Ambrian Gold Book _2011

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 [email protected]

Duncan Hughes +44 (0)20 7634 4775 [email protected]

Adam Kiley +44 (0)20 7634 4777 [email protected]

Nick Mellor +44 (0)20 7634 4762 [email protected]


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)


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


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)


5

Peer Group Analysis EV/Attributable Reserves For Producers

Source: Fidessa, Company Data, Ambrian Estimates

Peer Group Analysis EV/Production with attributable resources


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


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


Jewellery

Bar & coin retail investment3


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


Jewellery


Bar & coin investment

Industrial & dental

ETFs & similar

(5yr Trend)Supply/DemandCategory


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


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


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


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


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)


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.


11

Equity Top Picks


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 [email protected]

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


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


14

Toka Tindung Open-pit Development


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.


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


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


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


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*



52-week (p)

High 246

Low 81.5


3M-avg daily val (000) 1,520

Shares

Basic (m) 197.5

Fully diluted (m) 197.5


Elliot Associates 16.2

Datum AS 12.4

BlackRock 7.3

JP Morgan 6.7

Total 42.6


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


17

Asset Summary


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


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


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


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


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.


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


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.


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.


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


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 [email protected]

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) -





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


Massachusetts Mutual 7.6

El-Raghy Family 6.7

Aegon UK Group 5.0 Ameriprise Financial Inc 5.0

Total 24.3


Source: Fidessa

100

120

140

160

180

200

220

Feb 10

Apr 10

Jun 10

Aug 10

Oct 10

Dec 10

Feb 11


21

Asset Summary


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


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


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.


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


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


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


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


Chalice Gold Mines

BUY INITIATION Dominant position in Nubian Shield

Adam Kiley

+44 (0)20 7634 4777 [email protected]

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) -



EV/Reserve (A$/oz) 200

EV/Resource (A$/oz) 181

52-week (A$)

High 0.78

Low 0.32


3M-avg daily val (A$000) 362

Shares

Basic (m) 211



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


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


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


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


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.


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


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 val (000) 501

Shares

Basic (m) 292.3

Fully diluted (m) 346.8


M Child (Chr) 10.2

Oracle Management Ltd 9.9

J Mellon 4.6

Total 24.7%


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


29

Asset Summary


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


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


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


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


Gold One International

BUY Deserves to be Re-rated

Ambrian acts as Agency Broker to this company

Adam Kiley

+44 (0)20 7634 4777 [email protected]

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 val (A$000) 661

Shares

Basic (m) 807



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


33

Asset Summary


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

Ambrian Gold Book _2011

Documents

Transcript of Ambrian Gold Book _2011