Southern Hemisphere Mining (SUH)

Transcription

1 Level 14, State One House Level St George s Terrace 64 Clarence Street PERTH WA 6000 SYDNEY NSW 2000 PO Box 7625 PO Box R1931 CLOISTERS SQUARE WA 6850 ROYAL EXCHANGE NSW 1225 ANALYST: PETER KOPETZ F: E: advice@stateone.com.au Southern Hemisphere Mining (SUH) 29 November 2013 Recommendation High Risk/Spec Buy 0.062c Valuation $0.20c There is lot to like about Southern Hemisphere (SUH); location, commodity, management, JV deals and project generation are all big ticks. Attracting Lundin Mining and Anglo American to two of its many projects says a great deal about SUH s prospects and sets it apart from peers. SUH s strategy in deriving value for shareholders consists of project generation, JV deals and development of the most promising assets. Llahuin, SUH s flagship project, is shaping up as a potential mine and our preliminary modelling suggests a relatively straight forward operation can be established which has the potential to deliver substantial cashflows. We value Llahuin at 12.5c per share. Los Rulos, the latest JV with Lundin is also highly promising and a potential early development candidate as area has a recent mining history and displays extensive copper mineralisation. Drilling is scheduled to begin in January KEY POINTS Consensus Valuation $N/A Key Ratios Investment Data Share Price ($) 0.06 Ord Shares (m) Market Cap ($m) 10.7 EV ($m) 9.7 EV ($m) (diluted 10.0 Options (m) (21c) 4.2 (Net Debt) /Cash 1.0M 12m Low/High ($) 0.03/0.16 Source: State One So far a total of $US$63M in JV partnerships has been established with SUH earnings fees as JV operators (Mantos Grandes, Llahuin, Los Rulos). SUH s experience and track record in Chile is invaluable and we feel it s very important for them to be the operators and having a major input into exploration activities and pace of proceedings. SUH s project generation is excellent, with new additions to its portfolio on a regular basis. Currently SUH has a further 6 x 100% owned early stage copper/gold prospects in Chile. Relationships established by SUH in Chile are a large advantage and local knowledge is a key, hence Lundin is very happy to utilise SUH s capabilities. Our preliminary modelling at Llahuin is primarily based on current higher grade zone resources which could underpin a long life project. We derive an after tax NPV 10 of ~$85M or 50c per share (on a 100% project equity basis, undiluted) which is based on the below mining parameters and assumptions. Capex is the biggest obstacle, and at $580M the project needs to be long life and robust at long term commodity prices (~$2.50/lb) to attract funding and partner. Llahuin Mining Assumptions Management D. Craig Chair. T. Tennant M.D. J. Pearson Ex. Dir. J. Tarrant N/E Dir. A. Hevia N/E Dir. P. McRae N/E Dir. Substantial Shareholders Lundin Mining Corp 11.45% T. Tennant 11.40% Genesis Investment 8.30% J. Pearson 5.44% Icecold Investments 4.05% Mining Cu (tpa) 35,700 Mining Au (ozpa) 28,936 Mine Life 7 years Costs Cu ($/lb) ex credits 1.80 Capex $580M Cu Price ($/lb) 3.00 Au Price ($/oz) % $85M /State One SUH s current Llahuin JV partner, Lundin Mining (which we assume will earn in their full 75% stake) is an excellent candidate to develop the project and having them on board alleviates certain risks and funding issues somewhat. From Lundin s point of view the project is the right size and fits in nicely with their strategy but ideally it needs more of higher grade copper. SUH is looking at various options (potentially acquiring small scale neighbouring high grade properties or exploration success) to further improve the metrics of Llahuin. So far Lundin has spent ~$3M on the project and has earned a nominal 20% interest. The relationship between Lundin and SUH is flourishing with the establishment of an additional new joint venture, Los Rulos on 50/50 basis (with the right to increase to 65% total). This is on top of the existing Llahuin project JV in which Lundin has the option to earn in 75% equity (by spending US$35M). S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

2 The Los Rulos JV has wasted no time in acquiring two new highly prospective copper/gold projects, Armandiño & Polvareda 2, which display high grade characteristics and have a recent history of small scale mining. There is no doubt that Lundin is very serious about the area and keen to explore and we envisage further collaboration in the area. We understand Lundin s local team based in Chile recognise the prospectivity of the area and are very keen to build on current foundations with additional acquisitions and deals. A third major JV is with Anglo American at Chitigua and is under an option farm-in agreement whereby Anglo American has a right to earn 75% equity. The Anglo deal allows it to spend up to US$25M to earn 75%. Anglo has committed an initial budget of US$1.5M to test various prospects. Maiden RC drilling campaign has been completed testing four zones at Iglesia, Central, Norte and Sur for a total of 3,000m. A report is due on the exploration activities in the next few weeks. If Anglo decide to walk, SUH has other options (the tenements are strategically located and in the vicinity of some of the biggest copper mines in the world), namely Antofagasta who has neighbouring properties. A fourth JV deal is the recently established Mantos Grandes with Cobre Montana (CXB) whereby CXB may earn 65% equity by spending A$2.85M over 18 months. Mantos Grandes is another possible candidate for early development as most infrastructure is in place and past mining activity points to the possibilities. CXB is keen to progress the development beginning with exploration activities designed to elevate current resources to JORC standard and prepare for a feasibility study. Fig 1: SUH project locations (Yellow labels are Joint Venture Projects) S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

3 Llahuin JV Llahuin, SUH s most advanced project, has several key positives which make it attractive from a development point of view such as location; infrastructure; favourable mineralogy (shallow from surface); and metallurgy which lends itself to lower operating costs. The most important ingredients are present. Metallurgical testing has delivered positive results and in line with industry standards which is good news for project moving forward and provides a basis for further studies and optimisations. Technical risks are slowly dissipating. The latest resource update has provided evidence and confidence that Llahuin can become a long life asset. Current resources stand at 0.29% Cu & 0.12g/t Au with an identified higher grade zone which forms the basis of our mining scenario. SUH is looking to expand resources further and needs to approximately double the resource and up the grade from here to have a good chance of developing Llahuin. 2.0 VALUATION We feel SUH is grossly undervalued as market cap is only ~$10M, while JV deals and Llahuin copper gold project together add up conservatively to at least $30M in value. It is difficult to place a value on SUH projects as they are early stage but Llahuin alone is worth ~12.5c per share. We have placed a combined nominal value on all the JV deals of ~$13M (7.5c per share), being 20% of total value of deals done to date. Our price target is set at 20c. Valuation upside will come from further drilling and progression of its projects as well as new deals and acquisitions which we see continuing. LLAHUIN COPPER GOLD (80% SUH; LUNDIN MINING 20%) Overview Carmen de Andacollo (Teck) Throughput 45Ktpd Production - ~65Kt Reserves 0.35% Cu & 0.12g/t Au The Llahuin Project is situated ~250km north of Santiago, Chile s capital. There are several large copper/gold projects in the region with Teck s Carmen de Andacollo copper mine one of the better comparable ones 120km to the north. Situated 17km to the north is the established mining town of Combarbala which services nearby mines and provides readymade workforce. Comparatively the project lies at a relatively moderate altitude of ~1,300m. Other positives include the nearby Pan American Highway (56km away) and relatively benign semi arid terrain which shouldn t pose any mining problems. Fig 2: Llahuin project location S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

4 The Llahuin project consists of 6 contiguous concessions covering ~13.7km2 with 3 identified porphyry zones. The Central porphyry zone is the main target and contains the majority of the current resource. All three exhibit similar geology and are part of the same copper/gold porphyry system. A 30 year Easement Agreement has recently been signed with the local El Espino community enabling SUH full access to the land. Current resources (M & I) at Llahuin total 0.3% Cu or 0.41% CuEq for 432.Kt Cu & 598Koz Au. The mineralisation starts from surface and a higher grade core has been delineated which contains 0.50% CuEq. Llahuin Lundin Mining JV Lundin Mining is a growing (acquisitive with recent purchase of Rio Tinto s Eagle nickel/copper mine) diversified Canadian base metals miner with operations in Europe, producing copper (main revenue contributor), zinc, lead and nickel. In addition, Lundin Mining has various growth projects under development/expansion such as Tenke Fungurume (24% equity) in Congo and exploration JV s in Eastern Europe and Chile (SUH). In October 2012, SUH and Lundin signed a farm in agreement whereby Lundin has the option to earn 75% of the project by spending up to $35M on exploration over a maximum 6 year period. Lundin also took a 11% strategic stake in SUH at C25c a share. Recently completed stage 1 saw Lundin earn a nominal 20% interest in the project after contributing $3M of the initial $6M in joint exploration terms. Next phase will see Lundin sole fund $10M to earn an additional 31% to take its stake to 51%. Lundin has given the green light to proceed with stage 2 and has until November 2015 to fulfill its obligations. In current tough times for junior explorers, the Lundin deal seems like a masterstroke and alleviates a lot of funding pressure. It s no secret global majors are looking to cut costs and are focusing on low cost operations hence Llahuin fits well into Lundin s copper portfolio as Neves Corvo (Lundin s major copper producer) C1 costs are ~$1.80/lb and Tenke Fungurume C1 costs are $1.18/lb versus projected C1 costs at Llahuin of ~$1.80/lb. Lundin s investment criteria also ticks a lot of Llahuin s boxes such as low cost, manageable size, meaningful production, straightforward mining and processing and low risk jurisdiction. Under the Los Rulos Joint Venture Lundin and SUH have agreed to exploit other areas of interest around the Llahuin project within an area of obligation and non competition of 50km x 50km, where both Lundin and SUH will jointly assess various prospects. Two projects under this scenario have now been enacted at Armandiño and Los Rulos. Fig 3: Areas of cooperation between Lundin Mining and SUH S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

5 Los Rulos Lundin Mining JV The Los Rulos JV further builds and expands on the current successful partnership between SUH and Lundin. The New JV has executed two option agreements to purchase two prospective projects at Armandiño and Polvareda 2. Initially the JV consists of a 50/50 basis with Lundin having a further option to acquire a further 15% by paying SUH twice the SUH expenditure to date. Fig 4: Areas of cooperation between Lundin Mining and SUH Both projects are close to each other and within 30km of the Llahuin project. The area displays favourable high grade characteristics with extensive surface copper mineralisation and evidence of artisanal mining. Armandiño Armandiño concessions cover ~100 hectares and possess large alteration systems (including high grade copper-gold skarns) with evidence of which have been exploited by small scale artisanal mining. To date, trenching from road cuttings have returned very encouraging results within a 250m alteration zone; 1.97% Cu, 2.12% CuEq and 0.92% Cu, 1.05% CuEq. IP survey lines correlate very well with local geology and copper occurrences, and show remarkable consistency of elevated chargeability. The copper mineralisation is open in both directions. We expect the JV to drill test the most promising zone in 1Q A number of Cu oxide workings and outcrops exist in the area. Main adit on the property runs along strike and hosts significant chalcopyrite mineralisation hosted by various structures, namely hydrothermal alterations. Small scale mining has seen current production rates of up to 70t per day at 1.8% Cu & 0.75g/t Au. S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

6 Fig 5: Armandino IP Survey Sections Polvareda 2 The Los Rulos JV has executed an agreement to purchase 62.5% in Polvareda 2. This covers 60 hectares and is adjacent to a geological structure which hosts a high grade copper skarn producing t of copper per day (Polvareda 1). As with Armandiño, the area possesses large alteration systems and abundance of mineralisation as evidenced by local artisanal mining. Initial rock sampling results showed varying grades ranging from 0.03% to 4.96% Cu. The most significant and exciting feature is the correlation between geology, current workings and IP results which pin point a bullseye anomaly (below). This walk up drilling target is most likely associated with copper mineralisation as strongly evidenced by existing copper workings. Polvareda 2 is a high priority target for the JV. Fig 6: IP and Local Geology S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

7 The Llahuin Project For the Geologists The Llahuin project consists of several porphyry targets which display similar geology. The geology features medium sized early dioritic stock with propylitic to potassic (biotite) alteration emplaced in a North-South regional fault system. The Llahuin project was acquired in 2011 (from a private investor) and comprises of Amapola 1-4 exploitation licences. It was expanded on in 2012 through additional concessions Amapola I and II adjacent to original purchase. These additional concessions were owned by a tier 1 company but have never been systematically explored. The Amapola concessions had sporadic exploration activities over the years with 2 drill holes recorded on There has been some basic artisanal activity but the area has largely been free of mining activity. From our point of view, the area is quite prospective and artisanal mining suggests that there are noteworthy occurrences of copper which need to be followed up. Fig 7: Llahuin Project Location Argillic- quartz sericite alteration zones are evident in the upper zones and borders of the hydrothermal system within the volcanic wall rocks. At the Llahuin porphyry, a NNE trending elongated late granodioritic stock intrudes the early dioritic porphyry. The mineralisation in the Llahuin porphyry is related to the early dioritic porphyry stock with abundant stockworks of quartz and variable amounts of magnetite, biotite, tourmaline, actinolite, calcite, copper oxides, iron oxides and some pyrite, chalcopyrite, covelite, chalcocite and molybenite. The mineralisation is mainly associated with veinlet systems. Initial drilling results conducted by SUH at Amapola were highly encouraging with 208m returning 0.42% Cu from surface targeting the Llahuin Porphyry. Further drilling indicated that a substantial mineralisation is present and thus the Llahuin project was born. In November 2012, SUH joined up with Lundin Mining under a JV to progress the project and give it every chance to succeed. Infrastructure There is good access to the main prospects with a main highway some 60km away. A power line is situated nearby and could be accessed in a mining operation. Water supply should not be an issue with SUH identifying various opportunities to source water. S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

8 Drilling Highlights Llahuin & Other Prospects Central Porphyry 0.45% Cu 0.42% Cu 0.40% Cu 0.45% Cu 0.57% Cu Cerro de Oro 0.32% Cu 0.40% Cu 0.48% Cu 0.46% Cu Ferrocarril 0.32% Cu 0.45% Cu 0.76% Cu La Colina % Cu 0.56% Cu Drilling at Llahuin has mainly been concentrated on the Central Porphyry zone which contains the bulk of the current resource. A total of 54k metres has been drilled thus far at Central Porphyry, Cerro de Oro & Ferrocarril. We are encouraged by the results which demonstrate that a high grade zone exists at Central Porphyry 0.57% Cu & 0.25g/t Au from 2m which included 0.86% Cu & 0.47g/t Au from 108m). We expect drilling to continue at Llahuin with Lundin sole funding $10m worth of exploration activities over the next 2 years. La Colina 2 In January 2012 SUH entered into an option purchase agreement for the La Colina 2 concession which consists of an exploitation concession covering an area of 259 hectares. Copper mineralisation is associated with faults and could host porphyry or IOCG type mineralisation. La Colina is under the same JV terms as Llahuin. La Colina s best early results are 0.56% Cu. Metallurgy Preliminary studies have demonstrated that mining should be relatively straight forward using conventional flotation process. Key findings show that the mineralised material is fairly soft, meaning less energy consumption through crushing and grinding; copper recoveries of up to 91%; concentrate grading at 28-32% Cu; and low levels of deleterious materials in concentrate. Fig 5: Metallurgical Testing Advantages of Llahuin Mineralisation starts from surface low stripping ratio will aid low costs. High grade zones of copper start from surface and extend to at least 400 metres below surface. Feed rock soft Soft rocks equate to lower energy consumption as less energy is used to crush and grind thus aiding costs. Open pit operation Open pit operations aid in lowering sustaining capex and can lead to overall costs being lower than underground operations. Simple flowsheet A conventional flotation process has been tested with good results which mean a relatively simple and proven mining operation can be applied. Recoveries up to 91% were recorded for copper. Low levels of deleterious material in concentrate The concentrate should be nice and clean (between 28%-32% Cu) with low contaminants which will easily find buyers (concentrates with problematic minerals usually attract a discount). S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

9 July 2013 Mineral Resources SUH s Llahuin resources have grown substantially in 2 years and currently stand at 0.29% Cu & 0.13g/t Au or 0.38% CuEq for 432Kt of contained copper. A higher grade zone has been delineated and forms the basis of our conceptual mine studies which stands at 0.35% Cu & 0.15g/t Au or 0.46% CuEq. The bulk of the resource is contained at the Central porphyry and it is highly likely that we will see further tonnes added Cerro de Oro and Ferrocarril. Cutoff Tonnes Grade (Cu%) Grade (Au g/t) Grade (Mo%) CuEq (%) Copper (T's) Gold (Oz's) Measured Indicated Inferred ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , ,113 Total Measured & Indicated ,000, , ,470 Grand Total ,000, , ,134 Higher Grade Core Higher Grade Zone Grade Cutoff Tonnes (Cu%) Grade (Au g/t) Grade (Mo%) CuEq (%) Copper (T's) Gold (oz's) ,600, , , ,300, , , ,000, , ,479 Fig 8: Llahuin & peers resources comparison S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

10 Conceptual Mining Scenario We have put together a conceptual mining scenario at Llahuin encompassing the high grade zone. Our overall scenario sees ~35kt of copper concentrate produced on annual basis for an initial 7 years. We expect the mine to have a much longer life with further drilling. Our assumptions are based on preliminary baseline studies, metallurgical testing and nearby Carmen de Andacollo mine which has similar characteristics. Mt 60,300,000 Cu grade (%) 0.35 Contained Cu (t) 211,050 Au Grade (g/t) 0.15 Contained Au (oz) 290,804 Mo Grade (%) Contained Mo (t) 4,824 /State One Although the mine is not high grade it has several positive factors which make it attractive such as mineralisation starts from surface enabling open pit with low strip ratio. The gold credits are substantial and add at least $40M in revenues $1,300/oz. We are comfortable with capex of $580M which will be majority funded by Lundin if the mine gets the go ahead and cash costs of ~$1.80/lb. We expect total costs to be in the $2-2.20/lb vicinity. Plant 12,000,000 Cu Grade (%) 0.35 Recoveries 85% Production (t) 35,700 Au Grade (g/t) 0.15 Recoveries 50% Production (oz) 28,936 /State One Overall, Llahuin s key risks are capex (although project is most sensitive to opex costs) and an operational cost as technically it is a relatively stock standard operation. Isolating/finding higher grades and selective mining would help the bottom line. S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

11 3.0 CHITIGUA (100% SUH) The Chitigua Project is adjacent to the West Fault, which hosts some of the world s biggest copper deposits, over an 18 km strike length. The prospects are located between the Quebrada Blanca and El Abra deposits, situated 70km to the north and 30km to the south respectively. The West Fault hosts several major copper molybdenum porphyry deposits (Escondida, Gaby, Chuquicamata, El Abra, Collahuasi and Quebrada Blanca) and is associated with intrusions. Anglo American JV Not surprisingly Chitigua has attracted a global major in Anglo American and a JV has been established to explore the area. In February 2013, Anglo signed an option farm in agreement that covers Chitigua, Carboneras and Meteoritica prospects. The terms of the deal will see Anglo earn 75% equity by spending up to US$25M on exploration over a maximum 5 years. This deal removes funding issues as potentially SUH will be free carried for up to 5 years. Anglo has committed initial funds for exploration which will encompass at least 3,000m of drilling within 18 months. After 6 months of preliminary exploration activities, a maiden 3,000m RC drilling campaign has been completed targeting four zones at Iglesia, Central, Norte and Sur. This initial drilling campaign is to get a better understanding of local geology and we don t expect major drilling results, with our hopes lying in Anglo being further encouraged and committed to continue with the JV. The Chitigua Project is high risk but very prospective targeting large porphyry coppermolybdenum mineralization, similar to numerous significant neighbouring deposits. The closest comparison to geological style and setting of mineralization at Chitigua is at the Chuquicamata deposit (Codelco), where mineralization is hosted by a highly altered, elongated, tabular, intrusive complex porphyry body. Chuquicamata is the second biggest open pit mine in the world and has produced over 30Mt of copper. Prior to Anglo s involvement, preliminary exploration saw a few holes drilled into Chitigua s Breccia and Church zones with best results coming in at 0.4% Cu and 0.41% Cu. The zones are 6km apart and are adjacent to the Western Fault. We see Chitigua as high risk but very prospective land, subject to exploration vagaries. Anglo are keen to conduct their own exploration on the property. The next 18 months will be interesting and we have high hopes that Anglo will be encouraged enough to push on to the next phase of the JV. Fig 9: Chitigua Project S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

12 4.0 MANTOS GRANDES (100% SUH) Cobre Montana (CXB) has entered into an option agreement to earn 65% of the Mantos Grandes project by spending A$2.85M. Mantos Grandes is a hypogene, skarn related copper/gold/silver deposit (altered limestone) which has seen historical small scale underground mining methods (since 1935 until late 1990s). Past historical records show Mantos Grandes produced copper at 0.5% and gold at 3g/t. Previous more recent exploration on the property saw rock chip sampling return anomalous copper and gold values. Historical drilling returned 0.62% Cu. We could potentially see a reestablishment of a small scale high grade operation relatively quickly with key infrastructure (processing plant) in place. Early activities will see maiden exploration activities, development and a programme to elevate resources to JORC standard which will enable CXB to undertake a feasibility study. Options for CXB include toll treating or small scale plant processing. The project area consists of five manto style deposits (associated with igneous intrusions) which usually form sheetlike ore bodies along bedrock and two porphyry occurrences. Good infrastructure (access roads, power & water supply) exists on the property (basic camp and office facilities, small scale conventional copper flotation plant) and is relatively well developed. The terms of the JV sees CXB pay an initial 350k to SUH (paid), followed by; Sole fund exploration activities by spending $400k within 6 months (from execution of the agreement in September 2013) Sole fund exploration activities by spending a further $600k within the next 6 months Sole fund exploration activities by spending a further $500k within the final 6 months for a total spend of A$1.5M Pay a final amount to SUH of A$1M to acquire 65% interest in the JV. Fig 10: Mantos Grandes Source: CXB S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

13 5.0 OTHER ASSETS (100% SUH) El Arrayan El Arrayan is well located, ~37km southeast of the town of La Serena and Coquimbo port. The property lies 15kms north of Carmen de Andacollo mine and SUH s exploration model suggests porphyry copper/gold mineralisation will be the target. Preliminary exploration to test the property returned 1.54% Cu. SUH is hopeful that surrounding property can be acquired to follow up the initial results. Las Santas Las Santas property lies at the northern end of a copper/molybdenum porphyry belt, with similar geology to Los Pelambres which is 20km away. Structurally the project lies along a lineament that links a porphyry copper/molybdenum deposit and epigenetic gold deposit. SUH is targeting copper/molybdenum porphyry however early testing is pointing to the presence of copper/gold. Preliminary drilling at Las Santas has confirmed the presence of a low grade porphyry system. San Jose San Jose lies at base of the Andean pre-cordillera some 50km southeast of the town of Chillan. Main target at the property is copper/molybdenum porphyry style mineralisation. Early indications are positive with identified mineralisation consistent with a porphyry system. Los Pumas Los Pumas is SUH s most northerly Chilean project and the main focus is manganese. A 18.3Mt resource was defined grading at 7.58% Mn but due to the collapse of the manganese prices it is currently an uneconomic deposit. The Los Pumas project was initially assessed as a 300ktpa operation over a 7 year mine life. The project consists of 7.6% Mn. The project can be advanced should the Mn prices recover and market conditions justify it. Juan Soldado (Romeral) The Juan Soldado project is located 20km north of the town of La Serena. The project is targeting IOCG mineralisation which is known to occur on a major regional structure called the Romeral Fault evidenced by deposits Santa Dominga (Cu, Fe, Au) amongst others. Santa Gracia Santa Gracia is a copper gold project located 22km northeast of the town of La Serena. There is evidence of artisanal mining on the property with SUH targeting a porphyry copper deposit given that nearby is lies the Los Loros porphyry deposit. Preliminary exploration comprising of 13 holes did not yield results of note and the project has been relegated to low priority S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

14 6.0 RISKS Exploration Risk There is no guarantee that SUH will delineate further resources at Llahuin or have the same level of success exploration wise. Funding Risk SUH requires funding to carry out exploration work and general running of the company. In poor economic environments required funding might be difficult to obtain. Commodity Prices and Foreign Exchange Rates Our NPV sensitivities suggest that the project value changes in line with movements in both commodity prices and exchange rates. Market Risk Current market conditions are conducive to stock volatilities and SUH being at the speculative end of the market is exposed at the high end of volatility. Scoping/Feasibility Study Any scoping/feasibility study might not fulfil our or the company s expectations with factors such as capex or costs surprising well on the downside. Management Risk Llahuin s success can be attributed to the excellent work of the management. Any changes to the management structure through resignations could have a negative effect on further success. S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

15 7.0 MANAGEMENT David Craig Non-Executive Chairman David Craig is a lawyer who has held and holds executive and board positions in the fields of law financial services and the resources industry. As a partner of a major Perth law firm, he specialised in resources and commercial legal advice, which included work on resources joint ventures, the acquisition and disposal of interest in companies and projects, and capital raisings by companies. This was followed by ten years in the financial services industry as a stockbroker and an executive director in a national stockbroking and investment banking company. Mr Craig then spent five years working with Woodside Petroleum Ltd in an executive position in the field of public and government affairs. He brings to the Board expertise in law, financial markets, stakeholder engagement, relationship management, strategic planning and risk management. In terms of ASX listed companies he is Non-Executive Chairman of Gunson Resources Limited, Non-Executive Deputy Chairman of Moly Mines Limited and a Non-Executive Director of Forge Group Limited. Trevor Tennant Managing Director Trevor Tennant is currently the managing director and one of the founders of SHM. He has over 35 years experience in the mining industry with much of it focused on the base metals and industrial minerals sectors. He was previously an executive director of Portman Mining Limited, OM Holdings Limited and a non-executive director of Territory Iron Limited. Mr. Tennant is a qualified mining engineer with a range of experience including 13 years with Broken Hill Pty Ltd. between 1974 and During this period he was employed as the underground manager of a tin mine in Indonesia, an engineer on the Ok Tedi mine feasibility study, the manager of an iron ore mine and the general manager of a large manganese mine. James Pearson Executive Director James Pearson is a mining engineer with nearly thirty years experience in the mining and construction industries. He has been a director of Haddington Resources Limited and OM Holdings Limited. Mr. Pearson has been a mine manager for gold, manganese and iron ore projects and has experience as a project engineer in the construction of large civil engineering works. John Tarrant Non-Executive Director John Tarrant is a Professor of Law at the University of Western Australia. Dr. Tarrant has a distinguished academic career including a doctorate of Juridical Science, 2 Master s degrees, 4 Bachelor Degrees and 6 Postgraduate Qualifications. Dr. Tarrant has significant experience gained over 20 years from multiple disciplines including accounting, corporate mining management and mining entrepreneurial roles. Paul McRae Non-Executive Director and Lundin Nominee Paul McRae is a mining engineer with more than 35 years of international experience in engineering, construction and management roles in mining and other industrial projects. He has managed complex projects with capital exceeding $1 billion for both owners and contractors. Mr. McRae is Lundin Mining Corporation's Senior Vice President, Projects. He serves as Lundin's nominee director on the Southern Hemisphere Mining board. S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

16 Andrés Hevia Hormázabal Non-Executive Director Andrés Hevia has over 32 years experience within the South American mining industry, with much of this time focused on copper mine development and technical activities for major Chilean copper mining companies. Senior positions held include Head of Resource Planning and Development at Escondida, the world s largest copper mine, and Latin America Business Development Manager for Billiton (now BHP Billiton). Mr. Hevia, who resides in Chile, holds a Civil Mining Engineer degree from Universidad de Chile and an MBA from Universidad del Desarrollo. 8.0 CONCLUSION SUH is a high risk junior explorer which is only suitable for high risk investors. The management is the key to the company and thus far have put together excellent JV deals. Project generation is excellent. The Llahuin project is the most advanced and we attach full value of SUH to this project. In the current subdued resource market SUH s JV deals have put them ahead of rivals and we feel the company is undervalued based on the deals and a conceptual mining scenario. Spec Buy. S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e

17 Graeme Johnson Equities & Derivatives Advisor Phone: gjohnson@stateone.com.au Harry Yeoh Equities & Derivatives Advisor Phone: hyeoh@stateone.com.au Mark Sullivan Institutional Dealer Phone: msullivan@stateone.com.au Yitz Barber Phone: ybarber@stateone.com.au Karen Tan Phone: ktan@stateone.com.au Peter Wong Phone: pwong@stateone.com.au Eugene Loy Phone: eloy@stateone.com.au Alexander Bax Phone abax@stateone.com.au Phillip Wan Phone: pwan@stateone.com.au Tammie Wong Phone: twong@stateone.com.au Ric Heydon Equities & Derivatives Advisor Phone: rheydon@stateone.com.au Peter Kopetz Equities Analyst Phone: pkopetz@stateone.com.au Thomas Tan Phone: ttan@stateone.com.au Alan Hill Executive Chairman Phone: ahill@stateone.com.au Robert Chen Phone: rchen@stateone.com.au David Zhang Phone: dzhang@stateone.com.au Pat Ng Equities & Derivatives Advisor Phone: png@stateone.com.au General Advice Warning The contents of this document have been prepared without taking account of your objectives, financial situation or needs. You should, before taking any action to acquire or deal in, or follow a recommendation (if any) in respect of any of the financial products or information mentioned in this document, consult your own investment advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs. Whilst State One Stockbroking Ltd believes information contained in this document is based on information which is believed to be reliable, its accuracy and completeness are not guaranteed and no warranty of accuracy or reliability is given or implied and no responsibility for any loss or damage arising in any way for any representation, act or omission is accepted by State One Stockbroking Ltd or any officer, agent or employee of State One Stockbroking Ltd. If applicable, you should obtain the Product Disclosure Statement relating to the relevant financial product mentioned in this document (which contains full details of the terms and conditions of the financial product) and consider it before making any decision about whether to acquire the financial product. Disclosure The directors and associated persons of State One Stockbroking Ltd may have an interest in the financial products discussed in this document and they may earn brokerage, commissions, fees and advantages, pecuniary or otherwise, in connection with the making of a recommendation or dealing by a client in such financial products. State One Stockbroking Ltd has also received a commission on the preparation of this research note. The Research Analyst who prepared this report hereby certifies that the views expressed in this research document accurately reflect the analyst s personal views about the company and its financial products. The research analyst has not been and will not be receiving direct or indirect compensation for expressing the specific recommendations or views in this report. As at the date of this report the research analyst has an immaterial interest in the financial products of this company. This research at all times remains the property of State One Stockbroking Ltd. And as such cannot be reprinted, distributed, copied, posted on the internet, in part or whole, without written prior approval from the Executive Director of State One Stockbroking Ltd. S t a t e O n e S t o c k b r o k i n g P t y L t d A F S L P a g e