DECEMBER 2010 1 ASX RESOURCES - GROUP 150 We are pleased to present the December edition of ‘Group 150’, a ranking of the top 150 ASX listed resources companies (excluding oil and gas), by market capitalisation. The market value of the Group 150 at the end of November was $572 billion, up 1.4% from October. The entry point into the Group 150 was further extended during November with $110.1 million being the new threshold, up 37% from the $80.2 million required in the inaugural edition of Gresham Group 150 in March 2010. The ASX/S&P 200 Resources Index rose 1.1% in the month, while the ASX All Ordinaries and ASX/S&P 200 Index decreased 1.2% and 1.7% respectively. In this edition of the Group 150 we provide comment on the uranium markets and provide an overview of the relative market rating of the ASX listed uranium peers using Enterprise Value/lb of resource. Improved market sentiment within the uranium sector, encouraged by the recovery in spot uranium prices and recent corporate activity has lead to strong share price performance by the producers and explorers in the past few months. Following the GFC, lower global energy demand, the reduced priority of carbon emission / trading schemes, and the unwinding of investment holdings and speculative funds led to a weakening uranium price, with spot prices falling to as low as US$40.50/lb (from a peak of c.US$138/lb in July 2007). Uranium prices have remained at or below US$50 for a majority of the time since January 2009. This has led to difficulties in meeting mining breakeven points, particularly for new supply. We note that industry commentators suggest an incentive price of c.US$60- US$80/lb may be the level required to support most future production. Recent spot price improvements have notably been driven by the return of non-discretionary trading activity by China and existing producers seeking to meet term contract commitments. However, exuberance over the potential for sustained stock-building by China and other nations, as well as the return of speculative demand, has thus far been kept in check. New reactor capacity is the process of coming on-line and significant planned builds/expansions are being scheduled. Global nuclear power demand is expected to rise from 375GWe (from 443 operating plants as at 2010), to c.530GWe capacity from 590 operating plants in 2020. Emerging countries are expected to drive demand, particularly China. The World Nuclear Association expect China’s uranium demand to rise to 20ktpa by 2020 to produce 85GWe (9 times current capacity) The finely balanced supply/demand situation means the market is susceptible to both demand and supply side shocks, so we expect to see volatility in spot prices in the short to medium term. However, in terms of the prospects for the next generation of uranium producers, of keener interest will be the direction of term prices, which are beginning to firm in the low – mid US$60’s. 2011 promises to be a very interesting year for the industry. Gresham Advisory Partners Limited GROUP 150 December 2010 Edition 9 Darren Martin Gresham Advisory Partners [email protected]+61 8 9486 7077 +61 412 144 719 Gresham Advisory Partners is a leading Australian mergers and acquisitions/corporate advisory business and one of Australia’s largest and highest ranking independent corporate advisors.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
DECEMBER 2010
1
ASX RESOURCES - GROUP 150We are pleased to present the December edition of ‘Group 150’, a ranking of the top 150 ASX listed resources companies (excluding oil and gas), by market capitalisation. The market value of the Group 150 at the end of November was $572 billion, up 1.4% from October. The entry point into the Group 150 was further extended during November with $110.1 million being the new threshold, up 37% from the $80.2 million required in the inaugural edition of Gresham Group 150 in March 2010. The ASX/S&P 200 Resources Index rose 1.1% in the month, while the ASX All Ordinaries and ASX/S&P 200 Index decreased 1.2% and 1.7% respectively. In this edition of the Group 150 we provide comment on the uranium markets and provide an overview of the relative market rating of the ASX listed uranium peers using Enterprise Value/lb of resource. Improved market sentiment within the uranium sector, encouraged by the recovery in spot uranium prices and recent corporate activity has lead to strong share price performance by the producers and explorers in the past few months.Following the GFC, lower global energy demand, the reduced priority of carbon emission / trading schemes, and the unwinding of investment holdings and speculative funds led to a weakening uranium price, with spot prices falling to as low as US$40.50/lb (from a peak of c.US$138/lb in July 2007).Uranium prices have remained at or below US$50 for a majority of the time since January 2009. This has led to difficulties in meeting mining breakeven points, particularly for new supply. We note that industry commentators suggest an incentive price of c.US$60-US$80/lb may be the level required to support most future production.Recent spot price improvements have notably been driven by the return of non-discretionary trading activity by China and existing producers seeking to meet term contract commitments. However, exuberance over the potential for sustained stock-building by China and other nations, as well as the return of speculative demand, has thus far been kept in check.New reactor capacity is the process of coming on-line and significant planned builds/expansions are being scheduled. Global nuclear power demand is expected to rise from 375GWe (from 443 operating plants as at 2010), to c.530GWe capacity from 590 operating plants in 2020. Emerging countries are expected to drive demand, particularly China.The World Nuclear Association expect China’s uranium demand to rise to 20ktpa by 2020 to produce 85GWe (9 times current capacity)The finely balanced supply/demand situation means the market is susceptible to both demand and supply side shocks, so we expect to see volatility in spot prices in the short to medium term. However, in terms of the prospects for the next generation of uranium producers, of keener interest will be the direction of term prices, which are beginning to firm in the low – mid US$60’s. 2011 promises to be a very interesting year for the industry.
Gresham Advisory Partners is a leading Australian mergers and acquisitions/corporate advisory business and one of Australia’s largest and highest ranking independent corporate advisors.
Top 150 ASX LiSTed reSource compAnieS - novemberBy Market Capitalisation
Group 150
2
Mkt Cap (A$m) % Mkt Cap (A$m) %
Nov Oct Company 30-Nov-10 31-Oct-10 Change Nov Oct Company 30-Nov-10 31-Oct-10 Change
10-Nov-2010 Brockman Resources Limited (ASX:BRM) Wah Nam International Aust Pty. Ltd. 696.8 77 39.1 70.8 Equity
10-Nov-2010 FerrAus Ltd. (ASX:FRS) Wah Nam International Aust Pty. Ltd. 217.1 80 48.3 65.8 Equity
Source: Capital IQ Announced Australian Resources (excluding oil and gas) Mergers and Acquisitions >A$10m
Group 150 mArkeT cApiTALiSATion
ASX indeX performAnce - november
Mar
ket C
apit
alis
atio
n (A
$b)
DECEMBER 2010
5
SupplyThe uranium market appears finely balanced in the medium term. Post GFC, lower global energy demand, reduced priority of carbon emission / trading schemes, and the unwinding of investment holdings or speculative funds led to substantial uranium price erosion, with prices falling to as low as US$40.50/lb (from a peak of c.US$138/lb in July 2007).
Uranium prices have remained at or below US$50 for 88% of the time since Jan 2009. This has led to difficulties in meeting mining breakeven points, particularly for new supply.
We note that most commentators suggest a price of c.US$60-US$80/lb may be the level required to support most future production.
The finely balanced supply/demand situation means the market is susceptible to both demand and supply side shocks.
Recent spot price improvements have notably been driven by the return of non-discretionary trading activity by China. However, exuberance over the potential for sustained stock-building by China and other nations, as well as the return of speculative demand, has thus far been kept in check.
Shocks are more likely to be from the supply side, which may include:
• Lower than expected production by existing producers
• In Q2 and Q3 2010, ERA announced lower than expected production from its Ranger mine, forcing it to buy on spot to meet commitments. ERA’s operational issues appear to remain unresolved thus may threaten future incremental supply/reduce spot uranium availability.
• Rossing mine has reported “subdued grades”, impacting uranium supply in 2010 and potentially beyond.
• After playing a primary role suppressing prices in the past, Kazakhstan is showing greater supply discipline by revising down production this year. However, an improved business and political risk environment is expected to improve Kazakhstan’s responsiveness to changes in demand/spot prices in future.
• Secondary supply diminishing: US/Russian agreement expiring 2013 and unlikely to be renewed.
• Olympic Dam: Project slated to deliver sizable volumes, timing is uncertain.
• Cigar Lake: Has faced numerous setbacks (was due to come on-stream in 2008). Future uncertain.
DemandThere have been limited new reactor openings since 1990. However, new capacity is the process of coming on-line and significant planned builds/expansions are being scheduled.
Global demand is expected to rise from 375GWe (from 443 operating plants as at 2010), to c.530GWe capacity from 590 operating plants in 2020. Emerging countries are expected to drive demand, particularly China
To illustrate the potential impact China’s demand alone may have, it is understood that the return of Chinese non discretionary demand since July has been the driving factor behind the recent recovery in uranium spot prices to 12 month highs.
China is believed to be building stockpiles of uranium for new reactors. It is expected to import 5kt in 2010 (more than twice what it consumes).
The World Nuclear Association expect China’s uranium demand to rise to 20ktpa by 2020 to produce 85GWe (9 times current capacity)
Producers are also reported to be buying in the spot market to deliver into term contracts.
urAnium - mArkeT fundAmenTALS
Group 150
6
urAnium – mArkeT rATinGSentiment has improved based on a view that the long-awaited push by China to position itself in the industry may have begun.
Market sentiment within the uranium sector has improved markedly in the last few months, encouraged by the recovery in spot uranium prices. The strengthening uranium spot price has been supported by a record 41 uranium spot market trades in October, totalling 5.6Mlb according to UxC Consulting (previous monthly record was 32 in May 09).The chart below supports the uranium related miners/explorers having outperformed the market since June 2010.Recent months have also seen increased corporate activity in the sector from strategic and financial investors including, Paladin’s offer for NGM, Hanlong’s funding agreement with Marenica Energy, Berkeley’s placement to RCF and on-going discussions with Severstal and A-Cap’s MOU with KORES.
Source: Capital IQ, Company reports. Net Debt (for Enterprise Value calculation) taken as at 30 June 2010
Uranium Peers - Share Price Performance since 30 June 2010
Peer multiples (A$ EV/lb U3O8)
EV/lb
U3O
8 (A
$)Sh
are
Pric
e Pe
rfor
man
ce -
Sinc
e Ju
ne 2
010
24.01
DECEMBER 2010
7
Share Price Performance - November 2010
Share Price Performance - Since 30 June 2010
Share Price Performance - Since 1 Jan 2010
bASe meTALS - SecTor performAnce
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Copper Nickel Zinc
Group 150
8
Share Price Performance - November 2010
Share Price Performance - Since 30 June 2010
Share Price Performance - Since 1 Jan 2010
coAL - SecTor performAnce
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
DECEMBER 2010
9
Share Price Performance - November 2010
Share Price Performance - Since 30 June 2010
Share Price Performance - Since 1 Jan 2010
diverSified - SecTor performAnce
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
induSTriAL minerALS - SecTor performAnce
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Group 150
10
Share Price Performance - November 2010
Share Price Performance - Since 30 June 2010
Share Price Performance - Since 1 Jan 2010
GoLd - SecTor performAnce
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
DECEMBER 2010
11
Share Price Performance - November 2010
Share Price Performance - Since 30 June 2010
Share Price Performance - Since 1 Jan 2010
iron ore - SecTor performAnce
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Group 150
12
Share Price Performance - November 2010
Share Price Performance - Since 30 June 2010
Share Price Performance - Since 1 Jan 2010
urAnium - SecTor performAnce
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
Shar
e Pric
e Per
form
ance
DECEMBER 2010
13
conSenSuS commodiTy price forecASTS - november
Source: Bloomberg Consensus Estimates - Median / High / Low
Terms and ConditionsInformation contained in this publicationThe opinions, advice, recommendations and other information contained in this publication, whether express or implied, are published or made by Gresham Advisory Partners Limited (ABN 88 093 611 413), Australian financial services license (247113), and by its officers and employees (collectively “Gresham Advisory Partners”) in good faith in relation to the facts known to it at the time of preparation. Gresham Advisory Partners has prepared this publication without consideration of the investment objectives, financial situation or particular needs of any individual investor, and you should not rely on the publication for the purpose of making a financial decision. To whom this information is providedThis publication is only made available to persons who are wholesale clients within the meaning of section 761G of the Corporations Act 2001. This publication is supplied on the condition that it is not passed on to any person who is a retail client within the meaning of section 761G of the Corporations Act 2001.Disclaimer and limitation of liabilityTo the maximum extent permitted by law, Gresham Advisory Partners will not be liable in any way for any loss or damage suffered by you through use or reliance on this information. Gresham Advisory Partners’ liability for negligence, breach of contract or contravention of any law, which cannot be lawfully excluded, is limited, at Gresham Advisory Partners’ option and to the maximum extent permitted by law, to resupplying this information or any part of it to you, or to paying for the resupply of this information or any part of it to you.No warranties made as to contentGresham Advisory Partners makes no warranty, express or implied, concerning this publication. The publication provided by us on an “AS IS” basis at your sole risk. Gresham Advisory Partners expressly disclaims, to the maximum extent permitted by law, any implied warranty of merchant-ability or fitness for a particular purpose, including any warranty for the use or the results of the use of the publication with respect to its correctness, quality, accuracy, completeness, or reliability.CopyrightCopyright in this publication is owned by Gresham Advisory Partners. You may use the information in this publication for your own personal use, but you must not (without Gresham Advisory Partners’ consent) alter, reproduce or distribute any part of this publication, transmit it to any other person or incorporate the information into any other document.General mattersThese Terms and Conditions are governed by the law in force in the State of Victoria, and the parties irrevocably submit to the non-exclusive jurisdiction of the courts of Victoria and courts of appeal from them for determining any disputes concerning the Terms and Conditions.If the whole or any part of a provision of these Terms and Conditions are void, unenforceable or illegal in a jurisdiction it is severed for that jurisdiction. The remainder of the Terms and Conditions have full force and effect and the validity or enforceability of that provision in any other jurisdiction is not affected. This clause has no effect if the severance alters the basic nature of the Terms and Conditions or is contrary to public policy.If Gresham Advisory Partners do not act in relation to a breach by you of these Terms and Conditions, this does not waive Gresham Advisory Partners’ right to act with respect to subsequent or similar breaches.
Advised BHP Billiton on its
$204m offer for United Minerals
Corporation.
Advised BG Group on its $1bn takeover offer for
Pure Energy Resources Limited.
Advised IAMGOLD Corporation on its $265m acquisition
of Gallery Gold.
Advised Gem Diamonds on its
$300m acquisition of Kimberley Diamonds.
Advised Polaris Metals NL on
$178m takeover offer by Mineral
Resources Limited.
Advised Tethyan on its $220m
competing takeover offer by Crosby and Antogafasta/Barrick.
Advised Iluka on its $114m
institutional placement and
$353m accelerated right issue.
Advised Bannerman
Resources on its financing with
Resource Capital Funds.
Advised Iluka Resources on its
$54m Narama coal divestment to
Xstrata.
Advised Murchison Metals
on its joint venture with Mitsubishi.
2010
2010
Advised BHP Billiton on its
US$116bn iron ore production
joint venture with Rio Tinto.
2010
Introduced Denham Capital to
Trans Tasman Resources resulting
in NZ iron sands investment.
2010
2009
Advised Indophil on $545m
recommended offer from Zijin
2010
Advised BHP Billiton on the disposal of the Yabulu Nickel
refinery.
2009
Advised Allied Gold on its $54m
acquisition of Australian
Solomons Gold.
2009
Advised Brandrill Limited on its
$45m takeover offer by Ausdrill
Limited.
2009
2008
Advised Kalahari Minerals on its
$140m proposed merger with
Extract Resources.
2008
Advised Centaurus
Resources on its $20m merger
with Glengarry Resources.
2010
2009/08
2008
Advised Summit Resources on its
A$1.2bn takeover by Paladin Energy.
2007
2008
2006
2007
2008
Advised Guandong Rising on its $216m
cornerstone investment in Pan
Aust.
GRAM2009
Advised Energy Metals on its $86m
proportional takeover offer by China
Guangdong Nuclear Power Group.
2009
Mergers and Acquisitions
Takeover Defence
Strategic Advisory, Joint Ventures and Capital Markets
recenT reSourceS TrAnSAcTionS
Takeover Defence
Strategic Advisory, Joint Ventures and Capital Markets