Australia Equity Research
28 January 2014
BSE.AX, BSE AU
Overweight
Price: A$0.41
Mineral Sands
Price Target: A$0.70
Initiating on Base Resources and Mineral Deposits:
exposure to levered growth in the sector
MDL.AX, MDL AU
Overweight
Price: A$2.20
Price Target: A$3.15
We are initiating coverage of Base Resources (BSE.AX) and Mineral Deposits
(MDL.AX). We believe both stocks are due for a rerating given 1) operational
risks are decreasing with BSE’s Kwale recently commencing production, and
MDL’s Grande Côte scheduled for start this quarter; and 2) the stocks are
trading at discounts to NPV due to cyclically weak demand and pricing of
mineral sands. We initiate on both stocks with Overweight ratings.
! We remain positive on the Mineral Sands sector: The unexpected
weakness in both zircon and TiO2 feedstock from September to December
saw a re-emergence of the bear-argument for structural changes to demand.
However, in both cases we believe this is largely due to seasonality, and we
still see no evidence of major structural changes to demand trends.
Greenshoots are appearing and we expect better demand conditions in
CY2014 to result in higher prices for both commodities.
! Initiating on Base Resources with an Overweight rating and a
December 2014 price target of A$0.70/share: Base Resources is a A$230
million company which owns and operates the Kwale mine in Kenya.
Reasons to be positive include: 1) valuation with the stock trading well
below half of our NPV; 2) strong expected free cash flow yield of 11% in
CY2014 and 39% in CY2015; and 3) leverage to mineral sands prices.
Australia
Metals & Mining
Mark Busuttil
AC
(61-2) 9003-8619
[email protected]
Bloomberg JPMA BUSUTTIL <GO>
Lyndon Fagan
(61-2) 9003-8648
[email protected]
Joseph Kim
(61-2) 9003-8615
[email protected]
Luke Nelson
(61-2) 9003-8618
[email protected]
J.P. Morgan Securities Australia Limited
! Key risks on BSE are around ramping up Kwale: In our view, the key
risk to our positive view is project execution. The Kwale project commenced
production in December 2013 and Base has yet to prove that the asset can
operate at capacity and at targeted operating costs. We would also highlight
political risks given the Kenyan government has been amending the mining
code, and previously looked to introduce local equity ownership laws.
! Initiating on Mineral Deposits with an Overweight rating and a
December 2014 price target of A$3.15/share: Mineral Deposits has a 50%
stake in the TiZir JV with Eramet. TiZir owns and operates the Grande Côte
mine (90% stake) in Senegal and the Tyssedal slag smelter in Norway.
Notwithstanding leverage to mineral sands prices, our positive view is also
based on valuation with the stock trading for a discount to our NPV. We also
note potential upside to our Tyssedal valuation of US$145 million (100%)
given the asset generated EBITDA of US$85m in CY2013 (estimated).
! Key risks on MDL are around execution and cash flow: While MDL’s
recent equity raising likely provides sufficient capital for the last of the capex on Grande Côte, we expect limited free cash flow from MDL given the
likely costs associated with a furnace reline at Tyssedal in CY2015.
Equity Ratings and Price Targets
Company
Base Resources
Mineral Deposits
Ticker
BSE AU
MDL AU
Mkt Cap
(A$ mn)
227.55
211.29
Rating
Price (A$)
0.41
2.20
Cur
OW
OW
Prev
—
—
Price Target
Cur
Prev
0.70
—
3.15
—
Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 28 Jan 14.
See page 50 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Table of Contents
Executive Summary .................................................................3
Base Resources (BSE.AX) .......................................................5
Company Overview ................................................................................................5
Kwale Project (100% owned by Base Resources).....................................................6
Exploration tenements...........................................................................................16
Balance sheet and liquidity....................................................................................17
Board and management .........................................................................................19
Forecast financial statements .................................................................................20
Valuation ..............................................................................................................21
Mineral Deposits (MDL.AX)....................................................22
Company Overview ..............................................................................................22
Grande Côte (90% owned by TiZir).......................................................................23
Tyssedal (100% owned by TiZir)...........................................................................31
Balance sheet and liquidity....................................................................................37
Board and management .........................................................................................39
Forecast financial statements .................................................................................40
Valuation ..............................................................................................................41
Country profiles......................................................................42
Kenya ...................................................................................................................42
Senegal .................................................................................................................45
2
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Executive Summary
With this report we initiate coverage of Base Resources (BSE.AX) and Mineral
Deposits (MDL.AX). We believe it is an opportune time to look at these stocks,
given: 1) both companies are likely to be in production this year having completed
construction of their mining projects; 2) our expectations that mineral sands demand
and pricing will rebound in 2014 after a cyclically soft period for both zircon and
TiO2 feedstock; and 3) attractive equity valuations.
Base Resources is a A$230 million company which commenced production of
mineral sands from its wholly-owned Kwale mine in Kenya in December 2013. We
are initiating coverage with an Overweight rating and a A$0.70 per share December
2014 price target. Our price target is based on a 25% discount to our NPV to account
for risks around project ramp-up.
Reasons to be positive on Base Resources include:
1. Valuation: The key reason for our positive view on Base Resources is valuation
with the stock trading for a P/NPV of less than 0.5x and P/E’s of 2.5x CY2015
EPS and 1.8x CY2016 EPS.
2. Leverage to mineral sands prices: We have recently updated our view on
zircon and TiO2 feedstock and believe the recent softness is largely cyclical. With
greenshoots already appearing, we expect a rebound in demand to increase prices
for both commodities in 2014. With pure play equities’ valuations reflecting
current weak demand, we believe improving prices are likely to act as a strong
positive catalyst for Base Resources this year.
3. Fully funded with strong cash flow yield: Construction at Kwale was
completed in December 2013 meaning no further growth cap-ex is needed to be
spent on the project. The company extended its debt facilities in December 2013
to allow for working capital requirements. Therefore, notwithstanding any
potential issues through the construction and commissioning phase, Base
Resources should be fully funded for the ramp up to full production. Furthermore,
we estimate free cash flow of A$25 million in CY2014 (yield of 11%) and A$86
million in CY2015 (yield of 39%).
Risks to our positive view on the stock include:
1. Project execution: As with any other project in an early stage of production, one
of the biggest risks for Base Resources is proving the Kwale project can operate
at capacity, and at targeted operating costs without any further capital required.
Lower than expected production, higher than expected costs or additional capital
would have a negative impact on our valuation.
2. Off-take: While Base Resources has secured off-take agreements for the
majority of its forecast sales volumes, most of these contracts are relatively shortdated which means that extensions or new contracts will need to be arranged.
3. Political risk: As we discuss on page 42, Kenya has a small burgeoning mining
industry and the Kwale project is one of the largest capital projects in the country.
Political risk has been highlighted over the last 12 months with the Kenyan
government action to introduce the Local Equity Ownership laws in January 2013
as well as changing the Mining Bill later that year.
3
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Mineral Deposits is a A$210 million company which holds a 50% stake in the TiZir
joint venture (the balance is held by Eramet - a €2 billion French-based mining and
metallurgical processing group). The TiZir JV is the majority owner of the Grande
Côte Mineral Sands project in Senegal, which is in the final stages of construction
and commissioning, and owns and operates the Tyssedal slag smelter in Norway.
We are initiating coverage of Mineral Deposits with an Overweight rating and a
A$3.15 per share December 2014 price target. Our price target is based on a 25%
discount to our NPV using a 10% discount rate.
Reasons to be positive on Mineral Deposits include:
1. Valuation: While not as compelling as Base on valuation, Mineral Deposits
trades for a P/NPV of 0.5x and P/E's of 5.7x CY2015 EPS and 3.3x CY2016
EPS. We also note that Mineral Deposits is the most levered of the Australian
producers to higher mineral sands prices and therefore could outperform its peers
in a rising price environment.
2. Vertical integration provides opportunities over the longer-term: The
combination of the Grande Côte mine and Tyssedal smelter provides a number of
strategic benefits. In particular, over the longer-term the company has options
over Grande Côte off-take, while Tyssedal obtains a new source of ilmenite,
which potentially provides for expansion opportunities. With Tyssedal due for a
furnace reline in 2015, TiZir could use the downtime as an opportunity to exploit
some of these opportunities to better combine the two assets.
3. Potential value upside from the Tyssedal asset: While we value the Tyssedal
smelter at only US$160 million (100% share) based on an NPV, the smelter
generated EBITDA of US$113 million in CY2012 and US$85 million estimated
in CY2013. We also note that Tyssedal is the only ilmenite smelter in Europe
and one of only five in the world. The smelter provides 24% of the global supply
of sulphate slag.
Risks to our positive view on the stock include:
1. Project execution: Similar to Base Resources, the biggest near-term risk for
Mineral Deposits is proving the Grande Côte project can operate at capacity, and
at targeted operating costs without any further capital required. Lower than
expected production, higher than expected costs or additional capital would have
a negative impact on our valuation.
2. Cash flow: While we do not forecast any further capital will be required, we do
not expect much free cash flow to be generated by TiZir for the next two years.
Cash flow in 2014 will be used predominately for the remaining cap-ex at Grande
Côte. Similarly in 2015, the US$80-$100 million reline should use the majority
of cash in that year.
3. Political risk: According to the 2013 Doing Business (a co-publication of The
World Bank and the International Finance Corporation), Senegal ranks 178th out
of 189 countries in terms of business risk.
4
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Base Resources (BSE.AX)
Company Overview
Base Resources is a mineral exploration and development company with one flagship
project: the Kwale Mineral Sands Project in Kenya; and three exploration tenements:
the Mambrui, Kilifi and Vipingo projects north of Mombasa in Kenya.
Figure 1: Base Resources’ exploration and development projects
Source: Base Resources
5
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Kwale Project (100% owned by Base Resources)
The Kwale Project is located 10 kilometres inland from the Kenyan coast and 50
kilometres south of Mombasa, Kenya’s principal port facility. The project is owned
and operated by Base Titanium, a wholly-owned subsidiary of Base Resources.
Kwale was acquired by Base Resources from Vaaldiam Mining (formerly Tiomin
Resources) in July 2010 for US$3 million in cash, and a 2% royalty on gross product
revenue from the Central and South Deposits. Additionally, Base Resources paid
Vaaldiam US$1 million for each of the three exploration projects to the north of
Mombasa (Mambrui, Kilifi and Vipingo).
Prior to the transaction, Vaaldiam had spent US$60 million to progress Kwale
through resource definition, government approvals and a Definitive Feasibility
Study. On acquiring the project, Base completed an Enhanced Definitive Feasibility
Study (released in May 2011) which included further drilling and resource upgrades.
After securing project financing, construction commenced in September 2011, and in
October 2013, the company announced first mining and ore processing through the
wet concentrator at Kwale and first production of ilmenite and rutile in December
2013. The project is expected to increase production rates over the next few months
to achieve capacity in TiO2 feedstock by the first quarter of CY2014, and in zircon
by early CY2015.
The near-term production profile provided by the company in August 2013 is shown
below. We note that with production starting in October 2013, there was a onemonth delay to this timeline.
Figure 2: Early production profile (annualized)
400
Ilmenite
Rutile
Zircon
12
Ore mined
350
10
8
250
200
6
150
4
Mt of ore mined
kt of product
300
100
2
50
0
0
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Source: BSE
Mineral reserves and resources
The Kwale Project comprises two main areas, separated by the Mukurumudzi River,
that contain economically viable concentrations of heavy minerals. These are the
Central Dune and the South Dune. A third dune, the North Dune is currently not
included in the resources statement.
6
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
The mineralisation in these dunes lies within stratified aeolian sands of the Magarini
Formation and consists mainly of ilmenite, rutile and zircon. The deposit forms a belt
of low hills running parallel to the coast. The sands were deposited by wind action as
coastal dunes after conditions of intense erosion causing heavy minerals, mainly
ilmenite, rutile and zircon to be locally concentrated.
Figure 3: Kwale Project
Source: Base Resources
The Enhanced Definitive Feasibility Study (EDFS) which was based upon the
Central and South Dunes only, provided a combined JORC Code compliant Mineral
Resource of 86.2 Mt at 5.5% Heavy Minerals in the Measured category and 59.8mt
at 4.0% Heavy Minerals in the Indicated category (at a cut-off grade of 1%). A
further indicated resource of 116 million tonnes at a grade of 2.1% THM has been
reported at the North Dune. Mineral resources are shown in Table 1 on page 8.
Total mineral reserves (which are unchanged since the time of the EDFS in 2011) are
currently 140Mt at a heavy mineral grade of 4.9%. The reserves are predominately
TiO2 feedstock and consist of the following assemblage: 53% ilmenite, 13% rutile
and 6% zircon. Mineral reserves are shown in Table 2 on page 8.
7
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Table 1: Total mineral resources at October 2012
Dune
Central
South
Combined
Classification
Measured
Indicated
Total
Measured
Indicated
Total
Measured
Indicated
Total
Resource
(Mt)
46.21
29.94
76.15
40.02
29.85
69.87
86.23
59.79
146.02
Total Heavy Minerals
(%)
(Mt)
7.06%
3.26
4.56%
1.37
6.08%
4.63
3.77%
1.51
3.36%
1.00
3.59%
2.51
5.53%
4.77
3.96%
2.37
4.89%
7.14
Ilmenite
(%)
4.01%
2.47%
3.40%
1.95%
1.36%
1.70%
3.05%
1.92%
2.59%
Rutile
(Mt)
1.85
0.74
2.59
0.78
0.41
1.19
2.63
1.15
3.78
(%)
0.93%
0.61%
0.80%
0.54%
0.39%
0.48%
0.75%
0.50%
0.65%
Zircon
(Mt)
0.43
0.18
0.61
0.22
0.12
0.33
0.65
0.3
0.94
(%)
0.43%
0.26%
0.36%
0.22%
0.17%
0.20%
0.33%
0.22%
0.29%
(Mt)
0.20
0.08
0.28
0.09
0.05
0.14
0.29
0.13
0.42
Source: J.P. Morgan estimates.
Table 2: Total mineral reserves at October 2012
Dune
Classification
Central
Proven
Probable
Proven and Probable
Proven
Probable
Proven and Probable
Proven
Probable
Proven and Probable
South
Combined
Tonnes
(Mt)
THM
(%)
Slime
(%)
Oversize
(%)
Ilmenite
(%)
Rutile
(%)
Zircon
(%)
46.3
29.2
75.5
39.9
25.2
65.1
86.2
54.4
140.6
6.9
4.5
6.0
3.7
3.4
3.6
5.4
4.0
4.9
24.6
24.5
24.6
26.5
29.2
27.6
25.5
26.6
25.9
0.4
1.0
0.7
1.7
4.8
2.9
1.0
2.7
1.7
3.93
2.45
3.36
1.89
1.42
1.71
2.99
1.97
2.59
0.91
0.61
0.80
0.52
0.40
0.48
0.73
0.51
0.65
0.42
0.26
0.36
0.22
0.17
0.20
0.33
0.22
0.29
Source: J.P. Morgan estimates.
Production rates and mine life
The initial development of Kwale is based on 140.6Mt of reserves at the Central and
South Dunes provide an expected 13 year mine life commencing in 2013.
Over the first seven years of operations, production volumes are expected to average
330ktpa of ilmenite, 79ktpa of rutile and 30ktpa of zircon. Over the final six years,
production volumes are expected to average 200ktpa of ilmenite, 55ktpa of rutile and
19ktpa of zircon.
Figure 4: Life of mine production profile from November 2012
450
Ilmenite
400
Rutile
Zircon
14.0
Ore mined
12.0
10.0
300
250
8.0
200
6.0
150
4.0
100
2.0
50
0
0.0
CY2014
Source: BSE
8
CY2016
CY2018
CY2020
CY2022
CY2024
CY2026
Mt of ore mined
kt of product
350
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Mining and processing
A dozer trap mining unit (DMU) has been selected by Base Resources as the
optimum mining method for the Kwale Project. The DMU is a simple cost effective
method of mining, best suited to free-flowing, friable, incompetent material as
present at the Kwale Project, and is preferred over the use of a large bucket wheel
excavator.
Figure 5: Dozer mining unit at Kwale
Source: Base Titanium
From the dozer trap mining operations ore will be fed by slurry pipeline to a Wet
Concentrator Plant (WCP) where the slimes and tails are removed and a heavy
mineral concentrate delivered to a Minerals Separation Plant (MSP) for separation
into ilmenite, rutile and zircon. The products will be trucked to a port installation at
Likoni where they will be stored prior to loading into ships for export.
Figure 6: Simplified process flow diagram
Source: Base Titanium
9
Mark Busuttil
(61-2) 9003-8619
[email protected]
Figure 7: Process flow sheet
Source: Base Titanium
10
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Infrastructure
A large proportion of total capital expenditure for Kwale has been spent on the
development of infrastructure capable of supporting the project. Construction of this
infrastructure is now complete, with the access road, 132kv power supply, tailings
storage facility and Mukurumudzi dam functionally complete. The last part, the
Likoni marine facility, was scheduled for completion in early December 2013, ahead
of the first bulk shipment.
Figure 8: Kwale Project
Source: Base Resources
The key elements in the supporting infrastructure include:
! Mukurumudzi Dam: The primary source for make-up water for the Kwale
Project comes from a dam constructed on the Mukurumudzi River between the
Central and South Dunes. This dam has a capacity of 8.5 Mm3 and is
supplemented from the Gongoni borefield. The Gongoni borefield targets the
Msambweni Aquifer and has been designed to be able to produce 2.0 Mm3.
11
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
! Power supply: Power to the site is supplied from the Kenyan national grid via a
132 kilovolt power line from the nearest substation at Galu, 14 kilometres from
the Kwale Project. The average power demand over the first six years of
production is expected to be approximately six megawatts per annum. This is
expected to increase as the ore pumping distance increases to peak at about 13
megawatts per annum in 2024.
! Access road: A new eight kilometre paved site access road has been built
predominantly along existing road reserves, to connect the Kwale Project to the
existing A14 highway from Msambweni to Mombasa.
! Port facility: A new port facility has been built at Likoni, approximately 50
kilometres north of the mine site. This facility consists of:
- a storage shed capable of holding 45kt of ilmenite and 15kt of rutile;
- reclaim facilities;
- wharf facilities capable of handling up to 45,000 DWT vessels; and
- shiploading facilities.
Bulk ilmenite and rutile will be transported from the processing facility at the
Kwale Project by truck and off-loaded in the storage shed where they will be
stacked separately in preparation for shipping. The product will be reclaimed
from the stockpiles by front end loaders and transferred by conveyor to one of the
two shiploaders at up to 1,000 tonnes per hour.
Zircon and some rutile are intended to be shipped in containers through the
Kenya Port Authority container terminal on Mombasa Island.
Capital costs
Base Resources’ EDFS estimated capital costs for the project of US$256 million
which included an 8.7% estimating provision as well as a US$20 million project
contingency. In October 2012 with detailed design near completed, the company
announced a 14% increase in the original budget to US$275 million plus additional
total contingencies of US$23 million.
The revised estimated total project cap-ex of US$298 million was again increased in
mid-2013 to US$305 million. Of the total amount, US$281 million or 92% had been
spent by August 2013.
Operating costs
Based on the EDFS, the average estimated life-of-mine unit operating cost for the
project including mining, tailings and rehabilitation, WCP, MSP, port, royalties and
Kenyan overheads is US$4.67 per tonne of ore (2011 costs).
Table 3: Life-of-mine operating cost estimate from EDFS
Activity
Mining
Tailings and Rehabilitation
Wet Plant
Dry Plant
Product Handling
Royalties
Kenyan Overheads
Total
Source: BSE
12
Total Life-of-Mine Cost [US$m]
158
43
90
105
43
118
101
657
Average Annual Cost [US$m]
12.1
3.3
7.0
8.1
3.3
9.1
7.7
50.5
Average unit rate [US$/t ore]
1.12
0.30
0.64
0.75
0.30
0.84
0.72
4.67
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Mining is expected to commence in the higher-grade Central Dune before moving to
the lower-grade South Dune in the eighth year of operation. The implication is cash
operating costs for the first few years of production are likely to be lower than lifeof-mine estimates.
Figure 9: Life-of-mine production rates and grades
Central Dune
14
South Dune
9%
8%
12
7%
10
6%
8
5%
6
4%
3%
4
2%
2
Ore mined [Mt LHS]
1%
%HM [RHS]
0
0%
2014 2015 2016
2017
2018
2019 2020 2021 2022 2023 2024 2025
2026
Source: BSE
As noted previously, Base Resources agreed to pay a royalty to Vaaldiam Mining Inc
and Pangea Goldfields Inc as part of the acquisition cost for Kwale. Under the Kwale
Project Royalty Deed, the royalty is 2% (1.5% to Vaaldiam Mining Inc and 0.5% to
Pangea Goldfields Inc) of the Kwale Project gross revenue1. The royalty will be paid
net of any withholding tax that Base Titanium is obliged to withhold on behalf of the
recipients.
Fiscal terms
The Government of Kenya granted Vaaldiam Mining (the previous owner of Kwale
Project) the following key rights and concessions. These concessions have
subsequently been assigned to Base Titanium:
! a 50% reduction in corporate income tax on profits or gains derived from mining
operations, for a period of 10 years beginning on the date of first commercial
production;
! the remission of customs duty, excise duty and value added tax on special
mining, processing and infrastructure equipment imported into Kenya;
! an exemption from stamp duty on all land transactions resulting from the Kwale
Project;
! an exemption from rates and taxes levied by government or local authorities on
matters that are not based on profit from mining operations or the value of land
used for the mine, mining infrastructure or installations; and
! a permission to export minerals obtained from the area covered by the Kwale
SML free of any tax, duty or other fees or charges.
1
Gross revenue being the amount received by Base Titanium from the sale of product on an
FOB Mombasa basis produced or won from the Kwale Project (Central and South deposits)
13
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
The term of the Fiscal Agreement is 21 years from the date of grant of the Kwale
SML (being 6 July 2004), with a right of renewal, subject to mutual agreement.
In January 2013, Base Resources announced the recently introduced 35% Local
Equity Participation Regulation did not apply to Kwale and the company would
retain its 100% ownership of the project. Nonetheless, this regulation was reversed
with Kenya’s proposed Mining Bill 2013 in August 2013.
As part of the proposed bill, the Kenyan government announced increases to mineral
royalties. For rare earth, niobium and titanium ores, royalties would rise to 10% of
gross sales value 2from 3% previously.
Offtake agreements
Base has secured seven off-take agreements across the three product streams with
some of the world’s largest consumers of titanium dioxide and zircon products,
including a cornerstone agreement with DuPont Titanium Technologies. Over the
past year, three new, three year, take or pay off-take agreements have been signed
with Chinese off-takers, securing a large portion of the previously uncontracted sales
volumes for ilmenite and zircon.
All off-take agreements contain firm minimum volumes (subject to annual
production forecasts by Base), with pricing derived from prevailing market prices,
based on agreed price index or six monthly or quarterly price negotiations.
Figure 10: Off-take arrangements
Source: BSE
2
the value receivable at the point of sale in an arms-length transaction without discounts,
commissions or deductions for the mineral on disposal
14
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Valuation
We estimate the value the Kwale Project at US$0.5 billion (as at June 2013) based on
the following assumptions:
! Pricing: We use J.P. Morgan house forecasts for mineral sands prices with longterm forecasts of US$1,250/t for zircon, and US$1,000/t for rutile.
! Production: Our production forecasts are in line with management estimates but
we assume a six-month difference between production and sales.
! Operating costs: For conservatism, our operating cost assumptions are 25%
higher than the figures provided in the EDFS.
! Cap-ex: We assume cap-ex of A$50 million remaining for growth (in the
December 2013 half which has yet to be reported) and approximately A$20
million of sustaining cap-ex per year over the remaining life of the project.
! Valuation methodology: We use a discounted cash flow model using a 10%
discount rate.
Table 4: Estimated valuation for Kwale (June 2013)
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
Production
Zircon
kt
14
25
28
30
32
32
28
Rutile
kt
46
77
84
82
78
74
74
Ilmenite Saleable
kt
181
364
374
368
348
310
284
Total
kt
241
467
486
480
458
416
386
kt
14
25
28
30
32
32
28
Sales
Zircon
Rutile
kt
46
77
84
82
78
74
74
Ilmenite Saleable
kt
181
364
374
368
348
310
284
Total
kt
241
467
486
480
458
416
386
Zircon
US$/t
1102
1300
1425
1500
1500
1375
1250
Rutile
US$/t
951
1084
1186
1237
1235
1128
1028
Ilmenite Saleable
US$/t
139
153
162
170
170
165
160
Total Revenue
US$m
85.5
177.3
211.0
225.8
225.3
203.0
182.1
Realised prices (Real)
Cash cost of production
US$m
-37.2
-66.4
-70.8
-72.4
-79.6
-78.8
-78.3
Unit costs - REAL
US$/t
172.6
138.3
138.2
139.6
157.3
166.9
174.5
US$/t ore
5.2
7.7
8.2
8.2
7.8
6.3
5.5
EBITDA
US$m
48.3
110.9
140.2
153.4
145.7
124.2
103.8
Depreciation
US$m
-13.2
-25.3
-26.3
-26.0
-24.8
-22.5
-20.9
Tax
US$m
0.0
0.0
0.0
-0.9
-18.1
-15.2
-12.4
NPAT
US$m
35.0
85.7
113.9
126.5
102.8
86.4
70.5
Cap-ex
US$m
-54.3
-18.3
-19.0
-18.8
-18.6
-18.3
-18.6
Free cash flow
US$m
-6.0
92.7
121.2
133.6
109.0
90.6
72.8
NPV at 10% discount rate
US$m
541.5
Source: J.P. Morgan estimates.
15
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Exploration tenements
As part of the Kwale acquisition, Base Resources also acquired an option to purchase
three further exploration projects, Mambrui, Kilifi and Vipingo, located along the
coast to the north of Mombasa. Following the exploratory drilling program
completed during the year, updated JORC-compliant resource estimates have been
completed for the Kilifi and Mambrui projects.
Table 5: Mineral resources
Project
Kilifi
Classification
HMC
Ilmenite
Rutile
Zircon
(Mt)
(%)
(Mt)
(%)
(Mt)
(%)
(Mt)
(%)
(Mt)
Indicated
1,520
2.8%
43.0
1.80%
27.3
0.13%
2.0
0.12%
1.8
Inferred
593
2.4%
14.0
1.40%
8.3
0.10%
0.6
0.10%
0.6
2,110
2.7%
57.0
1.69%
35.6
0.12%
2.6
0.11%
2.4
0.5
Total
Mambrui
Resource
Indicated
490
4.1%
20.2
2.61%
12.8
0.10%
0.5
0.10%
Inferred
259
2.8%
7.2
1.54%
4.0
0.08%
0.2
0.07%
0.2
Total
750
3.7%
27.4
2.24%
16.8
0.09%
0.7
0.09%
0.7
Source: Company reports.
We assign no contribution for these exploration tenements in our valuation of Base
Resources.
Figure 11: Kenyan exploration projects
Source: BSE
16
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Balance sheet and liquidity
Base extended its cost overrun facility in May 2013
At June 2013, Base Resources had A$98 million of cash and A$179 million in total
debt. The debt consists of a fully-drawn US$150 million Project Finance Facility
and a US$40 million Cost Overrun Facility (of which US$20 million is currently
utilized).
The lead managers for this debt financing are CAT Finance, Deutsche Investititionsund Entwicklungsgesellschaft mbH, Nedbank Limited, Standard Bank of South
Africa Limited and WestLB AG, London Branch.
The Project Finance Facility has the following key terms:
! A US$80 million six-year term loan (Tranche A) and a US$70 million eight-year
term loan (Tranche B).
! Interest at a margin of approximately 6.0% per annum above LIBOR pre-project
completion and 5.5% per annum post-project completion (inclusive of a premium
for political risk insurance).
! A 2.5% upfront fee payable in various stages with the first being 60 days
following the receipt of credit approvals.
! Commitment fees of 1.5% per annum payable on undrawn amounts from the
signing date of the loan documents.
The Cost Overrun Facility has the following key terms:
! To be repaid (if drawn) pro-rata with Tranche A.
! To carry an additional 0.5% per annum margin over the Senior Debt Facility on
drawn amounts.
! The same upfront fee as the Senior Debt Facility (being a 2.5% upfront fee
payable in various stages, the first being 60 days following the receipt of credit
approvals).
! Commitment fees of 2.0% per annum payable on undrawn amounts from the
signing date of the loan documents.
The original cost overrun facility was extended by US$25 million in December 2013.
Base indicated the additional facility will be used to increase the working capital
buffer available during the ramp up phase of the Kwale Mineral Sands Project. The
terms are consistent with the existing facility.
17
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
We expect Base to draw on the Cost Overrun facility
The chart below shows our forecast cash flows for Base Resources to June 2017. As
shown, we include the additional debt financing in FY2014. This will bring total
debt facilities to approximately A$200 million.
Figure 12: Forecast cash flow to FY2017 [A$m]
350
FY2014
FY2015
FY2016
FY2017
300
250
200
150
100
Source: J.P. Morgan estimates.
The charts below show our forecast credit metrics for Base Resources. While the
measures look high in the near-term, strong forecast cash flow should see low
EBITDA/Interest coverage ratios achieved when the plant reaches capacity. We
forecast the company will become net cash by FY2016.
Figure 13: Forecast debt metrics
200
Figure 14: Forecast debt metrics
Net debt
100
Gearing
80%
60%
40%
0
20%
-100
30
20
0%
-200
-20%
-300
-40%
-400
-60%
-500
-80%
FY2013
FY2015
Source: J.P. Morgan estimates.
18
40
FY2017
FY2019
10
0
Net debt/EBITDA
-10
FY2013
FY2015
EBITDA/Interest
FY2017
FY2019
Ending Cash
Debt
Equity
Cap-ex
Working capital
Interest & Tax
EBITDA
Ending Cash
Equity
Debt
Cap-ex
Working capital
EBITDA
Interest & Tax
Ending Cash
Equity
Debt
Cap-ex
Working capital
Interest & Tax
EBITDA
Ending Cash
Equity
Debt
Cap-ex
Working capital
Interest & Tax
Starting cash
0
EBITDA
50
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Large holders dominate register
The table below shows the company’s largest shareholders. As shown, the six
largest shareholders own more than 63% of the outstanding stock. Several of these
large holders (particularly Pacific Road and Aterra Investments) are private equity
companies which could look to exit the stock as it reaches steady state production.
Table 6: Substantial shareholders (August 2013)
Substantial shareholders
Interest
Comments
Pacific Road Capital
20.5%
Sydney-based private equity manager
Taurus Funds Management
13.0%
Australian based global fund manager specialising in mining and related industry investment products
L1 Capital
8.8%
Australian based, specialist fund manager that is owned, funded and managed by the founders
Acorn Capital
8.2%
Specialist investment manager focused solely on the microcap sector of the Australian share market
BT Investment Management
7.0%
Majority owned by Westpac and listed on the ASX. BT manages A$58.3 billion for investors.
Aterra Investments
5.7%
Private equity firm specializing in investments in natural resources projects and early stage companies.
Total interest of Substantial Shareholders
63.2%
Total interest of top 10 shareholders
~75%
Source: BSE
Board and management
Key board and management staff include:
Mr Andrew King, Non-Executive Chairman
A mining engineer with over 35 years’ experience in the mineral resources industry,
Mr King brings knowledge and expertise in technical disciplines as well as in the
establishment of new companies including Goldstar Resources NL and Alcyone
Resources Limited. In addition to experience covering corporate, strategic and
operational roles in gold, iron ore, coal and base metals, he holds qualifications in
accounting and financial management.
Tim Carstens, Managing Director
Mr Carstens previously held senior executive roles with Perilya Limited, North
Limited, Robe River Iron Associates, Iron Ore Company of Canada and St Barbara
Mines Limited in operations, strategy, corporate development and finance, both in
Australia and overseas. Most recently he was Executive General Manager –
Operations and Development with Perilya Limited with responsibility for all
operational and project development activities in the Broken Hill field, comprising
two operating mines and three advanced development projects.
Colin Bwye, Executive Director (Operations & Development)
Mr Bwye has over 20 years experience in the mineral sands sector, having
commenced his professional career with RGC Mineral Sands (since consolidated into
Iluka Resources) as a plant metallurgist in 1988. Most recently he was Managing
Director of Western Australian mineral sands producer, Doral Mineral Industries Ltd,
a subsidiary of Iwatani Corporation of Japan. Mr Bwye has an extensive knowledge
of all aspects of the mineral sands industry, including downstream processing and
marketing of mineral sands products and he has also been integral in bringing a
number of development projects into production. He was born in Kenya and lived
there prior to migrating to Australia in 1987.
19
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Forecast financial statements
Table 7: Summary income statement
INCOME STATEMENT
Total production
Total sales
Realised price
Revenue
Production costs
Other costs
EBITDA
Depreciation
EBIT
Finance costs
Tax
NPAT
kt
kt
US$/t
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
241
241
360
96
-42
-10
44
-15
29
0
0
29
467
467
380
199
-75
-11
114
-28
86
-13
0
73
486
486
434
234
-78
-11
144
-29
115
-11
0
105
480
480
470
259
-83
-12
164
-30
134
-8
-1
125
458
458
492
269
-95
-12
162
-30
132
-6
-19
107
416
416
488
252
-98
-13
141
-28
113
-4
-16
93
386
386
472
228
-98
-14
116
-26
90
-3
-13
74
FY2014
63
43
106
339
2
39
380
486
19
212
8
239
248
214
34
248
FY2015
97
51
148
331
2
45
378
526
21
177
8
206
321
214
107
321
FY2016
163
57
221
323
2
51
376
597
22
142
8
171
425
214
211
425
FY2017
255
62
316
315
2
53
370
687
24
105
8
136
550
214
336
550
FY2018
331
65
395
307
2
53
363
758
27
67
8
101
657
214
443
657
FY2019
424
60
484
302
2
49
353
837
27
52
8
87
750
214
536
750
FY2020
488
59
547
299
2
47
349
896
27
38
8
73
824
214
610
824
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
4
0
0
4
-60
-60
0
22
0
22
-35
98
63
102
-13
0
89
-21
-21
0
-35
0
-35
34
63
97
133
-11
0
123
-21
-21
0
-35
0
-35
66
97
163
159
-8
-1
150
-22
-22
0
-37
0
-37
91
163
255
162
-6
-19
137
-22
-22
0
-38
0
-38
76
255
331
150
-4
-16
130
-23
-23
0
-15
0
-15
93
331
424
118
-3
-13
102
-23
-23
0
-15
0
-15
64
424
488
Source: J.P. Morgan estimates.
Table 8: Summary balance sheet
BALANCE SHEET
Cash and equivalents
Other
Current assets
PP&E
Exploration
Other
Non-current assets
Total assets
Current liabilities
Interest bearing debt
Other
Total liabilities
Net assets
Shareholder equity
Retained earnings
Total equity
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
Source: J.P. Morgan estimates.
Table 9: Summary cash flow statement
CASH FLOW STATEMENT
Cash from operations
Interest
Other
Cash from operating
Capital expenditure
Cash from investing
Equity
Debt
Dividends
Cash from financing
Net increase/decrease
Opening cash
Closing cash
Source: J.P. Morgan estimates.
20
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Valuation
We value Base Resources using a discounted cash flow model assuming a 10%
discount rate. On our base case assumptions, we value the stock at A$0.90 per share
today and A$0.99/share by December 2014.
Table 10: Summary valuation
NPV (year end June)
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
Kwale
A$m
731
710
655
569
493
417
364
Corporate
A$m
-82
-79
-76
-71
-68
-64
-58
Total
A$m
650
631
580
498
425
354
306
Net debt
A$m
149
80
-22
-150
-264
-371
-450
Equity value
A$m
501
551
601
648
689
725
756
per share
A$/share
0.94
1.04
1.13
1.22
1.29
1.36
1.42
Source: J.P. Morgan estimates.
Our December 2014 price target is A$0.70 per share at a 25% discount to our NPV.
We have incorporated the discount to account for risks around project ramp-up.
We are initiating with an Overweight rating. The key downside risks to our view
include:
1. Project execution: As with any other project in an early stage of production, one
of the biggest risks for Base Resources is proving the Kwale project can operate
at capacity, and at targeted operating costs without any further capital required.
Lower than expected production, higher than expected costs or additional capital
would have a negative impact on our valuation.
2. Off-take: While Base Resources has secured off-take agreements for the
majority of its forecast sales volumes, most of these contracts are relatively shortdated which means that extensions or new contracts will need to be arranged.
3. Political risk: As we discuss on page 42, Kenya has a burgeoning mining
industry and the Kwale project is one of the largest capital projects in the country.
This risk has been highlighted over the last twelve months with the Kenyan
government actions to introduce the Local Equity Ownership laws in January
2013 as well as changing the Mining Bill later that year.
21
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Australia Equity Research
28 January 2014
Mineral Deposits (MDL.AX)
Company Overview
Mineral Deposits is a A$210 million ASX-listed company. MDL has a 50% stake in
TiZir Limited which owns the Grande Côte Mineral Sands Project in Senegal, West
Africa and an ilmenite upgrading facility in Tyssedal, Norway. The remaining 50%
is owned by Eramet – a €2 billion French-based mining and metallurgical processing
group.
The ownership structure is shown in Figure 16.
! Grande Côte: Grande Côte is anticipated to produce on average approximately
85ktpa of zircon and 575ktpa of ilmenite (and small amounts of rutile and
leucoxene) when in full production over an expected mine life of at least 20
years. The construction of the project is close to completion, and TiZir expects to
commence commissioning in the first quarter of 2014.
! Tyssedal: The Tyssedal ilmenite upgrading facility smelts ilmenite to produce a
high-TiO2 titanium slag which is sold to pigment producers and a high purity pig
iron which is sold as a valuable co-product to ductile iron foundries. The facility
(which has been operating since 1986) currently produces approximately 200ktpa
of titanium slag and 110ktpa of high-purity pig iron.
Figure 15: Map of TiZir’s assets
Figure 16: Ownership structure
Source: MDL
Source: MDL
The TiZir joint venture was completed in 2011 with Eramet contributing the
Tyssedal asset as well as US$30 million in cash, and Mineral Deposits contributing
its 90% participation in Grande Côte Mineral Sands. The combination provides
Tyssedal with a new source of ilmenite, (which allows for expansion and product
diversification opportunities), while Grande Côte has secured off-take for the
majority of its ilmenite production.
In 2010, Mineral Deposits demerged its Sabodala Gold Project into Teranga Gold, a
ASX/TSX listed company. Mineral Deposits remained the largest holder of Teranga
with a 13% interest until selling its stake for US$20 million in January 2014.
22
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Grande Côte (90% owned by TiZir)
Grande Côte is located on a coastal mobile dune system starting about 80 km northeast of Dakar and extending northward for more than 100 km. The mineralized dune
system averages 4 km in width. The project area is 445.7 km2 and the main heavy
mineral deposits identified to date are Diogo, Mboro, Fass Boye and Lompoul. Both
the dunes and the underlying marine sands contain heavy minerals, principally
ilmenite with smaller quantities of zircon, rutile and leucoxene.
Figure 17: Location of Grande Côte mining concession
Source: MDL
In September 2004, Mineral Deposits was selected by the Government of the
Republic of Senegal to develop the Grande Côte Project. Under its Mining
Convention, MDL acquired the rights to explore and develop the project which had
been previously held by DuPont. On 27 November 2007, the Presidential Decree
granting the Mining Concession for the project was issued to MDL.
23
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
In 2010 Mineral Deposits released its definitive feasibility study on the project and
commenced construction activity on site in mid-2011. The project is now in the final
stages of construction and TiZir expects to start commissioning of Grande Côte in
the March 2014 quarter before ramping up to full production.
Mineral Reserves and Resources
As noted, the main heavy mineral deposits identified to date are Diogo, Mboro, Fass
Boye and Lompoul. Other deposits have been partially explored within the Mining
Concession and MDL believes there is potential to identify additional deposits
beyond the limits of present drilling.
Based on the drilling undertaken to date, Mineral Deposits has provided a Mineral
Resource estimate for the Diogo, Mboro, Fass Boye and Lompoul areas as shown
below.
Table 11: Mineral Resource Estimate for the Diogo, Mboro, Fass Boye and Lompoul areas
Resource Category
Measured
Indicated
Measured + Indicated
Total Tonnes (Mt)
HM (%)
980
50
1,030
1.73
1.72
1.73
Source: MDL
Ore reserves of 751Mt at 1.8% HM are based on the mineral resource block model
and a mine dredge path for the first 14 years of the operation. MDL have indicated
that the deposit continues to the north and south on the Mining Concession beyond
current reserves. Additional mine life will depend on the economics of the Grande
Côte Project including the mineral distribution, geometry and access, additional
drilling will also be required.
Table 12: Mineral Reserves
Mboro
Total Tonnes (Mt)
HM (%)
HM Tonnes (Mt)
Proved
Probable
Proved and Probable
Fass Boye
30
30
Total Tonnes (Mt)
1.9
1.9
HM (%)
0.6
0.6
HM Tonnes (Mt)
Proved
Probable
Proved and Probable
81
81
1.8
1.8
1.5
1.5
Diogo
Total Tonnes (Mt)
HM (%)
HM Tonnes (Mt)
Proved
Probable
Proved and Probable
342
5
347
1.8
1.7
1.8
6.3
0.1
6.4
Lompoul
Proved
Probable
Proved and Probable
Total Tonnes (Mt)
293
293
HM (%)
1.7
1.7
HM Tonnes (Mt)
4.9
4.9
Combined
Total Tonnes (Mt)
HM (%)
HM Tonnes (Mt)
746
5
751
1.8
1.7
1.8
13.2
0.1
13.3
Proved
Probable
Proved and Probable
Source: MDL
24
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
The reserves are predominately TiO2 feedstock and consist of the following
assemblage: 74.5% ilmenite, 2.5% rutile, 3.2% leucoxene and 11% zircon.
Recoveries are expected to be relatively low for rutile (24.9%) and leucoxene
(30.9%) but higher for zircon (81.3%) and ilmenite (84.1%).
Mining and processing
Mining will be carried out by dredging a continuous canal (dredge path) through the
orebody. The dredge will float in an artificial pond accompanied by a floating spiral
concentrator. To the rear of the Wet Concentrator, a tailings stacker will deposit the
tailings to fill the mined canal and achieve a final landform. Tailings represents
approximately 98% of all material mined by the dredge.
The heavy mineral concentrate from the Wet Concentrator will be pumped to the
Mineral Separation Plant (MSP) whereby it will be dewatered and stockpiled for
batch processing in the MSP. The MSP process flow sheet is shown below.
Figure 18: Process flow sheet
Source: MDL
Infrastructure
Significant existing road, rail and port infrastructure exists within Senegal that is
accessible by Grande Côte. This includes road and rail infrastructure and port and
harbour facilities.
25
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
The MSP has been located near Diogo village, approximately midway along the
mining lease to enable access to nearby infrastructure including major highways,
roads, railways and the Port of Dakar. The nearby town of Mboro, 25 km south, is
adjacent to a phosphate mine. The main highway between Dakar and Saint Louis to
the north is located 20 km east of the MSP site.
All products will be transported in bulk from the Mineral Separation Plant by a
newly built 22km spur which connects to an existing rail system to the Port of Dakar.
Figure 19: Infrastructure around MSP
Source: MDL
Production rates and mine life
Once the project reaches capacity, it is expected to mine and process 55Mtpa of sand,
producing an average of 85ktpa zircon, 575ktpa ilmenite, 6ktpa of rutile and 10ktpa
of leucoxene. Of the ilmenite, 400ktpa is sulphate and will likely feed the Tyssedal
plant and the remainder is chloride for sale to external parties.
According to an early Technical Report from 2010, mined grades are expected to
start around 1.8-2.0% HM and fall to 1.4% by year-14. Our estimated production
profile is shown in Figure 20 on page 27.
26
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Figure 20: Estimated production profile (kt)
700
Ilmenite
Rutile
Leucoxene
Zircon
Grade
2.1%
600
2.0%
500
1.9%
400
1.8%
300
1.7%
200
1.6%
100
1.5%
0
1.4%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Source: J.P. Morgan estimates, MDL
Capital costs
Mineral Deposits provided an estimated capital cost of US$406 million for the
Grande Côte project in its June 2010 Definitive Feasibility Study. A year later, this
capital cost estimate was increased to US$516 million due primarily to a change in
transportation strategy. The DFS was based on utilizing third party infrastructure,
but this was changed to a strategy of logistics self-sufficiency.
Table 13: Capital cost estimate from June 2011 (US$m)
Item
June 2011
Dredge and services
53.6
Wet concentrator plant
95.9
Mineral separation plant
63.0
Power station
49.4
Rail and rolling stock
43.6
Port facilities
21.7
Temporary construction facilities
22.4
Indirects – EPCM/commissioning /project fee
56.7
Owner Costs
61.1
Estimation/design allowance/contingency
49.0
Total
516.4
Source: J.P. Morgan estimates, Company data.
As at June 2013 with less than 12 months to go before first production and
construction 85% complete, Mineral Deposits indicated that US$100 million in
capital was left to spend on the project with the MSP due for completion in
November 2013, and the Wet Concentrator in February 2014.
27
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Operating costs
The DFS provided total operating costs of US$75 million per annum, of which
power and fuel (31%) and transportation (29%) were the largest components. In
June 2011, the operating cost estimate was increased to US$80-$80 million per
annum with increases to power and fuel (due to higher assumed heavy fuel oil price)
and social and environmental costs more than offsetting lower transportation costs.
Table 14: Annual operating cost estimate from June 2010 and June 2011 (US$m)
Description
June 2010
Change
June 2011
Power and fuel
23.1
+11
34.2
Employee costs
7.9
+2
9.4
Maintenance
13.8
+1
14.4
Transportation / Shipping
22.4
-9
13.6
Other
8.1
+3
12.3
Total
75.3
83.9
Source: Company reports.
Fiscal terms
Mineral Deposits executed a Mining Convention with the Government of the
Republic of Senegal (GRS) and obtained an official Exploration Permit (Permit de
Researche) in September 2004.
An Addendum to the Mining Convention was executed by MDL and GRS on 24
September 2007 and shortly thereafter, a Mining Concession was signed on 27
November 2007. The key terms of the agreement are:
! The payment of a 3% gross production royalty to GRS and a further 2% gross
production royalty directed to the New Town/social development in the region.
! GRS has the right to acquire 10% of the project’s production based on a cost-plus
formula.
! GRS is entitled to a 10% free-carried interest in the project operating company
and the payment of dividends once the project’s capital costs and associated
shareholder loans have been recovered.
! A 25 year mine lease.
! MDL to receive a 15 year exoneration from taxation including Value Added Tax
and Company Tax.
! No import duties on MDL-owned or rented equipment or on goods and services.
! GRS or a national Senegalese only has the right to acquire a further 25%
contributing interest in the exploitation company. Conditions relating to this
acquisition are:
-
28
Purchase price of shares in the exploitation company based on independent
evaluation of the project by an internationally recognised public accountancy
firm or investment bank. The independent expert will be selected by MDL
subject to the consent of the Minister of Energy and Mines.
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
-
A proposed buyer will have 30 days to pay for shares calculated from the
date on which MDL supplies the prospective buyer with the independent
valuation report.
-
Simultaneously and conditional on the payment for the shares and as a prior
condition to the allocation of these shares, the buyer will be required to pay
an amount proportional to its participation in the capital necessary for the
development of the project as has been determined by the offer of bank
finance.
Offtake agreements
Of Grande Côte's ilmenite production, 400ktpa will be 54% TiO2 grade and the
remaining 175ktpa will be 59% TiO2 grade. While the 59% grade material will likely
be sold to chloride pigment producers, the 54% TiO2 material is likely more suitable
for sulphate production and could partly be used to service Tyssedal.
Over the longer-term the combination with the Tyssedal smelter could provide
options for the sale of ilmenite from Grande Côte. As shown below, there are a
number of alternatives that could be used for ilmenite sales from the mine.
Figure 21: Joint Venture alternatives for Grande Côte titanium feedstock
Source: Company reports.
TiZir has also negotiated sales arrangements with a number of customers covering all
of the currently envisaged zircon production. The terms of these arrangements
include a pricing mechanism which is renewed on a rolling basis and is subject to
final product quality.
29
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Valuation
We estimate the value the Grande Côte Project at US$0.8 billion (as at December
2013) based on the following assumptions:
! Pricing: We use J.P. Morgan house forecasts for mineral sands prices with longterm forecasts of US$1,250/t for zircon, and US$1,000/t for rutile.
! Production: We assume first production in the June 2014 quarter and a twelve
month ramp up to full capacity. Based on current reserves, we assume a 20 year
mine life to 2034.
! Operating costs: Our operating cost assumptions are 15% higher than MDL’s
latest forecasts implying annual costs of ~US$110 million.
! Cap-ex: We assume cap-ex of US$100 million remaining for growth and
approximately US$16 million of sustaining cap-ex per year over the remaining
life of the project.
! Valuation methodology: We use a discounted cash flow model using a 10%
discount rate.
Table 15: Estimated valuation for Grande Côte
CY2013
CY2014
CY2015
CY2016
CY2017
CY2018
CY2019
CY2020
86
Production
Zircon
kt
0
29
93
86
86
86
86
Rutile
kt
0
5
17
16
16
16
16
16
Ilmenite Saleable
kt
0
64
205
189
189
189
189
189
Total
kt
0
244
783
722
722
722
722
722
Zircon
kt
0
29
93
86
86
86
86
86
Rutile
kt
0
5
17
16
16
16
16
16
Ilmenite Saleable
kt
0
64
205
189
189
189
189
189
Total
kt
0
244
783
722
722
722
722
722
Sales
Prices (Real)
Zircon
US$/t
1129
1181
1405
1601
1641
1682
1437
1472
Rutile
US$/t
972
965
1145
1280
1313
1345
1149
1178
Ilmenite Saleable
US$/t
229
173
198
213
219
224
195
200
Total Revenue
US$m
0.0
78.5
274.2
281.5
288.5
295.7
263.3
269.8
Cash cost of production
US$m
0.0
-72.7
-116.9
-116.9
-119.8
-122.8
-123.9
-127.0
Unit costs - REAL
US$/t
0.0
779.4
143.5
151.7
151.7
151.7
149.3
149.3
EBITDA
US$m
0.0
5.8
157.3
164.6
168.7
172.9
139.3
142.8
Depreciation
US$m
0.0
-12.4
-40.7
-38.5
-39.5
-40.5
-41.5
-42.5
Tax
US$m
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
NPAT
US$m
0.0
-6.6
116.6
126.0
129.2
132.4
97.8
100.3
Cap-ex
US$m
-60.0
-48.5
-16.7
-17.1
-17.5
-17.9
-18.4
-18.8
Free cash flow
US$m
-60.0
-42.7
140.6
147.5
151.2
155.0
120.9
124.0
NPV at 10% discount rate
US$m
849.9
Source: J.P. Morgan estimates.
30
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Tyssedal (100% owned by TiZir)
The Tyssedal ilmenite upgrading facility is located almost at the end of the
Hardangerfjord on the west coast of Norway. The plant has been producing titanium
slag and high purity pig iron (HPPI) since 1986. It is the only ilmenite smelter in
Europe and one of five in the world.
Table 16: Global slag processing
facilities
Company
QIT
Richards
Bay
Namakwa
Sands
TiZir
Ticor
Location
Sorel, Quebec,
Canada
Richards Bay,
South Africa
Saldanha Bay,
South Africa
Tyssedal,
Norway
Empangeni,
South Africa
Figure 22: Tyssedal location
Capacity
1.20m
1.05m
180k
200k
250k
Source: Company sources
Source: TiZir
The current capacity of the plant is 200ktpa of titanium slag and 110ktpa of high
purity pig iron. However, TiZir is has previously discussed a feasibility study to
assess the potential for a second furnace which would double the plant's capacity.
Figure 23: Tyssedal plant
Source: TiZir
31
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Titanium dioxide processing
Naturally occurring titanium dioxide comes in varying grades. The most commonly
occurring minerals are referred to as rutile and ilmenite.
! Rutile: Rutile has impurities, such as SiO2, Cr2O5, Al2O3 and FeO, which
invariably reduce the TiO2 content from a theoretical value of 100% to between
94% and 98%. Rutile is the most important member of three TiO2 polymorphs
(rutile, anatase and brookite) and is the premium commercial titanium mineral.
! Ilmenite: Ilmenite generally contains between 35% and 45% TiO2. Fresh
ilmenite is commonly intergrown with iron or chromium oxide minerals, and thus
may contain less TiO2 than expected. However, leaching of iron from ilmenite
during weathering can result in poorly crystalline mineral grains residually
enriched in TiO2. The term ilmenite commonly covers the entire range from
unweathered ilmenite (TiO2 <50%) to altered ilmenite (TiO2 >60%).
! Other: Variations occur between the end members of ilmenite and rutile,
including pseudo rutile and leucoxene (when the TiO2 content of altered ilmenite
exceeds about 70%, it is commonly referred to as leucoxene), as well as the other
polymorphs of TiO2, anatase and brookite.
Upgrading ilmenite to rutile
Given limited resources of naturally occurring rutile, the mining industry has
developed two beneficial products that are used as substitutes for natural rutile:
! Synthetic Rutile: Synthetic Rutile is produced by reducing the iron oxide in
ilmenite to metallic iron using carbon monoxide, followed by reoxidation and
separation from the TiO2 rich fraction (Becher process) or leaching with
hydrochloric acid (Benelite process). Synthetic rutile typically contains ~90-95%
TiO2.
! Titanium Slag: Slag feedstocks are produced by the smelting of ilmenites with
coal at high temperature. The process is adjusted to produce the different particle
size requirements for sulphate or chloride use. Slags typically contain 80-85%
TiO2.
Rutile or slag is further processed into pure TiO2
The overall process of manufacture is to take an impure TiO2 feedstock and to
convert this into pure white TiO2 pigment. While the process sounds simple, to
achieve this, it is necessary to chemically convert the impure TiO2 into another
chemical, separate out the impurities then to convert back to pure TiO2 – in effect a
chemical purification.
There are two commercial ways used to achieve this: the chloride and sulphate
process routes.
! Chloride processing: In the more commonly used chloride process, a
combination of rutile, synthetic rutile, and high-purity ilmenite is chlorinated to
form titanium tetrachloride, which is purified and oxidized to form TiO2 pigment.
! Sulphate processing: The sulfate process involves digestion of ilmenite ore or
TiO2-rich slag with sulfuric acid to produce a cake, which is purified and calcined
to produce TiO2 pigment. The sulfate process generates sulfuric acid wastes in as
much as two times the product weight, resulting in the need for expensive
treatment by neutralization before disposal of the wastes.
32
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
TiO2 slag
Ilmenite smelting is a process to upgrade the Ilmenite to TiO2-rich slag as primary
product and pig iron as a by-product. The final quality of the slag is highly dependent
on the quality of the ilmenite as virtually all the impurities, together with any
impurities in the reductant, report to the slag.
Ilmenite used for smelting typically contains 36% to 50% TiO2. These lower TiO2
ilmenites are the preferred feedstock for smelting, as the high iron content provides
suitable thermodynamic conditions for smelting to take place and high grade pig iron
is produced as a valuable by-product.
In smelting ilmenite, a temperature in the range of 1650oC-1700oC is required to
ensure that the thermodynamics of the process works correctly. For slag to be used in
the sulphate process, it is important that excessive amounts of rutile are not formed.
One of the limiting factors in ilmenite smelting is the inability to lower the FeO
content beyond a given level. As the FeO levels decline, the TiO2 content increases,
requiring higher operating temperatures due to the fluxing role played by FeO. This
places a limit on the minimum level of FeO that can be present in a typical slag,
which is generally in the range of 8% to 10%.
Attempts to produce higher TiO2 content slag also result in a reduction of a portion
of the Ti to Ti2O3, which is less soluble in sulfuric acid and hence such slags are not
suitable for the sulfate process pigment production.
Ilmenite smelting process
There are two processes for the direct smelting of ilmenite that have been used
commercially. These are:
! AC open arc smelting - developed by QIT and is used at QIT's plant at Sorel,
Canada and at Richards Bay Minerals (RBM) in South Africa.
! DC open arc (or plasma arc) smelting - developed by Mintek in South Africa and
adopted by Namakwa Sands Limited on the west coast of South Africa and by
Ticor South Africa at Empangeni near Richards Bay.
A variant to the direct smelting of ilmenite is to pre-reduce the ilmenite prior to
feeding this material to an electric furnace. In this instance, a high proportion of the
necessary reduction is carried out ahead of the furnace using a solid or gaseous
reductant, thereby reducing the consumption of electric power. This process therefore
has advantages in locations where power is relatively more expensive or in limited
supply. There are also advantages in the electric furnace operation being easier to
control.
Tyssedal process
Tyssedal is the only commercial titania slag operation involving pre-reduction of
ilmenite. The project was originally developed in the late 1980s for the processing of
45% TiO2 ilmenite produced from a rock ilmenite mine at Tellnes in Norway. The
ilmenite contains high levels of MgO and hence the slag produced from this
feedstock is suitable only for sulfate pigment production.
33
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
The Tyssedal process involves pelletising of the relatively fine-grained ilmenite and
pre reduction in a kiln, which results in an elaborate feed preparation circuit. A
circular, three-electrode, open arc furnace with a nameplate slag capacity of 200ktpa
is used for slag production.
The slag product resulting from the smelting of the ilmenite was originally around
75% TiO2, although in recent years this has been upgraded to around 80% TiO2 by
the use of higher TiO2 ilmenite in the feedstock blend, and lower ash content coal.
Figure 24: Tyssedal process flow diagram
Source: Company reports
34
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Key raw materials inputs and products from Tyssedal
The key inputs into the smelting process at Tyssedal are:
! 345ktpa of 44% ilmenite sourced primarily from the Tellness mine in Norway
! 100ktpa of coal sourced mostly from Europe
! Two thirds of power is sourced from local hydro station under long-term leasing
arrangements with the balance at market prices.
Figure 25: Inputs and outputs
Source: Company reports
Furnace reline
TiZir plans on conducting a furnace reline at Tyssedal. The major scheduled
maintenance which will likely see the smelter down for approximately three months
is planned for CY2015. With Grande Côte expected to commence production this
year, we believe it is possible that TiZir could make adjustments to the smelter at
Tyssedal to change the output to chloride slag (rather than sulphate). This would
enable the plant to utilize a greater proportion of feedstock from TiZir’s own Grande
Côte.
In our modeling, we assume the reline and plant upgrade are done at a capital cost of
US$80 million.
35
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Valuation
We estimate the value Tyssedal at US$145 million (as at December 2013) based on
the following assumptions:
! Pricing: We use J.P. Morgan house forecasts for mineral sands prices with longterm forecasts of US$1,250/t for zircon, and US$1,000/t for rutile.
! Production: We assume the plant maintains a capacity of 190ktpa of slag and
105ktpa HPPI. We do not incorporate an expansion to the operation.
! Operating costs: We assume coal and ilmenite purchases at spot market prices.
! Cap-ex: We assume sustaining cap-ex of US$4 million per year.
! Valuation methodology: We use a discounted cash flow model using a 10%
discount rate.
Table 17: Estimated valuation for Grande Côte
CY2013
CY2014
CY2015
CY2016
CY2017
CY2018
CY2019
CY2020
190
Production
TiO2 slag
kt
190
190
125
190
190
190
190
HPPI
kt
107
105
69
105
105
105
105
105
Total
kt
297
295
194
295
295
295
295
295
Sales
TiO2 slag
kt
157
197
190
125
190
190
190
190
HPPI
kt
105
115
105
69
105
105
105
105
Total
kt
261
312
295
194
295
295
295
295
Prices (Real)
TiO2 slag
US$/t
772
548
687
960
984
1009
667
683
HPPI
Euro/t
370
376
385
395
405
415
425
436
Total Revenue
US$m
207.6
155.9
119.7
234.5
239.4
244.4
180.0
184.5
Cash cost of production
US$m
-138.1
-139.8
-108.3
-157.4
-161.4
-165.4
-158.2
-162.2
Unit costs - REAL
US$/t
445.5
467.5
614.6
501.0
501.0
501.0
467.5
467.5
EBITDA
US$m
69.5
16.1
11.3
77.1
78.0
79.0
21.7
22.3
Depreciation
US$m
-8.4
-8.1
-5.4
-8.5
-8.7
-8.9
-9.1
-9.4
Tax
US$m
-21.4
-2.8
-2.1
-24.0
-24.3
-24.5
-4.4
-4.5
NPAT
US$m
39.6
5.2
3.8
44.6
45.0
45.5
8.2
8.4
Cap-ex
US$m
-2.0
-4.1
-87.4
-4.3
-4.4
-4.5
-4.6
-4.7
Free cash flow
US$m
46.1
9.2
-78.2
48.8
49.4
50.0
12.7
13.1
NPV at 10% discount rate
US$m
145.0
Source: J.P. Morgan estimates.
36
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Balance sheet and liquidity
Debt being incurred at the joint venture level
At June 2013, Mineral Deposits had no debt and cash reserves of A$20 million. In
December 2013 the company completed an equity placement to raise A$40 million at
A$2.00 per share. The proceeds will be used to fund the company’s share of
potential equity contributions to TiZir to assist with Grande Côte’s construction
completion and including operational working capital requirements.
MDL indicated in June 2013 that a US$50 million working capital facility was
finalised during the quarter which was available to be drawn upon; and US$45
million of unsecured debt remains to be injected by Eramet.
The details of TiZir’s debt facilities are:
! US$150 million bond: On 29 September 2012, TiZir Limited issued a bond with
a face value of US$150 million at 9.0% interest paid semi-annually and a term of
five years (due 28 September 2017).
! US$50 million working capital facility: Details unknown.
! US$45 million shareholder loan from Eramet: Details unknown.
As shown in the table below, at the end of November 2013 there was still US$22
million in capital to be spent, and an additional US$71 million estimated in working
capital and interest payments in March and September 2014. Including corporate
costs, total spend for CY2014 was expected to be US$110 million.
Table 18: TiZir funding sources and requirements as at November 2013
Funding Requirements
US$m
Grande Côte construction
22
Existing TiZir funding sources
Cash (30/11/2013)
US$m
15
Grande Côte operational spend
71
Working capital facility unutilized
15
Corporate costs + interest
17
2014 cash flow from Tyssedal
Nil
Total
110
Total
30
Source: MDL
At the end of November 2013, TiZir had US$15 million in cash, and US$15 million
in undrawn facilities (from the US$50 million working capital facility). With
Tyssedal conserving cash ahead of the reline in 2015, the company did not assume
the smelter contributed any cash flow.
Therefore, the remaining US$80 million was expected to be contributed equally by
the JV holders.
37
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
The equity contribution should result in sufficient cash for TiZir
The chart below shows our forecast cash flows for TiZir to December 2016. As
shown, we assume TiZir draws on its debt facilities and the equity holders contribute
US$80 million combined in CY2014. We forecast a minimum cash balance of
US$45 million in December 2013. From CY2015 we assume the JV begins to return
cash to MDL and Eramet through dividends.
Figure 26: Forecast cash flow at TiZir to CY2016 [US$m]
350
CY2013
300
CY2014
CY2015
CY2016
250
200
150
100
50
0
Ending Cash
Debt
Equity
Cap-ex
Working capital
Interest & Tax
EBITDA
Ending Cash
Equity
Debt
Cap-ex
Working capital
EBITDA
Interest & Tax
Ending Cash
Equity
Debt
Cap-ex
Working capital
Interest & Tax
EBITDA
Ending Cash
Equity
Debt
Cap-ex
Working capital
Interest & Tax
EBITDA
-100
Starting cash
-50
Source: J.P. Morgan estimates.
The charts below show our forecast credit metrics for TiZir. With gearing peaking at
18% in December 2013 the metrics look very manageable.
Figure 27: Forecast debt metrics
200
Figure 28: Forecast debt metrics
Net debt
100
Gearing
20%
40
Net debt/EBITDA
EBITDA/Interest
20
10%
0
0%
-100
-10%
-200
-20%
-300
0
-20
-40
-30%
-400
-40%
-500
-50%
CY2013
CY2015
Source: J.P. Morgan estimates.
38
30%
CY2017
CY2019
-60
-80
CY2013
CY2015
CY2017
CY2019
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
45% of the stock is held by the top five shareholders
The table below shows the company’s largest shareholders. Australian institutional
investors hold a total of 51% of the stock, with UK/European investors another 28%.
The retail holding is only 4%.
Table 19: Substantial shareholders (August 2013)
Substantial shareholders
Interest
Comments
Blackrock
16.9%
Blackrock is one of the world’s largest investment management firms
Commonwealth Bank
8.7%
Largest Australian domestic bank by market cap
AMP
7.6%
Investment management arm of large domestic insurance firm
UBS AG
5.9%
Asset management division of global investment bank
Ellerston Capital
5.2%
Specialist fund manager with a focus on equity based strategies
Fidelity Management
5.0%
Large global investment management firm
Total interest of Substantial Shareholders
49.3%
Total interest of top 10 shareholders
~57%
Source: Bloomberg
Board and management
Key board members and management include:
Nic Limb, Executive Chairman
Nic has been Chairman of MDL since 1994. He has professional qualifications as a
geoscientist and worked in the mineral exploration sector for 10 years. In 1994 he
formed MDL and has acted as Chairman since that time. During his tenure as
Chairman, MDL discovered and subsequently developed the large Sabodala Gold
Project in Senegal and progressed the Grande Côte Mineral Sands Project to its
current construction status.
Rick Sharp, Managing Director
Rick has been Managing Director and Chief Executive Officer of Mineral Deposits
since July 2011. He joined MDL in July 2009 in the position of Chief Financial
Officer. Prior to joining MDL, Rick had a finance background which included more
than 15 years in corporate advisory and investment banking, specialising in both
M&A and equity capital market transactions, and six years in chartered accounting.
Martin Ackland, Executive Director
Martin is a qualified metallurgist and has spent over 40 years in the resources
industry in a variety of roles that involved the creation of major resource groups from
small capital bases. He brings to MDL a very strong background in project
development, particularly in mineral sands, at a time when the company’s Grande
Côte Mineral Sands Project is its primary focus of attention. His experience
embraces a range from project development through financing and capital raising in
both the project and corporate areas. Martin has prime responsibility for project
implementation and the engineering aspects of the company’s projects.
39
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Forecast financial statements
Table 20: Summary income statement
INCOME STATEMENT
Share of TiZir Limited NPAT
Other income
Administration expenses
Borrowing costs
Other
FX
PBT
Income tax
NPAT
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
CY2013
CY2014
CY2015
CY2016
CY2017
CY2018
CY2019
CY2020
17
2
-7
0
-13
0
-1
0
-1
-14
2
-7
0
0
0
-19
0
-19
45
2
-7
0
0
0
40
0
40
74
2
-7
0
0
0
68
0
68
78
2
-8
0
0
0
73
0
73
88
2
-8
0
0
0
82
0
82
48
2
-8
0
0
0
42
0
42
49
2
-8
0
0
0
43
0
43
CY2013
CY2014
CY2015
CY2016
CY2017
CY2018
CY2019
CY2020
42
35
77
350
0
1
351
428
2
0
0
2
426
381
45
426
32
10
42
366
0
1
367
409
2
0
0
2
407
381
26
407
30
10
40
408
0
1
409
449
2
0
0
2
448
381
66
448
43
10
53
464
0
1
465
518
2
0
0
2
516
381
135
516
60
10
70
519
0
1
520
591
2
0
0
2
589
381
208
589
80
10
90
582
0
1
582
673
2
0
0
2
671
381
290
671
93
10
103
611
0
1
612
715
2
0
0
2
713
381
332
713
103
10
114
644
0
1
644
758
2
0
0
2
757
381
375
757
CY2013
CY2014
CY2015
CY2016
CY2017
CY2018
CY2019
CY2020
-6
0
0
-6
-25
0
-25
25
0
0
-2
23
-8
50
42
-5
0
0
-5
0
25
0
-30
0
0
0
-30
-35
42
7
-5
0
0
-5
0
0
0
0
0
3
0
3
-2
32
30
-5
0
0
-5
0
0
0
0
0
18
0
18
13
30
43
-5
0
0
-5
0
0
0
0
0
23
0
23
18
43
60
-6
0
0
-6
0
0
0
0
0
26
0
26
20
60
80
-6
0
0
-6
0
0
0
0
0
18
0
18
13
80
93
-6
0
0
-6
0
0
0
0
0
16
0
16
10
93
103
Source: J.P. Morgan estimates.
Table 21: Summary balance sheet
BALANCE SHEET
Cash and equivalents
Other
Current assets
Investment in JV
Exploration
Other
Non-current assets
Total assets
Current liabilities
Interest bearing debt
Other
Total liabilities
Net assets
Shareholder equity
Retained earnings
Total equity
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
Source: J.P. Morgan estimates.
Table 22: Summary cash flow statement
CASH FLOW STATEMENT
Cash from operations
Interest
Other
Cash from operating
Payments into JV
Other
Cash from investing
Equity
Debt
Dividends
Other
Cash from financing
Net increase/decrease
Opening cash
Closing cash
Source: J.P. Morgan estimates.
40
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Valuation
We value Mineral Deposits using a discounted cash flow model assuming a 10%
discount rate. On our base case assumptions, we value the stock at A$4.21/share by
December 2014.
We note that Mineral Deposits owns 19.1% of World Titanium Resources Limited
(which owns and operates the Toliara mineral sands projects in Madagascar) but
MDL’s share is worth only ~A$5 million at WTR’s current share price and we do not
include it in our base case valuation.
Table 23: Summary valuation
NPV (year end December)
CY2013
CY2014
CY2015
CY2016
CY2017
CY2018
CY2019
CY2020
TiZir
A$m
316
406
432
455
491
527
565
584
Corporate
A$m
-38
-38
-39
-39
-39
-38
-38
-38
Investments
A$m
35
36
37
38
39
39
40
41
Total
A$m
278
368
393
417
453
489
527
546
-103
Net debt
A$m
-42
-32
-30
-43
-60
-80
-93
Equity value
A$m
320
400
423
459
513
569
620
650
per share
A$/share
4.25
4.21
4.44
4.80
5.33
5.88
6.38
6.68
Source: J.P. Morgan estimates.
Our December 2014 price target is A$3.15 per share which at a 25% discount to our
NPV. We are initiating with an Overweight rating. The key downside risks to our
view are:
1. Project execution: Similar to Base Resources, the biggest near-term risk for
Mineral Deposits is proving the Grande Côte project can operate at capacity, and
at targeted operating costs without any further capital required. Lower than
expected production, higher than expected costs or additional capital would have
a negative impact on our valuation.
2. Cash flow: While we do not forecast any further capital will be required, we do
not expect much free cash flow to be generated by TiZir for the next two years.
Cash flow in 2014 will be used predominately for the remaining cap-ex at Grande
Côte. Similarly in 2015, the US$80 million reline with use the majority of cash
in that year.
3. Political risk: According to the 2013 Doing Business (a co-publication of The
World Bank and the International Finance Corporation), Senegal ranks 178th out
of 189 countries in terms of business risk.
41
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Country profiles
Kenya
Mining in Kenya
Kenya has a small and relatively undeveloped mining industry dominated by nonmetallic minerals such as soda ash, fluorspar, and kaolin . According to the US
Geological Survey, the mining industry accounted for only 0.5% of Kenya’s 2011
GDP, compared to the manufacturing sector at 9.4%. The mining and quarrying
sector grew by 7.1% in 2011 compared with a 9.7% in 2010. Formal employment in
the mining and quarrying sector was reported to be less than 9,000.
Most of Kenya’s mining and mineral processing operations are privately owned,
including the diatomite, fluorspar, gemstone, salt, and soda ash mines, the lime
plants, and the steel mills. Gold is produced primarily by artisanal workers in the
west and south western parts of the country, on several small greenstone belts. Iron
ore is mined from small localized deposits for use in the domestic manufacture of
cement.
The major mining projects in Kenya include:
! Kwale: Base Resources’ mineral sands project is seen as one of the largest
capital projects in Kenya. The company also has an additional three exploration
projects to the north of Mombasa at Mambrui, Kilifi and Vipingo.
! Kilimapesa Gold: The Government awarded a mining license to Goldplat plc of
South Africa for the gold project in November 2011. The first gold pour occurred
in January 2012 and Goldplat has planned initial production of about 160
kilograms per year of gold at Kilimapesa.
! Bumbo Gold: In September 2011, Aviva Corporation Ltd. of Australia
estimated that resources at the Bumbo deposit were 1.68 million metric tons (Mt)
at a grade of 5.4% zinc, 1.8% copper, 36.8 grams per metric ton (g/t) silver, and
0.7 g/t gold. Aviva planned to start a scoping study in the first quarter of 2012.
! Mrima Hill rare earths: In July 2011, Pacific Wildcat Resources Corp. (PAW)
of Canada estimated that niobium resources at the Mrima Hill project were 105
Mt at a grade of 0.65% niobium pentoxide. PAW also identified rare-earth
element (REE) mineralization at Mrima Hill, which was a carbonatite deposit. By
the end of the second quarter of 2012, the company hoped to identify a rare-earth
resource of between 10 and 20 Mt at grades of between 3% and 5% REE.
! Kimwarer Fluospar mine: In August 2010, Kenya Fluorspar Co. (KFC)
reopened the Kimwarer Mine, which was shut down because of the worldwide
economic crisis.
42
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Assessing country business risk
According to the 2013 Doing Business (a co-publication of The World Bank and the
International Finance Corporation), Kenya ranks 129th out of 189 countries in terms
of business risk. This survey compares countries across eleven business risk metrics:
! Ease of Doing Business Rank
! Protecting Investors
! Starting a Business
! Paying Taxes
! Dealing with Construction Permits
! Trading Across Borders
! Getting Electricity
! Enforcing Contracts
! Registering Property
! Resolving Insolvency
! Getting Credit
Regionally, Kenya ranks 12th out of 47 sub-Saharan countries as shown in Figure 29.
Kenya does well in Dealing with Construction Permits (4th of 47) and Getting Credit
(1st of 47) but the key areas of concern according to the survey are: Paying Taxes
(33rd of 47), and Getting Electricity (35th of 47).
Figure 29: World Bank Business Risk in Sub-Saharan Africa
700
Increasing business risk
600
500
400
300
200
0
Mauritius
Rwanda
South Africa
Botswana
Ghana
Seychelles
Zambia
Namibia
Cape Verde
Swaziland
Ethiopia
Kenya
Uganda
Lesotho
Mozambique
Burundi
Sierra Leone
Liberia
Tanzania
Nigeria
Madagascar
Sudan
Gambia, The
Burkina Faso
Mali
Togo
Comoros
Gabon
Equatorial Guinea
Côte d'Ivoire
Cameroon
São Tomé
Zimbabwe
Malawi
Mauritania
Benin
Guinea
Niger
Senegal
Angola
Guinea-Bissau
Congo, Dem.…
Eritrea
Congo, Rep.
South Sudan
CAR
Chad
100
Source: World Bank, IFC
Local Equity Participation Regulations
On 12 October 2012, the Minister for Environment and Mineral Resources passed a
regulation under the 2012 Mining Act which essentially sought to introduce
mandatory 35% minimum equity participation of Kenyan citizens in the mining
sector.
The operative provision of the Regulations states that “It shall be a condition of
every mining licence that the mineral right in respect of which the licence is issued
shall have a component of local equity participation amounting to at least thirty five
per cent (35%) of the mineral right.” The Regulations define "local equity" as the
share of interest in a mining right which should be held by a citizen of Kenya.
43
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Mining code
The Mining Act 1940 regulates all mining activities in Kenya. The Commissioner of
Mines and Geology, heads the Department of Mines and Geology and is responsible
for overseeing mining research and policy as well as implementing the Mining Act.
In order to carry out mining activities, an investor must apply to the Commissioner to
the necessary right, licence or lease as follows:
1. Mineral exploration
Prospecting Right: any person may apply for a prospecting right which will
provide the holder the right to carry out exploration activities in any land.
Exclusive Prospecting Licence: persons who hold a prospecting right may apply
for an EPL which provides the holder with the exclusive right to prospect in a
designated land. An EPL is initially issued for one year and may be renewed at
the discretion of the Commissioner for further terms of one year each up to a
maximum of five years. An EPL is not transferable without the consent of the
Commissioner.
EPLs normally relate to prospecting in a large area of land. Alternatively “Mining
Locations Licences” may be obtained for mineral exploration in a smaller area of
land (up to four square kilometers).
2. Mineral exploitation
Mining lease: a mining lease is issued to a holder of any prospecting right and
provides the lessee the right to extract deposits within the land area of the mining
lease, including the right to remove and dispose of the minerals as specified in the
lease. A mining lease may be granted for a term of five to 21 years, and will set
out the applicable terms and conditions for such mining.
Special Mining Lease: where the Commissioner is satisfied that there are special
costs or other reasons applicable to a particular deposit, the Commissioner may
grant a SML to any person. A SML may be grated and be renewed for such a
term, and upon such conditions as the Commissioner may think fit.
All mining leases must be registered with the Commissioner and can only be
transferred with the Commissioner’s written consent.
In August 2013, the Kenyan Government introduced a major review of the 1940
Mining Act: the Mining Bill 2013. Part of the new regulation is a substantial increase
of mineral royalties in the country. If passed, royalties would increase to 10% for
rare earths, niobium and titanium ores; 5% for gold and precious metals; and between
1 and 12% for other extracted minerals.
Fiscal policies
Corporation tax rate is currently at 30% (a branch of a foreign company is taxed at
37.5%). A reduced rate of tax applies if a company has been recently listed on the
Kenyan Stock Exchange. Capital gains are generally not taxable in Kenya.
However, following the Finance Act 2012, the Government introduced a withholding
tax on transfer of shares or property in the mining sector. A sale of a mining
company will now attract a withholding tax of up to 20% (locals involved in such a
transaction will be required to pay a reduced rate of 10%).
44
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Senegal
Mining in Senegal
Senegal was among the world’s leading producers of phosphate rock. Other mineral
commodities produced in the country included basalt, cement, clays, gold, laterite,
lime, limestone, petroleum, salt, and sand.
Senegal’s economy is based on agriculture, primarily groundnuts, cotton, grain crops,
livestock and fishing; industry, primarily food processing, gold, iron ore and
phosphate mining, fertilizer and cement production and downstream petroleum
products; and services, which are the main contributor to Senegal’s GDP.
The estimated 2011 GDP breakdown by sector is: agriculture 15.9%; industry 21.7%
(minerals industry approximately 20%) and services 62.3%. The minerals industry is
responsible for approximately 20% of Senegal’s export earnings. Foreign exchange
is also derived from tourism. Agriculture supports over three quarters of the labour
force.
Major mining projects include: Teranga Gold’s Sabodala operation, the Grande Côte
Mineral Sands project, and Randgold’s Massawa mine.
Figure 30: Mineral deposits in Senegal
Source: USGS
45
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Assessing country business risk
According to the 2013 Doing Business (a co-publication of The World Bank and the
International Finance Corporation), Senegal ranks 178th out of 189 countries in
terms of business risk. This survey compares countries across eleven business risk
metrics:
! Ease of Doing Business Rank
! Protecting Investors
! Starting a Business
! Paying Taxes
! Dealing with Construction Permits
! Trading Across Borders
! Getting Electricity
! Enforcing Contracts
! Registering Property
! Resolving Insolvency
! Getting Credit
Regionally, Senegal ranks 39th out of 47 sub-Saharan countries as shown in Figure
29. Senegal does well in Starting a Business (14th of 47) and Trading Across Borders
(3rd of 47) but the key areas of concern according to the survey are: Protecting
Investors (44th of 47), Paying Taxes (42nd of 47) and Getting Electricity (42nd of
47).
Figure 31: World Bank Business Risk in Sub-Saharan Africa
700
Increasing business risk
600
500
400
300
200
0
Mauritius
Rwanda
South Africa
Botswana
Ghana
Seychelles
Zambia
Namibia
Cape Verde
Swaziland
Ethiopia
Kenya
Uganda
Lesotho
Mozambique
Burundi
Sierra Leone
Liberia
Tanzania
Nigeria
Madagascar
Sudan
Gambia, The
Burkina Faso
Mali
Togo
Comoros
Gabon
Equatorial Guinea
Côte d'Ivoire
Cameroon
São Tomé
Zimbabwe
Malawi
Mauritania
Benin
Guinea
Niger
Senegal
Angola
Guinea-Bissau
Congo, Dem.…
Eritrea
Congo, Rep.
South Sudan
CAR
Chad
100
Source: World Bank, IFC
Mining Code
The government is generally pro-mining and passed a new Mining Code in
November 2003. Under the Mining Code, appropriate governmental authorization is
required to undertake any form of mining activity. In this regard, the right to explore
minerals is conferred only by a permit of exploitation or a mining concession.
An exploration permit for mineral exploration activities is granted for a period not
exceeding three years, and is renewable. During the exploration phase, the permit
holder is exempt from sales tax and duties on imported equipment and supplies
necessary for exploration activities, as well as on fuel used for operation of stationary
installations.
46
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
Following exploration success, the permit holder may enter into a mining contract
agreement with the State, which provides the State a free carried interest of 10% of
the project. Under the Senegalese Mining Code, numerous fiscal incentives are
offered to mining license holders, including a minimum seven-year exemption from
income tax, amongst other tax exemptions, and the opportunity to secure a lease of
up to 25 years for a major project. All mining activities are subject to a royalty of 5%
of the value of the mine site payable to the Government.
Foreign mining companies are allowed to expatriate profits.
Fiscal policies
Corporate tax in Senegal is 25% with a 15% rate applying to companies with “Free
Exporting Enterprise” status. Dividends paid to a non-resident company are subject
to a 10% withholding tax, unless the rate is reduced under a tax treaty.
All economic activities are within the scope of an 18% VAT.
47
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Base Resources (BSE): Financial Summary
Profit & Loss (A$m)
Overweight
FY13A
FY14E
FY15E
FY16E
-
96
199
234
Current mkt capitalisation
230
Operating Expenses
(8)
(52)
(85)
(90)
EV
311
EBITDA
(8)
44
114
144
Depreciation and amortisation
(0)
(15)
(28)
(29)
12 month price target
EBIT
(8)
29
86
115
Capital growth to price target
71%
1
-
(13)
(11)
12 mth forecast DYld
0.0%
NPBT
(7)
29
73
105
12 mth forecast total return
71%
Tax Expense
(0)
-
-
-
WACC
10%
Normalised NPAT
(7)
29
73
105
-
-
-
-
(7)
29
73
105
Revenue
Net Interest
Extraordinary Items
Reported NPAT
Shares outstanding (m)
527
540
540
Valuation Summary
DCF valuation
1.29
Corporate
-83
-0.15
-139
-0.26
477
0.88
(1.3)
5.5
13.7
19.6
Net cash / (debt)
5.4
13.5
19.4
Equity NPV
n/a
149%
43%
P/NPV
-
-
-
-
0%
0%
0%
0%
Cashflow (A$m)
FY13A
FY14E
FY15E
FY16E
Operating cashflow
(7)
4
89
123
PE
Capex
(230)
(60)
(21)
(21)
EV/EBITDA (x)
Free cash flow
(237)
(56)
69
102
(5)
-
-
-
Other investing cashflows
Financing cashflows
222
22
(35)
(35)
Change in cash
(19)
(35)
34
66
Balance Sheet (A$m)
Cash
A$ps
540
(1.3)
DPS/EPS payout
A$m
699
Normalised EPS (cents)
DPS (cents)
A$0.70
Mining assets
Reported EPS (cents)
Normalised EPS growth
A$m
FY13A
FY14E
FY15E
FY16E
98
63
97
163
Key Ratios
Dividend yield
ROE (Norm NPAT/Equity)
0.46
FY13A
FY14E
FY15E
n/a
6.6
2.7
FY16E
1.9
-37.2
7.9
2.5
1.2
n/a
n/a
n/a
n/a
-3%
12%
23%
25%
ROA - EBIT / (assets - cash)
-2%
7%
20%
27%
ROIC (EBIT/Assets)
-2%
6%
16%
19%
EBIT / net interest
7.5
0.0
6.7
10.9
EBITDA / net interest
7.4
0.0
9.0
13.6
Net debt / EBITDA
-10.7
3.4
0.7
-0.2
Gearing - net debt/equity
37%
60%
25%
-5%
27%
38%
20%
-5%
n/a
31%
43%
49%
62%
Property plant & equipment
294
339
331
323
Gearing - net debt/ (net debt + equity)
Assets
424
486
526
597
EBIT margin
Debt
179
212
177
142
EBITDA margin
n/a
46%
57%
Liabilities
206
239
206
171
Effective tax rate
0%
0%
0%
0%
Equity
218
248
321
425
CFPS (A¢)
-44.9
-10.4
12.7
18.8
81
149
80
(22)
P/CF (x)
-0.8
-3.4
2.8
1.9
1H13A
2H13A
1H14E
2H14E
FY13A
FY14E
FY15E
FY16E
-
-
15
81
Net debt / (cash)
Half Yearly P&L (A$m)
Revenue
Volume forecasts (kt)
Production
Operating Expenses
(3)
(4)
(13)
(39)
Zircon
0
14
25
28
EBITDA
(3)
(4)
2
42
Rutile
0
46
77
84
Ilmenite - saleable
0
181
364
374
Depreciation and amortisation
(0)
(0)
(2)
(12)
EBIT
(3)
(4)
(0)
30
1
(0)
-
-
Zircon
0
14
25
28
(2)
(4)
(0)
30
Rutile
0
46
77
84
Ilmenite - saleable
0
181
364
374
FY13A
FY14E
FY15E
FY16E
0
173
138
138
FY16E
Net Interest
NPBT
Tax Expense
Normalised NPAT
Extraordinary Items
Reported NPAT
-
(0)
-
-
(2)
(4)
(0)
30
-
-
-
-
(2)
(4)
(0)
30
Sales
Real unit costs ex shipping, royalties
Total (US$/t)
FY13A
FY14E
FY15E
AUD/USD
Assumptions
1.03
0.90
0.89
0.90
Rutile
1766
936
1050
1150
Sulphate ilmenite
Zircon
Source: Company data, J.P. Morgan estimates.
48
250
184
170
175
1542
1102
1300
1425
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
Mineral Deposits (MDL): Financial Summary
TiZir Profit & Loss (US$m)
Overweight
CY12A
CY13E
CY14E
CY15E
231
208
234
394
Other income
2
15
-
-
Cost of sales
(120)
(138)
(213)
(225)
Administration
(28)
(22)
(24)
(25)
12 mth price target
85
63
(2)
144
Capital growth to price target
43%
(14)
(11)
(21)
(46)
12 mth forecast DYld
0.0%
EBIT
71
51
(23)
97
Interest
(0)
0
(9)
(19)
78
Revenue
EBITDA
Depreciation
NPBT
Tax
NPAT
TiZir Balance Sheet (US$m)
71
51
(32)
(23)
(19)
8
4
48
33
(25)
82
Valuation Summary
211
EV
152
12 mth forecast total return
43%
10%
CY12A
CY13E
CY14E
CY15E
128
46
66
81
Property plant & equipment
428
659
691
749
Assets
879
986
1,071
1,138
Debt
159
202
211
211
Liabilities
241
281
311
302
Equity NPV
Equity
637
705
760
836
P/NPV
30
157
146
130
CY12A
CY13E
CY14E
CY15E
25
17
(14)
45
2
2
2
2
(10)
(20)
(7)
(7)
MDL Profit & Loss (A$m)
Share of TiZir earnings
Other
Administration & Other
Borrowing costs
(0)
-
-
-
NPBT
17
(1)
(19)
40
Tax Expense
NPAT
Shares outstanding (m)
-
-
-
-
17
(1)
(19)
40
87
83
104
104
A$3.15
WACC
Cash
Net debt / (cash)
A$m
Current mkt capitalisation
DCF valuation
A$m
A$ps
Share of TiZir
316
3.78
Corporate
-38
-0.46
Investments
35
0.42
Net cash / (debt)
42
0.50
355
4.25
Key Ratios
0.52
CY12A
CY13E
CY14E
CY15E
11.3
n/a
n/a
5.7
EV/EBITDA (x)
n/a
n/a
n/a
n/a
Dividend yield
n/a
n/a
n/a
n/a
ROE (Norm NPAT/Equity)
4%
0%
-5%
9%
ROA - EBIT / (assets - cash)
4%
0%
-5%
10%
PE
ROIC (EBIT/Assets)
4%
0%
-5%
9%
EBIT / net interest
n/a
n/a
n/a
n/a
EBITDA / net interest
n/a
n/a
n/a
n/a
Net debt / EBITDA
5.1
2.1
4.5
4.1
Reported EPS (cents)
19.4
(1.2)
(18.3)
38.9
Gearing - net debt/equity
-11%
-10%
-8%
-7%
Normalised EPS (cents)
19.4
(1.2)
(18.3)
38.9
Gearing - net debt/ (net debt + equity)
-12%
-11%
-8%
-7%
n/a
n/a
n/a
EBIT margin
n/a
n/a
n/a
n/a
EBITDA margin
n/a
n/a
51%
n/a
Effective tax rate
0%
0%
0%
0%
Normalised EPS growth
DPS (cents)
DPS/EPS payout
0%
0%
0%
0%
CFPS (A¢)
P/CF (x)
MDL Cashflow (A$m)
-6.1
-6.7
-4.9
-5.0
-36.0
-32.6
-44.8
-43.7
CY12A
CY13E
CY14E
CY15E
CY12A
CY13E
CY14E
CY15E
Operating cashflow
(5)
(6)
(5)
(5)
Capex
(0)
(0)
-
-
(5)
(6)
(5)
(5)
Zircon
0
0
29
93
(53)
(25)
25
-
Rutile + Leucoxene
0
0
5
17
Ilmenite
Free cash flow
Other investing cashflows
Financing cashflows
Change in cash
MDL Balance Sheet (A$m)
Cash
1
23
(30)
3
(57)
(8)
(10)
(2)
CY12A
CY13E
CY14E
CY15E
Volume forecasts (kt)
TiZir production
0
0
64
205
Titanium Slag
157
197
190
125
Pig iron
105
115
105
69
Sales:
50
42
32
30
Zircon
0
0
29
93
Investment
315
350
366
408
Rutile + Leucoxene
0
0
5
17
Assets
469
428
409
449
Ilmenite
0
0
64
205
-
-
-
-
Titanium Slag
157
197
190
125
Pig iron
105
115
105
69
CY15E
Debt
Liabilities
2
2
2
2
Equity
467
426
407
448
Net debt / (cash)
(50)
(42)
(32)
(30)
MDL Half Yearly P&L (A$m)
2H12A
1H13A
2H13E
1H14E
12
13
8
10
1
1
1
1
Administration & Other
(3)
(7)
(17)
(4)
Borrowing costs
(0)
-
-
NPBT
10
7
-
-
10
7
Share of TiZir earnings
Other
Tax Expense
NPAT
CY12A
CY13E
CY14E
Grande Cote (US$/t)
Real unit costs ex shipping, royalties
n/a
0
779
143
Tyssedal (US$/t)
460
445
468
615
Assumptions
CY15E
CY12A
CY13E
CY14E
AUD/USD
1.04
0.97
0.88
0.90
-
Rutile (US$/t Nominal)
2339
1136
965
1145
(8)
7
Titanium slag - sulphate (US$/t Nominal)
1500
850
548
687
-
-
Chloride Ilmenite (US$/t Nominal)
302
229
173
198
(8)
7
Zircon (US$/t Nominal)
2155
1177
1181
1405
Source: Company data, J.P. Morgan estimates.
49
Australia Equity Research
28 January 2014
Mark Busuttil
(61-2) 9003-8619
[email protected]
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Base Resources (BSE.AX, BSE AU) Price Chart
1
0.8
0.6000000000000001
Price(A$)
0.4
0.2
0
Oct
10
Jul
11
Apr
12
Jan
13
Oct
13
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Mineral Deposits (MDL.AX, MDL AU) Price Chart
12
11
10
9
8
7
Price(A$)
6
5
4
3
2
1
0
Oct
10
Jan
11
Apr
11
Jul
11
Oct
11
Jan
12
Apr
12
Jul
12
Oct
12
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
50
Jan
13
Apr
13
Jul
13
Oct
13
Jan
14
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
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Coverage Universe: Busuttil, Mark: Aquila Resources Ltd (AQA.AX), Atlas Iron Ltd (AGO.AX), Energy Resources of Australia
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J.P. Morgan Global Equity Research Coverage
IB clients*
JPMS Equity Research Coverage
IB clients*
Overweight
(buy)
43%
57%
43%
75%
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(hold)
45%
49%
50%
66%
Underweight
(sell)
12%
36%
7%
59%
*Percentage of investment banking clients in each rating category.
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51
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
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52
Mark Busuttil
(61-2) 9003-8619
[email protected]
Australia Equity Research
28 January 2014
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53