th Tertiary Minerals Researcxh Not… · recommendation. Tertiary management knew they had spotted something special when they acquired the ... Today’s Wardell Armstrong International’s

Tertiary Minerals

________________________________________________________________________________________________________________________________________________ THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the report.

Wednesday, 16th

April 2014

Speculative Buy

Price: 10.5p

Target: 24.8p/share

EPIC: TYM.L (FTSE AIM All Share)

Sector: Mining

Blue Sky Becomes Hard Data - Price Target Raised Sharply As promised, Tertiary’s 100%-owned MB Project based in Navada, USA, has published its maiden JORC-compliant Mineral Resource Estimate. Adopting a high cut-off grade of 8% CaF2, the prospect has produced Indicated & inferred tonnes totalling 38.4M which positively dwarfs the Group’s other two more advanced Scandinavian projects, while also reinforcing its potential to be one of the world’s largest fluorspar deposits. Being located in what is often referred to as the world’s most favourable mining jurisdiction, with the US government classifying fluorspar as a ‘strategic mineral’ while also remaining exposed to a lack of significant domestic production, it is now hard to imagine Tertiary not becoming crowded by prospective JV partners if it should it decide to offer farm-in opportunities. Having acquired the MB Project just eighteen months ago, Tertiary’s management has clearly added significant shareholder value. Despite performing strongly since release of our initiation research in October last year, Tertiary shares still remain undervalued on the basis of Storuman and Lassedalen alone. Factoring in MB’s new compliant data, which more than doubles the Group’s total Mineral Resource to 7.8Mt contained fluorspar, results in a sharp rise in our price target to 24.8p/share and reiteration of our Speculative Buy recommendation.

Tertiary management knew they had spotted something special when they acquired the McCullough Butte (‘MB’) Fluorspar Project back in November 2012. The property ticked all the right boxes. It had been subject to extensive multi-mineral exploration since the 1960s, when Union Carbide drilled 84 shallow holes over the area, with one or two deeper ones already suggesting potential for a large deposit. Union Carbide also completed metallurgical testwork with the US Bureau of Mines. This information was subsequently complimented by data unearthed from 24 additional and deeper holes located throughout the mineralisation. In particular, it revealed widespread thick and flat-lying zones of open-pit mineable fluorspar mineralisation not bottomed by the majority of vertical drill holes. Together these provided good evidence of a major fluorspar deposit.

The Group’s more recent concentration on MB, clearly at the expense of its Norwegian Lassedalen project, now appears more than justified. Analytical results since taken from the 22 holes drilled in November 2013 as part of Phase 2 of its definition programme, strongly reinforce this view. Today’s Wardell Armstrong International’s maiden JORC-complaint MRE which emerged after just two short months, is a clear demonstration of the volume, quality and consistency of data gathered. Consistent with the prospect’s original tonnage-grade estimate (announced 12

th Feb 2013) of 85-105Mt, grading 9-11% CaF2, within a larger mineralised zone

estimated at 395-615Mt, the MB Project appears set to be classified amongst a relatively small list of world class fluorspar deposit capable of producing well in excess of 200,000t pa.

MB Deposit Mineral Resource Estimate Cut Off Grade 8% CaF2, in accordance with JORC Code 2012

Density (t/m

3)

Tonnes (Mt)

CaF2 (%)

Measured - - -

Indicated 2.6 8.9 10.3

Inferred 2.6 29.5 10.4

Source: Tertiary Minerals

Beaufort has updated its valuation model, using both resource-based and DCF methodology, to include today’s MRE for the MB Project. Prudently, a base case fluorspar price of US$375/tonne has been adopted, while comparison with peer valuations is weighted strictly by compliant status. Averaging a theoretical DCF15% model for MB and a resource-based peer comparison, a mean £16.9m valuation is derived, alongside existing calculations for the Storuman (at £19.1m) and Lassedalen (at £4.1m). Including other Group assets, Tertiary Minerals’ SOTP now translates to an equity value of £40.1m, or price target of 24.8p/share.

Share price performance

Source: Proquote

Key Data

12m high-low 12.38p-4.75p Mkt. cap: £17.37m No. of shares: 165,456,214 Website: tertiaryminerals.com

Analyst

Barry Gibb (t) +44 (0) 207 382 8422 (e) [email protected]

http://www.beaufortsecurities.com/tertiary-minerals-c-2-p-159

http://www.tertiaryminerals.com/

mailto:[email protected]

_____________________________________________________________________________________________________________________________________________________________________________________________________ THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the report.

Tertiary Minerals Plc 16th April 2014 - Page 2

Corporate Overview

Share Price (16 April 2014) 10.50p

52 week low-high range 4.75p-12.38p

Current Market capitalisation £17.37 million

Shares on issue 165,456,214

Warrants and Options presently outstanding (price ranging 2.375p to 11.25p)

17,150,000

Percentage of shares not in public hands 30.88%

Significant Shareholders (Register) – as of 1st April 2014

Barclayshare Nominees Ltd 21,668,183 13.22%

TD Direct Investing Nominees (Europe) Ltd 18,096,248 11.04%

HSDL Nominees Limited 10,384,776 6.33%

Ronald Bruce Rowan 8,000,000 4.88%

Patrick Lyn Cheetham 7,533,288 4.59%

Hargreaves Landsdown (Nominees) 7,370,937 4.50%

HSBC Client Holdings Nominee UK Ltd 5,963,886 3.64%

LR Nominees Limited 5,264,535 3.21%

Directors’ Shareholding

P & K Cheetham 10,376,913 6.33%

D. McAlister 481,579 0.29%

R. Clemmey 6,333 0.004%

Beaufort SOTP Valuation Summary

Asset Ownership Resource

(Mt) Theoretical (DCF) Valuation US$*

Resource-Based

Valuation US$

Mean Valuation Price/share (p) Status

US$ £m**

Storuman 100% 2.8 pt NPV10 33.1 PFS Testwork 10.2Mt 28.6 30.9 19.1 11.7

Lassedalen 100% 1.0 pt NPV15 6.5 JORC Indicated 7.2Mt 7.2 6.9 4.1 2.5

MB Project 100% 4.0 pt NPV15 28.4 JORC Ind. & Inf. 34.9Mt 28.1 28.2 16.9 10.3

Sub-Total 7.80 68.0 41.4 66.0 40.1 24.5

Non-core Assets Nil

Sunrise Resources Participation (9.55%) 0.2

Cash (estimated) 0.1

Total 24.8

* Base Case if Rotterdam US$375 ** £1 = US$1.67



Tertiary Minerals plc’s Fluorspar Projects – Indicative Schedule

Storuman 2013 Q4

2014 Q1 Q2 Q3 Q4

Pre-Feasibility Study (PFS) Metallurgical Testwork Complete

Scoping Study Evaluation followed by Full PFS Complete

Mining (Exploitation) Permit Submit

Environmental Permit Submit?

Target production date – 2017

Lassedalen 2013 Q4

2014 Q1 Q2 Q3 Q4

PFS Drilling and JORC (indicated)

Mining Concession & EIA/Permit

Project currently on hold, with Storuman and MB Project being prioritised

Beaufort Independent Forecasts

MB Project 2013

H2 2014 H1 H2 2015F 2016F

Phase 1 Drilling Completed

Phase 2 Drilling Completed

Maiden JORC Resource (indicated & inferred) Completed

Metallurgical Testwork Complete

Scoping Study Complete?

Farm-out, JV, Offtake Discussions Commence?

Target production date – 2018 Source: Tertiary, Beaufort

Note: All schedules are subject to change, funding and successful completion of each phase of work.

The MB Project – Next Steps Metallurgical testwork has already begun and, realistically, should complete by late summer. With the MRE already indicating comfortably more than a 10 year life of mine, volume data coming in full and consistent along with ground works suggesting a strip ratio as low as parity, there appears very few problems on the horizon. Following this, given the scope of the opportunity, management will likely see fit to undertake further drilling, both to move more of the resource into the indicated category while also increasing its overall size. Scoping could then get underway toward the end of the year or in Q1’2015. Having dipped into its equity financing facility (issued at a healthy premium) with Darwin Strategic Ltd once again, Tertiary has a reasonable cash cushion to finance its immediate needs and a modest continuing opportunity going forward. The US currently produces little or no domestic fluorspar. Instead, supplies of more than 500kt pa of acid-spar are sourced principally from Mexico (Cuevas), a handful of Chinese sites as well as South Africa. Initial data suggests the MB Project will be capable of joining the ‘big league’ of fluorspar producers, with annual production in excess of 250kt pa acid grade. Brand new production of this scale flooding in from perhaps mid-2018 could, however, potentially destabilise the North American market with the inevitable impact being a sharp fall off in pricing as the various players jostle for market position. As such, Tertiary management may be inclined to initially limit its supply (perhaps to 100kt pa, which initially at least would be similar to the Group’s Scandinavian project, Storuman, which is expected to commence full scale production in 2017) until it has established a larger domestic end market or identified target export markets through offtake agreements or joint ventures. With the latter in mind, and understanding that the capex requirement for an initiative of the scale of the MB Project will likely run well excess of US$100m, the next question must be when will Tertiary put out feelers for interest in offtake, joint ventures and/or farm-ins? Interest generally only turns to firm commitment when the preliminary feasibility studies are at or nearing completion. Assuming Tertiary secures the necessary interim funding to move the Project forward at a good pace, the first half of 2016 should be a good guess for this. Tertiary’s declared intention is to become a sizeable fluorspar producer. It is open-minded as to the means to this end, so all options will likely be on the table at this time. Such negotiations do often result in the explorer being forced to relinquish its role as project Operator in exchange for an extended period of ‘free carry’. But given that Tertiary holds all the cards for this 100%-owned project, shareholders are likely to remain assured of an excellent outcome from their investment.



MB Project - JORC Complaint Mineral Resource Estimate (‘MRE’)


Wardell Armstrong International Limited was commissioned by Tertiary Minerals plc in March 2014 to prepare a Mineral Resource estimate following the guidelines of the JORC Code (2012) for the McCullough Butte (‘MB’) Fluorspar project, Nevada, USA. The MB deposit is located in Northern Central Nevada approximately 19km south west of the town of Eureka and approximately 330km East of Reno. The deposit is a large fluorine rich skarn hosted by Ordovician age carbonate sedimentary rocks. The mineralised zone extends for more than a kilometre from the postulated position of an unexposed Cretaceous age granite. In 2013 Tertiary completed a two phase drilling program comprising of 26 holes and totalling 3,223m across three areas of the deposit and it is this information that the Mineral Resource Estimate is based on. Sample data was imported and verified before mineralised zones were defined to a cut-off grade of 2.0% CaF2. Samples were composited and subsequently used to produce a Mineral Resource Estimate of the CaF2 mineralisation at the MB project using inverse power distance as the principal estimation method. Mineral resources were limited to an optimised open pit based on appropriate economic and mining parameters. Indicated resources were limited to the southern area of drilling where drillholes were completed on an 80m x 80m grid by Tertiary. Inferred resources were limited to a maximum distance of 120m from drillhole intersections. The Mineral Resource estimate for the MB Deposit is shown below. Mineral Resources are reported to a cut-off grade of 8% CaF2.

MB Project Drilling Between July and October 2013 Tertiary minerals carried out a drill programme at the MB project. The drilling was conducted in two phases, comprised of 26 holes and this totalled 3,223m. The map location of these holes can be found in Group’s AGM presentation on its website. Drilling was contracted to Boart Longyear and project management of the whole drilling process and geological supervision was carried out by Hunsaker Inc. Drill pads and access to those hole locations not already serviced by existing dirt tracks were constructed by Diamond Valley Sand and Gravel. The first phase of drilling was conducted with the purpose of determining the best drilling and analytical methodology and consisted of two sets of paired holes with one of each pair drilled using reverse circulation percussion (RC) and the other drilled diamond coring (DC). A comparison of the two methods was carried out and RC drilling was chosen as the preferred method for phase two during which a further 22 holes were completed. A project tonnage-grade estimate was first provided in February 2013, which was followed by seven irregular announcements detailing drilling and analytical results as a prelude to awarding the contract for the JORC MRE.

http://www.tertiaryminerals.com/



MB Project - Background Importantly, being Government land, the MB site has no special status or outstanding rights. Located in Nevada, which is considered the most favourable mining jurisdiction in the USA, there is road access to and over the property that lays south-west of the mining town of Eureka. Trans-national road and rail links provide access to the Port of San Francisco some 470 miles away. The property has been subject to extensive multi-mineral exploration since the 1960s, when Union Carbide drilled 84 shallow holes over the area, with one or two deeper ones already suggesting potential for a large deposit. Union Carbide also completed metallurgical testwork with the US Bureau of Mines. This information had since been complimented by data newly unearthed from 24 additional and deeper holes located throughout the mineralisation. In particular it revealed widespread thick and flat-lying zones of open-pit mineable fluorspar mineralisation not bottomed by the majority of vertical drill holes. Together these provide good evidence of a major fluorspar deposit. Whilst check infill drilling is required to define a code-compliant Mineral Resource, the Group considers that the MB deposit could rank amongst the largest fluorspar deposits in the world. Zinc, beryllium and molybdenum values in some drill holes may also be significant. Historic Drill Plan


Tonnage-Grade Estimate announced 12 February 2013

85-105 million tonnes grading 9-11% CaF2 (based on 8% cut-off)

Within larger mineralised zone estimated at 395-615 million tonnes grading 5-7% CaF2 (based on 2% cut-off)

(Wardell Armstrong International. “Exploration Target” Under JORC)

Potential to be one of the largest fluorspar deposits in the world;

US Bureau of Mines metallurgical testwork supports recovery of acid grade concentrates at conventional grind sizes with potential for recovery of by product beryllium, mica (filler and silica); and

The US government considers fluorspar to be a strategic mineral. There is a large market for fluorspar in the USA and around the Pacific Rim, but currently no significant US production.

MB Project - Geology & Style of Mineralisation At the MB Project, flat lying fluorspar mineralisation occurs as a skarn-type replacement of flat lying limestone beneath a quartzite cap. The source of the mineralising fluids in skarn systems is usually a granite intrusive and mineral grades tend to increase where fluid flows are focused or pooled, for example at impermeable barriers such the overlying quartzite. The style of mineralisation also tends to change with distance from the source intrusion and is often higher grade, sometimes with associated base or precious metal mineralisation, proximal to the source granite and lower grade in more distal zones. The source granite has not yet been intersected and so there is an exciting additional target for high grade mineralisation in proximal zones not yet tested by drilling. Whilst most holes were analysed for fluorspar, assaying for other elements has been sporadic. Nevertheless there are results showing ore-grade beryllium and highly anomalous zinc and molybdenum.



The MB Project - Majority of holes bottomed in significant fluorspar mineralisation


Strengths and Weaknesses Strengths Weaknesses Supply-demand dynamics for Fluorspar now indicate a

stronger medium-term price trend which, together with the obvious desire of international governments to lower their dependence on Chinese supply, suggest healthy forward economics for western producers.

Three separate projects in different stable, democratic and mining-friendly jurisdictions that include both relatively near–term production and world-class mines.

Fluorspar’s western status as a ‘critical’ or ‘strategic’ mineral, suggests governments will encourage production in their domestic territories.

Equity financing facility available to provides access to capital. Farm out opportunity could provide the group with new cash funding and/or significant free carried interest. Undervalued both on theoretical and resource-based assessments.

Fluorspar is an abundant global resource. Successful international exploration and/or new forms of product synthesis from base materials could result in over-supply and thereby weaken the long-term mineral pricing outlook.

Macroeconomic play that comes with commodity price sensitivity, metallurgical and permitting risk.

A weak balance sheet and strict project timelines determine the need for regular access to new risk funding, with limited opportunity to commence first production before 2017.

The currently short life-of-mine of the Lassedalen Project means it requires additional development before it is able to be considered economically viable. The scale and relatively low grading of the MB Project will necessitate farm out to a larger JV partner.

Source: Beaufort Securities

Research Sources: Tertiary Minerals Website, London Stock Exchange, Bloomberg, Reuters, Industrial Minerals,

Wardell Armstrong Intl., Sepfluor, UN, USGS, CCM, Roskill, Canada Fluorspar, BSG Minerals, USGS Mineral Yearbook



Recommendations During the three months to end-March 2014, the number of stocks on which Beaufort Securities has published recommendations was 275, and the recommendations were as follows: Buy - 70; Speculative Buy - 154; Hold - 37; Sell - 14. Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.

This report is published by Beaufort Securities (“Beaufort Securities”). Beaufort Securities is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchange. This research is non-independent and is classified as a Marketing Communication under FCA rules. As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research in COBS 12.2.5. However Beaufort Securities has adopted internal procedures which prohibit analysts from dealing ahead of non-independent research, except for legitimate market making and fulfilling clients’ unsolicited orders. RELIANCE ON THIS NOTE FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE AN INDIVIDUAL TO A SIGNIFICANT RISK OF LOSING ALL OF THE FUNDS, PROPERTY OR OTHER ASSETS INVESTED OR OF INCURRING ADDITIONAL LIABILITY. By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of Beaufort Securities. When distributing this document, Beaufort Securities is not acting for any recipient of this document and will not be responsible for providing advice to any recipient in relation to this document. Accordingly, Beaufort Securities will not be responsible to any recipient for providing the protections afforded to its clients. Beaufort Securities may effect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its research and for other services. Beaufort Securities may be a shareholder in any of the companies mentioned in this report. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to Beaufort Securities or the Group, which is not reflected in this material. The remuneration of the author of this report is not tied to the recommendations on any shares mentioned nor to the any transactions undertaken by Beaufort Securities or any affiliate company. Further information on Beaufort Securities’ policy regarding potential conflicts of interest in the context of investment research and Beaufort Securities’ policy on disclosure and conflicts in general are available on request. Please refer to http://www.beaufortsecurities.com/important-info. This document is not an offer to buy or sell any security or currency. This document does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The appropriateness of a particular investment or currency will depend on an investor’s individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for all investors. Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you may not get back the full amount invested. The listing requirements for securities listed on AIM or ISDX are less demanding and trading in them may be less liquid than main markets. This document is based on information Beaufort Securities has received from publicly available reports and industry sources. Beaufort Securities may not have verified all of this information with third parties. Neither Beaufort Securities nor its advisors, directors or employees can guarantee the accuracy, reasonableness or completeness of the information received from any sources consulted for this publication, and neither Beaufort Securities nor its advisors, directors or employees accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document (except in respect of wilful default and to the extent that any such liability cannot be excluded by the applicable law). This document is not to be relied upon and should not be used in substitution for the exercise of independent judgment. This document includes certain statements, estimates, and projections with respect to the anticipated future performance of s ecurities listed on stock exchanges and as to the market for these shares. Such statements, estimates, and projections are based on information that we consider reliable and may reflect various assumptions made concerning anticipated economic developments, which have not been independently verified and may or may not prove correct. No representation or warranty is made as to the accuracy of such statements, estimates, and projections or as to its fitness for the purpose intended and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only and may change without notice. Other third parties may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views, and analytical methods of the analysts who prepared them. This report has not been disclosed to any of the companies mentioned herein prior to its publication. The information contained in this document is confidential and is solely for use of those persons to whom it is addressed and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose. Other persons who receive this document should not rely on it. Beaufort Securities, its directors, officers and employees may have positions in the securities mentioned herein.

© Beaufort Securities Ltd 131 Finsbury Pavement, London EC2A 1NT

Company Name Disclosure

Tertiary Minerals Plc 7

1. In the past 12 months, Beaufort Securities Limited or its affiliates have had corporate finance mandates or managed or co-managed a public offering of the relevant issuer’s

securities or received compensation for Corporate Finance services from the relevant issuer.

2. Beaufort Securities Limited expects to receive or intends to seek compensation for Corporate Finance Services from this company in the next six months.

3. The investment analyst or a member of the investment analyst’s household has a long position in the shares or derivatives of the relevant issuer.

4. The investment analyst or a member of the investment analyst’s household has a short position in the shares or derivatives of the relevant issuer.

5. As of the month end immediately preceding the date of publication of this report, or the prior month end if publication is within 10 days following a month end, Beaufort

Securities Limited and / or its affiliates beneficially owned 1% or more of any class of common equity securities of the relevant issuer.

6. A senior executive or director of Beaufort Securities Limited or a member of his or her household is an officer, director or advisor, board member of the relevant issuer and /

or one of his subsidiaries.

7. Beaufort Securities Limited acts as corporate broker to the relevant issuer.

The investment analyst who is responsible for the preparation of this investment research is employed by Beaufort Securities Limited.

http://www.beaufortsecurities.com/stock-research-prices/disclosures/ratings/

http://www.beaufortsecurities.com/important-info

Documents

th Tertiary Minerals Researcxh Not… · recommendation. Tertiary management knew they had spotted something special when they acquired the ... Today’s Wardell Armstrong International’s