RCR Quarterly Report- Oct-10-Copper

3,283 views
3,159 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
3,283
On SlideShare
0
From Embeds
0
Number of Embeds
12
Actions
Shares
0
Downloads
30
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

RCR Quarterly Report- Oct-10-Copper

  1. 1. Copper Company Review Exploration, Development & Production October 2010
  2. 2. Resource Capital Research This report is subject to copyright and may not be redistributed without written permission from RCR. The information contained in this report is for use by US, Canadian and Australian residents only. Copies are available for purchase from RCR. 13 October 2010 Copper Company Review October 2010 Resource Analyst (Copper): John Wilson Resource Analyst: Dr Tony Parry Resource Analyst: Dr Trent Allen Resource Capital Research Suite 1306 183 Kent Street Sydney, NSW 2000 Tel: +612 9252 9405 Fax: +612 9251 2859 Email: info@rcresearch.com.au Web: www.rcresearch.com.au Resource Capital Research ACN 111 622 489
  3. 3. Resource Capital Research Contents Contents .............................................................................................................................. 2 Overview and Investment Comment ........................................................................................ 3 RCR October Featured Copper Company Summary .................................................................... 4 Comparative Charts ............................................................................................................... 6 Financial Data ....................................................................................................................... 7 Company Statistics ................................................................................................................ 7 Reserves, Resources and Historic Mineralisation ........................................................................ 8 Valuation and Performance Data ............................................................................................. 8 Exploration, Development and Production Companies Altona Mining Limited................................................................................................... 9 [Avalon Minerals Limited .....................................................................................………….] [Blackthorn Resources Limited ......................................................................... ………………] Discovery Metals Limited ............................................................................................ 11 Equinox Minerals Limited* .......................................................................................... 13 Gunson Resources Limited .......................................................................................... 15 Sandfire Resources NL ............................................................................................... 17 [Thundelarra Exploration Limited............................................................................... …..] [Tiger Resources Limited ............................................................................................ …] Venturex Resources Limited........................................................................................ 19 YTC Resources Limited ............................................................................................... 21 Copper Price Fundamentals................................................................................................... 23 [Smelting and Refining - TC/RCs……………………………………………………………………………………………….….…….37] [Copper Property Transactions: Global 2010 (January 1 to September 24)…………………………………………] [Copper Capital Raisings: Global 2010 (January 1 to September 27)……........................................] [Copper Company Share Price Performance Tables ..................................................................... ] Report Contributors ............................................................................................................. 33 Disclosure and Disclaimer ..................................................................................................... 34 * Indicates companies with detailed financial projections and valuation available. [This is the Abridged Report version of the October RCR Copper Company Review. The quarterly purchase price to all RCR’s Subscriber Reports (uranium, gold, rare and minor metals, and iron ore) is A$110. The annual subscription rate to all RCR research is A$440 – commodities covered may vary from quarter to quarter. Purchase details and research services for institutional investors can be found at www.rcresearch.com.au]. © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 2
  4. 4. Resource Capital Research Overview and Investment Comment Equity market performance A broad global copper mining index is up 40% over the past 3 months Copper mining (to 13 Oct), half of the gain (20%) coming in the past 1 month. The equities have risen index is up 29% over the past 12 months. (HSBC Global Mining Copper strongly in the past Index, USD, covers globally listed copper mining stocks). few months (up 40%). The valuations of Australian copper equities appear to have partially priced in, perhaps prematurely, a recovery in the US economy and subsequently, expectations of a weaker Australian dollar. This is against Performance has been recent market trends in which the AUD/USD has strengthened to near driven by a surging parity and suggests potential for partial retracement of recent AUD copper price – now at copper gains if the US recovery does not proceed as anticipated. a 27 month high of US$3.81/lb (13 Oct). Market volatility remains the key uncertainty for copper equities’ outlook. While potentially slowing into 2011, the global economy is nevertheless, currently expected to report robust growth (IMF forecast 2011 GDP 4.2%, down from a forecast 4.8% for 2010). Despite the AUD/USD Copper price outlook rising to near parity, The spot LME copper price hit a 27 month high of US$3.81/lb (13 Oct), Australian copper and is up 28% over the past 3 months. About a third of the gain (10%) company valuations occurred over the past month. The copper price is up 34% over the past appear to be pricing 12 months. The gains are driven by a strong demand outlook, in a substantially constrained new supply and declining LME stocks. weaker exchange rate… The copper market is forecast to move from small surplus in 2010 to a deficit of 400kt 2011 (ICSG), reflecting a continuing surge in Chinese demand and tight supply. The copper price is expected to remain strong, at around current levels and above, for at least several years. …reflecting market Global copper demand is forecast to grow to 18.9mt in 2010, up from confidence in the US 18.2mt (+3.8% or +692kt) in 2009, and is expected to grow a further economic rebound - 4.5% (+847kt) in 2011 to 19.7mt. The global demand growth in copper post QE2. is expected to be in the range of 3-5%pa, representing an incremental annual consumption increase of 600kt to 900kt, prompting RIO to comment that the copper market is expected to remain tight till 2020. The main market growth is expected from China, which now accounts for 36% of global copper consumption, compared to North America China accounts for which accounts for only 10%. China’s continuing urbanisation and 36% of global copper forecast GDP growth of ~10%pa is expected to drive per capita copper consumption, and is consumption in China from ~5kg/capita currently to 10kg/capita 2020 the main driver of copper demand In comparison to the scale of market demand growth, the largest growth projections project expected to come online in the next few years is Oyu Tolgoi for the next decade. (Mongolia), starting 2013 and forecast to produce 436ktpa copper. There are many smaller and mid size projects that are moving towards production, though against a general industry background of declining head grades, projects of increased technical difficulty and cost, and higher sovereign risk jurisdictions. This suggests the trend of long development lead times and project delays will continue to hamper a timely supply response to global demand growth. © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 3
  5. 5. Resource Capital Research RCR October Featured Copper Company Summary AUSTRALIA Company Code Comment Altona Mining Limited AOH DFS (2 Projects), Advanced Exploration AOH's copper inventory is >1mt contained Cu; it is targeting production within 18 months. Potential ramp to 50ktpa Cu output in 4 years. Our assessed NAV of A$0.56/share and an enterprise value of only US$55/t Cu suggest it is still not being recognised as a near term producer. Avalon Minerals Limited AVI PFS PFS imminent on the flagship Viscaria copper-iron project, Sweden. Resource: 66mt for 1.3bnlbs Cu & 2.4mt Fe. Near term Exploration Target 100mt. Open pit - base case 15ktpa Cu plus iron ore. Production potential 2013. Regional exploration upside. Blackthorn Resources Limited BTR Advanced Exploration BTR's half-built Perkoa Zn project is back on track with Glencore agreeing to take a 50.1% stake, but we see most upside coming from BTR's Zambian IOCG Cu-Au discovery (big enough to attract BHP as an enthusiastic partner) plus exciting Burkina Faso gold exploration. Discovery Metals Limited DML Bankable Feasibility Study Boseto copper project (DML 100%, Botswana): 36ktpa Cu, 1.1mozpa Ag production expected from 1Q12. Project financing underway. Strong exploration upside near mine and regional in Kalahari Copper Belt. Two new exploration targets - drilling 4Q10. Equinox Minerals Limited EQN Production Lumwana project (EQN 100%), Zambia, is expected to produce ~140kt Cu in conc 2010. A 2 phase expansion program is underway with potential to increase production to ~200kt Cu from 2014. Good, near mine and regional, copper (and uranium) exploration upside. Gunson Resources Limited GUN DFS, Advanced Exploration GUN's currently 100% owned ~A$170m Coburn Zircon Project in WA is now looking strategically attractive (DFS completed) with a potential zircon supply deficit looming. This will boost GUN's plans to bring in a big brother, which if succesful will also boost a languishing share price. Sandfire Resources NL SFR Advanced Exploration SFR holds a strategic 400km2 in the emerging DeGrussa VMS copper-gold district in WA. The project is shaping up as world-class since discovery Apr '09; high grade copper resource 10.7mt @ 5.7% Cu. Excellent exploration upside. DFS 1H11. Tiger Resources Limited TGS Imminent Production TGS is constructing the US$30m Stage 1 Kipoi high grade copper Project (60%) in the Democratic Republic of Congo with full project financing in place. Stage 1 output ~35ktpa Cu opex ~US$0.34/lb. Current resource is 842kt Cu with excellent potential to expand. Thundelarra Exploration Limited THX Mid-Advanced Exploration We think the market may be undervaluing THX's Degrussa look-alike at Red Bore, near Sandfire's high grade Cu/Au discovery. Further drilling success could highlight this, and on the uranium front the inaugural resource for the high grade Thunderball deposit is due 4Q10. Venturex Resources Limited VXR Advanced Exploration VXR controls a large (50 x 20km) VMS district in the Pilbara (WA) with significant exploration upside. Current resource 180kt Cu Eq grading 1.1% Cu (2.2% Cu Eq). Potential 15ktpa Cu Eq production from 1Q12. LOM 8 years. Scoping study expected 4Q10. YTC Resources Limited YTC Pre-Feasibility Study Mining in 2H11 is possible at the Hera Project (Au, Cu-Pb-Zn-Ag), which has a 560koz AuEq resource with upside from drilling at Hera and historic Nymagee Mine (recent hits +8% Cu). The 6.5km Hera-Nymagee corridor is prospective for Cobar-style deposits. Target A$0.73/share. © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 4
  6. 6. Resource Capital Research Explorers’ Development Cycle: Conceptual market capitalisation versus development stage; October 2010 © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 5
  7. 7. Resource Capital Research Comparative Charts The surge in the copper price since June Many companies are trading at, or near, has driven copper equities in recent 12 month highs. Generally, producers months. The HSBC index of copper mining and those with near term production equities is up 40% over the past 3 visibility have been the strongest months and 20% in the past month (to performers. Some, like Sandfire, have Oct 13) reflecting strong performance been driven by expectations of across the sector. exploration success and possible corporate activity. © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 6
  8. 8. Resource Capital Research Financial Data 2 Fully M arket Ent erprise COM P AN Y Share Price (LC$/ share) 3 Dilut ed Cap Book Value Code St at us 1 Yr End Exchanges 52 week Current Shares Opt +W 2 C. Notes2 Shares (undilut ed) Cash Debt Value (Undilut ed) 13 Oc t o be r 2010 Hi Low (m) (m) (m) (m) (LC$m)3 (LC$m)3 (LC$m) 3 (LC$m) 3 (LC$m) 3 AUSTRALIA (A$) Alt ona M ining Limit ed AOH E June A SX FSE BLN No 0.29 0.09 0.28 245 7 0 252 67 11.0 0.0 32 67 Avalon M inerals Limit ed A VI E June A SX No 0.30 0.15 0.22 152 3 0 155 34 4.4 0.0 12 34 Blackt horn Resources Limit ed BTR E June A SX No 1.03 0.33 0.77 107 5 0 112 82 10.6 0.0 50 82 Discovery M etals Limit ed DM L E June A SX A IM No 1.35 0.42 1.18 302 9 0 311 356 36.6 0.0 73 356 Equinox M inerals Limit ed EQN P Dec A SX TSX No 6.25 3.40 6.1 2 708 16 0 724 4331 21 7.6 470.7 854 4802 Gunson Resources Limit ed GUN E June A SX No 0.17 0.06 0.1 0 173 4 0 178 17 0.5 0.0 25 17 Sandfire Resources NL SFR E June A SX No 7.85 2.81 7.64 1 30 12 19 160 993 40.9 0.0 57 993 Tiger Resources Limited TGS I June A SX TSX No 0.37 0.15 0.36 596 110 0 706 212 28.3 19.0 41 231 Thundelarra Explorat ion Limit ed THX E Dec A SX THX OA 1.04 0.36 0.74 151 28 0 179 111 20.0 0.0 46 111 Venturex Resources Limit ed VX R E June A SX No 0.14 0.06 0.09 655 77 0 732 56 5.0 0.0 25 56 YTC Resources Limited YTC E June A SX No 0.34 0.17 0.28 1 64 6 0 170 46 5.9 0.0 28 46 Tot al: Aust ralia 380.8 489.7 1242 6796 Tot al: (US$)4 373 480 1218 6660 (1) P: Producer; E: Explorer; I: Imminent - includes companies wit h bankable feasibilit y studies and likely to be in product ion wit hin 3 years; IHC: Investment Holding Company (2) Fully Diluted (shares, options + warrant s (opt . + w), convert ible not es (Conv. N), ot her obligat ions) (3) L.C. - Local Currency unit ; End of quart er forecast. (4) AUD/ USD: 0.98 Company Statistics C OM P A NY Code Land Drilling ('000 m) (A) Exploration (L.C.$m) 7 (B) Corporate (L.C.$m) 7 (A )/(A+B ) % 13 O ct o ber 20 10 ('000 ha) 6 Sep-10 Dec-10 2011 2012 Sep-10 Dec-10 2011 2012 Sep-10 Dec-10 2011 2012 Dec-10 2011 2012 AUSTRALIA (A$) A ltona M ining Limit ed AOH 215 8.0 8.0 32.0 na 1.0 1.0 4.0 4.0 0.9 0.9 3.6 3.6 52.6 52.6 52.6 A valon M inerals Limited AV I 20 4.0 4.0 16.0 29.0 1.3 1.5 6.8 6.0 0.5 0.5 1.8 1.8 77 79 77 B lackthorn Resources Limited BTR 114 11.0 17.0 53.0 50.0 1.0 1.0 4.2 4.6 0.8 0.8 3.2 3.4 56 56 58 Discovery M etals Limit ed DM L 966 11.3 11.3 45.0 45.0 2.0 2.0 8.0 8.0 1.2 1.2 4.6 4.6 63.5 63.5 63.5 Equinox M inerals Limit ed EQN 331 20.0 20.0 80.0 70.0 1.4 1.4 5.6 5.6 2.9 2.9 11.6 11.6 32.6 32.6 32.6 Gunson Resources Limited GUN 273 0.5 0.5 2.0 na 0.3 0.4 1.5 2.0 0.1 0.1 0.4 0.4 77.8 78.9 83.3 Sandfire Resources NL SFR 40 20.0 58.0 195.0 100.0 13.2 6.0 29.2 24.0 0.6 0.6 2.4 2.4 90.9 92.4 90.9 Tiger Resources Limited TGS 155 5.0 5.0 20.0 10.0 0.5 0.5 1.8 1.8 0.9 0.8 3.2 3.2 36 36 36 Thundelarra Exploration Limited THX 950 15.0 12.0 42.0 40.0 1.5 2.0 9.0 9.0 0.7 0.7 2.8 3.0 74.1 76.3 75.0 V ent urex Resources Limited VX R 34 5.0 3.5 15.5 15.5 1.3 1.3 5.0 5.0 0.5 0.4 1.7 1.6 75.8 74.6 75.8 Y TC Resources Limited YTC 174 7.0 7.0 28.0 20.0 2.2 2.0 8.2 8.0 0.4 0.6 2.1 2.2 78.4 80.0 78.4 Total: A ustralia 107 146 529 380 25 19 83 78 4 Total: (US$) (6) To convert hect ares to acres, mult iply by 2.47; eg 100 thousand hectares ('000 ha) = 247 thousand acres ('000 ac) (7) L.C. - Local Currency unit © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 7
  9. 9. Resource Capital Research Reserves, Resources and Historic Mineralisation Hist orical/ M ineralised M at erial C OM P A N Y Reserves (Equit y) 2 Resources (Equit y) 2 (Equit y)2 Tot al Copper (Cu) Tot al - Gold Product ion Cod e St at us1 Copper (Cu) Ot her Copper (Cu) Ot her Copper (Cu) Ot her (All M ineralisat ion) 1 Equivalent 3 Co mmencement 13 O c to ber 2 010 M lb kt M lb kt M lb kt M lb kt (M oz) Year AUSTRALIA Alt ona M ining Limit ed AOH E 889 403 2,2 29 1,011 0.0 0.0 2,2 29 1,011 6.3 na Avalon M inerals Limit ed AVI E 0 0 1,3 26 602 2.4mt Fe 0.0 0.0 1,3 26 602 3.8 na Blackt horn Resources Limit ed BTR E 0 0 2,145 973 988kt Zn 0.0 0.0 2,145 973 6.1 na Discovery M et als Limited DM L E 671 304 12.7moz Ag 3,190 1,447 57.1moz Ag 0.0 0.0 3,190 1,447 9.0 na Equino x M inerals Limit ed EQN E 4,740 2,150 13,4 08 6,082 0.0 0.0 13,4 08 6,082 38.0 2008 Gunson Resources Limit ed GUN E 0 0 3.7mt HM 3 66 166 1 .3mt HM 2 0.0 0.0 3 66 166 1.0 na Sandf ire Resources NL SFR E 0 0 Au, Ag 1,331 604 Au, Ag 0.0 0.0 1,331 604 3.8 na Tiger Resources Limit ed TGS P 0 0 505 229 0.0 0.0 505 229 1.4 20 11E Thundelarra Explorat ion Limit ed THX E 0 0 0.0 0.0 1mlb U 3O8 0.0 0.0 0.0 0.0 0.0 na Vent urex Resources Limit ed 4 VXR E 2 58 117 3 94 179 0.0 0.0 3 94 179 1.1 na YTC Resources Limit ed YTC E 0 0 2 80 127 280koz Au 0.0 0.0 2 80 127 0.8 na Average: Aust ralia Tot al/ Tot al Average 6,558 2 ,975 25,175 11,419 0 0 25,175 11,419 (1) P: Producer; E: Explorer; I: Imminent - includ es co mpanies wit h bankable f easibilit y st udies and likely t o be in prod uct ion wit hin 3 years; IHC: Invest ment Hold ing Comp any (2) Reserves, resources and mineralised mat erial p ublished by the relevant company. To nnes are met ric (2204 .6 po unds). The ap plicable mineral resource codes are b y count ry: Aust ralian: JORC, Canadian: NI 43-101, Sout h Af rica: SAM REC (3) Fo r cop per o nly. Assumes a uranium price of US$3.8 0/ lb and a gold p rice of US$1340/ oz * M ineral resource est imates are inclusive of t he mineral reserve. (4) Vent urex resources are st at ed as copper equivalent. Ref er t o VXR not e in t his report f or conversion parameters. Valuation and Performance Data Valuat ion (% of Cu ) Price (USD) COM P A N Y EV-Cash EV-Cash EV-Cash Res'v+resources Share Price Perf ormance Current Share Price Code P/Bo ok P/ Net Cash /Reserves / Res'v+resources / Tot al Cu Sp ot 3M fwd (%) %off 1 mo nth 2 13 Oc to be r 2 0 10 (x) (x) US$/lb US$/lb US$/ lb 3.81 3.82 1 mo nt h 3 mont h 6 month 1 mo nt h 2 Hi Lo AUSTRALIA Alt ona M ining Limit ed AOH 2 .1 6.2 0.06 0.0 2 0.02 1 1 67 175 67 20 5 20 9 Avalon M inerals Limit ed A VI 2.9 7.6 na 0.0 2 0.02 1 1 22 38 0 31 26 47 Blackthorn Reso urces Limit ed BTR 1.7 7.8 na 0.0 3 0.03 1 1 14 4 -15 121 25 133 Discovery M et als Limited DM L 4.9 9.7 0.47 0.10 0.10 3 3 26 79 36 151 12 1 1 8 Equinox M inerals Limited EQN 5.1 -17.1 0.95 0.3 4 0.34 9 9 11 31 31 55 2 80 Gunson Resources Limit ed GUN 0.7 32.8 na 0.0 4 0.04 1 1 20 41 15 4 39 79 Sandfire Resources NL SFR 17.4 24.3 na 0 .70 0.70 18 18 24 86 96 108 3 172 Tiger Reso urces Limit ed TGS 5.1 22.8 na 0.3 9 0.39 10 10 51 69 42 103 4 1 5 4 Thundelarra Exploration Limit ed THX 2.4 5.6 na na na na na -8 36 39 4 29 104 Vent urex Reso urces Limit ed 4 VXR 2.3 11.4 0.20 0.13 0.13 3 3 8 -3 -18 -1 8 36 43 YTC Resources Limited YTC 1.6 7.8 na 0.14 0.14 4 4 12 65 1 2 33 18 70 Averag e: A ust ralia 0.42 0.19 0.19 5 5 22 56 28 56 18 115 Tot al/Total Average © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 8
  10. 10. Resource Capital Research Altona Mining Lim ited AOH.AU Altona Mining Limited A$ 0.275 13 October 2010 AOH's copper inventory is >1mt contained Cu; it is targeting Copper,Gold, Uranium production within 18 months. Potential ramp to 50ktpa Cu output Finland, Australia (QLD) DFS (2 Projects), Advanced Exploration in 4 yrs. NAV is A$0.56/sh and EV is only US$55/t Cu suggesting Exchanges: ASX:AOH, FRF:URZ, BLN:URZ, NOR:URLA AOH is still not being recognised as a near term producer. Capital Profile Production and Financial Forecasts Share price (A$) 0.275 YEAR END: June Jun-10a Sep-10F 2009a 2010F 2011F 52 week range (A$/share) 0.09 to 0.29 Num ber of s hares (m) 245.3 Exploration and Evaluation (A$m) 0.26 1.00 2.13 4.36 4.00 Options and warrants (m) 6.5 Corporate (A$m ) 2.73 0.90 1.08 5.71 3.60 Converting notes (m) 0.136 Exploration/(Expl.+ Corporate) (%) 9 53 66 43 58 Fully diluted (m) 321.6 Funding duration at current burn (years ) 0.7 1.3 0.7 Market capitalis ation (undiluted) (A$m) 67.5 Shares on is sue (pr end) (m s hares ) 245.3 245.3 672.3 245.3 315.0 Debt (A$m) - Sep 10F 0.0 Drilling - RAB (m) 5,000 3,000 20,000 15,000 12,000 Enterpris e value (A$m) 67.5 Drilling - Other/Diamond (m) * 5,000 5,000 21,000 20,000 20,000 Major s hareholders : Tulla Resources Group (4.8%) Land holding ('000 ha) * 215 215 130 215 215 KLP Asset Management (4.1%), Pareto Grow th (3.3%) Tenement cos ts ($k per year) - - - - - Avg monthly volume (m) 33 Capital rais ings (A$m) 0.00 0.00 2.49 3.96 0.00 Cas h (A$m ) - Sep 10F 11.0 Funding from JV partners (A$m) 0 0 0 0 0 Price/Cas h (x) 6.2 Cas h (A$m ) 12.7 11.0 2.3 12.7 5.6 Price/Book (x) 2.1 Cas h backing (Ac/s hare) 5.2 4.5 0.3 5.2 2.0 Listed Company options : No Net as set backing (Ac/share) 13.2 12.9 0.5 13.2 10.2 ^Assumes Con. Notes (maturity June 2011) converted at nominal 20cps * 2011 shares on issue assumes converting notes converted at A$0.20/share in June 2011. Investment Points Company Comment Overview: Altona Mining was formed from the merger of Universal Resources Limited and Vulcan AOH expects to be in production by 1H12. Resources Limited, bringing together two copper-focused companies which were listed on the ASX in 2002. It now has two advanced copper projects and is expecting to be in production in 2012. Outokumpu Copper Project (Finland) is a low risk, low Outokumpu Copper Project (Finland): The Kylylhati copper ore body was discovered by Outokumpu in capex brownfields development. Capex A$46m, opex 1984 and acquired by Vulcan Resources in 2005. After undertaking a DFS in 2008 and then acquiring the Luikonlahti processing plant (43km away) in January 2010, AOH has optimised the DFS and is now US$1.33/lb Cu. committed to commence production as a low risk brownfields project involving refurbishing the processing plant and establishing a relatively straightforward underground mining operation, utilising Outokumpu Project production: 8ktpa Cu, 8.4kozpa Au, longhole open stoping and access via a decline. The key operating parameters from the optimised DFS 1.6ktpa Zn, ~A$33mpa EBITDA (AOH forecasts). are summarised on the following page. The low estimated capex of A$46m and cash opex of US$1.33/lb Cu suggest that the project is readily financeable. AOH expects to commence production in 1H12, producing 8ktpa Cu, 8.4kozpa gold and 1.6ktpa zinc, all in concentrates. Current AOH modelling gives a Roseby (0.9mt Cu current resource) is one of the largest project NPV of A$94.5m (pre tax, unleveraged) using 8% real discount rate and Cu price US$3.00/lb, undeveloped open pit Cu resources in Australia. Roseby Project: Roseby is the major copper asset of AOH and likely to be the ultimate ‘company maker’ The 2008 DFS undertaken on the Roseby Project was based on 5mtpa ore treatment to give ~27ktpa contained copper and 6kozpa gold. AOH is now undertaking an Optimisation Study on Roseby Roseby DFS Optimisation Studies likely to focus on to focus on larger scale open pit bulk mining techniques (similar to PanAust’s Phu Kam Project in Laos) increasing resources to ~200mt Conatined Cu and large to produce in excess of 40ktpa contained copper. The current 0.9mt contained Cu resource and 0.3mt scale bulk mining for >40ktpa Cu. reserve could be expanded by using lower cut-off grades and incorporating additional higher recovery sulphide resources below the current resource envelope. AOH is targeting increasing the total resource from 132mt to >200mt. This could support a processing plant of 8-10mtpa capacity, but most importantly, Major exploration upside in Aust and Finland. a lower capex per tonne of copper produced. AOH is particularly encouraged by recent drilling by Xstrata (SEEP JV) which intersected major thicknesses of non-refractory sulphide mineralisation below the Enterprise Value only ~US$60/t contained Cu, current predominantly weathered resource envelope, including total intercepts of 235m @ 0.45% Cu production companies typically >>US$150/t. from 2m, and 198m @ 0.84% Cu from 4m. The 2008 DFS indicated capex of A$214m, cash opex (C1) of ~US$1.52/lb. Based on the DFS parameters, our assessed after tax NPV using 10% nominal discount rate and US$2.50/lb Cu price, A$/US$ 0.85, was A$165m (RCR URL Report October 2009). RCR assessed NAV is A$0.56/share (fully diluted) using Exploration Upside: Large highly prospective strategic base metals (and uranium) exploration holdings base case US$2.50/lb Cu, A$/US$ = 0.80 long term. in Queensland and Finland. Kuhmo Nickel (33kt Ni) resource established in Finland. Investment Comment: Our assessed NAV for AOH is A$0.56/share, assuming US$2.50/lb long term copper price, A$/US$ = 0.80 and allowing for converting note dilution assuming conversion in July 2011 AOH - Altona Mining Limited at A$0.20share. If we ascribe zero value for Roseby, the valuation still comes to A$0.30/share. Recent share price gains suggest the market is slowly waking up to the fact that AOH is moving rapidly to 0.300 production status and not just another copper exploration hopeful. The re-rating still has a way to go. Kumho Nickel Project in Finland - established resource. 0.250 Reserves and Resources/Mineralised Material Share Price ($/Share) Code for reporting mineral resources - Australian: (JORC) $11M exploration budget for 2008. 0.200 Copper Classification Project Ore Cu c/off Cu Cu Eqty Reserves Equity Mt % % kt Mlb kt Experienced board and management. 0.150 Ros eby Proved & Prob. 100% 47.9 0.70 0.3 335.1 739 335.1 Kylylhati Probable 100% 4.3 1.56 0.7 67.9 150 67.9 0.100 Total Reserves * 33.9 1.20 0.3 403.0 889 403.0 * Contained gold in reserves is 152koz, Zn 25.2kt, Ni 6.2kt, Co 12.6kt. 0.050 Resources (includes proved and probable reserves) Ros eby Meas +ind+inf 100% 132.5 0.68 0.3 906.0 1,997 906 Kylylhati Meas +ind+inf 100% 8.4 1.25 0.3 104.9 231 105 0.000 Total Resources ** 140.9 0.68 0.3 1,011 2,228 1,011 Oct-09 Nov-09 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 Sep-10 Oct-10 Mar-10 May-10 Kuhmo Nickel Project: 6.0m t @0.6% Ni; 33kt contained Ni Source: Bloomberg ** Contained gold in resources is 429koz, Zn 45.4kt, Ni 16.8kt, Co 20.2kt. Mineralised Material (est., non compliant w ith JORC) 0.0 0.0 0.0 Contacts Directors Key Projects Dr Alistair Cowden (MD) K Maloney (Non Exec Chair) Ownership/ JV Target Process Project Tel: 61 (8) 9486 8400 A Cowden (MD) Project Option Metal Partner Type Route Status Location West Perth, WA, Australia P Ingram (Non Exec Dir) Ros eby 100% Cu,Au none Sed, IOCG Flot'n DFS Aus (Qld) www.altonamining.com J Brewer (Non Exec Dir) Outokumpu Project 100% Cu,Au,Zn,Ni none VMS Flot'n DFS, Financing Finland F Harris (Non Exec Dir) Kuhmo Nickel 95% Ni, Pt Priv. VMS Flot'n Adv Expl. Finland Analyst: Dr Tony Parry H Solin (Non Exec Dir) Ros eby SEEP 100/49% Cu,Au Xs trata IOCG Flot'n Med. Term Expl. Aus (Qld) tonyparry@rcresearch.com.au Mt Is a Inlier Regional 100% Cu,Au,U none na na Early Expl. Aus (Qld) © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 9
  11. 11. Resource Capital Research ALTONA MINING VALUATION Target Copper Copper Resource Reserve Price Equity Resource Reserves Valuation Valuation A$m Projects (mlbs) (mlbs) US$/lb US$/lb + Outokumpu Copper Project 100% 324 150 0.17 0.37 57.5 + Roseby Copper Project 100% 1,997 739 0.04 0.11 82.5 + Kuhmo Nickel 95% 7.0 + Other Finland assets 100% 10.0 + Roseby Exploration - Xstrata JV 3.0 + Roseby Regional Exploration 7.0 Sub Total 167.0 + Cash (Sep '10F) 11.0 + Finland Government Grant 3.6 + Tax Losses 15.4 - Corporate 19.6 Sub Total 10.3 AOH NET ASSET VALUE 177 Capital Structure Shares 245.3 Fully Diluted Shares* 321.6 AOH NET ASSET VALUE PER SHARE :A$/share 0.72 AOH NET ASSET VALUE DILUTED :A$/share fully diluted* 0.56 *Fully diluted shares assumes con. notes converted at June 2011 maturity at A$0.20/share RCR Valuation Assumptions Outokumpu Project: We have used AOH quoted NPV, adjusted for RCR Cu price forecast US$2.50/lb, A$/US$ = 0.80, after tax. Roseby Project: Based on a 50% discount to assessed NPV - RCR financial modelling of Roseby using 2008 DFS parameters. Roseby modelling uses 10% nominal discount rate, US$2.50/lb long term Cu price, A$/US$ = 0.80 long term. Other Exploration Projects: based on RCR assessment of nominal value. KYLYLHATI COPPER PROJECT - UPDATED 2010 DFS PARAMETERS RESERVE ESTIMATES Copper resources and reserves Contained Metal Copper Copper Zinc Gold Mt % kt kt koz Resources 8.40 1.25 105.0 Probable Reserves 4.34 1.56 67.85 25.2 90.8 Life of Mine: 8-9 years based on Probable Reserves MINING METHOD Underground - longitudinal longhole open hole stoping Cemented rock fill PROCESS METHOD Dedicated concentrator (refurbished Luikonlahti plant) Rod mill and 2x pebble mills - wet comminution. Conventional sulphide flotation circuits Produces separate copper, zinc and nickel cobalt concentrates PRODUCTION RATE :mtpa 0.55 :ktpa Cu 8.0 Contained in concentrate. :kozpa Au 8.4 Contained in concentrate. :ktpa Zn 1.6 Contained in concentrate. CAPITAL COSTS :A$m 46 Plus sustaining capex of ~A$6mpa (A$11/t). RECOVERY - COPPER :% 91.5 (Au recovery is 72%) DIRECT OPERATING COSTS :US$/t 17.36 (not incl. royalties, TC/RC) :US$/lb 1.33 (C1 cash cost after by product credits). TOTAL ROYALTIES (Gov't & Vendor) :% 0.00 No royalties payable in Finland TAX :% 26 Finland MINE LIFE (Based on Probable Reserves only) :Years 8-9 TARGET COMMISSION DATE : 1Q12 Source: Altona Mining Ltd © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 10
  12. 12. Resource Capital Research Discovery Metals Limited Discovery Metals Limited DML.AU A$ 1.18 13 October 2010 Boseto copper project (DML 100%, Botswana): 36ktpa Cu, Copper, Nickel 1.1mozpa Ag production expected from 1Q12. Project financing Botswana Bankable Feasibility Study underway. Strong exploration upside near mine and regional in Exchanges: ASX:DML, BSE:DML, AIM:DME Kalahari Copper Belt. Two new exploration targets - drilling 4Q10. Capital Profile Production and Financial Forecasts Share price (A$) 1.18 YEAR END: June Jun-10a Sep-10F 2010a 2011F 2012F 52 week range (A$/share) 0.42 to 1.35 Num ber of shares (m) 302 Exploration and evaluation (A$m) 4.00 2.00 11.05 8.00 8.00 Options and warrants (m ) 9 Corporate (A$m ) 1.16 1.15 5.33 4.60 4.60 Convertible notes (m ) 0 Exploration/(Expl.+ Corporate) (%) 78 63 67 63 63 Fully diluted (m) 311 Funding duration at current burn (years) 2.4 5.3 2.7 Market capitalisation (undiluted) (A$m ) 356.4 Shares on issue (pr end) (m shares) 301.0 301.0 301.0 391.9 428.3 Debt (A$m ) - Sep 10F 0.0 Drilling - RAB (m). Est. 0 0 0 0 0 Enterprise value (A$m ) 356.4 Drilling - Other/Diamond (m). Est. 11,250 11,250 0 45,000 45,000 Major shareholders: Macquarie Bank (11.4%), Taurus Fund (11.0%) Land holding ('000 ha)* 1,010 966 1,010 966 966 Transamine (8.3%), Citi Group Global Markets (7.0%), Investec (5.1%) Tenem ent costs ($k per year) - - - - - Avg m onthly volume (m) 40 Capital raisings (A$m ) 9.20 0.00 45.10 100.00 40.00 Cash (A$m) - Sep 10F 36.6 Funding from JV partners (A$m) 0.75 0.00 1.48 0.75 0.75 Price/Cash (x) 9.7 Cash (A$m ) 39.3 36.6 39.3 66.8 34.0 Price/Book (x) 4.9 Cash backing (Ac/share) 13.1 12.2 13.1 17.0 7.9 Listed company options: No Net asset backing (Ac/share) 24.6 24.4 24.6 41.7 25.1 *Copper prospective tenements only; held and under application. Quarters ref er to calendar year. Investment Points Company Comment Botswana Cu-Ag focus. Exploration budget A$8mpa. Overview: DML listed on the ASX Dec ‘03. Its main project is the Boseto copper project in the Kalahari Copper Belt of north-west Botswana. Initial project tenements were granted to DML September 2005. Boseto copper project (Botswana): DML has a strategic land position in the Kalahari Copper Belt BFS Aug 2010: DML NPV US$251m (Cu price (10,100km2) extending over 300km of strike prospective for Cu-Ag mineralisation and is similar in style US$3.00/lb). 5 year LOM. Production 35ktpa Cu and to the better known deposits of the Central African Copper Belt and Zambia and DRC. Boseto 1mozpa Ag. Payback under 2 years. mineralisation occurs mostly as chalcocite, with minor bornite and other copper sulphides. Boseto BFS: (SRK Consultants) Based on open pit mine using Zeta and Plutus measured and indicated resources – economic pit shells (designed at US$2.50/lb) contain a large mineral resource of DML Development Plan: 15 years LOM, assumes 55mt grading 1.41% Cu (which has been partially drilled to Reserve status for 20.4mt @ 1.4% Cu). Mill conversion of open pit inferred resources, and throughput 3mtpa from 1H12 to 4Q16 – 5 years – exclusively from open pit to ~120m depth. Open pit underground mining to 650m depth. Capex US$175m mineralization is sub-vertical between 5 and 15 m thick, ore and waste requires drill and blast. DML’s (+$40m for power), opex US$1.42/lb (C1 - est. LOM). Development Plan: It is anticipated that open pit reserves will increase significantly (>40mt – as in pit resources are converted to reserves), and production from open pit and underground is expected to extend LOM to 2026. Zeta underground mining expected to commence 3Q14 at 1.5mtpa. Positive Boseto Resource 3.19bn lbs Cu at 1.4%. Upgrade scoping study completed March ‘10; DFS expected June ‘11. Focused on high grade >1.5% Cu, over expected 1Q11. 2km strike at 100m to 650m depth. Plutus - prospective u/g yet to be drilled at depth. Exploration: Plutus mineralisation remains open at depth. Zeta underground infill drilling to upgrade resource to M&I expected 1Q11. Inferred resource is currently to ~400m depth with continuity of Prospective strike horizon 1,300km; less than 300km mineralisation expected to at least 650m. Regional exploration with potential to define new standalone explored. Potential for another Boseto. Drilling 4Q10. projects – strong anomalies at Ophion (12km strike, 40km from Zeta) and Ourea (4km2, a further 50km from Zeta). Drilling 4Q10 – targeting the “prospective horizons” of the D’Kar Formation. Botswana: Strong democracy. Stable mining/taxation Investment Comment: RCR values DML at A$1.15/share (based on LT copper price of US$2.50/lb, A$:US$0.80, 10% nom. r/i) assuming parameters in DML’s Development Plan – 15 years LOM, 3 mtpa policy and legislation - unchanged since 1999. plant capacity (detailed assumptions on facing page). Sensitivity analysis discounting US$3.50/lb copper for LOM, A$:US$0.98, increases NAV to A$2.00/share. We have factored in assumed plant NAV A$1.15/share (US$2.50/lb Cu price, 10% r/i); rising capacity expansion in scenarios where the copper price is over US$2.50/lb LOM. Given the positive to A$2.00/sh on commissioning 1Q12 at spot prices. copper price outlook, potentially through 2020, we expect DML’s share price to trade at A$1.50-2.00 with successful plant commissioning 1Q12 - or earlier on good regional exploration results. DML - Discovery Metals Limited Reserves and Resources/Mineralised Material 1.40 Code f or reporting mineral resources - Australian: (JORC) Copper (Cu) Classification Project Ore Cu Cut Off Cu Ag Cu Eqty 1.20 Equity Mt % % Kt Moz Mlb Share Price ($/Share) 1.00 Reserves Plutus and Petra Proved + Probable 100% 11.3 1.3 0.6 147 2.9 324 0.80 Zeta Proved + Probable 100% 10.5 1.5 0.6 158 9.8 347 0.60 Total 21.8 1.4 304 12.7 671 0.40 Average silver grade of Reserve 18.2g/t Resources (includes proved and probable reserves) 0.20 Boseto (above 3 deposits) Measured 100% 4.0 1.6 0.6 64 2.9 141.1 0.00 Boseto (above 3 deposits) Indicated 100% 18.5 1.4 0.6 259 10.6 571.0 Boseto (above 3 deposits) Inferred 100% 80.3 1.4 0.6 1,124 43.6 2,478.4 Oct-09 Apr-10 Nov-09 Dec-09 Jun-10 Jul-10 Aug-10 Sep-10 Feb-10 Mar-10 May-10 Total 102.8 1.4 1,447 57.1 3,190 Dikoloti Nickel Project: Inf erred resource: 4.1mt grading 0.7% Ni, 0.5% Cu, 1.2ppm PGE's Source: Bloomberg Mineralised Material (est., non compliant w ith JORC) 0.0 0.0 0.0 Average silver grade of Resource 17.3g/t Contacts Directors Key Projects Mr. Brad Sampson G Galt (Non-Ex Chairman) Ownership/ JV Target Process Project Managing Director B Sampson (MD) Project Option Metal Partner Type Route Status Location Tel: 61 (0) 7 3218 0200 J Shaw (Non-Ex Dir) Boseto Copper Project 100% Cu-Ag none Flotation Development Botswana Brisbane, QLD, Australia M Cordiner (Non-Ex Dir) Dikoloti Nickel Project 85%/40% Ni Xstrata/JOGMEC na Early Expl. Botswana www.discoverymetals.com.au J Read (Non-Ex Dir) R Gabonowe (Non-Ex Dir) Analyst: John Wilson johnwilson@rcresearch.com.au © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 11
  13. 13. Resource Capital Research DISCOVERY METALS LIMITED VALUATION Base # Resource Base NPV Adjusted Adjusted Equity Val'n NPV Factor Value Copper Price Sensitivity (%) (US$/lb) (A$m) (%) (A$m) (A$m) Assumptions Long Term Copper Price : US$/lb 2.50 2.50 1.50 2.00 3.00 3.50 Exchange rate: AUUS 0.80 0.80 0.80 0.80 0.80 0.80 Projects Boseto project (based on DML : NPV @10%* 100% 0.16 288 80% 230 10 60 375 478 Development Plan). Resources and Exploration Boseto project (assume. +100%) : NPV @10%* 100% 0.07 63 70% 44 10 18 114 169 Other 75 75 1 50 110 135 Sub-total Exploration 138 119 11 68 224 304 Assets + Cash 39 39 39 39 39 39 + Tax Losses 6 6 6 6 6 6 Liabilities - Debt 0 0 0 0 0 0 - Corporate 38 38 38 38 38 38 - Reclamation 0 0 0 0 0 0 DML Net Assets 432 356 28 136 606 789 Fully diluted shares (m) 311.3 311.3 311.3 311.3 311.3 311.3 Cash on Option Conversion 4.3 4.3 4.3 4.3 4.3 4.3 DML Net Asset Value per share : A$/share 1.43 1.18 0.09 0.45 2.01 2.61 DML Net Asset Value Diluted : A$/share dil 1.40 1.16 0.10 0.45 1.96 2.55 * 10% nominal discount rate. # Resource base assumes 1.429bn lbs Cu - DML Development Plan. Sensitivity of Net Asset Value to Equity Raising Price: DML Net Asset Value (assuming A$80m capex raised through share issue at A$1.10) 1.13 0.28 0.56 1.79 2.26 DML Net Asset Value (assuming A$80m capex raised through share issue at A$0.90) 1.09 0.27 0.54 1.71 2.17 DML Net Asset Value (assuming A$80m capex raised through share issue at A$0.70) 1.02 0.25 0.51 1.61 2.04 BOSETO COPPER PROJECT KEY ASSUMPTIONS (derived from BFS and DML Development Plan, August 2010) RESOURCE ESTIMATES Copper Resource Tonnes Grade Copper Cutoff Mt % Cu Mlbs BFS - Reserves Boseto - Reserves 0.30% 24.1 1.3 710 DML Development Plan Assumptions Boseto - Resource na 45.0 1.44 (diluted) 1,429 MINING METHOD OPEN PIT from 1Q12; plus UNDERGROUND in DML Development Plan - commences 2014. PROCESS METHOD COPPER PLANT: 1. Three stage crushing. 2. Flotation nad concentration. BFS DEVELOPMENT PLAN^ EVALUATED OPERATING PERIOD 5 years 15 years RESOURCE CONVERSION :% 70 TONNAGE DILUTION :% na GRADE UPLIFT :% 4 DML KEY ASSUMPTIONS PRODUCTION RATE :mtpa 3.0 3.0 AVERAGE HEAD GRADE - Cu (diluted) :% 1.46 1.44 Highgrade forecast 3Q12-4Q13 during debt repyment period. AVERAGE HEAD GRADE - Ag (diluted) :g/t 18.7 20.2 RECOVERY - COPPER :% 81.1 83.6 RECOVERY - SILVER :% 61 61 COPPER PRODUCTION :ktpa 34.4 36.4 SILVER PRODUCTION :Moz pa 1.0 1.1 CAPITAL COSTS :US$m 175 215* *Includes US$40m coal fired power plant (funded from cashflow) SUSTAINING CAPEX :US$/t 1.30 1.20 RCR estimate OPERATING SITE COSTS :US$/t 34.83 34.68 Development Plan breakdown: mining US$1.35/t mined; plant & power US$11.72/t ore; admin US$1.36/t ore SMELTING :US$/t conc. 45 45 Offtake in place with metals trader Transamine. REFINING :Usc/lb Cu 4.50 4.50 CONCENTRATE TRANSPORT :US$/t conc. 180 180 CASH COST (C1) :US$/lb 1.28 1.23 ROYALTY :% 3% for copper; 5% for silver TAX :% 25% minimum, increasing with profitability based "Twelth Schedule". TAX HOLIDAY No tax payable till capex and pre-production expenditure recovered. MINE LIFE :Years 5 Years 15 Years COMMISSION PROJECT : 1Q 2012 18 month ramp-up. ^DM L fo recast 3Q12-4Q1 during debt repyment perio d. 3 These figures are based on the Bankable Feasibility Study (August 2010) and DML's Development Plan. DML's Development Plan assumes conversion of Inferred Resources and related operating assumptions and are preliminary in nature and intended to provide only a general indication of project scale and economic robustness. Considerable refinement may result from subsequent drilling and operating activities. © October 2010 RCR Copper Company Review Disclaimer and disclosure attached. Copyright 2010 by Resource Capital Research Pty Ltd. All rights reserved. 12

×