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Valuation of Early Stage PGE Projects andValuation of Early Stage PGE Projects and
The Global Outlook for PGEsThe Global Outlook for PGEs
René HochreiterRené Hochreiter28 October 2011
Valuation of Early Stage PGE ProjectsValuation of Early Stage PGE Projects
Mostly done by mark to market valuationy yExploration Sector USD Market Cap per oz total resources
C CCan be done by DCF valuation, although not recommended by SAMREC
Using analyst consensus forecasts or spot prices of metals
2
Valuation Exercise DCF Value at real return rates Spot prices used R/USD 8.0(Preferred method of valuing platinum and mining projects) Pt 1510 Au 1643 Nickel 8.526-Oct-11 Pd 618 Ru 145 Copper 3.2
Rh 1625 Ir 1085 Cobalt 16
Consensus prices used R/USD 7 5
Disclaimer: Allan Hochreiter (Pty) Ltd may from time to time own shares in listed securities. Allan Hochreiter (Pty) Ltd valuations made are of a forward looking nature and Allan Hochreiter (Pty) Ltd is not responsible for the Consensus prices used R/USD 7.5
Pt 1554 Au 1097 Nickel 8.2Pd 417 Ru 140 Copper 3.2Rh 2778 Ir 425 Cobalt 17
Value at 15% Project Best ValueReal Discount Rates IRR DCF / Price at 15%
valuations made are of a forward looking nature and Allan Hochreiter (Pty) Ltd is not responsible for the inaccuracies of information provided by the company analysed, inaccuracies resulting from market analysts consensus forecasts, inaccuracies in valuations due to market or political turmoil or any other market and/or financial instabilities. Such forward looking statements are not in any way a guarantee of future performance. Allan Hochreiter (Pty) Ltd will at all times endeavour to produce fair, reasonable and equitably comparable valuations on all advisory mandates.
EXPLORERS Domicile Latest CommentCurrency Price Spot Consensus % Spot
Platfields ZAR 6 Poor assets. 40 9 25.2% buy 567%Jubilee GBP 14 Good PGM grades, but low Pt:Pd ratio. 51 32 49.1% buy 264%Platinum Group Metals* CAD 123 Good grades and shallow resource, broken-up at suboutcrop. 438 427 62.9% buy 256%Kameni* ZAR 1600 Seed capital issue price of 1600cps Zimbabwe assets a problem 5507 5517 69 2% buy 244%Kameni ZAR 1600 Seed capital issue price of 1600cps, Zimbabwe assets a problem. 5507 5517 69.2% buy 244%Wesizwe* ZAR 158 Deep, fair grade, but will have high unit costs. 371 341 41.9% buy 135%Nkwe AUD 13 Poor image, low Pt:Pd ration, deep. -26 -41 -ve sell -300%Caledonia Mining GBP 5 Mainly Zambian copper. Grasvally property - PGMs and nickel-limited resource. -15 -31 -ve sell -400%Village Main Reef ZAR Not Listed New area, structure, dip,depth may be difficult for mining . Not Valued
Bauba Platinum ZAR 201 Prospects in the N.E. Bushveld, low Pt:Pd ratio. Not Valued
Average 109%*10% Real
Value at 5% Share Price Best ValueReal Discount Rates IRR DCF / Price at 5%
PRODUCERS Domicile Latest
Currency Price Spot Consensus % Spot Currency Price p % p
Anooraq CAD 0.58 Management changes made large resources. 15 12 86.7% buy 2486%Sylvania AUD 0.32 Dump re-Treatment and Everest North - small but profitable. 3 3 58.1% buy 838%Platmin CAD 0.30 Small projects,low quality, open-pittable, broken ground, poor management. 2 2 36.7% buy 567%Platinum Australia AUD 0.17 Small low grade deposits, some open pittable, low cost, management issues. 1 1 17.8% buy 488%Northam ZAR 31 Booysendal adds significant value. Good management. 89 61 10.4% buy 187%y g g yEastern Platinum CAD 0.70 Broken ground, difficult to mine, funding requirement on-going, poor management. 2 2 43.4% buy 186%Anglo Platinum ZAR 547 Production still not increasing. 1403 1183 11.4% buy 156%Lonmin ZAR 135 Face length, smelter problems and mineral permits a concern. 277 209 10.6% buy 105%Aquarius ZAR 23 Good management, safety a concern. 45 37 6.4% buy 96%Implats ZAR 176 Fairly valued, good management. 316 279 16.4% buy 80%RBPlat ZAR 57 Overvalued. 74 49 3.6% hold 30%
3
Average 474%
Valuation Exercise Average yearly closing prices, year to date AUD/USD 1.04USD Per ounce Valuation (4 PGMs) R / USD P t 1747 A u 1492 N ickel 10.8 CAD/USD 0.99(Less preferred valuation method) 7.00 P d 733 R u 170 C o pper 4.1 Rand /USD 8.03
R h 2186 Ir 939 C o balt 19 GBP/USD 1.5926-Oct-1126 Oct 11
EXPLORERS Domicile Latest Shares Market Market Resources Enterprise EV/Oz ValuationCurrency Price Issued Cap (Mil) Cap (Mil) Mil Ozs. Value Resource USD/Oz Resource
(cps or pps) Domicile In USD 4 PGM 4PGMs
Bauba Platinum ZAR 201 123273539 248 31 83 37 0 0Bauba Platinum ZAR 201 123273539 248 31 83 37 0 0Platfields ZAR 6 789597005 47 6 13 0 0 0Nkwe Platinum AUD 13 622616183 81 84 69 362 5 1Jubilee Platinum GBP 14 256536092 36 57 16 106 7 4Kameni ZAR 1600 180000000 2880 359 63 0 0 6Pl ti G M t l CAD 123 218 217 13 255 20 17Platinum Group Metals CAD 123 177584542 218 217 13 255 20 17Wesizwe* ZAR 158 1627827058 2572 320 16 1159 70 19Caledonia Mining GBP 5 500549280 25 40 1 46 66 57
Simple Average/Total 1113 273 4
PRODUCERS ZAR per shareAnooraq CAD 0.58 201763472 117 116 220 910 4 1Platinum Australia AUD 0.17 392430039 67 69 10 262 27 7Eastern Platinum CAD 0.70 908187807 636 631 82 1 463 18 8Sylvania AUD 0.32 301961805 97 100 12 220 19 9Aquarius ZAR 23 470167206 10814 1346 129 2881 22 10Northam ZAR 31 382416190 11855 1476 141 2351 17 10Platmin CAD 0.30 910395055 273 271 19 521 27 14Platmin CAD 0.30 910395055 273 271 19 521 27 14Lonmin ZAR 135 202363773 27319 3401 227 6062 27 15RBPlat ZAR 57 165123082 9412 1172 67 1498 22 17Anglo Platinum ZAR 547 263391521 144075 17935 785 26202 33 23Implats ZAR 176 631714020 111182 13841 461 18324 40 30Simple Average/Total 315846 40359 2153 19
4
Simple Average/Total 315846 40359 2153 19
Explorers – Targeted resources/resources Explorers Ounces (m) 4 PGM attributableExplorers Ounces (m) 4 PGM attributable
200
178
160
180
00
Sable Platinum “Target ounces”
120
140
82
6963
60
80
100 Other company ounces according to relevant codes
2822
13 13 1320
40
60
10
SablePlatinum
Bauba NkwePlatinum
Kameni LesegoPlatinum
JubileePlatinum
PlatinumGroupMetals
Wesizwe Platmin CaledoniaMining
5
Metals
Producers- Resource baseProducers (ounces m) 4 PGMProducers (ounces m) 4 PGM
700632
600
700
469
400
500
222
300
111 107 106 100100
200
19 12 110
AngloPlatinum
Implats Lonmin Northam Anooraq Aquarius EasternPlatinum
Platmin Sylvania PlatinumAustralia
6
Platinum Platinum Australia
Attributable ProductionAttributable Production
Platinum Production (m ozs per year)
2.5
( p y )
22
1.4
1
1.5
0.650.5
0.18 0.24 0.1 0.050
Anglo Plats Implats Lonmin Aquarius Northam Anooraq Elands
7
Risk Reward CurveRisk Reward Curve
Implats32AngloWesizwe
Elands17
gPlats
2623
PlatinumA t li
Valuation in Market Cap $/oz
PGEPTM18
$900m ($5/oz)
Australia9
PGE
Mine developmentSable Jubilee Kameni
$534m ($3/oz)
ExplorationPre-feasibilityAnd feasibility
$178m
@ $1/oz
Sable1 4 6
Exploration And feasibility
Development
8
DCF Valuations probably the bestDCF Valuations probably the best
Reason
Market Cap/oz valuations are too simple
They:Take no account of ResourceTake no account of Resource
Take no account of Cost of production
Take no account of RiskTake no account of Risk
DCF valuations do all this: As a geologist and as a mining i I d thi th d th t tengineer, I recommend this method as the most accurate,
especially for properties in the Bushveld Complex
9
The Global Outlook for Platinum Group MetalsThe Global Outlook for Platinum Group Metals
Platinum demand 2010 – 2020 growth expected to beg p5.8% /yr
(Platinum demand 1975 to 2010 grew by 2.7% /yr. (Source: JM) This includes an 18% drop in 1980, an 8%drop in 2008 and a 9% drop in 2009).
Palladium demand will likely rise 2.3% /yr (1981 to 2010: 5% /yr)y y ( y )
Rhodium demand will likely rise 9.2% /yr (1981 to 2010: 39.4% /yr)
Shortfalls likely in all 3 metals over the next 8 years.
10
Platinum Demand by Region 2010 (m’oz)Platinum Demand by Region 2010 (m oz)
2009 2010
China, 2.165, 32%
Rest of world, 0.89, 13%
2009
China, 1.985, 25%
Rest of world, 1.125, 14%
2010
32%
Europe, 1.83, 27%
Japan, 1.05,
North America, 0.86,
13%Europe,
2.110, 27%
Japan, 1.155,
North America,
1.505, 19%
Total Demand: 6,795m oz
p , ,15%
p , ,15%
Total Demand: 7,88m oz
Source: Johnson Matthey
11
Source: Johnson Matthey
Platinum Demand/Supply 2010Platinum Demand/Supply 2010
S l ( illi ) D d ( illi )
Industrial*Investment
0 650
Supply (million ounces)Total Net: 7.900
Demand (million ounces)Total Net: 7.880
North America0 210 ZimbabweOthers
Movement to Stock
Industrial1.180
0.650
Medical and Biomedical
0.255
Other
Russia0.825
0.2100.280 Others
0.110
Recycling
0.020
Jewellery2.415
Other0.255
Recycling1.840
Autocatalyst3.125
South Africa4.635
S J h M tth
12
*Industrial = Electrical, Petroleum, Chemical, GlassSource: Johnson Matthey
Platinum Supply and Demand (JM 2010 Report)
8 500
Platinum Supply and Demand (JM 2010 Report)
‘000 oz 2005 2006 2007 2008 2009 2010
6 500
7 000
7 500
8 000
Total Supply 6640 6830 6600 5940 6025 6060
of which: South Africa 5115 5295 5070 4515 4635 4635
5 000
5 500
6 000
6 500of which: South Africa 5115 5295 5070 4515 4635 4635
Russia 890 920 915 805 785 825
N America 365 345 325 325 260 210
4 500
2005
2006
2007
2008
2009
2010
Total Supply Total Demand
Zimbabwe 155 165 170 180 230 280
Total Demand 7965 7890 8270 7990 6795 7880
of which: Autocatalyst 3795 3905 4145 3655 2185 3125
Jewellery 2465 2195 2110 2060 2810 2415
Recycling (1270) (1415) (1590) (1830) (1405) (1840)
Movement in Stocks (55) 355 (80) (220) 635 20
13
Palladium Supply and Demand (JM 2010 Report)Palladium Supply and Demand (JM 2010 Report)
9 000‘000 oz 2005 2006 2007 2008 2009 2010
7 000
8 000Total Supply 8405 7950 8580 7310 7100 7290
of which: South Africa 2605 2775 2765 2430 2370 2575
6 000
2005
2006
2007
2008
2009
2010
Russia 3135 3220 3050 2700 2675 2720
Russian stock sales
1485 700 1490 960 960 1000
North America 910 985 990 910 755 590Total Supply Total Demand
North America 910 985 990 910 755 590
Total Demand 8345 7845 8395 8290 7850 9625
of which: Autocatalyst 3865 4015 4545 4465 4050 5450
Dental 815 620 630 625 635 580
Electronics 1275 1495 1550 1370 1370 1410
Jewellery 1490 1140 950 985 775 620
Recovery (990) (1 230) (1 565) (1 615) (1 430) (1,845)
Movement in Stocks 1050 1335 1750 635 680 (490)
14
Rhodium Supply and Demand (JM 2010 Report)Rhodium Supply and Demand (JM 2010 Report)
1100‘000 oz 2005 2006 2007 2008 2009 2010
700
800
900
1000
Total Supply 754 802 824 695 770 751
of which: South Africa 627 666 696 574 663 642
500
600
700
2005
2006
2007
2008
2009
2010
of which: South Africa 627 666 696 574 663 642
Russia 90 100 90 85 70 70
North America 20 17 20 18 15 12
Total Supply Total DemandZimbabwe 13 14 14 15 19 24
Total Demand 964 1009 1036 897 716 873Total Demand 964 1009 1036 897 716 873
of which Autocatalyst 829 863 887 768 619 724
Recovery (137) (171) (192) (227) (187) (236)y ( ) ( ) ( ) ( ) ( ) ( )
Movement in Stocks (73) (36) (20) 25 241 114
15
Platinum Demand/Supply Outlook (AH)Platinum Demand/Supply Outlook (AH)
(000 oz) 2010 2012 2015 202010000
11000 (000 oz)
Demand Total 7880 6843 8761 103197000
8000
9000
10000
of which: Autocats 3125 3800 6513 7700
Jewellery 2415 3000 2400 2200 4000
5000
6000
2010 2012 2015 2020
Supply Total 6060 6556 8027 9834
of which: AngloPlat 2000 2495 2942 3007
Total Supply Total Demand
0100g
Implats 1400 1415 1490 1585
R li * 1085 1466 1741 1596-500-400-300-200-100
0
Recycling* 1085 1466 1741 1596
Supply shortfall/surplus 20 (287) (734) (485)
Surplus Shortfall
-800-700-600
2010 2012 2015 2020
*43% of autocat demand 8 years ago
16
Surplus ShortfallSource: Rene Hochreiter, Allan Hochreiter (Pty) Ltd
Palladium Demand/Supply Outlook (AH)Palladium Demand/Supply Outlook (AH)
(000 oz) 2010 2012 2015 2020 9 50010 000
( )
Demand Total 9625 7440 8000 78557 0007 5008 0008 5009 0009 500
of which: Autocats 5450 5900 6000 6700
Jewellery 620 800 1600 1200 5 0005 5006 0006 500
2010 2012 2015 2020
Supply Total 7290 7160 7370 8400
Total Supply Total Demand
600800
1 000
of which: South Africa 2575 2700 3200 3931
Russia 3720 3150 2800 3000
Recycling 1325 1251 1500 1950 -600-400-200
0200400600
y g
Supply (shortfall)/surplus (490) (280) (630) 545 -1 000-800600
2010 2012 2015 2020
Surplus ShortfallSource: Rene Hochreiter Allan Hochreiter (Pty) Ltd
17
Surplus ShortfallSource: Rene Hochreiter, Allan Hochreiter (Pty) Ltd
Rhodium Demand/Supply Outlook (AH)Rhodium Demand/Supply Outlook (AH)
(000 oz) 2010 2012 2015 2020 13001400
Demand Total 873 830 1024 1342800900
1000110012001300
of which: Autocats 724 950 1200 1540
400500600700
2010 2012 2015 2020
Supply Total 751 733 830 1006
of which: South Africa 642 610 688 688
Total Supply Total Demand
300
400
Recycling 236 265 310 333
Supply (shortfall)/surplus 114 (97) (194) (336)-200
-100
0
100
200
-400
-300
200
2010 2012 2015 2020
Surplus ShortfallSource: Rene Hochreiter, Allan Hochreiter (Pty) Ltd
18
Surplus Shortfall
Discussion: PtDiscussion: Pt
Legislated demandg
Electric cars too expensive
China >> US in auto production
Jewellery the “shock absorber”Jewellery the shock absorber
Supply from South Africa constrainedPrice will
risePrice will
rise
Power, Safety Stops, Efficiency (HIV)
Excess smelter capacity constrained to 2m ozExcess smelter capacity constrained to 2m oz
Poor cost control performance
19
China and SE Asia commodities boom
US autocats introduced
I iIncreasing emissions stringency Russia stops
sales for most of 1999
Global financial crisiscrisis
20
Discussion: PdDiscussion: Pd
Russian stockpile depleted
Global resources of Pt:Pd:Rh – 1:1:0.1
Perfect world, Pd price = Pt price
US auto makers using Pd only autocats
Price will rise
Price will rise
US auto makers using Pd only autocats– until the price rises
21
Russia withholds Pd stock sales
Russian stock depletion
Ford announces Pd-only catalysts
p
y y
US autocats introduced
Global financialGlobal financial crisis
22
Discussion: RhDiscussion: Rh
Autocat demand > Total Net Demand
Price swings vicious
A by-product from South Africa→ supply constrained
Price will rise sharply
Price will rise sharply
23
NewNew AngloPlats Refinery pipeline
China & SE Asia boom in
petrol car Globalpetrol car sales
Global financial
crisis
Y2K boom
24
Consensus Price ForecastsConsensus Price Forecasts
Average of 20 analysts (all prices are in real terms)
2010A 2011E 2012E 2013E 2014E 2015E LT
Platinum US$/oz 1 612 1 799 1 853 1 825 1 723 1 711 1 698
g y ( p )
Platinum US$/oz 1 612 1 799 1 853 1 825 1 723 1 711 1 698
Palladium US$/oz 527 783 850 873 813 848 692
Rhodi m US$/ 2 454 2 242 2 435 2 869 3 003 3 285 3 356Rhodium US$/oz 2 454 2 242 2 435 2 869 3 003 3 285 3 356
Gold US$/oz 1 225 1 551 1 632 1 509 1 309 1 177 1 086
Copper US$/lb 3.42 4.29 4.29 3.94 3.42 3.20 2.57
Nickel US$/lb 9.90 11.11 10.16 9.92 9.56 8.95 8.37
Cobalt US$/lb 20.55 17.62 14.53 13.5 12.17 11.50 12.38
Rand/Dollar ZAR/US$ 7.32 6.96 7.11 7.45 7.88 8.17 8.99
25
ZAR/kg cash cost 6 months to December 2010ZAR/kg cash cost 6 months to December 2010
------------------------------------------------------------------------Current Revenue R 300 500/kg
Source: Rencap
26
ZAR/tonne milled (all-in) 6 months to December 20102010
Current revenue average: R1200/ton --------------------------------------------------------
27
Source: Rencap
ConclusionConclusion
Demand for PGE’s will rise, prices will rise
Supply of PGE’s will disappoint
SA has 91% of global resources (34 out of 37 5 bn oz ) 74%SA has 91% of global resources (34 out of 37.5 bn oz.), 74% down to 3000m (whether SAMREC likes it or not)
ZAR vs USD → my bet is on a weakening ZARZAR vs USD → my bet is on a weakening ZAR
Share prices should rise as long as government …….
Outlook to 2020 → POSITIVE → global recovery likely by 2015 if not sooner, prices should rise
Watching platinum has been like watching a missile take off. The metal's run-up has been nothing short of astonishing — 41% so far in 2008 and about 75% in the past 12 months! The Market Oracle – Feb 2008
28
(Market Oracle headline Feb 2015?)
Typical Annual Platinum Price CycleTypical Annual Platinum Price Cycle
Sell in May and go away
JM Pt k
SellN Hemisphere summer apathy
Sell JM
Review
JM Pt week summer apathy
e e
Buy Buy
J F M A M J J A S O N D
29
