Celamin Holdings NL CNL A$0.14/share

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1 Celamin Holdings NL CNL A$0.14/share Chaketma Phosphate Scoping Study outlines upside Buy Celamin Holdings NL has released some details of a scoping study into the Chaketma phosphate project in Tunisia. CNL intends to further progress Chaketma s resource credentials in the near term and then move it through a definitive feasibility study (DFS) planned for completion by end CNL s Chaketma is a potential long life, high grade phosphate project with critical path-to-market issues largely resolved. We value the stock at $0.86 per CNL share and retain a BUY. Our view Valuation - $0.86 per CNL share. Size potential to sustain +50 year life. Quality upgrades to +30% export grade. Location proximity to Europe, recognised phosphate province Infrastructure site & logistics infrastructure in place or readily available Study Highlights Potential 50 year life project. Mineralisation estimate 20.2% P 2O 5 (175Mt to 283Mt range). Maiden JORC resource planned for Oct Concentrate % P 2O 5 demonstrated. Capex US$364M for 1.5Mtpa P 2O 5 concentrate. NPV (10% discount rate) of US$605M, 28% IRR (both pre-tax), 3.5 year capital payback. Opex US$55/t FOB at 1.5Mtpa P 2O 5 rate of concentrate production. Next steps Rail - Chaketma is 35km from a rail line and, while access is available, CNL is still evaluating options to move product to rail head. Logistics - Overall, project logistic arrangements are well advanced. Site utilities, rail/port access, capacity and facilities either available now or readily available. Resources - The immediate task ahead is to progress resource delineation to JORC status - planned for announcement in October Assuming a JORC resource, CNL plans a 2 stage Definitive Feasibility Study (DFS) with completion targeted by end Company Data Shares listed (M) Loyalty Options expire June 2013 ($0.35/sh.) 75.9 Options expire March 2014 ($0.20/sh.) 25.4 Partly Paid $0.10 to pay, first payment Dec Total (fully diluted) (M) Market cap. (undiluted, $M) month low/high ($) $0.13 / $0.45 Average monthly turnover ($M) Financial Summary (fully diluted/normalised) $0.3M Year end June 2012E 2013F 2014F 2015F 2016F Revenue ($M) Costs ($M) EBITDA ($M) NPAT ($M) EPS ( ps) PER (x) nm nm nm Cashflow ($M) CFPS ( ps) PCFPS (x) na na na Enterprise Value ($M) EV / EBITDA (x) nm nm nm Dividends ( ps) Yield (%) CNL performance over two years Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Disclosure and Disclaimer This report must be read with the disclosure and disclaimer on the final page of this document. Petra Capital was Lead Manager to the issue of 25.29M shares at $0.20/share June 2012, raising A$5.1M. A fee was received. Mark Cotton

2 Analysis Celamin Holdings (CNL) Share Price ($) 0.14 ource: Petra Capital Iss. Shares (M) Fully paid ordinary shares (includes those escrowed) Iss. Options (ii) (M) 75.9 Expire June 2013 $0.35/sh) - Loyalty options Iss. Options (i) (M) 25.4 Expire March 2014 $0.20/sh) 7-Sep-12 Fully diluted equity (M) Iss. Partly Paid Shares (M) 15.5 Partly paid ($0.10/sh. unpaid) - first payment Dec.'12 Year End 30 June Mkt Cap. ($M) 21.2 Undiluted for options & partly paid PROFIT & LOSS 2012F 2013F 2014F 2015F 2016F 2017F RESERVE ESTIMATE 2012F 2013F 2014F 2015F 2016F 2017F Sales Revenue $M Chaketma -Tonnes Mt Other Income $M Chaketma -Grade % 0% 20% 20% 20% 20% 20% Operating Costs $M Chaketma -Contained Mt Exploration $M RESOURCES ESTIMATE Other $M Chaketma -Tonnes Mt EBITDA $M (2.2) (2.5) (2.8) Chaketma -Grade % 0% 19% 19% 19% 19% 19% Depreciation $M Chaketma -Contained Mt EBIT $M (2.2) (2.5) (2.8) PRODUCTION Net Interest $M (0.2) (0.2) Ore processed Mt Pre-Tax Profit $M (2.0) (2.3) (8.5) Grade - phosphate % 0% 0% 0% 20% 20% 20% Tax $M Contained phosphate Mt Minorities $M Rock recovered % 0% 0% 0% 50% 50% 50% Net Profit $M (2.0) (2.3) (8.5) Grade recovered % 0% 0% 0% 80% 80% 80% Abnormal $M Saleable recovered rock Mt Reported Profit $M (2.0) (2.3) (8.5) Grade - phosphate in rock % 0% 0% 0% 32% 32% 32% Dividends Paid $M Contained phosphate in rock Mt Adjustments $M REVENUE Retained Earning $M (4.3) (6.6) (15.2) (1.1) Chaketma (50%) A$M Bir El Afou (50%) A$M CASH FLOW Other A$M Revenue $M Total A$M Costs $M (2.2) (2.5) (2.8) (27.5) (43.7) (60.4) COSTS Net Interest $M (5.7) (11.1) (9.7) (7.2) Chaketma (50%) A$M Tax Paid $M Bir El Afou (50%) A$M Gross C/Flow $M (2.0) (2.3) (8.5) Other A$M Net Capex $M (202.2) (3.9) (4.1) (4.3) Total A$M Exploration $M Unit Costs Dividends $M Mining - US$/t ore mined US$/t Other $M (1.5) Process. - US$/t ore mined US$/t Free C/flow $M (3.5) (2.3) (210.7) Transport. - US$/t rock sold US$/t Equity Issues $M Admin. - US$/t rock sold US$/t Net Borrowings $M (20.0) (35.0) (55.0) Other - US$/t rock sold US$/t Net Investments $M Total - US$/t ore mined US$/t Surplus C/Flow $M 2.2 (2.3) 9.3 (4.2) Total - US$/t rock sold US$/t CAPEX - Petra Capital estimates BALANCE SHEET Chaketma (50%) A$M Cash $M Bir El Afou (50%) A$M Other Current $M Other A$M Total Current $M Total A$M Fixed Assets $M DEPRECIATION Exploration $M Chaketma (50%) A$M Intangibles $M Bir El Afou (50%) A$M Goodwill $M Other A$M Other $M Total A$M Total NC Assets $M EBITDA TOTAL ASSETS $M Chaketma (50%) A$M Total Debt $M Bir El Afou (50%) A$M Current Liab $M Other A$M Non Current Liab $M (0.6) 0.4 Total A$M TOTAL LIAB $M EBITDA MARGIN NET ASSETS $M Chaketma (50%) % SH/HLDRS FUND $M Bir El Afou (50%) % RATIO ANALYSIS Total % EPS (1.3) (1.5) (5.6) ASSUMPTIONS - Tax is first payable after 5 years production (2019) at 25% PER x nm nm nm Phosphate US$/T EPS Growth % nm nm nm nm Exchange Rate A$/US$ EBITDA per share (1.4) (1.6) (1.8) day Bank Bills % EBITDA Multiple x (9.8) (8.5) (7.6) Yr Bond rate % EV/EBITDA x (7.7) (7.6) (82.7) Interest Rate Charged % CFPS (1.3) (1.5) (5.6) Eff Tax rate* % PCFR x na na na VALUATION A$M A$/share DPS Tunisia - Chaketma(DCF with 12% WACC) $ 0.81 Payout Ratio % 0% 0% 0% 0% 0% 0% Tunisia - Bir El Afou 2.0 $ 0.01 Gearing D/E % nm nm 10,202 1, Tunisia - Sulphide & Oxide Tailings Retreatment 0.1 $ 0.00 Interest Cover x nm Tunisia - Sidi Driss, Oued El Maden, El Haouaria 0.1 $ 0.00 EBITDA Margin % nm nm nm Algeria - Oued El Kebir 0.1 $ 0.00 EBIT Margin % nm nm nm Other 0.0 $ 0.00 Return On Assets % (22) (33) (1) Net Cash (Debt) - post issue 4.6 $ 0.03 Return On Equity % (16) (22) (417) Total $

3 Chaketma scoping study results positive US$364M capex project Options still being examined to move product to nearby rail Processing plant is 60% of capex Scoping Study Metrics The Scoping Study identifies a potential high grade, long life, phosphate project delivering up to 1.5Mtpa (staged production) of 30% P 2O 5 phosphate rock concentrate, with stage 1 production at 0.75Mtpa concentrate. Infrastructure and process planning undertaken for the Scoping Study is well advanced and reflects the learning s from previous work done in Project Costs Scoping study Capital Expenditure estimate for the 1.5Mtpa project is US$364.2M (Figure 1) with nearly 60% of the cost represented by the processing plant & related equipment (common front end but including 2 parallel processing trains). The rail provision in the capex is for rolling stock and load out facilities but does not include construction of general below rail infrastructure. While Chaketma is fairly close to existing rail lines and capacity is available to move product to port, CNL is still examining the best way to move product to rail. Options under consideration include construction of a connecting rail line, a slurry pipeline and trucking with the latter offering a distinct low cost possibility. Figure 1: Chaketma Capex Costs for 1.5Mtpa production base case (US$M) Process Plant & Infrastructure Processing EPCM Allowances 39.9 Rail 20.3 Site Services Infrastructure 15.0 Common Surface Infrastructure 14.7 Owners Expenditure 11.5 Open Pit 9.6 Port facility 8.1 Mine Infrastructure 6.9 Mining Pre-Strip Waste Rock 3.4 Mobilisation and Establishment Mining Equipment and Site Establishment 14 Miscellaneous Contractors 4 Total Capex Source: Celamin Holdings NL, 14 August 2012 Potential for Capex to be wound back CNL indicate that the study parameters are conservative and that there is a strong opportunity to reduce capital and operating costs during the Definitive Feasibility Study process. In that many of the element costings are/were based on Australian product pricing equivalents, it seems reasonable to assume that the capex projection represents a high-end estimate of what may eventuate after project optimisation. It s worth noting that start-up production will only need one processing train and simpler stacking/reclaiming facilities and so the required start-up capex would be substantially lower. This would also imply that maximum draw-down during construction would also be lower. Scoping study flags low strip ratio start Figure 2: Assumptions Scoping Study Petra Mineable Material 176.4Mt Average ore grade 19.2% (mineable) Initial mining head grade 18.7% Strip ratio - project 9.1:1 Strip ratio first 10 years 5:1 or less Ore mining rate 1.5Mtpa concentrate 3.44Mtpa Opex - at 0.75Mtpa & 1.5Mtpa prod n US$62/t & US$55/t conc. US$66/t Capex US$364M US$364 Concentrate price US$165 US$140 Discount rate 10% 12% Source: Celamin Holdings NL, 14 August

4 NPV most sensitive to grade and price Price used of US$165/t is reasonable albeit above our modelling assumption Figure 3: Scoping Study Sensitivity Table Change +/-5% % change in NPV IRR Cash Flow Concentrate sale price Ore grade Mining costs Process & energy costs Capex Strip ratio Source: Celamin Holdings NL, 14 August 2012 Usually, while Capex projections for projects can provide sticker shock for investors and a funding barrier to entry, the dynamics of product price and grades will often have the biggest influence on project valuation. As can be seen from the Scoping Study sensitivity table (Figure 3), this is true for the Chaketma project. CNL indicate that its product will deliver to the Moroccan benchmark specification and the Scoping Study uses a P 2O 5 pricing assumption of US$165/t. While this is above the US$140/t we use in our modelling, Figure 4 shows that a US$165/t price assumption is reasonable in the context of current and historical benchmark product prices. We also note that this is the same inferred price used by Minbos in its June 2012 Scoping Study for the Cacata, Angola phosphate rock project (US$180/t FOB Angola inclusive of 9% premium to Moroccan benchmark). Figure 4: Phosphate Rock prices, ex Morocco FOB (US$/t) US$165/t for benchmark pricing looks a reasonable proxy US$165/t US$140/t Jul-07 Jan-09 Jul-10 Jan-12 Rock Phos. Source: Indexmundi, Petra Capital Once a JORC resource is in place, CNL plan a 2 stage DFS programme Indicative project timetable Interim (Resource) Stage o August 2012 start delineation. o August 2012 start drilling. o August 2012 start metallurgical evaluation. o October 2012 Maiden JORC resource announcement. Engineering Study stage o February 2013 start engineering. o June 2013 start front-end engineering design. December 2013 complete DFS. December half 2015 commence production ramp-up. 4

5 Chaketma Phosphate Project Chaketma is c200km from Tunis Celamin Holdings and Tunisian Mining Services are joint venture partners in two Tunisian phosphate projects as well as base metal projects in the country and in Algeria. The Chaketma Phosphate is some 200km west-south-west of Tunis, capital of Tunisia (Figure 5). Figure 5: TUNISIAN PROJECTS It has clearly visible phosphate material Source: Celamin Holdings & Petra Capital The general resource geology on the Chaketma permit is large plateau structures (Figures 6 & 7) with clearly visible, wide, layers of phosphatic material overlaid by a limestone cap. This gives confidence of resource existence but at this stage there is no JORC standard formal estimate of mineral resources for any of the Chaketma prospects. Figure 6: CHAKETMA - PHOTOGRAPH Source: Celamin Holdings Figure 7: CHAKETMA - SCHEMATIC GEOLOGICAL INTERPRETATION (CROSS SECTION) Source: Celamin Holdings 5

6 Scoping study estimates potential tonnage However, combined with drilling and trenching results to date, the geology does mean that some fairly robust estimates of the potential mineralisation can be made. The independent experts report (attached to 27/4/2012 EGM by Global Resources & Infrastructure/DMR dated 2/3/2012) flagged a potential resource tonnage at Chaketma of Mt. With this scoping study (by Direct Mining Services), incorporating subsequent data, the potential mineralisation tonnage has increased to Mt (Figure 8). Figure 8: Chaketma Potential Mineralisation by Prospect (July 2012) Area Thickness (m) Tonnages (Mt) Assumed (km 2 ) Min Max Ave Min Max Ave Grade % Kef El Louz - North % Kef El Louz - South % Sidi Ali Ben Oum Ezzine % Douar Ouled Hamouda % Gassa El Kebira % Gassat Ezerbat % Total % Source: Celamin Holdings NL, 14 August 2012 More potential material not included The scoping Study also identifies some 12Mt of further potential mineralisation from the Kef El Agab prospect in the west of the tenement (Figure 9). Figure 9: Chaketma tenement Source: Celamin Ltd Next step a maiden JORC resource announcement in October 2012 CNL s Chaketma timeline indicates that it plans a maiden, JORC compliant, resource statement for the project in October Logically, this will identify sufficient resources for, say, a 10 year mine life with further resource drilling to follow to lift resource size and confidence levels. This is a necessary precursor to any decision to proceed to a Definitive Feasibility Study (DFS) on the project. Ceteris paribus, CNL plans DFS completion by the end of Assuming positive study outcomes and financing, CNL indicates potential production could commence from Chaketma in 2015, ramping up to full production by

7 Infrastructure CNL s path to market plans for its product is well advanced Celamin s planned path to market for its Chaketma product is considerably more advanced than is usual for a Scoping Study, showing clear benefits from work undertaken in CNL indicates that, in broad terms, there is sufficient rail and port access and availability for it to export up to 1.5Mtpa of phosphate concentrate product from the port of Rades (some 10km from Tunis). Similarly, electricity, gas and water is available and preliminary negotiations undertaken to put them in place on further project progression. CNL is still evaluating options for movement of product from project to nearby rail infrastructure. Options include rail, slurry pipeline or truck with the latter having the attraction of low initial capex with the other options having some potential social and opex advantages. CNL has assumed trucking product to rail in its Scoping Study assumptions. There is an existing array of physical infrastructure that CNL can access to get product to market Road There is sealed road access near to the tenement that links with both potential rail-out points (35Km to Kalaa Khesba and 50Km to Zouarine). The Scoping Study capex assumes heavy-haul out equipment for this but, given the mine geography, it is possible road haul trucks may be suitable. Rail CNL has developed initial supply options with the Tunisian national railways (SNCTF - Société Nationale des Chemins de Fer Tunisiens) to move product to Rades port on the existing Metre gauge rail network. CNL has allowed for the cost of the required rolling stock and load out facilities etc in the Scoping Study. SNCTF has new, surplus to requirement, fit-for purpose wagons that it can make available to CNL, limiting the potential for procurement delays assuming project progression. We understand indicative Opex rates for haulage are competitive. Port In 2011, CNL established that rail and port access and availability were in place to export 1.5Mtpa of product from the Port of Rades. This remains the case and port space is available for loading of 30,000DWT carriers. CNL will be required to put in place site infrastructure (wagon dump, storage, ship loading facilities etc). Process infrastructure and personnel are also available Water CNL is replicating a previously successful exercise to gain access to process water, ie a hydrological survey to identify available water sources, preliminary discussion with relevant authorities for eventual determination by minister/regulator when final project approval is being sought. No problems are anticipated for eventual project water access. Power & Gas Tunisia has a well developed electricity grid/network and via the government provider (Societe tunisienne d'electricite et de gaz - ie STEG) will be able to apply for power via the grid on usual industrial tariffs. There will be some requirement for construction of a connection to the grid. Similarly, the same authority can/will make available gas to CNL on usual commercial terms (Tunisia has its own gas production plus access to an interconnect gas transmission pipeline passing through it to Europe). Employment Tunisian unemployment was c18% in 2011 (CIA estimate) but it has a generally well educated work force. With the government owned phosphate operations (Compagnie des Phosphates de Gafsa ie CPG) being one of the nation s largest employers, a potential supply of general and technically qualified personnel seems likely to be available for CNL. Some 400 people are expected to be directly employed during construction phase and about 200 people post construction. 7

8 Petra Capital Level 1, 343 George Street, Sydney NSW 2000 ABN ACN AFSL Research (Resources): George Marias +61 (0) Research (Resources): Andrew Richards +61 (0) Research (Resources): Mark Cotton +61 (0) Research (Resources): Shaun Giacomo +61 (0) Research (Industrials): Michael Henshaw +61 (0) Research (Industrials): Richard Amland +61 (0) Sales: Errol Penrose +61 (0) Sales: Kevin Curran +61 (0) Sales: Frank Barila +61 (0) Sales: Richard Macphillamy +61 (0) Sales: Daniel Gardiner +61 (0) Sales: Peter Veldhuizen +61 (0) Administration: Larissa Falvo +61 (0) Administration: Jacky Smith +61 (0) Legal & Compliance Domenica Marias +61 (0) This document has been prepared in Australia by Petra Capital Pty Ltd who holds an Australian Financial Services License AFSL and whose ABN is Disclosure Disclosure Petra Capital Pty Ltd and its associates, officers, directors, employees and agents, from time to time, may hold securities in Celamin Holdings and may trade in these securities either as principal or agent. Petra Capital was Lead Manager to the issue of 25.29M shares at $0.20/share June 2012, raising $5.1M. A fee was received. Disclaimer This report is published by Petra Capital Pty Ltd by way of general information or advice only. The information or advice contained in this report has been obtained from sources that were accurate at the time of issue, however the information or advice has not been independently verified and as such, Petra Capital Pty Ltd cannot warrant its accuracy or reliability. This report does not take into account specific investment needs or other considerations that may be pertinent to individual investors. Before making any investment decisions based on this report, parties should consider, with or without an investor adviser, whether any relevant part of this report is appropriate to their financial circumstances and investment objectives. Petra Capital Pty Ltd is a licensed institutional/wholesale stockbroking firm. The report is only intended for institutional and sophisticated clients to whom Petra Capital Pty Ltd has issued the report. Petra Capital Pty Ltd is not licensed to advise retail investors retail investors should contact their own stockbroker or financial adviser/planner for advice. Petra Capital Pty Ltd accepts no liability or responsibility for any direct or indirect loss or damage caused by any error or omission within this report, or by persons relying on the contents of this report. US Investors This material is intended for use by major U.S. institutional investors (as such term is defined in the U.S. Securities Exchange Act of 1934) and $100 million investors only and not the general investing public or retail customers. $100 million investors means any entity, including any investment adviser (whether or not registered under the U.S. Investment Company Act of 1940) that owns or controls (or in the case on an investment adviser has under management) in excess of US$100 million in aggregate financial assets (i.e. cash, money-market instruments, securities of unaffiliated issues, futures and options on futures and other derivative instruments). Transactions by or on behalf of any US person in any security mentioned in this document may only be effected through Monarch Capital Group LLC, a U.S. broker dealer. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, its accuracy is not guaranteed. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or to make any investment. Any opinion or estimate constitutes the preparer s best judgement as of the date of preparation and is subject to change without notice. Petra Capital Pty Limited or Monarch and their associates or affiliates, and their respective officers, directors and employees may buy or sell securities mentioned herein as agent or principal for their own account. Other International Investors International investors are encouraged to contact their local regulatory authorities to determine whether restrictions apply in buying/selling this investment.