -
Free cashflow 71 57 58 68
EPS (p) 2.6 8.6 6.6 6.0
P/E (x) 24.1 7.1 9.2 10.2
Selected Gold Equities 3 February 2011
16
2010 was a watershed for Avocet and we expect its transformation to be completed in 2011 with the sale of its Southeast Asian mining assets and plans for West African growth. Production fell at the companys SE Asian operations in 2010, as it also did in 2009, but the new Inata mine was an outright winner, with production of 137,732oz.
Asset Reserve Interest 2010A production*
Penjom 0.4Moz @ 2.30 g/t 100% 51,084oz
Indonesia 0.2Moz @ 1.17 g/t 80% 47,580oz
Inata 1.1Moz @ 2.06 g/t 90% 137,732oz
TOTAL 236,396oz
*Avocet changed its financial year end to 31 December at the start of 2010; Source: Company data, Ambrian
Avocets strategic direction comprises of four key components:
Realising and growing the potential of Inata. The resource and reserve statement was updated in 3Q10, and the life-of-mine plan now includes the expansion (avg 165,000oz pa) until 2016, at a capital cost of US$25m, funded from cashflow.
Accelerated organic growth in West Africa. An aggressive exploration campaign in Burkina Faso and Guinea has commenced; this includes 200,000m of drilling on the Inata and Belahouro licences, and resource drilling at Tri-K and Balandougou.
Maximising value from its Southeast Asian assets. In December the company announced a binding sale and purchase agreement for its Penjom, North Lanut and Bakan assets in Malaysia and North Sulawesi, Indonesia, for US$200m cash. Completion is conditional on government approvals and certain rights of first refusal; we have presumed these will be satisfied during 2Q11.
Ready and prepared to act on value-adding acquisitions. Prospective exploration portfolio aside, the company continues to apply its considerable in-house expertise to review the West African landscape.
Recommendation BUY; Target Price 271p
Share price momentum is building as Inata delivers, the investment thesis is now about West African growth, and we firmly believe management can make this a 500,000oz pa gold company within five years.
We value Avocet at 1.5x NAV Inata plus cash from the sale of the Southeast Asian assets, which we assume contribute to revenue in 1Q11.
Avocet BUY West African Phoenix
Ambrian acts as Broker and Nomad to and as a Market Maker in this company
Duncan Hughes +44 (0)20 7634 4775 Duncan.hughes@ambrian.com
Upcoming Events
22-Feb FY10 Financial results 1Q - Completion on sale of SE Asian assets
Price (p) 220
Target price (p) 271
Ticker AVM
Market cap (m) 434
Estimated cash (US$m) 46.3
Debt (US$m) 84.0
Attr Reserve (Moz) 1.4*
Attr Resource (Moz) 4.8*
EV/Reserve (US$/oz) 529
EV/Resource (US$/oz) 150
52-week (p)
High 246
Low 81.5
3M-avg daily vol (000) 695
3M-avg daily val (000) 1,520
Shares
Basic (m) 197.5
Fully diluted (m) 197.5
Top shareholders (%)
Elliot Associates 16.2
Datum AS 12.4
BlackRock 7.3
JP Morgan 6.7
Total 42.6
Share Price Performance (p)
Source: Fidessa Financial Forecasts
Yr to Dec (US$m) 9m09* 1H10 2010E 2011E 2012E
Gold Sold (oz) 82,174** 97,747 236,396 215,899 172,626
Sales 82,945 92,054 253.9 256.2 188.4
EBITDA 24,503 28,674 98.6 111.2 85.0
Adj PAT (12,643) 8,623 23.7 42.1 34.6
EPS (US) (7.63) 3.34 12.0 21.3 17.5
EV/EBITDA (x) N/A N/A 6.9 6.1 8.0
P/E (x) N/A N/A 28.2 15.9 19.3
Note: *9-months ending 31 December 2009 (change of year end to Dec);** CY09 = 109,548oz;
Source: Company data, Ambrian estimates
25
75
125
175
225
Feb 10 Jun 10 Oct 10 Feb 11
Selected Gold Equities 3 February 2011
17
Asset Summary
Project Equity Comment
PRODUCING
Inata Burkina Faso 90% Distressed commissioning led to acquisition of Wega Mining. Avocet successfully
commissioned the plant and ramped up to exceed nameplate capacity regularly
in 2H10. Capacity increases are now underway to maintain 165,000oz pa
ASSETS deemed SOLD
Penjom Malaysia 100% Hard-rock open-pit mine processing ore using a proprietary resin-cyanide process.
Extended period of waste stripping in 1H10 has contributed to recent growth in
production and lower cash costs. Potential underground expansion
North Lanut Indonesia 80% Open-pit heap-leach operation processing near-surface ore. Underlying sulphides
very high-grade, but not amenable to heap leaching
Bakan Indonesia 80% Close to North Lanut, potentially open-pit oxide resource, suitable for
dump/heap-leach awaiting full permitting
Source: Company reports
Inata (90%)
Inata is a large, medium-grade, open-pit mine in Burkina Faso. The
previous owner, Oslo-listed Wega Mining, ran over-budget, over-schedule
and breached debt covenants as commissioning took longer than
expected. Avocet acquired Wega in an all-share deal that completed in
June 2009, and immediately commenced extensive rectification work that
paved the way for the first gold pour in December 2009. Nameplate
capacity of 285t per hour (tph) was achieved by September 2010.
The Inata deposit is a robust orebody comprising relatively simple NE
trending, structurally controlled mineralisation in close proximity to
graphitic shales and associated with quartz veins and sulphides. Extensive
weathering has resulted in oxide mineralisation up to 100m depth. The
known mineralisation is open along strike and at depth.
Avocets Production Profile
Source: Company, Ambrian
The life-of-mine plan was revised upwards in September 2010 to achieve
165,000oz pa (average) until 2016, subject to orebody extensions and/or
additional greenfield discoveries. An expanded plant capacity of 2.7Mtpa
(340tph), scheduled from July 2011, will require a third phase expansion
of the mining fleet. Whilst the expansion of the pit will result in a higher
overall strip ratio of 9.4, rising from 6.5 in 2010 to 12.7 in 2011/2012,
Inata the focus of a string of expansions
Selected Gold Equities 3 February 2011
18
declining thereafter. Cash costs are estimated to be in the range US$525-
575/oz.
West African Exploration
Avocet has exploration tenements in Burkina Faso, Guinea and Mali.
The immediate focus is to delineate adequate resources at one prospect
to justify a production decision at the end of 3Q11. As a result,
exploration activity in 2011 will concentrate in two areas: the Inata mine
area, including prospects that are sufficiently distant to be likely to
require a standalone plant (eg, Filio), and the Tri-K district in Guinea.
Although an initial resource has been calculated for the Souma Trend,
which is an attractive exploration target with commercial potential, this
is not considered to be an immediate priority.
Objectives and Anticipated Newsflow in 2011
Objectives 1Q 2Q 3Q
Inata
Double the Inata Reserve
Prospect areas immediately
adjacent to Inata Mine Drilling Drilling results
Resource and reserve
upgrade
Initial resource
estimate at Filio
Blahouro
Western Domain: ~100,000m of
RAB drilling to test anomalies
Eastern Domain (including Souma
Trend) future exploration
- Drilling results
Guinea
Tri-K Resource target 2Moz
Increase Koulkoun resource
Establish a maiden resource at
Kodiran
Tri-K (Kodieran) scout
drilling results
Balandougou scout
drilling results
Tri-K (Koulekoun)
resource update
Follow-up drilling
results from Guinea
Tri-K resource upgrade
SE Asian Exit
The Penjom, Lanut and Bakan are all subject to the sale and purchase agreement for the Southeast Asian assets.
Penjom (100%)
2009 2010 1Q11E*
Ore Treated (t) 972,000 420,000 190,000
Grade (g/t) 3.24 2.56 2.30
Gold Produced (oz) 62,654 51,084 12,223
Cash Costs (US$/oz) 705 944 1,039
Source: Company reports
Note: *We show 1Q only, as this is our expectation of attributable production before sale completion
Penjom is a complex orebody, exploited by way of an open-pit mine with a proprietary resin-in-leach processing plant that has historically produced more than 90,000oz pa at cash costs of less than US$400/oz, although gold production has been falling and costs rising for several years.
Following an extensive drilling programme, the company released an updated Mineral Resource statement in March 2010, containing 1,197,900oz @ 1.76 g/t. The current mine reserve is sufficient for a four-
Future project oz lie hidden in West African exploration programme
Selected Gold Equities 3 February 2011
19
year life, but the expectation is that this can be extended on the back of the expanded resource at depth.
In 2010 Avocet decided to undertake intensive waste stripping in the first six months to access higher-grade ores, especially in the Jalis Zone. This had a further, negative impact on production and costs (most noticeably in 2Q), but was carefully managed and full-year production met the guidance provided by the company.
North Lanut (80%)
2009 2010 1Q11E
Ore Treated (t) 1,282,000 1,301,000 400,000
Grade (g/t) 1.69 1.87 1.80
Gold Produced (oz) 46,894 47,580 12,269
Cash Costs (US$/oz) 550 674 722
Source: Company reports
Note: *We show 1Q only, as this is our expectation of attributable production before sale completion
Financial Summary At 30 September 2010, Avocet had cash at bank of US$46.3m and net debt
of US$84m (comprising US$59m outstanding of the US$65m project
finance facility with Macquarie Bank for Inata and a US$25m corporate
revolving credit facility with Standard Chartered Bank). The project
finance is being repaid at US$6m/Q first repayment made in September 2010.
Connected with the debt, linked to the acquisition of Wega Mining,
Avocet has a gold hedge of 362,019oz (31 October 2010) at an average
US$970/oz. The hedge is being delivered at ~25,000oz/Q.
Investment Case Although the disposal of the Southeast Asian assets would enable Avocet
to repay in cash a large part of the gold hedge, managements current preference is to focus efforts and cashflow on increasing production,
reducing the impact of the below-market hedge. The already announced
expansion of Inata, for example, will decrease the proportion of hedged
production ounces from ~70% to 55%. Avocets perceived weakness (and its not much of one given the production and management costs of Southeast Asia) is the imminent loss of production in return for cash;
however some of this cash could be utilised for cancelling some debt.
With what will be a sizable cash balance and an operating mine (and
large exploration package) in what is arguable the hottest gold region in
the world Avocet is our preferred West African gold play on AIM.
Recommendation BUY; Target Price 271p
We value Avocet at 1.5x NAV Inata, plus cash from the sale of the Southeast Asian assets which provides a target share price of 271p. We firmly believe management can make this a 500,000oz pa gold company within five years through an expanding Inata and an aggressive exploration program on nearby targets. With a sizable war chest post the divestment of the SE Asian assets there is also the potential for further corporate activity.
All cashed-up by 2Q11 on completion of US$200m SE Asian asset sale
Selected Gold Equities 3 February 2011
20
Recent events in Egypt have not distracted Centamin from having its best quarterly results to date. After producing 53,189oz at a cash cost of US$498/oz in the December 2010 qtr, Centamin is on track to meet its 2011 production target of 250-290,000oz. However, to meet those targets the continuing development of the underground holds the key.
Asset Resource Interest CY11E production
Sukari 14.5Moz @ 1.5 g/t 50% 270,000oz
Expected 2011 production will be in the range of 250-290,000oz, with average cash costs around US$450/oz. Production from the open pit and heap leach is expected to produce 200215,000oz, and the balance of production will come from the underground development. Further guidance is planned for mid-2011 as more information becomes available on the timing and scale of commercial underground production rates.
Record quarterly gold production of 53,189oz was achieved from its in the December quarter, with production averaging over 20,000oz per month in November and December. Cash operating cost averaged US$498/oz for the quarter.
Positive Scoping Study for a 10Mtpa gold processing facility at Sukari, which would result in gold production peaking at 700,000oz pa in 2015 and averaging 415,000oz pa over the 15-year study period (2012-26) at LOM operating costs of around US$425/oz (excluding u/g).
Recent political events in Egypt have not affected the safety of the companys employees or the day-to-day operations at its flagship project Sukari.
Recommendation BUY; Target Price 174p
We believe that a 1.7x NAV seems appropriate for Centamin as we think that growing production should drive the multiple higher. For that reason, we have calculated a price target of 174p. We believe Centamins LOM production forecast of 415,000oz Au pa is achievable, but we highlight that the grade mined/processed in the earlier years is much higher than that in the latter years. We do, however, expect the underground production to compensate this potential drop off.
Financial Forecasts
Yr to Dec (US$m) 10A 11E 12E 13E 14E 15E
Gold sold (000oz) 130 216 289 427 518 703
Revenue 124 302 370 497 569 773
Cash costs (US$/oz) 514 500 403 407 399 278
Cash Balance 166 335 389 661 867 1,176
EPS (p) 3.0 10.0 13.2 14.6 10.3 15.4
P/E (x) 50.5 15.0 11.3 10.2 14.5 9.8
Source: Ambrian estimates
Centamin Egypt
BUY Underground Production holds the key
Ambrian acts as Broker to and as a Market Maker in this company
Adam Kiley
+44 (0)20 7634 4777 adam.kiley@ambrian.com
Upcoming Events
1Q11 Q1 Results 2Q11 Board approves expansion to 10Mtpa 1H11 Decision on U/G development
Price (p) Target Price (p)
137 174
Ticker CEY
Market cap (m) 1,481
Estimated cash (US$m) 166
Debt (US$m) -
Attr Reserve (Moz Au) 4.5
Attr Resource (Moz Au) 7.3
EV/Reserve (US$/oz) 486
EV/Resource (US$/oz) 303
52-week (p)
High 197
Low 131
3M-avg daily vol (000) 5,816
3M-avg daily val (000) 9,409
Shares
Basic (m) 1,081
Fully diluted (m) 1,085
Top shareholders (%)
Massachusetts Mutual 7.6
El-Raghy Family 6.7
Aegon UK Group 5.0 Ameriprise Financial Inc 5.0
Total 24.3
Share Price Performance (p)
Source: Fidessa
100
120
140
160
180
200
220
Feb 10
Apr 10
Jun 10
Aug 10
Oct 10
Dec 10
Feb 11
Selected Gold Equities 3 February 2011
21
Asset Summary
Project Equity Comment
PRODUCING
Sukari Egypt 50%* World-class gold deposit. Open pit is scheduled to be mined until 2026. Currently
developing the underground extension to the deposit. Forecast 2011 production
250-290,000oz
*50% profit share after cost recovery on 100% equity basis equates to some 38% tax with front-loaded cashflows; Source: Company reports, Ambrian
Sukari (50%) Overview
Sukari is located approximately 700km south of Cairo and 25km west of
Marsa Alam on the Red Sea. Sukari began commercial production in 2010
and produced approximately 150,000oz Au for CY10 at an average cash
cost of US$514/oz. Sukari has forecasted 2011 production of between
250-290,000oz, with average cash costs around US$450/oz. Production
from the open pit and heap leach is expected to produce 200215,000oz and the balance of production is to come from the underground
development phase. Selection of the optimal underground mining method
is expected to occur during 1H11, following the completion of the
definition drilling programme.
Sukari Resource and Reserve Statement
Category
Tonnes (Mt)
Grade (g/t Au)
Contained (Moz)
Proven 102.4 1.09 3.6
Probable 142.9 1.19 5.5
Total Reserve 245.3 1.15 9.1
Measured & Indicated 235.7 1.45 11.0
Inferred 68.9 1.60 3.5
Total Resource 304.6 1.48 14.5
Source: Toka Tindung CPR (Snowden's), Company presentations, Ambrian
Scoping Study 10Mtpa
Centamin completed a scoping study on a 10Mtpa processing facility at Sukari in December 2010 and found the results confirmed the project economics of a further expansion to 10Mtpa increased the value for investors beyond that expected from the current expansion to 5Mtpa (completion expected mid-2011). The key findings of the study which have been applied to our valuation are summarised below:
Increased open pit mining rate peaking at 74Mtpa was selected to maximise plant feed grade in the early years of the project based on the most recent proven and probable reserves and pit designs.
Resultant gold production peaking at 700,000oz pa in 2015 and averaging 415,000oz pa over the 15-year study period (2012-26) with a LOM operating cost of around US$425/oz.
Capital cost for the expanded plant was estimated at approximately US$179m (excluding contingency and additional mobile mining equipment).
The Board is expected to provide a final commitment to proceed with construction of the project expansion late in 1Q/early in 2Q11, which would include the placing of orders and deposits for long lead items (such as mills, key mining equipment and large electrical equipment), once the
Sukari Resource and Reserve Growth
Source: Company
Positive scoping study for next expansion phase to avg. 415koz pa
Capex scoped at US$179m
Decision expected 2Q11
Selected Gold Equities 3 February 2011
22
front-end engineering and design, detailed capital cost and scheduling are all largely outlined/completed.
Yr to Dec 10A 11E 12E 13E 14E 15E
Ore Mined (Mt) 6.1 5.0 10.5 9.7 9.7 9.7
Strip Ratio 3.3 5.6 1.9 4.7 6.6 6.0
Ore Processed - CIL 3.1 4.3 6.0 10.0 10.0 10.0
Recovery % 87% 90% 94% 94% 94% 94%
Gold Produced CIL* 142 200 272 423 518 703
Gold Produced H/L 8 17 16 4 - -
Total gold Produced 150 216 289 427 518 703
Source: Ambrian estimates Note: *Open pit production only excludes u/g production;
Geology
The Sukari deposit is hosted by a large porphyry body, which is located on
a regional shear zone. The body has provided a competency contrast and
favourable conditions for shallow-dipping ore zones to form. Ore is hosted
in four different zones along a steep hill: Amun, Ra, Gazelle and Pharaoh.
The open pit is based on the Main and Hapi ore zones, which have been
well drilled. The initial open pit was optimised to 300m depth, then
expanded to 450m at the deepest. We do not expect the pit to get much
deeper, but do expect some good resource upgrades from a poorly-drilled
section in the middle of the orebody (red circle in below cross section),
which should support additional underground mining.
Schematic Long-section of the 2.5km Long Sukari Ore Deposit
Source: Centamin
Average LOM production of 415,000 oz p.a at US$425/oz
Underground zones come into play
Selected Gold Equities 3 February 2011
23
Investment Case
The December quarterly report was positive on a number of accounts. First, Centamin vastly improved its gold production for the quarter, producing 53,189oz of gold. This was approximately 23,000oz (or a 76%) improvement on September gold production. Contributing to this was the mining/processing of underground ore.
We believe if Centamin is to achieve their production guidance into 2011 and beyond production from the underground is going to be vital. We expect to be updated on a clearly-defined plan and guidance on the underground operations by the middle of 2011.
Recent political event have been the major cause for the recent decline in Centamins share price. We dont believe that a potential presidential change should have an effect on the ownership of Sukari, as either the current or a new government would want to protect its income stream from its only operating mine and encourage foreign investment, not deter it.
Recommendation BUY; Target Price 174p
We have calculated a value for the Sukari Project (10Mtpa processing facility) based on a 1.7x NPV10% of 174p. We believe Centamins LOM production forecast of 415,000oz Au pa is achievable, but we highlight the grade mined/processed in the earlier years is much higher than that in the latter years. We do, however, expect the underground production to compensate this potential drop-off in both grade and oz produced.
We strongly believe the underground development is the key for the maintenance of production for Centamin in the future and will be the swing factor that will determine if Centamin reaches its production targets or misses them.
Key Production and Financial Forecasts Yr to Dec 11E 12E 13E
Strip Ratio (x) 5.6 1.9 4.7
Ore Processed - CIL 4.3 6.0 10.0
Grade (g/t) 1.6 1.5 1.4
Total gold Produced (000oz) 216 289 427
Revenue (US$m) 302 370 497
Cash costs (US$/oz) 500 403 407
EBITDA (US$m) 179 237 302
Profit before Govt. pmt (US$m) 173 229 283
Government distribution (US$m) - - 29
Net Profit (US$m) 173 229 253
Cash Balance (US$m) 335 389 661
Free cashflow (US$m) 171 54 273
EPS (p) 10.0 13.2 14.6
P/E (x) 15.0 11.3 10.2
Source: Ambrian estimates
Improved production with 20koz/mth produced in Nov/Dec last year
2011 target +250,000oz
Recent political events have little effect on operations
Further valuation potential from the underground
Selected Gold Equities 3 February 2011
24
The Arabian-Nubian shield continues to gain recognition as one of the great under-explored gold regions in the world; Chalice Gold Mines was early to recognise this and is now one of the largest tenement holders in Eritrea. With an aggressive exploration programme underway and larger miners starting to look at the once troubled region, Chalice should continue to gain momentum in 2011.
Main Assets Resource Interest LOM production
Zara Gold Project, Eritrea 840,000oz @ 5.3 g/t Au 90%* 105,000oz Au p.a
*Government has option to acquire an additional 30% interest in the project which it has indicated it will exercise
The companys key asset is the Zara Gold Project in Eritrea, which is due to begin production in 2013. The project has a current resource of 840,000oz Au at a grade of 5.3 g/t and the company believes it will produce 105,000oz Au p.a LOM at a cash cost of US$338/oz.
Chalice is one of the largest tenement holders in Eritrea, with approved holdings of over 1,400km and some 18,000 km currently under application. The company has an exploration budget for the coming two years of approximately US$20m.
The Eritrean Government has indicated that it will exercise its 30% paid participating interest in the Zara Project. Assuming an agreement on the valuation can be made (discussions are ongoing), this will provide an upfront cash payment to Chalice which will have the effect of lowering its future capital raising requirements.
Recommendation BUY; Target Price $0.79 - INITIATION
We have calculated a value for the Zara Project based on a 0.65x NPV10% of US$0.64. We originally applied a 0.75x NPV multiple, but lowered this due to the uncertainty surrounding the size and timing of the payment to be made by ENAMCO for its additional 30% paid participation interest.
We believe the driver of Chalices share price for 2011 will be the potential for exploration success. For that reason, we have increased our valuation by US$0.14 to a target share price of US$0.79. Below we highlight the metrics of the project once in production (assuming a 90% interest and 100% equity funded).
Financial Forecasts
Yr to Dec (US$m) 13E 14E 15E 16E
Gold sold attr (000oz) 35 127 111 96
Cash costs (US$/oz) 439 262 316 366
EBITDA 20.4 132.1 111.0 92.5
Free cashflow (25) 98 86 74
Source: Ambrian estimates
Chalice Gold Mines
BUY INITIATION Dominant position in Nubian Shield
Adam Kiley
+44 (0)20 7634 4777 adam.kiley@ambrian.com
Upcoming Events
Determine payment from ENAMCO US$20m exploration budget over next 2 yrs Granting of further tenements in Eritrea
Price (A$)
Target Price (A$)
0.65
0.79
Ticker CHN.ASX
Market cap (A$m) 138
Estimated cash (A$m) 7
Debt (A$m) -
Attr Reserve (Moz Au) 0.7
Attr Resource (Moz Au) 0.8
EV/Reserve (A$/oz) 200
EV/Resource (A$/oz) 181
52-week (A$)
High 0.78
Low 0.32
3M-avg daily vol (000) 521
3M-avg daily val (A$000) 362
Shares
Basic (m) 211
Fully diluted (m) 224
Top shareholders (%)
Franklin Group 14.8
Tim Goyder (Chairman) 11.9
Lujeta Pty Ltd 6.8
Total 33.5
Share Price Performance (A$)
Source: Fidessa
0.4
0.5
0.6
0.7
0.8
Feb 10
Apr 10
Jun 10
Aug 10
Oct 10
Dec 10
Feb 11
Selected Gold Equities 3 February 2011
25
Zara Gold Project (90% CHN, Eritrean Government 10%) The Zara Gold Project is a high-grade, shallow gold project located in the
East African country of Eritrea. The project is in the highly prospective
Nubian Shield gold belt that hosts several major gold deposits, including
the world-class Sukari gold mine (Centamin Egypt).
Major Gold Deposits in the Nubian Shield
Source: Company
The key deposit in the Zara Project is the Koka gold deposit, which
hosts a JORC resource of 5Mt at 5.3 g/t Au for 840,000oz Au. The
company plans to begin open-pit mining the deposit and at a LOM rate
of 105,000oz p.a.
Koka Resource and Reserve Statement
Category
Tonnes
(Mt)
Grade
(g/t Au)
Contained
Au (000oz)
Contained
Au (000)
Attr 90%
Contained
Au (000)
Attr 60%
Proven - - - - -
Probable 4.6 5.1 760 684 456
Reserve 4.6 5.1 760 684 456
Measured - - - - -
Indicated 5.0 5.3 840 756 504
Inferred - - - - -
Total 5.0 5.3 840 756 504
Source: Annual Report - 2010
Open pit production planned for 2013
Selected Gold Equities 3 February 2011
26
In addition to the Zara Project, the company was recently granted a another 830km as a tenement package. When this is added to the Zara tenement package, Chalice becomes one of the largest tenement holders in Eritrea. The company also has approximately 18,000km tenement applications under review.
Land Holdings Applied and Granted
Source: Company
The company is planning to spend approximately US$20m over the next two years on exploration. Whilst the majority of this will be spent on areas close to Zara (to improve the project economics), there will also be greenfield exploration on the newly acquired tenements. One of the recent granted tenements is located 10km north of Nevsun Resources Bisha polymetallic VHMS deposit.
Government Option to Buy 30% Interest
The state-owned Eritrean National Mining Corporation (ENAMCO) has an option to purchase, at fair value, a 30% paid participating interest to add to its 10% free participating interest provided for in Eritrean mining legislation, resulting in a potential total state participation of 40%.
The purchase price to be paid by the state will be determined by either an agreement between the government and Chalice or, as is the case with Nevsun Resources Bisha Project, an independent valuation based on the NPV of 30% of the project. ENAMCO has indicated that it will be exercising its rights. Discussions in relation to the acquisition are currently ongoing.
Investment Case
The Zara Project provides a strong underlying base for the companys share price, and as Zara moves closer to production the share price should receive a re-rating.
Company has put exploration applications covering ~15% of the country
Government have indicated it will exercise its option to buy 30% of the company
Selected Gold Equities 3 February 2011
27
However we believe driving force behind Chalices share price in the future will be the potential for further exploration success. We believe management has recognised this by outlining an aggressive US$20m exploration programme over the coming two years. Whilst finding near-mine expansions will help the economics of Zara, the search for a world-class deposit is the main game for Chalice, in an area that has become one of Africas top gold & polymetallic exploration regions.
With a number of larger companies reportedly considering investing in Eritrea, any exploration success will surely attract attention.
Recommendation BUY; Target Price A$0.79
We have calculated a value for the Zara Project based on a 0.75x NPV10% of A$0.74 (based on a 90% interest in the project). However, as announced by Chalice in November 2010, ENAMCO will exercise its right to acquire an additional 30% (paid participating interest) in the project. In a perfect world, this would have no effect on the valuation of Chalice because ENAMCO will pay 30% of the projects NPV at time zero, therefore (theoretically) having zero effect on the value to Chalice. However, as we do not live in a perfect world, the perception of increased uncertainty in relation to a fair-value transaction has resulted in us applying a temporarily decreased NAV multiple of 0.65x NAV, reducing the Zara Projects value to US$0.64. On the announcement of the terms for the divestment we will raise the multiple back to 0.75x.
As highlighted earlier, we believe the key driver for Chalice will be the potential for exploration success. We therefore have added a conservative US$30M (or US$0.14/share), which with the Zara Project puts our target price at US$0.79. We emphasise that any new discoveries or extension to the Zara Project would result in a share price re-rating that would most likely surpass our current target price.
Eritrea one of Africas hotspots for VMS deposits
Exploration upside for free based on strong project economics for Zara
Selected Gold Equities 3 February 2011
28
Condor is in the process of converting and upgrading gold resources at its La India Project in Nicaragua. The company looks set to tap into high-grade gold mineralisation in and around historical mine infrastructure.
Asset Resource Interest CY11E production
La India - Nicaragua 0.91Moz @ 5.0 g/t Au 80-100% N/A
La Calera El Salvador 0.31Moz @ 1.4 g/t Au 100% N/A
Pescadito El Salvador 0.43Moz @ 1.9 g/t Au 100% N/A
Source: Company data, Ambrian estimates
Last months announcement on the conversion of 0.9Moz of Russian (GKZ) resources to JORC-compliant resources presented an incomplete
picture. Not all the data was processed and completion of the Russian
resource conversion is now expected in March 2011.
A diamond drill programme is underway at La India. This new
programme is designed to upgrade a significant portion of the current
inferred resource as well as expand the current JORC resource. We
expect a number of high-grade gold intersections to be announced to the
market from March 2011 onwards. An announcement on a resource
upgrade is anticipated at La India during the summer.
A 1.2M Eq Au oz resource in El Salvador is currently receiving little
value from the market. These projects are currently on hold pending the
outcome of the El Salvadorian governments moratorium on mining.
Recommendation Spec Buy; Initiation -Price Target 7.5p Our sector analysis has determined that the industry average
EV/resource ounce valuation for a pre-BFS Latin American project is
US$63/oz Au. Applying this to Condors Nicaraguan resources only, we estimate an appropriate fair value start point for Condor is 7.5p/share.
This represents a ~36% premium to the current market price of 5.5p.
We are comfortable that applying an average EV per resource ounce
valuation from the sector is fair and reasonable when taking into
account the high-grade gold, proximity to infrastructure, inferred nature
of the resource and exploration upside at La India. Given the uncertainty
over mining in El Salvador, we have assigned no value to the La Calera
and Pescadito resources at this time, and believe this should be viewed as
a free option with upside. If we were to apply the same metrics to the El
Salvador resource, then Condors fair value would rise to 16p/share on an in-situ resource basis.
Condor Resources
SPEC BUY - INITATION
Nicaraguan Gold Pot
Ambrian acts as Broker and Nomad to this company
Duncan Hughes +44 (0)20 7634 4775 duncan.hughes@ambrian.com
Upcoming Events
1Q11 - Complete current resource conversion process and site visit
2Q11 - Additional resource update at La India, anticipate it could take resource over 1Moz
Price (p) 5.5
Target Price (p) 7.5
Ticker CNR
Market cap (m) 30.15
Estimated cash (US$m) 0.5
Debt (US$m) 0
Attr Reserve (Moz eq Au) 0
Attr Resource (Moz eq Au) 1.65
EV/Reserve (US$/eq Au oz) 0
EV/Resource (US$/eq Au oz) 23
52-week (p)
High 11.0
Low 0.43
3M-avg daily vol (000) 7,789
3M-avg daily val (000) 501
Shares
Basic (m) 292.3
Fully diluted (m) 346.8
Top shareholders (%)
M Child (Chr) 10.2
Oracle Management Ltd 9.9
J Mellon 4.6
Total 24.7%
Share Price Performance (p)
Source: Fidessa
0.1
2.1
4.1
6.1
8.1
10.1
12.1
Feb 10 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10
Selected Gold Equities 3 February 2011
29
Asset Summary
Project Equity Comment
DEVELOPING
La India - Nicaragua 80%/100%* 0.9Moz inferred resource located in and around historical mine infrastructure.
High-grade, low sulphidation epithermal gold veins
Rio Luna Nicaragua 100% Potential for shallow high-grade gold
La Calera El Salvador 100% 0.31Moz @ 1.6 g/t Au JORC resource
Pescadito El Salvador 100% 0.43Moz @ 1.8 g/t Au and 22Moz @ 96 g/t Ag JORC resource
*40% of La India tenement package is in 80% JV with B2 Gold; Source: Company data, Ambrian
La India Project (80%-100%) The La India low-sulphur epithermal gold project is located in Western
Nicaragua, approximately 50km east of the city of Leon. The project is
well placed with regard to infrastructure, with a good quality sealed
road, grid power and water sources nearby.
In 2010 Condor completed a tenement swap with TSX-listed B2 Gold
whereby B2 acquired an 80% interest in Condors tenements along strike from B2s La Libertad Mine in return for 80% of part of the La India concession. The project hosts the La India Mine, which mined a reported
576,000oz of gold at 13.4 g/t between 1938 and 1956.
SRK commenced conversion of a 2.4Moz Russian resource (1.5Moz is in the
P1 category and, consequently, only sparsely drilled) to an inferred JORC-
compliant resource of 4.6Mt @ 5.9 g/t, or 868,777oz Au. The conversion
process was incomplete at the end of December 2010, which was the date
by which management had committed to releasing a JORC resource to the
market. As an interim measure, an incomplete JORC-compliant resource
was announced in early January and was, consequently, lower than the
market was anticipating.
The huge volume of data supplied from historical drilling, trenching and
mine infrastructure will now be fully processed by March 2011 and Condor
will then be in a position to present a more complete resource picture.
The company also expects a portion of the resource to be upgraded to the
indicated category, through surveying historical drill holes, trenches, existing mine infrastructure and mine geology.
Running in tandem to the conversion process, we also expect to see La Indias resource grow over 1Moz as a result of the current 5,000m diamond drilling programme started in January, the results of which are
expected to be released during the summer.
Additional upside also exists within a currently excised tenement at La
India. The tenement is believed to host several hundred thousand ounces
and is surrounded by the Condor gold resource. The tenement is owned
by a local businessman and we would not be surprised if Condor looked to
acquire these assets at some point in the future.
Rio Luna (100%) This project is located half way between La India and B2 Golds La Libertad mine. Exploration drilling results including 2.7m @ 16 g/t, 21m
@ 3 g/t and 19m @ 12.5 g/t targeting 18km of auriferous veining are
encouraging. We expect to see more activity here in the future as the
company targets additional gold ounces.
Good local infrastructure
Inferred JORC resource of 0.9Moz and growing at La India
Completion of Russian to JORC resources expected in March
Further resource upgrades to follow pending exploration programme
Selected Gold Equities 3 February 2011
30
Nicaragua The days of civil war are long gone in Nicaragua. Unlike some of its
Central American neighbours, the government is pro-mining; in fact, the
current president originates from the mining town of La Libertidad.
Infrastructure in the west of the country is good, with roads, power and a
local workforce available to support mining. Mining revenue is becoming
increasingly important as a contributor to GDP the country already hosts three gold mines at La Libertidad, El Limon and Bonanza. In 2010,
gold was the countrys third largest export. The government has a workable mining code and a relatively low tax rate of 25%, with royalties
in the region of 3%.
El Salvadorian Assets The situation in El Salvador is not as favourable. In 2006 the government
placed an unofficial moratorium on all mining activities, forcing Condor,
and others, to stop all activities in country. However, signs indicate the
situation is improving, if a little slowly, with the government inviting the
Spanish-owned Tau group to carry out an environmental impact
assessment on mining in the country. In recent months the government
and the Tau group have been open to dialogue with Condor.
Condors La Calera project hosts a shallow 300,000oz resource only 10km west of Pacific Rims 1.6Moz El Dorado project in central El Salvador. We see opportunities for toll treating or farming out this project should the
situation improve in El Salvador.
Condors Pescadito project hosts close to 0.5Moz Au equivalent in eastern El Salvador. However, these are spread over several deposits. We believe
that more work is required at Pescadito should the company wish to mine
at some future date.
Peer Analysis A group of 13 Latin American listed exploration companies was used to
determine an average value for in-situ resource ounces in Condors peer group. The graph below shows an average valuation of US$63/oz. Condor
appears undervalued in the sector on its Nicaraguan resources alone, and
looks extremely undervalued when the El Salvadorian resources are
included.
EV/Resource Ounce for Latin Gold American Explorers
Source: Ambrian
Nicaragua is pro-mining, with three operating gold mines
El Salvador has an unofficial moratorium on mining
Condor looks significantly undervalued on an EV/resource oz basis
Selected Gold Equities 3 February 2011
31
Investment Case and Opinion
We believe Condor is oversold on the back of the release of an incomplete resource statement. Predictably, the market reacted negatively to what appeared to be a disappointing announcement, but this should be seen as an opportunity in an exciting gold prospecting region that has effectively been ignored because of regional instability. The situation has not been helped by the selling down of one of the company directors shareholdings in the company. The upshot of this is that there will be subsequent releases showing an improved conversion to JORC resources later this quarter.
The key risk going forward, as with all exploration companies, is technical. However, we note that the initial upgrade of the resource requires little exploration activity and expenditure and is more a case of low-cost surveying and data interrogation. We are comfortable that Nicaragua now presents a relatively stable environment to explore and develop gold projects.
We expect some positive news over 1H11 from drilling results and upgraded resources. This newsflow is likely to act as a catalyst to grow Condors share price. Given Condors cash position at present and its current programme of 2,0005,000m of diamond drilling, we envisage that the company may require additional funds in 2011. The likely sources of funds would be a farm-out of some exploration tenure or a fund raise on AIM.
We also feel that the resources in El Salvador should be viewed as upside potential. A lifting of the moratorium would likely increase the market valuation for Condor significantly.
Recommendation Speculative Buy
In our valuation we have applied an average EV/resource ounce valuation of US$63/oz to Condors La India resource. This average is based on a Latin American gold universe. It compares well to the US$61/oz mean we calculate for an AIM and selected Australian universe.
Applying the US$63/resource oz to Condors Nicaraguan resources only suggests a fair valuation of 7.5p/share. This represents a ~36% premium to the current market price of 5.5p. It is important to note that this implies no value for the El Salvador assets; if these resource ounces are applied then Condor should expect to be valued at 16p/share on an in-situ resource basis.
We are comfortable that an average resource ounce valuation from the sector is fair and reasonable when taking into account the high-grade gold, proximity to infrastructure, inferred nature of the resource and exploration upside at La India. Given the uncertainty over mining in El Salvador we have applied no value to the La Calera and Pescadito resources at this time, and believe this should be viewed as a free option with upside.
We initiate on Condor with a SPECULATIVE BUY and a price target of 7.5p, and anticipate that newsflow over the next 6-9 months will act as a catalyst for further uplift.
1H11 resource upgrades will rebuild market confidence
Resource upgrade requires little/no additional funding
El Salvador resources offer options
Initiating applying a relatively low US$/oz resource factor
Selected Gold Equities 3 February 2011
32
Gold One has continued to improve and meet its quarterly gold production targets over the past six months; it is forecast to produce 25,000oz Au in the March 2011 quarter. Provided the company continues to achieve and improve on its production/cash cost targets, we believe the share price will be re-rated.
Main Asset Reserve Interest Production 2011CY
Modder East, South Africa 1.5Moz@ 4.0 g/t Au 76% 120,000oz Au
The December 2010 quarter was a record for Gold One: it produced 21,480oz Au at a cash cost of US$467/oz. The company has forecast production of 25,000oz in the March 2011 quarter and 120,000oz Au for CY11.
Unaudited financials for 2010 indicated that Gold One achieved a profit before tax of approximately US$18m vs. a loss of US$25.8m in 2009. Convertible bondholders also decided not to exercise their one-off put option to redeem their bonds for cash in November 2010.
Reserves and Resources at Modder East continue to grow. Gold One upgraded the reserve in December 2010 to 1.5Moz Au. This extended the mine life to 2023. The resource has also increased to 4.3Moz Au.
Ventersburg, with a 3.9Moz Au resource, is scheduled to be Gold Ones next producing operation. The company is scheduled to complete the pre-feasibility report by the end of this March quarter.
Recommendation BUY; Target Price A$0.47
We have set a price target for Gold One of A$0.47 based on a 1.0x
NPV10% for the Modder East Project. Provided that management achieves
its production rates and grade/costs targets, we believe there is scope for
a NPV multiple re-rating to 1.5x, which would potentially lift our price
target to A$0.70.
There is also further upside potential when the Ventersburg project
feasibility study is released (due this March quarter end) as this could
boost our Gold One NPV and further lift our price target.
Financial Forecasts
Yr to Dec (A$m) 11E 12E 13E 14E
Gold sold (000oz) 120,000 150,000 150,000 150,000
Cash costs (US$/oz) 430 400 400 400
Revenue 169.5 207.7 193.8 206.3
EBITDA 106.2 128.5 114.0 118.9
Cash 52.8 61.0 137.5 221.3
Convertible Note (US$m) 62.0 0.0 0.0 0.0
EPS (A) 9.1 8.9 8.0 8.3
P/E (x) 3.5 3.6 4.0 3.9
Source: Ambrian estimates
Gold One International
BUY Deserves to be Re-rated
Ambrian acts as Agency Broker to this company
Adam Kiley
+44 (0)20 7634 4777 adam.kiley@ambrian.com
Upcoming Events:
Ventersburg PFS report 1Q11
1st quarter report April 2011
Price (A$)
Target Price (A$)
0.29
0.47
Ticker GDO.ASX
Market cap (A$m) 235
Estimated cash (A$m) 11
Convertible Note (US$m) 62
Reserve (Moz Au) 1.5
Resource (Moz Au) 21.7
EV/Reserve (A$/oz) 156
EV/Resource (A$/oz) 10
52-week (A$)
High 0.42
Low 0.21
3M-avg daily vol (000) 1,950
3M-avg daily val (A$000) 661
Shares
Basic (m) 807
Fully diluted (m) 896
Top shareholders (%)
African Global capital 17.7
Baker Steel 9.7
The Au Limited Partnership 4.6
Titan Nominees 2.9
Total 34.9
Share Price Performance (A$)
Source: Fidessa
0.20
0.24
0.28
0.32
0.36
0.40
0.44
Feb 10 Jun 10 Oct 10 Feb 11
Selected Gold Equities 3 February 2011
33
Asset Summary
Project Equity Comment
PRODUCTION
Modder East 74% Underground mine in the Witswatersrand Basin. First gold pour was in 2H09,
targeting 2011 production as 120,000oz pa
Sub Nigel 74% Small operating mine used to train staff for Modder East
DEVELOPMENT
Ventersburg 51-74% 3.9Moz @ 3.5 g/t from 465-800m; currently evaluating project economics
Source: Company reports, Ambr