Valuation o f of E arly Early Stage Stage PGE rojects Projects and and The Global Outlook for PGEs PGEs René Hochreiter 28 October 2011

Transcription

1 Valuation of Early Stage PGE Projects and The Global Outlook for PGEs René Hochreiter 28 October 2011

2 Valuation of Early Stage PGE Projects Mostly done by mark to market valuation Exploration Sector USD Market Cap per oz total resources Can be done by DCF valuation, although not recommended by SAMREC Using analyst consensus forecasts or spot prices of metals 2

3 Valuation Exercise DCF Value at real return rates Spot prices used R/USD 8.0 (Preferred method of valuing platinum and mining projects) Pt 1510 Au 1643 Nickel Oct-11 Pd 618 Ru 145 Copper 3.2 Disclaimer: Allan Hochreiter (Pty) Ltd may from time to time own shares in listed securities. Allan Hochreiter (Pty) Ltd Rh 1625 Ir 1085 Cobalt 16 valuations made are of a forward looking nature and Allan Hochreiter (Pty) Ltd is not responsible for the Consensuspricesused used R/USD inaccuracies of information provided by the company analysed, inaccuracies resulting from market analysts consensus forecasts, inaccuracies in valuations due to market or political turmoil or any other Pt 1554 Au 1097 Nickel 8.2 market and/or financial instabilities. Such forward looking statements are not in any way a guarantee of Pd 417 Ru 140 Copper 3.2 future performance. Allan Hochreiter (Pty) Ltd will at all times endeavour to produce fair, reasonable and Rh 2778 Ir 425 Cobalt 17 equitably comparable valuations on all advisory mandates. Value at 15% Project Best Value Real Discount Rates IRR DCF / Price at 15% EXPLORERS Domicile Latest Comment Currency Price Spot Consensus % Spot Platfields ZAR 6 Poor assets % buy 567% Jubilee GBP 14 Good PGM grades, but low Pt:Pd ratio % buy 264% Platinum Group Metals* CAD 123 Good grades and shallow resource, broken-up at suboutcrop % buy 256% Kameni* ZAR 1600 Seed capital issue price of 1600cps, Zimbabwe assets a problem % buy 244% Wesizwe* ZAR 158 Deep, fair grade, but will have high unit costs % buy 135% Nkwe AUD 13 Poor image, low Pt:Pd ration, deep ve sell -300% Caledonia Mining GBP 5 Mainly Zambian copper. Grasvally property - PGMs and nickel-limited resource ve sell -400% Village Main Reef ZAR Not Listed New area, structure, dip,depth may be difficult for mining. Not Valued Bauba Platinum ZAR 201 Prospects in the N.E. Bushveld, low Pt:Pd ratio. Not Valued Average 109% *10% Real Value at 5% Share Price Best Value Real Discount Rates IRR DCF / Price at 5% PRODUCERS Domicile Latest Currency Price Spot Consensus % Spot Anooraq CAD 0.58 Management changes made large resources % buy 2486% Sylvania AUD 0.32 Dump re-treatment and Everest North - small but profitable % buy 838% Platmin CAD 0.30 Small projects,low quality, open-pittable, broken ground, poor management % buy 567% Platinum Australia AUD 0.17 Small low grade deposits, some open pittable, low cost, management issues % buy 488% Northam ZAR 31 Booysendal adds significant value. Good management % buy 187% Eastern Platinum CAD 0.70 Broken ground, difficult to mine, funding requirement on-going, poor management % buy 186% Anglo Platinum ZAR 547 Production still not increasing % buy 156% Lonmin ZAR 135 Face length, smelter problems and mineral permits a concern % buy 105% Aquarius ZAR 23 Good management, safety a concern % buy 96% Implats ZAR 176 Fairly valued, good management % buy 80% RBPlat ZAR 57 Overvalued % hold 30% Average 474% 3

4 Valuation Exercise Average yearly closing prices, year to date AUD/USD 1.04 USD Per ounce Valuation (4 PGMs) R/USD Pt 1747 Au 1492 Nickel 10.8 CAD/USD 0.99 (Less preferred valuation method) 7.00 Pd 733 Ru 170 Copper 4.1 Rand /USD Oct-11 Rh 2186 Ir 939 Cobalt 19 GBP/USD 1.59 EXPLORERS Domicile Latest Shares Market Market Resources Enterprise EV/Oz Valuation Currency Price Issued Cap (Mil) Cap (Mil) Mil Ozs. Value Resource USD/Oz Resource (cps or pps) Domicile In USD 4 PGM 4PGMs Bauba Platinum ZAR Platfields ZAR Nkwe Platinum AUD Jubilee Platinum GBP Kameni ZAR Platinum Group Metals CAD Wesizwe* ZAR Caledonia Mining GBP Simple Average/Total PRODUCERS ZAR per share Anooraq CAD Platinum Australia AUD Eastern Platinum CAD Sylvania AUD Aquarius ZAR Northam ZAR Platmin CAD Lonmin ZAR RBPlat ZAR Anglo Platinum ZAR Implats ZAR Simple Average/Total

5 Explorers Targeted resources/resources Explorers Ounces (m) 4 PGM attributable Sable Platinum Target ounces Other company ounces according to relevant codes Sable Platinum Bauba Nkwe Platinum Kameni Lesego Platinum Jubilee Platinum Platinum Group Metals Wesizwe Platmin Caledonia Mining 1 5

6 Producers- Resource base Producers (ounces m) 4 PGM Anglo Implats Lonmin Northam Anooraq Aquarius Eastern Platmin Sylvania Platinum Platinum Platinum Australia 6

7 Attributable Production Platinum Production (m ozs per year) Anglo Plats Implats Lonmin Aquarius Northam Anooraq Elands 7

8 Risk Reward Curve Valuation in Market Cap $/oz PGE $900m ($5/oz) Platinum Australia 9 PTM 18 Elands 17 Wesizwe 23 Anglo Plats 26 Implats 32 $534m ($3/oz) Sable 1 Jubilee Kameni 4 6 Mine development $1/oz Exploration Pre-feasibility And feasibility Development 8

9 DCF Valuations probably the best Reason Market Cap/oz valuations are too simple They: Take no account of Resource Take no account of Cost of production Take no account of Risk DCF valuations do all this: As a geologist and as a mining engineer, I recommend this method as the most accurate, especially for properties in the Bushveld Complex 9

10 The Global Outlook for Platinum Group Metals Platinum demand growth expected to be 5.8% /yr (Platinum demand 1975 to 2010 grew by 2.7% /yr. (Source: JM) This includes an 18% drop in 1980, an 8%drop in 2008 and a 9% drop in 2009). Palladium demand will likely rise 2.3% /yr (1981 to 2010: 5% /yr) Rhodium demand will likely rise 9.2% /yr (1981 to 2010: 39.4% /yr) Shortfalls likely in all 3 metals over the next 8 years. 10

11 Platinum Demand by Region 2010 (m oz) China, 2.165, 32% Rest of world, 0.89, 13% China, 1.985, 25% Rest of world, 1.125, 14% North America, 0.86, 13% Europe, 1.83, 27% North America, 1.505, 19% Europe, 2.110, 27% Japan, 1.05, 15% Japan, 1.155, 15% Total Demand: 6,795m oz Source: Johnson Matthey Total Demand: 7,88m oz 11

12 Platinum Demand/Supply 2010 Russia Supply (million ounces) Demand (million ounces) Total Net: North America Zimbabwe Others Movement to Stock Industrial* Total Net: Investment Medical and Biomedical Recycling Jewellery Other South Africa Source: Johnson Matthey Autocatalyst *Industrial = Electrical, Petroleum, Chemical, Glass 12

13 Platinum Supply and Demand (JM 2010 Report) 000 oz Total Supply of which: South Africa Russia N America Zimbabwe Total Demand Total Supply Total Demand of which: Autocatalyst Jewellery Recycling (1270) (1415) (1590) (1830) (1405) (1840) Movement in Stocks (55) 355 (80) (220)

14 Palladium Supply and Demand (JM 2010 Report) 000 oz Total Supply of which: South Africa Russia sales Russian stock North America Total Demand Total Supply Total Demand of which: Autocatalyst Dental Electronics Jewellery Recovery (990) (1 230) (1 565) (1 615) (1 430) (1,845) Movement in Stocks (490) 14

15 Rhodium Supply and Demand (JM 2010 Report) 000 oz Total Supply of which: South Africa Russia North America Zimbabwe Total Supply Total Demand Total Demand of which Autocatalyst Recovery (137) (171) (192) (227) (187) (236) Movement in Stocks (73) (36) (20)

16 Platinum Demand/Supply Outlook (AH) (000 oz) (000 oz) Demand Total of which: Autocats Jewellery Supply Total Total Supply Total Demand of which: AngloPlat Implats Recycling* Supply shortfall/surplus 20 (287) (734) (485) *43% of autocat demand 8 years ago Source: Rene Hochreiter, Allan Hochreiter (Pty) Ltd Surplus Shortfall 16

17 Palladium Demand/Supply Outlook (AH) (000 oz) Demand Total of which: Autocats Jewellery Total Supply Total Demand Supply Total of which: South Africa Russia Recycling Supply (shortfall)/surplus (490) (280) (630) Source: Rene Hochreiter, Allan Hochreiter (Pty) Ltd Surplus Shortfall 17

18 Rhodium Demand/Supply Outlook (AH) (000 oz) Demand Total of which: Autocats Supply Total Total Supply Total Demand of which: South Africa Recycling Supply (shortfall)/surplus 114 (97) (194) (336) Source: Rene Hochreiter, Allan Hochreiter (Pty) Ltd Surplus Shortfall 18

19 Discussion: Pt Legislated demand Electric cars too expensive China >> US in auto production Jewellery the shock absorber Supply from South Africa constrained Price will rise Power, Safety Stops, Efficiency (HIV) Excess smelter capacity constrained to 2m oz Poor cost control performance 19

20 China and SE Asia commodities boom US autocats introduced Increasing emissions stringency Russia stops sales for most of 1999 Global financial crisis 20

21 Discussion: Pd Russian stockpile depleted Global resources of Pt:Pd:Rh 1:1:0.1 Perfect world, Pd price = Pt price US auto makers using Pd only autocats until the price rises Price will rise 21

22 Russia withholds Pd stock sales Russian stock depletion US autocats introduced Ford announces Pd-only catalysts Global financial crisis 22

23 Discussion: Rh Autocat demand > Total Net Demand Price swings vicious A by-product from South Africa supply constrained Price will rise sharply 23

24 New AngloPlats Refinery pipeline China & SE Asia boom in petrol car sales Global financial crisis Y2K boom 24

25 Consensus Price Forecasts Average of 20 analysts (all prices are in real terms) 2010A 2011E 2012E 2013E 2014E 2015E LT Platinum US$/oz Palladium US$/oz Rhodium US$/oz Gold US$/oz Copper US$/lb Nickel US$/lb Cobalt US$/lb Rand/Dollar ZAR/US$

26 ZAR/kg cash cost 6 months to December Current Revenue R /kg Source: Rencap 26

27 ZAR/tonne milled (all-in) 6 months to December 2010 Current revenue average: R1200/ton Source: Rencap 27

28 Conclusion Demand for PGE s will rise, prices will rise Supply of PGE s will disappoint SA has 91% of global resources (34 out of 37.5 bn oz.), 74% down to 3000m (whether SAMREC likes it or not) ZAR vs USD my bet is on a weakening ZAR Share prices should rise as long as government. Outlook to 2020 POSITIVE global recovery likely by 2015 if not sooner, prices should rise Watching platinum has been like watching a missile take off. The metal's run-up has been nothing short of astonishing 41% so far in 2008 and about 75% in the past 12 months! The Market Oracle Feb 2008 (Market Oracle headline Feb 2015?) 28

29 Typical Annual Platinum Price Cycle Sell JM Pt week Sell in May and go away N Hemisphere summer apathy JM Sell Review e Buy Buy J F M A M J J A S O N D 29