CEE: Centamin PLC Pitch - Queen's Capitalqueenscapital.ca/wp-content/uploads/2015/08/QC-Centamin-PLC-Pitch.pdf · • Centamin PLC is a mineral exploration, development and mining

CEE: Centamin PLC PitchFebruary 24 , 2016

Disclaimer

The analyses and conclusions of Queen’s Capital contained herein are based on publicly available information. The analyses provided may

include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating

performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections

reflect various assumptions by Queen’s Capital concerning anticipated results that are inherently subject to significant economic, competitive,

and other uncertainties and contingencies and have been included solely for illustrative purposes. Actual results may vary materially from the

estimates and projected results contained herein.

Queen’s Capital assumes no responsibility or liability for any error, inaccuracy, or omission contained that may be made of such information by

the viewer. No information herein may be replicated without prior consent by the Executive Board of Queen’s Capital.

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Executive Summary

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Content Slide

Macroeconomic Analysis 4-6

Company Overview 7

Investment Thesis 8-9

Risks 10-11

Catalysts 12

Valuation 13-16

Appendices 17-20

Macroeconomic Analysis Part 1: The Negatives

North American Gold Producers Cost Breakdown Current Debt/EV

4

Macro/Micro Analysis Investment Thesis Catalysts & Risks Valuation Appendix

Increasing Cash

Costs

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Deteriorating

Balance Sheet

Global Supply

Glut

Decreasing

Productivity

Macroeconomic Analysis Part 2: Bright Spots

Heavily Discounted Cash Flows Cheaply Priced Net Asset Values

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Global Mining Equities’ price to cash flow multiples are

trading considerably below their historical average

Gold Sector NAV multiples are also priced much

cheaper than their historical averages


Macroeconomic Analysis Part 3: Disconnected Fundamentals

Gold Equities Performance vs. Spot Gold Price Gold Price vs. Gold Silver Sector Index (XAU)


Gold Equities have significantly

underperformed the Spot Gold Price

Gold index fundamentals have been

disconnected from the price of gold


Company Overview: Centamin PLC (TSE: CEE)

Company Background Exploration Projects

• Centamin PLC is a mineral exploration, development and mining company

dual listed on both the London and Toronto Stock Exchanges with mines and

exploration projects in Egypt, Burkina Faso, Ethiopia and Côte D’Ivoire

• CEE’s principal asset, the Sukari Gold Mine, began production in 2009 and

is the largest scale modern gold mine in Egypt, with a +20 year mine life and

production rapidly increasing to an annualized rate of 450-500,000oz

• CEE has an advantage through its low-cost production, strong balance sheet

and management experience


Sukari: Continued focus on exploring Sukari’s underground

deposits which has caused continued discoveries high grade

reserves

Burkina Faso: Following the acquisition of ASX listed Ampella

Mining, advanced systematic drilling projects are currently

underway in Burkina Faso with 1.33M I&I

Côte d’Ivoire: Four permits in Côte d’Ivoire covering 1,517km2

with expected resource development to begin in 2016

Ethiopia: Early exploration projects underway in Ethiopia

Market Data World-Class Sukari Gold Asset

• 8.8Moz reserve and 14Moz resource with

significant upside potential from exploration

• +20 year mine life

• Increasing production rate to 450-500,000oz p.a.

• Growing high-grade underground operations with

average grade of 6g/t Au

• Plant throughput at 11Mtpa and 88%

Metallurgical recovery

• Finished its capital expenditure phase

• Favoured by Egyptian Mining Authorities

Mkt. Cap (mm CAD) 1,894.10 EV (mm) 1,637.80

Last Price (02/22/2016) 1.63 Shares Out. (mm) 1,152.11

52 Wk High 1.69 Div. Yield % 2.3%

52 Wk Low 0.96 Float % 89%

% of 52 Wk High 96.4% Beta 5Y 0.48

2015 Revenue 650.3 2015 EBITDA 231.2

2015 Debt 0 2015 NI 110.6


Investment Thesis

Efficient Low-Cost Producer Rock Solid Balance Sheet

8

Discount due to Mining Jurisdiction

Sukari Gold Mine Dividend Payout Policy Experienced Management Team


• Low, industry beating AISC of US$918

in Q3 2015

• 8.8Moz of Open Pit and High grade

underground reserves with average

grade of 6g/t AU

• Has continually improved the quality of

work and reduce labour cost/ounce

mined

• CA$255.6M in cash and highly liquid

assets on hand

• CEE maintains a 100% equity capital

structure and funds exploration

projects with excess FCF

• Unhedged against commodity and

currency price movements

• Capex for SGM has completed and it

has entered FCF generation phase

Well positioned to withstand volatility in

the price of gold given their strong capital

cushion and their ability to distribute 15-

30% of earnings to shareholders before

exploring and developing costs which can

act as a signal of operating performance

• CEE maintains a mutually beneficial working

relationship with the Egyptian Mineral

Resource Authority and the Minister of

Petroleum and Mineral Resources

• Sukari Concession Agreement enables a

profit sharing plan and co-ownership with the

EMRA giving Egyptian Government “skin in the

game” and drastically reducing the probability

of resource nationalism occurring

• Experienced Management team that puts

emphasis on maintaining relationship with

all relevant stakeholders

• Management owns 6.7% of the shares

implying their interests are well aligned with

the company

• Sukari gold mine is a world-class asset

with high-grade underground

operations

• Goal to reduce AISC to below $900

while producing >500,000 oz/year by

2017

1 32


Investment Thesis Contd.

Decreasing Labour Costs Per Ounce Economies of Scale as Prod. Increases

9

Growing Cash Balance



Analysis of Risks

Dependency on Single Revenue Generating Asset

Commodity and Currency Price Risk

10

Country Risk

Mitigating Factors


• SGM is located in Egypt, a country

which has experienced significant

political, economic and military

disturbances in the recent past

• Ongoing legal proceedings with the

Egyptian Government over fuel prices

and with an individual plaintiff

regard land exploitation rights

• CEE remains 100% unhedged to both

the relatively volatile currency and

commodity price fluctuations

• Sukari Gold Mine is the sole revenue

generating asset

• Lack of diversification may cause a

problem if there are issues at the mine

such as decreased output or even

political conflict

• Vulnerable to changes in Import and

Export permissions and Egypt’s policies

1 32

Mitigating Factors Mitigating Factors

• CEE has many steps to ensure strong and

mutually beneficial relationships with the

Egyptian authorities and other stakeholders.

• CEE has the backing of both the EMRA and

the Minister of Petroleum and Mineral

Resources regarding in their legal

proceedings

• Sukari Mine has an estimated 8.8 Million

Ounces of reserves and a +20 year lifespan

with potential for further growth

• Multiple potential prospectable regions exist

around Sukari Hill and in Egypt

• CEE continues to pursue other advanced

exploration and systematic drilling programs

• Given CEE’s low-cost of production and

significant capital buffer, the use of

natural hedges and their financially

unleveraged position, they are well

equipped to handle fluctuations in the

price of gold and currencies


Assortment of Graphs

Industry Leading Operating Position

11

Lost Time Injury Frequency


Egyptian Credit Rating

2014 Gold Mining Industry:

Mining Industry AISC: $1314

Goldcorp AISC: $1035

Centamin: $951

Standard & Poor's credit rating for

Egypt stands at B-. Moody's rating for

Egypt sovereign debt is B3. Fitch's

credit rating for Egypt is B of Egypt’s on

the country's borrowing costs.


Catalysts

Further Increases in Gold PriceSignificant Exploration Upside

12

First Mover Advantage in Egypt


• Sukari is the only major modern

producing gold mine in Egypt which

allows CEE to have a significant first

mover advantage in acquiring and

developing other gold projects in the

highly prospective Egyptian Region

• Having good relations with the Egyptian

Mineral Resource Authority may prove to

be beneficial in the future if more

exploration is done in Egypt

• The Egyptian Government has

demonstrated its willingness to utilize

CEE’s expertise, knowledge and

managerial accumen to continue to

grow its domestic mining industry

• January 2016 was the best month for gold in

three decades as the commodity has increased

over 14% since the beginning of the year

• A large portion of this is due to increased market

volatility and uncertainty and gold’s attraction as

a safe-haven asset

• CEE’s low-operating costs and unhedged and

unlevered capital structure puts them in a great

position to capitalize on the uptick in gold prices

• CEE is has invested $15M and $10M per

year in exploration in highly prospective

regions in Burkina Faso and Cote d'Ivoire

and forecasts an annual 25M/year in

further exploration expense

• CEE acquired ASX-Listed Ampella Mining

Limited, thus gaining exploration rights

over a highly prospective 2,200km2 of

Burkina Faso containing 1.9Moz

Indicated and 1.3Moz Inferred Resources

1 32


Valuation: Implied Equity Values


DCF Valuation:

Public Comps:

$2.22 Target Price

$1.63 Last Close

Implied Return (CAD)

Current Price 1.63

Price Target 2.22

Dividend 0.05

All-in Return 39.09%


Valuation: Comps.


FY2015A FY2016E

OCEANAGOLD CORP 1621.9 1693.0 6.0 5.2 7.7 0.0 461.7 14.5 560.6

CENTERRA GOLD INC 1625.5 1007.3 2.1 2.5 4.8 3.1 nmf 5.3 130.2

NEW GOLD INC 1481.7 2020.9 5.6 5.5 nmf 0.0 344.6 37.4 135.0

SEMAFO INC 1159.5 1132.6 5.0 5.7 12.5 0.0 716.9 14.6 505.6

EVOLUTION MINING LTD 2022.2 1855.4 3.1 2.9 65.3 1.4 694.9 2.1 mf

ST BARBARA LTD 833.7 1096.9 4.0 3.8 13.8 0.0 830.8 247.1 nmf

ELDORADO GOLD CORP 2371.9 3020.1 7.1 7.6 nmf 1.2 615.2 11.2 116.4

ALACER GOLD CORP 675.6 347.6 1.9 3.2 6.3 0.0 578.8 0.0 99.5

RESOLUTE MINING LTD 162.5 191.5 1.3 1.3 7.2 0.0 825.9 68.8 45.4

DRDGOLD LTD 143.3 114.9 4.7 4.3 nmf 2.7 1187.9 2.9 61.7

GOLDEN STAR RESOURCES LTD 58.5 65.6 nmf 1.7 0.3 0.0 1204.0 nmf 34.0

ZHONGJIN GOLD CORP-A 5646.1 8591.5 25.8 23.2 nmf nmf nmf 119.8 nmf

ACACIA MINING PLC 1427.3 1252.8 4.7 2.9 30.1 1.4 808.5 7.1 100.4

PETROPAVLOVSK PLC 372.2 1448.0 4.1 4.5 nmf 0.0 955.4 85.9 157.9

ZHAOJIN MINING INDUSTRY - H 2451.8 5387.1 13.1 12.7 nmf 1.3 23.9 145.1 nmf

IAMGOLD CORP 775.0 882.5 3.7 3.7 nmf 0.0 936.7 25.5 102.5

POLYMETAL INTERNATIONAL PLC 4728.7 6267.2 6.9 7.0 9.2 2.0 nmf 147.9 352.5

FRESNILLO PLC 10533.9 10974.5 13.3 10.0 nmf 0.5 nmf 33.8 1132.6

Median 1481.7 1299.8 4.9 4.5 9.0 0.3 805.2 20.0 158.5

Average 2086.7 2560.5 6.5 5.9 15.1 0.9 732.7 53.8 292.4

CENTAMIN PLC 1555.3 1299.8 5.2 4.5 9.0 3.1 805.2 0.0 158.5

Premium (Discount) (0.20) (0.23) (0.40) 234% 0.10 nmf (0.46)

Cash

Costs/Oz

Debt/Equity

(%)EV/2P

Small to Mid Cap Gold

Mining Comps Mkt CapEnterprise

Value

EV/EBITDAP/FCF

Dividend

Yield (%)


Valuation: NAV Model 1


NAV based on after tax UFCF

Asset NAV (USD) NAV/share (USD)

Sukari Mine $1,507,658,043 $1.31

Exploration/Resource

Potential (500MMoz @

400USD/oz) $100,000,000 $0.09

Gross Asset Value $1,607,658,043 $1.40

Less Debt $0 $0.00

Plus Cash and STI $216,100,000 $0.19

NAV (USD) $1,823,758,043 $1.58

Exchange Rate (USD/CAD) 1.40 1.40

Price/NAV 0.74

NAV (CAD) $2,553,261,260 $2.22

Long Term Assumptions

• Price of Gold Based on COMEX Futures: US$1,250/oz

• Base Discount Rate: 5%

• Country Risk Premium 5%

• Annual Production Rate: 500,000oz p.a.

• AISC: US$850/oz

• P&P Reserves: 8.8M

• M&I Resources @60% Confidence Interval: 6.7M

• Constant Exploration CAPEX: 25M p.a.

• 25 year Sukari Mine Life

• Exploration NPV based on Comp. Projects: US$100M


Total Reserves 15,500,000

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 22 Year 23 Year 24 Year 25

Remaining Reservess (oz) 15,500,000 15,050,000 14,577,500 14,081,375 13,581,375 13,081,375 4,581,375 4,081,375 3,581,375 3,081,375

Annual Production 450,000 472,500 496,125 500,000 500,000 500,000 500,000 500,000 500,000 500,000

Price/Ounce (USD) 1,150 1,200 1,200 1,250 1,250 1,250 1,250 1,250 1,250 1,250

Revenue (USD): 517,500,000 567,000,000 595,350,000 625,000,000 625,000,000 625,000,000 625,000,000 625,000,000 625,000,000 625,000,000

AISC/oz 950 925 900 900 900 850 850 850 850 850

Total Operating Cost 427,500,000 437,062,500 446,512,500 450,000,000 450,000,000 425,000,000 425,000,000 425,000,000 425,000,000 425,000,000

Less Royalities 15,000,000 15,000,000 16,000,000 18,000,000 18,000,000 18,000,000 18,000,000 18,000,000 18,000,000 18,000,000

EBIT 75,000,000 114,937,500 132,837,500 157,000,000 157,000,000 182,000,000 182,000,000 182,000,000 182,000,000 182,000,000

Less Interest Expense 0 0 0 0 0 0 0 0 0 0

*Less Taxes 0 0 0 0 0 0 0 0 0 0

Net Income* 75,000,000 114,937,500 132,837,500 157,000,000 157,000,000 182,000,000 182,000,000 182,000,000 182,000,000 182,000,000

Cash Flow (USD):

Subtract Acqu. And Dev. Capex -25,000,000 -25,000,000 -25,000,000 -25,000,000 -25,000,000 -25,000,000 -25,000,000 -25,000,000 -25,000,000 -25,000,000

Add back Depreciation 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000

Current Account Adjustments -25,000,000 -10,000,000 -5,000,000 -5,000,000 -5,000,000 -5,000,000 -5,000,000 -5,000,000 -5,000,000 -5,000,000

Less Profit Share plan 0 -48,000,000 -57,000,000 -71,000,000 -71,000,000 -71,000,000 -71,000,000 -71,000,000 -71,000,000 -71,000,000

Total Free Cash Flow 125,000,000 131,937,500 145,837,500 156,000,000 156,000,000 181,000,000 181,000,000 181,000,000 181,000,000 181,000,000

Net Asset Value (USD) 1,507,658,043

*SCA causes 0% Income Tax Rate

Base Discount Rate 5.00%

Country Risk Premium 5.00%

Valuation: NAV Model 2



Appendix: Sukari Concession Agreement with the EMRA


Details:

• No taxes and duties for 15 years and option to

extend for further 15 years

• PGM solely funds Sukari

• Full cost recovery prior to 50% profit sharing

• Annual capital and exploration costs recovered

33% per annum over 3 years

• 3% NSR royalty rate

• The net operating revenue surplus, after royalty

and cost recovery (“Profit Share”) is split 50:50

between PGM and EMRA

• an additional 10% of proceeds is paid to PGM in

the first 2 years of Profit Share, reducing to 5% in

the following 2 years


Appendix: Operating Cost Structure

Sukari Gold Mine Operating Cost Breakdown



Appendix 2: Legal Appeal Process

CEE Performance vs. Gold Index


CEE’s Equity Ownership


Appendix 2: Legal Appeal Process

5 year Forecasted Mining Production



Thank You

21

Alexander Cupillari

Portfolio Manager Metals & Mining – Queen’s

Capital

Austin Porter


Junior Analyst Metals & Mining – Queen’s

Capital

Sahil Bablani

Junior Analyst Metals & Mining – Queen’s

Capital

Documents

CEE: Centamin PLC Pitch - Queen's Capitalqueenscapital.ca/wp-content/uploads/2015/08/QC-Centamin-PLC-Pitch.pdf · • Centamin PLC is a mineral exploration, development and mining