22227777 November 2012 Rum Jungle Resources (RUM) · 2012-11-27 · phosphate and potash for export...

Key Points

• Well positioned exploration company with significant resources of both phosphate and potash in Australia (Northern Territory).

• Projects are close to existing infrastructure and can produce exportable product from conventional mining (phosphate rock) and proven solution mining (potassium sulphate).

• 253Mt @ 15% P2O5 (Phosphate) Resource and 5.5Mt of Sulphate of Potash ( K2SO4) from Schoenite of 13Mt.

• Well regarded management team that has delivered on last two years of milestones.

Recommendation Hold

Initiating Report

Risk Rating Very High

Current Share Price $0.29

52 Week Price Range $0.185 – $0.405

Market Capitalisation $61m

Net Cash (30/9/12) $10.2m

Summary Summary Summary Summary

KKKKey Projectsey Projectsey Projectsey Projects

• Barrow Creek (100% owned) Barrow Creek (100% owned) Barrow Creek (100% owned) Barrow Creek (100% owned) –––– Phosphate Phosphate Phosphate Phosphate o JORC compliant Inferred Resource of 253Mt @15% P2O5 o Includes high grade, shallow areas which RUM can simply

beneficiate to export grade phosphate rock. • Karinga Creek (85% owned) Karinga Creek (85% owned) Karinga Creek (85% owned) Karinga Creek (85% owned) –––– Potash Potash Potash Potash o JORC compliant Inferred Resource of 5.5Mt of Sulphate

of Potash ( K2SO4) from 13Mt schoenite (potassium magnesium sulphate).

o Both products are exportable and attract premium pricing due to global use as high-end fertilisers.

o 15% owner – Reward Minerals Ltd. (ASX:RWD).

Upcoming CatalystsUpcoming CatalystsUpcoming CatalystsUpcoming Catalysts over coming 12 months over coming 12 months over coming 12 months over coming 12 months

• Scoping study to develop viable processing route (initiated 2012) for both phosphate and potash deposits.

• New phosphate opportunities in Barrow Creek area.

• Ongoing exploration updates and resource updates.

Investment Investment Investment Investment ThesisThesisThesisThesis

• The opportunity to develop significant resources of both phosphate and potash for export to key global markets .

• An independent and low cost entry into the fertiliser sector with proven processes and existing logistics infrastructure.

RisksRisksRisksRisks

• This is a very high risk, early stage exploration investment.

• Commodity Price of phosphate rock and potash feedstocks fluctuate.

• Risks of cost increases after further development and scoping studies.

RecommendationRecommendationRecommendationRecommendation

• We are positive on the low cost Phosphate and Potash resources which RUM own and operate.

• At this early stage of meeting the management team, I start with a Hold recommendation.

Board and ManagementBoard and ManagementBoard and ManagementBoard and Management

John Roberts,John Roberts,John Roberts,John Roberts, NonNonNonNon----Executive Executive Executive Executive Chairman Chairman Chairman Chairman (2007)(2007)(2007)(2007) – Geologist with 55 years experience in mineral exploration and mining industries in Australia and USA. Previous MD of Homestake Gold of Australia Ltd. and Chairman of Australian Resources Ltd. Currently Chairman of publicly listed Mithril Resources Ltd and SA Chamber of Mines.

David Muller, CEODavid Muller, CEODavid Muller, CEODavid Muller, CEO ( ( ( (2007200720072007)))) –Geologist with 45 years experience in Australian mining and exploration industries. Involved in private exploration and listing of several companies including Samantha Mines, Samson Exploration, Cape Range Oil and Julia Mines. Undertook private exploration in NT from 2003 where he selected and acquired all areas that formed the basis of Rum Jungle Resources upon listing.

Robert Annells, NonRobert Annells, NonRobert Annells, NonRobert Annells, Non----Executive DirectorExecutive DirectorExecutive DirectorExecutive Director ( ( ( (2007200720072007)))) –Former member of the ASX with over 40 years in the securities industry and is a qualified accountant. Ex-Chair MEP, discoverer of Phosphate Hill. Current Chair of Lakes Oil.

Jeff Landels, NonJeff Landels, NonJeff Landels, NonJeff Landels, Non----Executive DirectorExecutive DirectorExecutive DirectorExecutive Director (October 20 (October 20 (October 20 (October 2012121212)))) – Extensive experience in Fertiliser industry, having been GM of WMC’s Fertiliser Operations from 2002-2006. Previous Group GM for PaperlinX and GM for AMCOR

RUM Share Price RUM Share Price RUM Share Price RUM Share Price

Source: Capital IQ

22227777 November 2012 November 2012 November 2012 November 2012

Paul Jensz

+613 8633 9864

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Important information:Important information:Important information:Important information: In October 2012, Octa Phillip Securities Ltd and an associate company Octa Phillip Corporate Pty Ltd were engaged by RUM Jungle Resources for capital markets services on commercial terms. For Disclosures refer to the back page under “Disclosure of Corporate Involvement.”

Rum Jungle Resources (RUM) King of the domestic phosphate and potash exploration jungle

Octa Phillip Securities Rum Jungle Resources Ltd (RUM)

Projects

Ammaroo Phosphate Project (100% Owned)

Project is located 350km North East of Alice Springs and includes 13 granted exploration licenses which cover 5,450km2 over a 175km strike of northwestern neck of southern Georgia Basin. The project area contains the Barrow Creek 1 deposit and the Ammaroo 1 prospect.

• Map above shows Rum Jungle Resources’ holdings with granted ELs in green, ML application in pink, named phosphate deposits and recent drilling (black dots) and proximity to railroads to the West

Barrow CreekBarrow CreekBarrow CreekBarrow Creek 1111

Barrow Creek is one of Barrow Creek is one of Barrow Creek is one of Barrow Creek is one of the largest phosphate the largest phosphate the largest phosphate the largest phosphate rock deposits in rock deposits in rock deposits in rock deposits in AustraliaAustraliaAustraliaAustralia

In December 2011 RUM announced a JORC compliant inferred resource at the Barrow Creek 1 phosphate deposit of 253Mt at an average grade of 15% P205 (10% cut off). Phosphate resources should be compliant with Indicated-Measured JORC status now data has been received. A resource upgrade is expected to be announced in December 2012.

The Barrow Creek 1 deposit is attractive due to its high grade material and proximity to the Darwin-Alice Springs railway. In addition, it is relatively shallow and free digging which gives a low cost base and lower risk mining operation.

RUM has commissioned Arccon Mining Services to develop a full scoping study on the project. Preliminary estimates indicate a CAPEX spend of ~$120m and production cost of $75/tonne to FOB at Darwin Port. The plan is a simple and very low cost start with high grade DSO ore and for three years and then processing via the $100m Beneficiation Plant. This is around half the cost of other Australian phosphate rock projects, because of low rail charges and capital depreciation. In addition, EcOz Environmental studies have been contracted to commence work toward gaining environmental approvals for the project.

Ammaroo 1 ProsAmmaroo 1 ProsAmmaroo 1 ProsAmmaroo 1 Prospectpectpectpect

Phosphate prospect discovered in 2009 and is 80km East of Barrow Creek 1. Since then holes have been drilled with strong indications of phosphate mineralisation (20m at 20% P205). Assay results are awaited.

Karinga Creek Potash Project (RUM 85%, Reward 15%)

Karinga Creek can Karinga Creek can Karinga Creek can Karinga Creek can produce the only produce the only produce the only produce the only domestic source of domestic source of domestic source of domestic source of Potash in AustraliaPotash in AustraliaPotash in AustraliaPotash in Australia

JV with Reward Minerals (Lake Disappointment, WA), with RUM recently increasing their stake from 71% to 85%. However, Reward has an option to retain equity with funding to a maximum 29% stake in the project. Alternatively, Reward can dilute further by not contributing.

On 1 May 2012, the JV announced a preliminary sulphate of potash (SOP) resource of 530,000 tonnes at a depth of 3m. In November 2012, this was upgraded to an inferred resource of 5.5 Mt at an average aquifer thickness of 15m and average depth of water table of 1m. This equates to a maximum schoenite (potassium magnesium sulphate) resource of 13Mt. Both minerals are used as high-end fertiliser products globally and attract premium pricing to the more common muriate of potash (MOP).


The Karinga Creek Project is strategically well located within close proximity of the Central Australian Railway line, providing access to Darwin in the north and proximity to Asian markets and south to domestic markets. There is also large domestic opportunity, as Australia currently imports all of its potash requirements (mainly from Canada).

Figure 2: Karinga Creek ELs (highlighted in green)

Source: Company Presentations

Future work planned includes continued pump testing of lakes and on site evaporation trials. In addition, RUM is conducting a full scoping study in the project.

Additional Projects

Mt. Bundey/Mount Goyder Top End ProjectMt. Bundey/Mount Goyder Top End ProjectMt. Bundey/Mount Goyder Top End ProjectMt. Bundey/Mount Goyder Top End Project

RUM holds 13 exploration licenses around Tom’s Gully Gold Mine. Mt. Bundy iron deposit is also associated with sulphides and anomalous copper.

In September, RUM entered into a JV with Uranex Ltd which gives RUM access to all metals at Swim Creek (adjacent to Mount Goyder) other than uranium. RUM is targeting gold in the area with rock chips up to 61.2g/t gold and 9g/t silver in the same sample recorded from the prospect.

Ross River / Alice Springs ProjectRoss River / Alice Springs ProjectRoss River / Alice Springs ProjectRoss River / Alice Springs Project

This project area has defined targets for copper, nickel-PGE, iron and uranium mineralisation and untested magnetic anomalies under cover. Surface mineralisation has assays to 4% Cu, 3 g/t Pd and 0.7% Ni.


Fertiliser Industry

The world needs more The world needs more The world needs more The world needs more fertiliserfertiliserfertiliserfertiliser

The fertiliser industry is driven by the global challenge in meeting the demand to feed more people on less land. This is largely due to population growth which shrinks agricultural land per person, as well as improved dietary requirements in developing nations. In order to meet this demand, the world relies on fertiliser to maximise output quality. Two of the main inputs in fertiliser are phosphate and potash (the other in nitrogen, mainly from ammonia or urea).

China and India are the China and India are the China and India are the China and India are the most heavy users of most heavy users of most heavy users of most heavy users of fertiliserfertiliserfertiliserfertiliser

Two of the main growth regions for fertiliser usage are China and India. China currently has a pressing need to increase productivity from land as it struggles to feed itself. India on the other hand, can feed itself but doesn’t have substantial phosphate resources. Both China and India import all potash.

Source: FAO, Fertecon, Credit Agricole Securities

The increased demand for proteins will be constrained by the availability of arable land. Statistics from the FAO (The Resource Outlook to 2050, 2009, FAO) highlight that the area of arable land per person is forecast to drop by 19% from ~0.26 hectares in 2000 to 0.21 in 2030.

Developing Countries GrowthDeveloping Countries GrowthDeveloping Countries GrowthDeveloping Countries Growth Arable Land per capitaArable Land per capitaArable Land per capitaArable Land per capita

PhosphatePhosphatePhosphatePhosphate

Why focus on Phosphate Rock?...majority of DAP cost base

We concentrate on Phosphate Rock in the assessment of Phosphate Fertiliser demand, because it is the only cost effective source of phosphate, and 50% of the cost base of non-integrated DAP production.

Global NPK nutrient consumptionGlobal NPK nutrient consumptionGlobal NPK nutrient consumptionGlobal NPK nutrient consumption

China, 30%

India, 16%

Other, 54%


Phosphate Rock is Phosphate Rock is Phosphate Rock is Phosphate Rock is ~50% US$/mt cost of non integrated DAP~50% US$/mt cost of non integrated DAP~50% US$/mt cost of non integrated DAP~50% US$/mt cost of non integrated DAP

Phosphate Rock supply Phosphate Rock supply Phosphate Rock supply Phosphate Rock supply has become a key has become a key has become a key has become a key limiting factor to DAP limiting factor to DAP limiting factor to DAP limiting factor to DAP production…production…production…production…

….and is 50% of the ….and is 50% of the ….and is 50% of the ….and is 50% of the cost base of noncost base of noncost base of noncost base of non----integrated productionintegrated productionintegrated productionintegrated production

NonNonNonNon----integrated integrated integrated integrated production of DAP is production of DAP is production of DAP is production of DAP is around 1/5 of global around 1/5 of global around 1/5 of global around 1/5 of global production.production.production.production. 0

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Integrated Non-Integrated Ammonia & Phosphate

Logistics Conversion Ammonia Sulphur Phosphate Rock

Source: Octa Phillip estimates at Phos Rock US$150/mt, Ammonia US$400/mt and Sulphur $100/mt

Demand…underlying 2.5%pa growth through turmoil, 3-4%pa long term

Global demand for all phosphates in 2011 is 41mt P2O5 and approximately 90% was used in fertilizer applications (Ref: IFA). P2O5 is the active ingredient and approximates to Phosphoric Acid.

The majority (~70%) of P2O5 fertiliser is sold as high analysis which has nitrogen added to provide either 46% P2O5 (DAP – Diammonium Phosphate) or 52% P2O5 (MAP Monoammonium Phosphate).

India and Sth America India and Sth America India and Sth America India and Sth America are major importers of are major importers of are major importers of are major importers of PPPP2222OOOO5555....

India and Sth America are the main importers of P2O5 due to a lack of low cost phosphate rock resources – see chart below.

2009 $’s fell due to 2009 $’s fell due to 2009 $’s fell due to 2009 $’s fell due to modest fall in demand modest fall in demand modest fall in demand modest fall in demand and 2009 and 2009 and 2009 and 2009 credit shock. credit shock. credit shock. credit shock.

The past three years have seen volatility in global prices for DAP due to an elastic response to high prices and severe 2009 global credit shock.

Underlying demand Underlying demand Underlying demand Underlying demand growth has stayed at growth has stayed at growth has stayed at growth has stayed at 2.5%pa…2.5%pa…2.5%pa…2.5%pa…

We expect demand growth for DAP to stay at 2.5%pa in the medium term with main drivers being:

- Soft commodity (corn, soy, wheat) volume growth of ~1.5%pa (ref: IGA).

- Productivity from diminished arable land (and/or lower nutrient soil) requiring more fertiliser 1.0%pa.

…and is set to step up …and is set to step up …and is set to step up …and is set to step up with protein demwith protein demwith protein demwith protein demand.and.and.and.

At some point in long term the growth rate of fertilizer application needs to climb to 3-4%pa (IFA estimate 4.2%) in order to match the expected demand for protein from the developing world.

IFA PIFA PIFA PIFA P2222OOOO5555 Demand and Supply (mt/a) Demand and Supply (mt/a) Demand and Supply (mt/a) Demand and Supply (mt/a) Importers of PImporters of PImporters of PImporters of P2222OOOO5555

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Fertilizer Demand Non-fertilizer Use Total Supply

36%10% 4% 3% 3% 3% 2% 2%

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Source: IFA Source: IFA

Supply…slow down of USA and Chinese exports force diversification

North Africa dominates North Africa dominates North Africa dominates North Africa dominates global trade (70%), global trade (70%), global trade (70%), global trade (70%), and..and..and..and..

North Africa will continue to dominate global trade of phosphate rock with over 85% of global Reserves, 27% of global production and around 70% of global seabourne trade – see charts below.

The global leader is OCP (Office Chérifien des Phosphates), Morocco National Phosphate Company,


with around 90% of Nth Africa’s phosphate rock reserves and 55% of Nth Africa’s production.

..90% prod’n ..90% prod’n ..90% prod’n ..90% prod’n integrated.integrated.integrated.integrated.

Around 90% of global Phosphate production is controlled by integrated producers (if China is considered as one entity).

Importers have tried to Importers have tried to Importers have tried to Importers have tried to use USA and China..use USA and China..use USA and China..use USA and China..

Major P2O5 importers, India and Sth America, use phosphate imports from USA (PhosChem – selling group for USA and Canada), China and Russia to keep some trading tension with Nth Africa

…for price tension and …for price tension and …for price tension and …for price tension and exports from these exports from these exports from these exports from these countries are decliningcountries are decliningcountries are decliningcountries are declining

USA and China have diminished exports over the past six years due to higher cost base and food security issues (mainly China) This may have been brought to a head in 2008 when Phosphate Rock prices soared to US$700/mt and then fell again as demand retraced temporarily (& 2009 credit crunch).

NNNNew supply is being ew supply is being ew supply is being ew supply is being explored aggressivelyexplored aggressivelyexplored aggressivelyexplored aggressively

Importing nations have stepped up efforts to diversify its phosphate supply base from: Russia; MEast (Saudi Arabian’s Ma’aden), Peru (Vale) and other emerging companies such as RUM.

RUM may own 10% of RUM may own 10% of RUM may own 10% of RUM may own 10% of independentindependentindependentindependent reserves reserves reserves reserves

If we convert 2% of RUM Phosphate Resources to production each year , then RUM will export 2.5% of global production and up to 10% of owned independently from global selling groups and large integrated producers.

Phosphate Rock (US$/t)Phosphate Rock (US$/t)Phosphate Rock (US$/t)Phosphate Rock (US$/t) PPPPhosphoric Acid and DAP Price (US$/hosphoric Acid and DAP Price (US$/hosphoric Acid and DAP Price (US$/hosphoric Acid and DAP Price (US$/MMMMt)t)t)t)

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Phosphate Rock

Source: CRU, Green Markets, Octa Phillip Estimates Source: CRU

Cheap Cheap Cheap Cheap Phosphate Phosphate Phosphate Phosphate Peak Peak Peak Peak was 1995, New Rock is Expensivewas 1995, New Rock is Expensivewas 1995, New Rock is Expensivewas 1995, New Rock is Expensive New “hard rock” Phosphate New “hard rock” Phosphate New “hard rock” Phosphate New “hard rock” Phosphate –––– MEast, Russia, Peru, Australia MEast, Russia, Peru, Australia MEast, Russia, Peru, Australia MEast, Russia, Peru, Australia

Source: IPL 2008. Each supplier is added – eg Phosagro is Yellow Rectangle = 5% Source: IFA PIT Committee (May 2010)

PotashPotashPotashPotash

Mining potash has distinct advantages. Becoming a player in Potash is difficult as there are limited viable deposits worldwide and high barriers to entry. Additionally, recent trends pushing global producers to or near their capacity limits imply a period of undersupply.

Supply

High quality, economically mineable deposits are geographically concentrated with the majority of potash reserves located in Russia and Canada. There is a vast opportunity for an Australian source of potash due to its proximity to Asia and other Southern hemisphere markets. In addition, the major offshore consuming markets rely heavily on imports to sustain demand. This ensures a globally


diversified marketplace with significant supply power with exporters (particularly ones that can operate independently of Russia and Canada).

Demand

Higher prices for potash reflect the strength in global agricultural fundamentals and increasing pressure on global supply. Since December 2010 spot prices in North America and Brazil have risen by approximately 50%.

Spot Market Potash PricesSpot Market Potash PricesSpot Market Potash PricesSpot Market Potash Prices World Potash ShipmentsWorld Potash ShipmentsWorld Potash ShipmentsWorld Potash Shipments

Source: CRU

Demand for potash rose more than 3% annually through 15 years prior to the GFC – the highest rate among primary nutrients. Supportive agriculture fundamentals and limited supply should drive strong growth in the medium term. Over last six month Potash Prices have come back as China and India try to exert power with limiting demand of Potash and overusing Phosphate and Nitrogen. This is usual negotiating tactics for the annual priced contracts (around April). Canadian (Canpotex) and Russian (Led by 2011 NYSE listed Phosagro) selling groups reduce production and stare down importers, as they know traditional new suppliers of Potash (like BHPB Jansen Project) are at least 3 to 4 years away and US$3bn to US$5bn to bring on line.

RUM’s Potash key advantage is quick and low cost start-up with solution mining that is used on small global scale in Dead Sea (Israel), Utah (USA), Chile and China. The major time delay with solution mining with existing lake systems is Environmental Permitting. We understand that RUM has received positive initial responses from Native Title owners, local and State Government.


Valuation

Peer ReviewPeer ReviewPeer ReviewPeer Review

IIIIndependence ndependence ndependence ndependence attractive..attractive..attractive..attractive..

The peer review shows the key attraction of new players, such as RUM, staying independent of existing suppliers which are typically vertically integrated and/or part of concentrated selling groups.

…with 80% supply …with 80% supply …with 80% supply …with 80% supply vertically intvertically intvertically intvertically integrated…egrated…egrated…egrated…

We estimate that ~80% of P2O5 that is sold as phosphate rock or phosphoric acid comes from vertically integrated suppliers (or countries that control output to ensure internal food security).

…and large regional …and large regional …and large regional …and large regional selling groups.selling groups.selling groups.selling groups.

The major US, Russian and Chinese phosphate suppliers take vertically integration to a tougher level for importers by forming regional selling groups like PhosChem (most Nth American exporters).

New producers are also New producers are also New producers are also New producers are also vertically integrated.vertically integrated.vertically integrated.vertically integrated.

The major new P2O5 producers to emerge over the last five years are Saudi Arabia’s Ma’aden and Vale’s Peruvian mine. The key changes of ownership in supply have been Vale’s purchase of Bunge and Mosaic’s Sth American assets, and BHP’s go it alone strategy with Potash mining development.

Ma’aden only producing DAP (mainly for export) exports; and Vale is producing a mix of phosphates, but has options to take to Phosphoric Acid and/or DAP.

Potash expansion has been through existing players with Agrium bringing on a new mine and boosts to production from other North American producers (Potash Corp, Mosaic) and Russian producers ( Uralkali, Phosagro).

RUM has stayed RUM has stayed RUM has stayed RUM has stayed independent.independent.independent.independent.

RUM has not entered into any binding supply or other contracts that compromise either of its project development paths.

Relative pricing power to its peers…when funding and cost base bedded downRelative pricing power to its peers…when funding and cost base bedded downRelative pricing power to its peers…when funding and cost base bedded downRelative pricing power to its peers…when funding and cost base bedded down

Source: Company reports, Octa Phillip Securities estimates

Development Path…Independence and Flexibility enhances cost base

PHOSPHATEPHOSPHATEPHOSPHATEPHOSPHATE

RUM low cost base is RUM low cost base is RUM low cost base is RUM low cost base is enhanenhanenhanenhanced…ced…ced…ced…

RUM in second quartile of cost base for Phosphate Rock globally if it can deliver to Darwin at US$75/mt FOB (as shown possible with small scale testing of phosphate ore samples).

…by the flexible …by the flexible …by the flexible …by the flexible development path development path development path development path

The total capital ($100m to 130m) short time period (12-18 months) of 1mt @ 33% P2O5 Rock per annum export for 15 years is a solid base project.


allowed through its allowed through its allowed through its allowed through its independence.independence.independence.independence.

RUM may elect to develop a high grade portion of the deposit with cheaper start-up costs, in order to generate cash flow and develop its stakeholder and project delivery teams.

More importantly this gradual development allows RUM to respond to commodity price movements and customers’ requirements for different types and grades of phosphate outputs (and financial investment in asset).

Non-integrated customers will have different requirements of Phosphate Rock and Phosphoric Acid. RUM has a preference to export Phosphate Rock (DSO) initially and then beneficiated Rock, but if customer support for Acid is strong, then the extra process step can be contemplated at site or close to Darwin. RUM has visited many potential downstream partners over last year, with recent interest being found from China.

POTASHPOTASHPOTASHPOTASH

RUM has done small scale Extraction from aquifers using standard evaporation steps.

These tests suggest a two stage concentration process can be used, which is similar to Chinese and Chilean producing mines.

The attraction with pumping and solar evaporation is that RUM can start off with a quick small low cost operation, and then scale up. This can make either export grade material, or, more likely, a raw material that can be refined at customer site.

Deep underground mining of Potash ores in Canada and Russia have very large up front costs (US$3bn) and take 4 to 5 years to complete mining development.

In our view this step-wise development is an attractive opportunity for:

- a cornerstone investor wanting an independent off-take agreement; and,

- passive institutional investors wanting phosphate and/or potash price leverage.

EV/EV/EV/EV/tttt of Inferred Resource Pof Inferred Resource Pof Inferred Resource Pof Inferred Resource P222200005555

Average Average Average Average EV/EV/EV/EV/ ResourceResourceResourceResource ((((3333PPPP and 2P and 2P and 2P and 2P)))) 0. 0. 0. 0.22225555

RUM is penalised RUM is penalised RUM is penalised RUM is penalised across these two charts across these two charts across these two charts across these two charts as total EV is divided by as total EV is divided by as total EV is divided by as total EV is divided by only the Ponly the Ponly the Ponly the P2222OOOO5555 or K or K or K or K2222OOOO

If EV isIf EV isIf EV isIf EV is split 50/50 split 50/50 split 50/50 split 50/50 between the two, then between the two, then between the two, then between the two, then EV/t drop by a factor of EV/t drop by a factor of EV/t drop by a factor of EV/t drop by a factor of twotwotwotwo

0.71

0.63

0.54

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0.080.06 0.05

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ASX:AGR ASX:KRB ASX:CNL ASX:RUM ASX:MNB ASX:POZ ASX:MAK ASX:NUP ASX:UCL

Source: Intierria, CapitalIQ

EV/EV/EV/EV/tttt of of of of Inferred Resource Inferred Resource Inferred Resource Inferred Resource KKKK22220000

Average Average Average Average EV/EV/EV/EV/Resource Resource Resource Resource ((((3333PPPP and 2P and 2P and 2P and 2P) ) ) ) 0.0.0.0.47474747

RUM has RUM has RUM has RUM has only recently only recently only recently only recently announced its maiden announced its maiden announced its maiden announced its maiden potash resource of potash resource of potash resource of potash resource of 5.5Mt5.5Mt5.5Mt5.5Mt…and see …and see …and see …and see significant upgrades significant upgrades significant upgrades significant upgrades over the next 12 over the next 12 over the next 12 over the next 12 monthsmonthsmonthsmonths

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2.04

0.61 0.43 0.25 0.23 0.14 0.13 0.12 0.08

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ASX:RUM ASX:RWD TSX:ICP TSXV:PPI ASX:ELM ASX:STB TSX:WPX TSX:KRN TSX:ST TSX:MAA

Source: Intierria, CapitalIQ.


Risks and Capital Structure

Risks

This is a very high risk, early stage exploration investment.

The price of fertiliser input materials (including SOP, DOP, MAP/DAP, Phosphate Rock) may adversely impact sentiment to the sector and RUM.

RUM Actions – Diversify with two fertiliser feedstocks, and large globally significant resources. RUM also has many early stage exploration tenements with Base Metals, Gold and Uranium targets.

Cost pressure are also a key risk to an exploration company and RUM are currently undertaking scoping studies for both Phosphate and Potash deposits to determine a processing route for viable mineral production.

RUM Actions – Planning to leverage existing rail and road infrastructure (within 50km from deposits) and start each project with a simple low cost mining and processing step for cash flow and opening market channels.

Capital Structure

Received significant Received significant Received significant Received significant support from support from support from support from institutional shareholder institutional shareholder institutional shareholder institutional shareholder basebasebasebase

Washington H. Soul Pattinson is a cornerstone investor It became substantial (5%+) in December 2011, and steadily increasing its stake to 13.8% throughout 2012.

RUM undertook a $6.6m capital raising (15% of share capital) in April 2012 and secured underwriters for $4.8m of Directors Options to be exercised.

Farjoy Pty. Ltd. (a Robertson family investment vehicle) became substantial in 2010 via purchasing shares on market, as well as exercising a number of options transferred from Deep Yellow (which were received as consideration for exploration interests in 2007).

Soul Pattinson and Farjoy have been co-investors in the past in New Hope Corporation and added value through the Adaro project in Indonesia.

Major ShareholdersMajor ShareholdersMajor ShareholdersMajor Shareholders

ShareholderShareholderShareholderShareholder OwnershipOwnershipOwnershipOwnership

Washington H. Soul Pattinson 13.8%

Farjoy Pty. Ltd. (F.A. Robertson) 7.0%

Acorn Capital 4.9%

Lion Selection 4.9%

Management & Staff ~3.5%

Source: IRESS, Company reports


Octa Phillip Securities

Jonathan BuckleyJonathan BuckleyJonathan BuckleyJonathan Buckley +61 3 9618 8244+61 3 9618 8244+61 3 9618 8244+61 3 9618 8244 Group Chief Executive OfficerGroup Chief Executive OfficerGroup Chief Executive OfficerGroup Chief Executive Officer

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Ken Wagner +61 2 9233 9612 Equities Analyst

Corporate Finance & ECM

James GreenJames GreenJames GreenJames Green +61 2 9233 9613+61 2 9233 9613+61 2 9233 9613+61 2 9233 9613 Head of Corporate FinanceHead of Corporate FinanceHead of Corporate FinanceHead of Corporate Finance

Craig StrangerCraig StrangerCraig StrangerCraig Stranger +61 3 8633 9832+61 3 8633 9832+61 3 8633 9832+61 3 8633 9832 Head of Melbourne Corporate/ECMHead of Melbourne Corporate/ECMHead of Melbourne Corporate/ECMHead of Melbourne Corporate/ECM

Andrew Champion +61 2 9233 9647 Executive Director Michael Beer +61 3 9618 8222 Executive Director

Brooke Picken +61 3 8633 9831 Equity Capital Markets Paul Levitt +61 2 9233 9626 Associate

Jae Yoo +61 2 9233 9656 Associate Sackville Kempton +61 3 9618 8258 Head of Corporate Services

Malcolm McComas +61 2 9233 9659 Senior Advisor Sean Kennedy +61 3 8633 9836 Associate Director

Nicholas Wirubov +61 3 9618 8251 Senior Manager Yehuda Gottlieb +61 3 8633 9838 Associate

Institutional Sales

Tony SmithTony SmithTony SmithTony Smith +61 3 8633 9900+61 3 8633 9900+61 3 8633 9900+61 3 8633 9900 Head of Institutional SalesHead of Institutional SalesHead of Institutional SalesHead of Institutional Sales

Adam Muston +61 2 9233 9601 Hedge Fund & Derivative Sales Mark Pashley +61 2 9233 9641 Senior Sales Trader

Craig Stephens +61 3 8633 9881 Head of Execution Matthew White +61 3 8633 9882 Institutional Sales Trading

Gavin Todd +61 2 9233 9639 Institutional Research Sales Michael Cori +61 2 9233 9640 Head of Hedge Fund Sales

Graeme Philipson +61 2 9233 9610 Institutional Research Sales William Cleland +61 3 9618 8223 Institutional Research Sales

James Wilson +61 2 9233 9607 Institutional Research Sales Stuart Low +61 3 86339880 Institutional Research Sales

James Pearson +61 8 9324 5155 Institutional Research Sales

Capital Management

Ben HughesBen HughesBen HughesBen Hughes +61 8 9324 5122+61 8 9324 5122+61 8 9324 5122+61 8 9324 5122 PrincipalPrincipalPrincipalPrincipal

Global Markets

Nicholas PerezaNicholas PerezaNicholas PerezaNicholas Pereza----MathewsMathewsMathewsMathews +61 3 8633 9921+61 3 8633 9921+61 3 8633 9921+61 3 8633 9921 Head of Global MarketsHead of Global MarketsHead of Global MarketsHead of Global Markets

Mark O'Brien +61 3 8633 9919 Portfolio Manager

Huw Davies +61 3 8633 9923 Portfolio Manager

Private Wealth

Patrick TrindadePatrick TrindadePatrick TrindadePatrick Trindade +61 3 8633 9926 +61 3 8633 9926 +61 3 8633 9926 +61 3 8633 9926 Head of Private WealthHead of Private WealthHead of Private WealthHead of Private Wealth

Allan Moffatt +61 8 7202 1112 Private Wealth Mark Schwarz +61 2 9233 9642 Private Wealth

Amanda Fanning +61 3 9618 8247 Private Wealth Mark Wiseman +61 3 9618 8228 Private Wealth

Andrew Sekely +61 2 9994 5507 Private Wealth Matthew Carey +61 2 9233 9602 Private Wealth

Ben Ikin +61 3 9618 8231 Private Wealth Michael Jeffery +61 2 9233 9619 Private Wealth

Charlie Heerey +61 3 9618 8240 Private Wealth Nathanial Doust +61 2 9233 9646 Private Wealth

Chris Walker +61 3 8633 9928 Private Wealth Nick Madden +61 2 9994 5502 Private Wealth

Craig Baillie +61 3 9618 8279 Private Wealth Nigel Ormiston +61 7 3149 8628 Private Wealth

Dane Parsons +61 7 3149 8627 Private Wealth Oksana Wainwright +61 2 9994 5501 Private Wealth

Daniel McFarlane +61 3 8633 9917 Private Wealth Owen Beattie +61 2 9233 9621 Private Wealth

Daniel Rees +61 3 8633 9922 Private Wealth Patricia Harrison +61 2 9994 5505 Private Wealth

David Dwyer +61 2 9233 9643 Private Wealth Patrick Verhoeven +61 3 8633 9927 Private Wealth

Enzo Salvatore +61 3 8633 9924 Private Wealth Paul Lambrecht +61 8 9324 5144 Private Wealth

Greg Lidicky +61 2 9994 5522 Private Wealth Peter Semaan +61 2 9233 9649 Private Wealth

Howard Elton +61 3 9618 8233 Private Wealth Peter Addison +61 3 9618 8226 Private Wealth

Jason D’Ortenzio +61 3 8633 9905 Private Wealth Philip Rhead +61 2 9994 5509 Private Wealth

James Georges +61 3 8633 9863 Private Wealth Prasanna Wickramatunge +61 3 9618 8270 Private Wealth

James Pearson +61 8 9324 5155 Private Wealth Ryan Hoffman +61 2 9233 9672 Private Wealth

Jason Norval +61 2 9233 9625 Private Wealth Samuel James +61 2 9233 9657 Private Wealth

Joe Durak +61 2 9994 5513 Private Wealth Simon Winter +61 8 9324 5133 Private Wealth

John Aldersley +61 2 9233 9617 Private Wealth Stuart McClure +61 7 3149 8630 Private Wealth

John Miles +61 7 3149 8629 Private Wealth Sue McDonald +61 3 9618 8211 Private Wealth

John Axsentieff +61 3 8633 9902 Private Wealth Tim Moffatt +61 8 7202 1110 Private Wealth

Jonathan Di Maggio +61 3 8633 9904 Private Wealth Tom Fairchild +61 3 9618 8255 Private Wealth

Josh Graham +61 2 9233 9645 Private Wealth Xiaoming Huang +61 3 8633 9912 Private Wealth

Kate Hanrahan +61 3 8633 9909 Private Wealth

Laurie Elliss +61 2 9233 9654 Private Wealth

Luke Pavone +61 3 8633 9920 Private Wealth


OFFICE LOCATIONS AND DISCLOSUREOFFICE LOCATIONS AND DISCLOSUREOFFICE LOCATIONS AND DISCLOSUREOFFICE LOCATIONS AND DISCLOSURE

MelbourneMelbourneMelbourneMelbourne SydneySydneySydneySydney PerthPerthPerthPerth Gold CoastGold CoastGold CoastGold Coast AdelaideAdelaideAdelaideAdelaide

Level 12, 15 William St

Melbourne VIC 3000

Level 9, 56 Pitt Street

Sydney NSW 2000

21/140 St Georges Tce

Perth WA 6000

Level 9, 1 Corporate Ct

Bundall QLD 4217

Level 1, 16 Vardon Ave

Adelaide SA 5000

Phone: 613 8601 2000

Fax: 613 9600 1138

Phone: 612 9233 9600

Fax: 612 9251 9368

Phone: 618 9324 5111

Fax: 618 6316 4425

Phone: 1300 331 098 Phone: 1300 658 906

Recommendation Criteria

Investment ViewInvestment ViewInvestment ViewInvestment View

Octa Phillip Securities Investment View is based on an absolute 1-year total return equal to capital appreciation plus yield.

BuyBuyBuyBuy HoldHoldHoldHold SellSellSellSell

>20% 20% – 5% <5%

A Speculative recommendation is when a company has limited experience from which to derive a fundamental investment view.

Risk RatingRisk RatingRisk RatingRisk Rating

Octa Phillip Securities Limited has a four tier Risk Rating System consisting of: Very High, High, Medium and Low. The Risk Rating is a subjective rating based on: Management Track Record, Forecasting Risk, Industry Risk and Financial Risk including cash flow analysis.

Disclosure of Economic Interests

The views expressed in this research report accurately reflect the personal views of the Analyst about the subject issuer and its securities. No part of the analyst's compensation was, is or will be directly or indirectly related to any recommendation or view expressed in this report.

The following person(s) do not hold an economic interest in the securities covered in this report or other securities issued by the subject issuer which may influence this report:

• the author of this report

• a member of the immediate family of the author of this report

Disclaimer/Disclosure

This publication has been prepared solely for the information of the particular person to whom it was supplied by Octa Phillip Securities Limited (“Octa Phillip”) AFSL 246827. This publication contains general securities advice. In preparing the advice, Octa Phillip has not taken into account the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision on the basis of this advice, you need to consider, with or without the assistance of a securities adviser, whether the advice in this publication is appropriate in light of your particular investment needs, objectives and financial situation. Octa Phillip and its associates within the meaning of the Corporations Act may hold securities in the companies referred to in this publication. Octa Phillip believes that the advice and information herein is accurate and reliable, but no warranties of accuracy, reliability or completeness are given (except insofar as liability under any statute cannot be excluded). No responsibility for any errors or omissions or any negligence is accepted by Octa Phillip or any of its directors, employees or agents. This publication must not be distributed to retail investors outside of Australia.

Disclosure of Corporate Involvement

In October 2012, Octa Phillip Securities Ltd and an associate company Octa Phillip Corporate Pty Ltd (together “Octa Phillip”), were engaged by Rum Jungle Resources Limited (“RUM”) for capital markets services on commercial terms.

Directors of Octa Phillip or other associate companies may own securities in RUM. Octa Phillip seeks to do work with those companies it researches. Octa Phillip receives commissions from dealing in securities . As a result, investors should be aware that Octa Phillip may have a conflict of interest that could affect the objectivity of this report.

Prepared by Paul Jensz.

Octa Phillip Securities reports are available on Bloomberg, Reuters, FactSet, Capital IQ and www.octaphillip.com

22227777 November 2012 Rum Jungle Resources (RUM) · 2012-11-27 · phosphate and potash for export...

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Transcript of 22227777 November 2012 Rum Jungle Resources (RUM) · 2012-11-27 · phosphate and potash for export...