Company Review Ord Minnett Research Friday, June 24, 2011 Centaurus Metals Jambreiro Resource upgrade Centaurus has upgraded the JORC resource at its flagship, Jambreiro Iron Ore Project in Brazil. The key take outs from this interim resource upgrade include: Approximately 60% (or 35.2million tonnes) of the resource at the main Tigre prospect of the Jambreiro project is now within the Measured and Indicated categories. Drilling at the south east extension zone of the Tigre prospect has continued to prove up additional strike, with friable itabirite mineralisation intersected over more than 400 metres. This south east extensional drilling was not included in the current upgraded resource and will be expected to add further tonnage to the forecast September resource announcement. Drilling has continued on the other prospects at Jambreiro with 31 additional holes completed on the Cruzeiro and Galo prospects. This infill and extensional drilling will feed into a further resource upgrade due in September. The inclusion of Measured and Indicated resources at Jambreiro, in particular a significantly larger portion of friable itabirite ore has lead us to revise our discounted cashflow valuation for the project. Our risk adjusted valuation using a 12% WACC for Jambreiro is A$118 million (previously A$69 million). In addition, with the likelihood of Jambreiro and the recently acquired Serra do Lontra becoming the priority projects for Centaurus we have pushed out the timelines and therefore reduced the valuations of the Passabem and Itambe projects by A$24 million. We have a revised price target of $0.24 per share (equity diluted) and maintain our Buy recommendation for Centaurus with a High risk rating. Key Financials Year-end June (A$) FY10A FY11E FY12E FY13E* FY14E Brazilian domestic iron ore price - 81 88 84 80 Sales Revenue ($M) 0.0 0.0 0.0 58.9 284.4 Mining Op. Profit Before Tax 1 0.0 0.0 0.0 35.7 183.8 ($M) Reported NPAT ($M) (3.6) (8.4) (12.9) 19.1 111.6 Normalised NPAT ($M) (3.6) (8.4) (12.9) 19.1 111.6 Reported EPS ( ) (0.6) (0.9) (0.9) 1.2 6.9 Normalised EPS ( ) (0.6) (0.9) (0.9) 1.2 6.9 Op. Cash Flow Per Shr ( ) (0.3) (0.2) (0.2) 1.3 7.6 Total Dividends ( ) 0.0 0.0 0.0 0.0 0.0 Net Yield (%) na na na na na Franking (%) na na na na na EPS Growth (%) na na na na 483% Normalised P/E (x) (12.3) (8.7) (8.5) 6.8 1.2 EV/EBITDA na na na 3.0 0.2 Price/Op. Cash Flow (x) na na na 3.1 0.6 Source: Iress, Company Data, Ord Minnett Est. Share price: $0.08, Jun 23, 2011. * OML estimate production to commence in Q3FY13 CTM A$0.08 Recommendation Buy Risk Assessment High Resources Iron ore Luke Smith Senior Research Analyst lsmith@ords.com.au Centaurus Metals Limited ASX Code CTM 52 week range $0.05- $0.16 Market Cap ($M) 68 Shares Outstanding (M) 848.9 Av Daily Turnover ($M) 0.3 ASX All Ordinaries 4561.4 ASX200 Small Resource 5475.2 Net Cash Mar11 ($M) 12 Relative price performance 300 200 100 0 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Source: Iress XSR CTM Consensus earnings and valuations FY12F FY13F NPAT (C)* (3.4) 28.5 NPAT (OM) (12.9) 19.1 EPS (C) (0.1) 1.9 EPS (OM) (0.9) 1.2 12mth Price Target (C) 22 12mth Price Target (OM) 24 Source: Iress Friday, June 24, 2011 Page 1
Jambreiro Iron Ore Project Resource Upgrade Centaurus has announced an upgrade to the resource at its flagship Jambreiro Iron Ore project in Brazil. The resource was upgraded to now include 35.2 million tonnes within the Measured and Indicated categories.. The infill drill program carried out at Jambreiro during the first half of 2011 focussed predominantly on the Tigre prospect, which is the largest of the 3 drilled prospects with resources at Jambreiro. The total resource in tonnes was reduced by approximately 10% at Tigre, yet the infill drilling has resulted in over 50% of the resource moving up in confidence to Measured and Indicated. This is a very positive outcome for Centaurus and bodes well for the potential development of the project. Approximately 60% of the resource for the Tigre prospect is now in the higher confidence resource categories which is in line with OML expectations from the recent drill program. It must be noted this is an interim resource upgrade, with a further resource increase and upgrade due in September 2011 following completion of the current extensional and infill drill program. Figure 1: Jambreiro June 2011 Resource estimate (20% Fe cut-off) Source: Centaurus Outlook Jul 2011: Aug 2011: Sept 2011: Oct 2011: Following the Jambreiro resource upgrade being achieved we expect a completed scoping study to be announced by the end of July. A positive scoping study will lead straight to a feasibility study on Jambreiro. Further drill results from extensional drilling at Jambreiro. Jambreiro resource increase. We are forecasting total resource size of approximately 90 million tonnes including Measured and Indicated resources of 40 million tonnes. OML forecast drilling to commence at the recently acquired Serra do Lontra export iron ore project in October. Valuation We have forecast a mining pit inventory of 40 million tonnes to be delineated, resulting in a +9 year mine life, producing 2 million tonnes per annum from mid 2013. Our current estimate of US$40 million initial capital cost has remained unchanged and will be reviewed following release of the scoping study in July. A discounted cashflow (dcf) valuation methodology has been used. The dcf was previously risk adjusted substantially due to the Inferred resource status only. With now 50% of the resource quickly upgraded to Measured and Indicated that have given us the confidence in project. We have revised our base case valuation of Jambreiro to A$118 million (previously A$69m). With the likelihood that Serra do Lontra will become a priority project along with Jambreiro, for Centaurus, we have forecast possible production from Passabem Friday, June 24, 2011 Page 2
and Itambe being pushed out to FY14. This has reduced the dcf valuations for both Passabem and Itambe. Share price risks OML identifies the major risks for Centaurus as follows: Downgrades to resources through infill drilling would significantly lower the value of the respective project and put down side pressure on the share price. Timing delays could occur due to delays in the regulatory approvals process which could stall construction and therefore de-value the projects. Operating costs different to OML s forecasts. Capital costs could be significantly underestimated by OML. Brazilian domestic and export iron ore price and exchange rates moving adversely before or after financing has been secured. This would reduce the values of the projects considerably. Further exploration is not successful, therefore limiting upside risk. Regulatory changes adversely impacting the fiscal regime in Brazil such as the introduction of a resource profits tax akin to that being proposed in Australia. Weather related events causing delay and or damage to projects. Friday, June 24, 2011 Page 3
Financial Statements - CTM Centaurus Metals Limited (CTM) Year ending June Profit & Loss Statement ($M) FY10A FY11E FY12E FY13E* FY14E Assumptions FY10A FY11E FY12E FY13E* FY14E Operating Revenue 0 0 0 59 284 Brazilian domestic iron ore price - 81 88 84 80 Operating Expenses 0 0 0 (23) (101) (>65% Fe Sinter US$/t) Mining Operating Profit Before Tax 1 0 0 0 36 184 US$/A$ 0.88 0.98 1.06 1.01 0.92 Other Income - Asset Sales & Rent 0 0 1 2 3 Other Expenses (4) (9) (14) (7) (6) Iron Ore Production (kt) FY10A FY11E FY12E FY13E* FY14E EBITDA (4) (8) (13) 31 180 Jambreiro 0 0 0 725 1,998 Depreciation & Amortisation (0) 0 0 (2) (11) Serra do Lontra 0 0 0 0 225 EBIT (4) (8) (13) 29 169 Passabem 0 0 0 0 700 Net Interest Income 0 0 0 0 0 Itambe 0 0 0 0 188 Pre-Tax Profit (4) (8) (13) 29 169 Total 0 0 0 725 2,698 Tax Expense 0 0 0 (10) (57) Cash Cost incl royalty (US$/t) na na na 32.27 29.74 Reported NPAT (4) (8) (13) 19 112 Adjustments (after-tax) 0 0 0 0 0 JORC Resource Estimates Status Normalised NPAT (4) (8) (13) 19 112 Reserves Proved Probable Total EBITDA Margin (%) na na na na na Mine na na na Effective tax Rate (%) 0% 0% 0% 34% 34% Resources (Includes Reserves)* Measured Indicated Inferred Total EPS Reported (cps) (0.65) (0.92) (0.94) 1.18 6.90 Jambreiro Explor. 6 29 35 71 EPS Normalised (cps) (0.65) (0.92) (0.94) 1.18 6.90 Passabem Explor. - 3 36 39 EPS grow th (%) na na na na 483% Itambe Explor. - 5 5 10 DPS - Total (cps) 0 0 0 0 0 Total 6 37 77 120 Payout Ratio - Ordinary Divs (%) na na na na na *As at June 2011 Franking - Total (%) na na na na na Leverage FY10A FY11E FY12E FY13E* FY14E * OML assumes production w ill commence in Q3FY13 Net Debt/Equity -16% -20% -64% -23% -34% Cash Flow Statement ($M) FY10A FY11E FY12E FY13E* FY14E Net Debt/Total Assets -14% -18% -62% -20% -26% Pre-Tax Operating Cash Flow (2) (2) (4) 32 180 Interest Cover (x) na na na na na Tax Paid On Operating Activities 0 0 0 (10) (57) Operating Cash Flow (2) (2) (4) 22 122 Valuation Ratios (x) FY10A FY11E FY12E FY13E* FY14E Exploration & Development (2) (12) (12) (5) (2) Normalised P/E -12.3-8.7-8.5 6.8 1.2 Property, Plant & Equipment (0) (0) 0 (63) (71) Price/Op Cash Flow na na na 3.1 0.6 Tax Paid On Investment Activities EV* na 59.4 49.3 93.5 41.5 Other Investing Items (0) 0 1 2 3 EV/EBITDA na na na 3.0 0.2 Investing Cash Flow (3) (12) (11) (65) (70) EV/EBIT na na na 3.2 0.2 Inc/(Dec) in Equity 0 18 82 3 0 * Enterprise value forecasts for each financial period inclusive of any forecast issued capital increases Dividends Paid 0 0 0 0 0 Valuation Financing Costs 0 (1) (4) 0 0 Debt Draw dow n/(repayment) 0 0 0 0 0 Jambreiro 118 0.07 141 0.09 Financing Cash Flow 0 17 78 3 0 Serra do Lontra 86 0.05 172 0.11 Inc/(Dec) in Cash (5) 4 63 (40) 52 Passabem 30 0.02 49 0.03 Itambe 43 0.03 52 0.03 Balance Sheet ($M) FY10A FY11E FY12E FY13E* FY14E Regional Exploration 10 0.01 20 0.01 Cash & Deposits 5 8 72 32 83 Listed Investments 1 0.00 1 0.00 Receivables 1 0 0 7 34 Corporate (9) (0.01) (9) (0.01) Inventories & Other Current Assets 0 0 0 7 34 Options 2 0.00 2 0.00 Property, Plant & Equipment 1 1 1 62 121 Cash 12 0.01 12 0.01 Exploration & Development 29 35 41 43 43 Equity Raised 71 0.04 71 0.04 Investments 0 1 2 3 4 Total 364 0.23 513 0.32 Other Non Current Assets 0 2 1 1 3 Total Assets 36 48 117 155 325 Valuation Base: $0.23 Upside : $0.32 Payables and other current Liabilities 1 2 1 17 61 Discount of share price to valuation 182% 296% Short Term Debt 0 0 0 0 0 Long Term Debt 0 0 0 0 0 Per share valuation sensitivity to: Other Non Current Liabilities 4 4 4 3 16 +/- 10% move in iron ore price $0.03 Total Liabilities 5 6 5 20 77 +/- 10% move in the $US/$A rate $0.01 Total Equity 31 42 112 135 247 Net Debt (Cash) (5) (8) (72) (32) (83) Current price $0.080 Recommendation Buy Major Shareholders Million (%) Date Risk rating High Directors and Mgt 92.5 10.9% Jan-11 12-month price target $0.24 Source: Centaurus Metals Limited, Ord Minnett estimates. Base Case Notes: 1. Mining operating profit before tax is the direct mining contribution. 2. May not add because of dilution effects. (million tonnes) Upside Case $ M $ per s hare 2 $ M $ per s hare 2 Friday, June 24, 2011 Page 4
Please contact your Ord Minnett Adviser for further information on our document. Research Stephen Scott Head of Research Sydney sscott@ords.com.au Peter Arden Senior Research Analyst Melbourne parden@ords.com.au Richard Ivers Senior Research Analyst Melbourne rivers@ords.com.au James Lennon Senior Research Analyst Sydney jlennon@ords.com.au Luke Smith Senior Research Analyst Melbourne lsmith@ords.com.au Brad Dunn Analyst Sydney bdunn@ords.com.au Nicholas McGarrigle Research Associate Sydney nmcgarrigle@ords.com.au Ord Minnett Branches Sydney (Head office) Level 8 NAB House 255 George Street Sydney NSW 2000 Tel: (02) 8216 6300 Fax: (02) 8216 6311 Caloundra, Sunshine Coast 79-81 Bulcock Street Caloundra QLD 4551 Tel: (07) 5491 3100 Fax: (07) 5491 3222 Mackay 45 Gordon Street Mackay QLD 4740 Tel: (07) 4969 4888 Wollongong 3/55 Kembla Street Cnr Market and Kembla Streets Wollongong NSW 2520 Tel: (02) 4226 1688 Fax: (02) 4226 1604 Adelaide Level 11 13-19 Grenfell Street Adelaide SA 5000 Tel: (08) 8203 2500 Fax: (08) 8203 2525 Canberra 101 Northbourne Avenue Canberra ACT 2600 Tel: (02) 6206 1700 Fax: (02) 6206 1720 Melbourne Level 23 120 Collins Street Melbourne VIC 3000 Tel: (03) 9608 4111 Fax: (03) 9608 4142 Brisbane Level 10, Waterfront Place 1 Eagle St Brisbane QLD 4000 Tel: (07) 3214 5555 Fax: (07) 3214 5550 Coffs Harbour Suite 4 21 Park Avenue Coffs Harbour NSW 2450 Tel: (02) 6652 7900 Fax: (02) 6652 5716 Newcastle 41-45 Newcomen Street Newcastle NSW 2300 Tel: (02) 4910 2400 Fax: (02) 4910 2424 Buderim Sunshine Coast 84 Burnett Street Buderim QLD 4556 Tel: (07) 5430 4444 Fax: (07) 5430 4400 Gold Coast Level 7, 50 Appel Street Surfers Paradise QLD 4217 Tel: (07) 5557 3333 Fax: (07) 5574 0301 Tamworth Suite 3 344-346 Peel Street Tamworth NSW 2340 Tel: (02) 6761 3333 Fax: (02) 6761 3104 www.ords.com.au Friday, June 24, 2011 Page 5
Ord Minnett Limited ABN 86 002 733 048 ASX Market Participant AFS Licence Number 237121 www.ords.com.au Guide to Ord Minnett Recommendations BUY The stock s total return (nominal dividend yield plus capital appreciation) is expected to exceed 15% over 12 months. ACCUMULATE The stock s total return is expected to be between 5% and 15%. Investors may add to existing holdings, or initiate holdings on share price weakness. HOLD The stock is fairly priced, and its total return is expected to be between 0% and 5%. LIGHTEN SELL RISK ASSESSMENT The stock s total return is expected to be less than 0% and possibly down 15%. Investors should consider selling into share price strength. The stock s total return is expected to lose 15% or more. Classified as High, Medium or Low, denotes the relative assessment of an individual stock s risk based on an appraisal of its disclosed financial information, volatility, nature of its operations and other relevant quantitative and qualitative criteria. Disclosure: Ord Minnett is the trading brand of Ord Minnett Limited ABN 86 002 733 048, holder of AFS Licence Number 237121 and an ASX Market Participant. Ord Minnett Limited and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage from, any securities referred to in this document. Further, Ord Minnett and/or its affiliated companies may have acted as manager or co-manager of a public offering of any such securities in the past two years. Ord Minnett and/or its affiliated companies may provide or may have provided corporate finance to the companies referred to in the report. This document is not available for distribution outside Australia and New Zealand and may not be passed on to any third party or person without the prior written consent of Ord Minnett Limited. From time to time OML receives assistance and access to CTM sites. This access may include site transport, incidental expenses and equipment access and management access. Where practical, OML policy is to pay for all travel and accommodation expenses. Disclaimer: Ord Minnett Limited believes that the information contained in this document has been obtained from sources that are accurate, but has not checked or verified this information. Except to the extent that liability cannot be excluded, Ord Minnett Limited and its associated entities accept no liability for any loss or damage caused by any error in, or omission from, this document. This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs, and therefore before acting on advice contained in this document, you should consider its appropriateness having regard to your objectives, financial situation and needs. If any advice in this document relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure Statement for that product before making any decision. Analyst Certification: The analyst certifies that: (1) all of the views expressed in this research accurately reflect their personal views about any and all of the subject securities or issuers; and (2) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed herein and (3) the analyst presently holds an interest in the securities referred to in this document, including CTM and will benefit from any increase in the price of these securities. Friday, June 24, 2011 Page 6