1. JUNE 2011
Gresham Group 150
June 2011
Darren Martin
Gresham Advisory Partners
dmartin@gresham.com.au
+61 8 9486 7077
+61 412 144 719
ASX RESOURCES - GROUP 150
We are pleased to present the June edition of ‘Group 150’, a ranking of the top 150 ASX listed resources companies
(excluding oil and gas), by market capitalisation.
May was a scrappy month for equities as renewed concerns around European debt and the Federal Reserve’s lack of
solutions for the structural deficit received global attention. A majority of commodity prices fell during the month, with
the exception of gold. The cumulative market value of Group 150 decreased 1.8% from $591.5 billion to 580.7 billion at
the end of May. Like April, two-thirds of the Group 150 recorded a fall in market value. For the first time in a while, the
entry point into the Group 150 fell to $122.6 million, down from $130.6 million for the previous month. The ASX/S&P
200 Resources Index decreased 1.5% for the month, while both the ASX All Ordinaries and ASX/S&P 200 Index decreased
2.2% and 2.4% respectively.
May recorded a steady month in M&A with only a handful of transactions announced, with the largest being the offer for
South African gold miner, Gold One.
Papillon lead the “Winners” for May (in terms of growth in market capitalisation), entering the Group 150 in position 147,
after recording a 94.2% increase in value. Others included: Indo Mines (+71.8%), Minemakers (+50.4%), Iluka (+25.0% -
adding a further $1.3b to the market cap), and Catalpa (+23.8%) after the approach from St Barbara.
This month includes an article on the virtual mining company - “Generating Returns while Protecting the Downside - The
Franco Nevada Story”
Founded in 1982, Franco-Nevada had grown to a US$3 billion company by the time it was acquired by Newmont in 2002.
The concept was to build a company from the cash flow stream of gold royalties which provide yield and more upside
than a gold Exchange Traded Fund “ETF” but with less risk than a mine operator - a virtual mining company with no
operating risk or capital expenditure commitments.
In late 2007, a team including some Old Franco employees formed Franco-Nevada Corporation and on 20 December
2007, acquired a portfolio of Newmont royalties and other interests, completed a US$1.2 billion initial public offering,
completed a bank debt facility and listed on the Toronto Stock Exchange.
The current portfolio includes over 340 assets covering properties at various stages from operations to early stage
exploration. Royalties are mostly revenue-based but the portfolio also includes profit-based and stream-based royalties.
Gresham Advisory Partners Limited
Gresham Advisory Partners is a leading Australian mergers and acquisitions/corporate advisory
Edition 15 business and one of Australia’s largest and highest ranking independent corporate advisors.
1
4. Group 150
Group 150 markeT capiTaLisaTion
700.0 +61.4%
359.8 580.7
606.3 605.4 603.8 591.5
589.2 580.7
600.0 564.7 572.4 9.9 10.2 9.4
23.4 9.9 21.9 21.7 9.5 8.9
528.8 524.8 7.6 8.3 21.6 21.0 20.3
522.3
Market Valuation (A$b) - Group 150
19.4 20.5
5.7 503.5 494.1
5.4
12.8 486.0 13.7 470.8 485.5 6.6
17.8
500.0 5.9
14.5 467.0 5.5 153.7 151.1 150.0 148.2
5.2
12.1 13.8 5.8
14.8 144.5 147.2 149.9
5.1
13.1 4.8
12.3 142.2
111.6 113.1
114.9 133.2
101.7 113.0 121.2
400.0 108.1 109.5
3.1
8.4
167.7 164.9 166.6 165.3 159.9
152.5 153.8 162.2 161.3 157.8
300.0 88.0 138.2 141.4 138.5 150.6
131.7 130.8 137.5
67.1
200.0
240.0 228.7 242.6 233.3 237.8 251.6 245.6 255.6 257.3 252.9 243.8
100.0 226.8 212.8 209.5 223.3 206.2 216.6
193.2
0
Jun-09 Dec-09 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11
BHPBilliton Rio Tinto Company 3 - 50 Company 51 - 100 Company 101 - 150
asX indeX performance - may Group 150 mkT cap - By commodiTy
merGer & acquisiTions - announced in may
Percent Premium - Premium -
Date Value Consideration
Target Acquirer Sought 1 Day Prior 1 Month Prior
Announced (A$m) Offered
(%) (%) (%)
25-May-2011 Goldminco Corp. (TSXV:GCP) Straits Resources Limited (ASX:SRQ) 13.5 29 81.8 100.0 Cash
23-May-2011 Territory Resources Limited (ASX:TTY) Exxaro Resources Limited (JSE:EXX) 148.2 100 64.3 67.3 Cash
23-May-2011 70% of RioAD LLC and Rio Gobi LLC Hunnu Coal Limited (ASX:HUN) 40.0 100 - - Cash
19-May-2011 New Hope Corp. Ltd., Lenton Project Mai-Liao Power Corporation 58.0 10 - - Cash
16-May-2011 Donaldson Coal Pty Ltd. Gloucester Coal Ltd. (ASX:GCL) 590.5 100 - - Cash; Equity
China Development Bank Corporation;
Baiyin Nonferrous Metal (Group) Co., Ltd.;
16-May-2011 Gold One International Limited (ASX:GDO) 510.5 100 27.9 26.4 Cash
China-Africa Development Fund; Long March
Capital Group
Source: Capital IQ
Announced Australian Resources (excluding oil and gas) Mergers and Acquisitions >A$10m
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5. JUNE 2011
GeneraTinG reTurns whiLe proTecTinG The downside - The franco-nevada sTory
Founded in 1982, Franco-Nevada had grown to a US$3 billion company by the time it was acquired by Newmont in 2002.
Franco-Nevada (“Franco”) and Euro-Nevada were founded in 1982 by two Canadian entrepreneurs, Pierre Lassonde and
Seymour Schulich. In 1986, Old Franco made its first royalty acquisition, and acquired or created additional royalties and
resource investments from 1986 to 2002.
The concept was to build a company from the cash flow stream of gold royalties which provide yield and more upside than
a gold ETF but with less risk than a mine operator - a virtual mining company with no operating risk or capital expenditure
commitments.
While Franco focussed on North American gold royalties (with some interests in oil and gas and platinum), sister company
Euro-Nevada focussed on building a portfolio of international gold royalties. The royalty portfolio was substantially made
up of interests in significant assets, operated by industry leaders in regions of low political risk and is balanced across a
number of commodities and stages of development.
Historically, Franco and Euro-Nevada were kept separate for tax efficiency. In September 1999, however, the two companies
took the inevitable step and merged under the name Franco-Nevada (“Old Franco-Nevada”).
Old Franco-Nevada was one of Canada’s most successful companies, building a quality portfolio of royalties and delivering
superior returns to shareholders in the process.
In 2000, an attempt to merge Old Franco-Nevada with Gold Fields Limited failed when the deal did not receive South
African regulatory approval.
Old Franco-Nevada discovered, developed and brought into production the Midas mine in Nevada and sold its interest in
this mine together with certain other assets to Normandy in the first half of 2001, in exchange for a 19.9% equity interest in
Normandy and a continuing 5-10% NSR royalty interest on the Midas mine. At the same time Old Franco-Nevada’s royalties
over Henty and New Celebration were transferred to Normandy.
Franco-Nevada's Asset Portfolio (March 2001) Recognising the value of the company, Newmont Mining
Operator Interest Corporation successfully acquired Old Franco-Nevada in February
US Operations 2002 as part of its three-way merger with Normandy and Franco.
Midas Franco-Nevada 5-10% NSR
Betze-Post Barrick Gold 0-4% NSW, 5-6% NPI Franco’s key strategy was to use the investment flexibility that
Meikle-Rodeo Barrick Gold 4% NSR, 5% NPI
Getchell Placer Dome 2% NSR
royalties offer to acquire direct interests in major ore bodies
Rosebud Newmont/Hecla 4% NSR operated by the best companies in the business.
Castle Mtn. Viceroy 1-5% NSR
Briggs Canyon 2% NSR A key driver of Franco’s growth was its investment in early stage
Maggie Creek Newmont/Hecla 2-8% NSR
developments, gaining the right to participate in any future
Stillwater Stillwater Mining 5% NSR
Canadian Operations growth of properties without being responsible for development
Eskay Creek Homestake 1% NSR costs or environmental liabilities.
Mouska Cambior 2% NSR
Holt-McDermott Barrick Gold 0-4% NSR For example, when Franco bought the Goldstrike royalty, the
Australian & International Operations
Henty Goldfields 1-10% NSR
project was operated by a relatively small company. A year later
New Celebration Newcrest 1-4% NSR Barrick took it over, and had invested over US$1 billion to boost
Browns Creek Hargraves 2.25% NSR reserves from 600,000oz Au when the acquisition was made in
Mt. Muro Aurora 3-7% NSR
Projects
1986, to around 20Moz Au at the time of Old Franco-Nevada
Carlin Trend Franco-Nevada 100% WI being acquired by Newmont. In 2010, the Goldstrike royalty
Nevada Exploration Franco-Nevada 100% WI
contributed US$50m in revenue to Franco-Nevada.
Canada Exploration Franco-Nevada 50-100% WI
Australia Exploration Franco-Nevada 100% WI
The table illustrates the calibre of Franco’s portfolio in 2001 and
Pandora, South Africa Angloplat 5% NSR
Cerro San Pedro, Mexico Metallica/Cambior 2% NSR the large number of Net Smelter Return (“NSR”) royalties. The
Mara Rosa, Brazil Metallica 1% NSR strategy of acquiring NSR royalties provided Franco with a cash
Mara Rosa, Brazil Metallica 1% NSR
Divisions
flow independent of the margin of the project, thereby providing
Oil & Gas Franco-Nevada 100% WI some protection from adverse commodity price movements.
Metals Franco-Nevada 100% WI
Investments
Voisey's Bay Inco Limited 9.2% NPI
Diavik Rio Tinto 3.5% NPI
WI - Working interest (projects operated by Franco-Nevada)
NSR - Net smleter returns, NPI - Net profit interest
Source: Webisite, Bloomberg, Capital IQ
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6. Group 150
GeneraTinG reTurns whiLe proTecTinG The downside - The franco-nevada sTory
Franco-Nevada Corporation - a new beginning
In late 2007, a team including some Old Franco employees formed Franco-Nevada Corporation and on 20 December 2007,
acquired a portfolio of Newmont royalties and other interests, completed a US$1.2 billion initial public offering, completed
a bank debt facility and listed on the Toronto Stock Exchange.
In 2008 and 2009, the company raised additional equity in order to grow the royalty and stream portfolio. In March 2011,
Franco-Nevada acquired Gold Wheaton Corporation which added additional gold and PGM streams.
The current portfolio includes over 340 assets covering properties at various stages from operations to early stage
exploration. Royalties are mostly revenue-based but the portfolio also includes profit-based and stream-based royalties.
Franco-Nevada Asset Portfolio - May 2011
Gold PGM Other Minerals Total Mineral Oil & Gas Total
Producing 28 3 6 37 135 172
Advanced 19 0 4 23 0 23
Exploration 124 2 19 145 * 145
Total 171 5 29 205 135 340
* 157 undeveloped oil & gas interests not included in asset counts
Details of the current portfolio can be found at www.franco-nevada.com/files/Asset%20Listing%202010AR.pdf
Currently, Franco-Nevada’s market capitalisation is in excess of C$4.5 billion, and analyst consensus estimates indicate the
company will generate NPAT of C$120m on revenues of C$340m in 2011, implying a margin of ~35% and a price to earnings
ratio of ~39x.
Franco-Nevada Share Price Since IPO
40 16
35 14
30 12
25 10
Share Price (C$)
Volume (m)
20 8
15 6
10 4
5 2
0 0
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
Volume (m) Franco Nevada Share Price (C$) Gold Price (Rebased)
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7. JUNE 2011
Base meTaLs - secTor performance
Share Price Performance - May 2011
Copper Nickel Zinc
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
7
8. Group 150
coaL - secTor performance
Share Price Performance - May 2011
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
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9. JUNE 2011
diversified - secTor performance indusTriaL mineraLs - secTor performance
Share Price Performance - May 2011
Share Price Performance
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
Share Price Performance
9
10. Group 150
GoLd - secTor performance
Share Price Performance - May 2011
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
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11. JUNE 2011
iron ore - secTor performance
Share Price Performance - May 2011
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
11
12. Group 150
pLaTinum - secTor performance uranium - secTor performance
Share Price Performance - May 2011
Share Price Performance
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
Share Price Performance
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14. recenT resources TransacTions
Group 150
Mergers and Acquisitions
Mergers and Acquisitions
2010 2009
GRAM
2009 2009 2008 2008 2006
Advised BHP Advised BG Advised Guandong Advised Allied Gold Advised Kalahari Advised Gem Advised IAMGOLD
Billiton on its Group on its $1bn Rising on its $216m on its $54m Minerals on its Diamonds on its Corporation on its
$204m offer for takeover offer for cornerstone acquisition of $140m proposed $300m acquisition $265m acquisition
United Minerals Pure Energy investment in Pan Australian merger with of Kimberley of Gallery Gold.
Corporation. Resources Aust. Solomons Gold. Extract Resources. Diamonds.
Limited.
TakeoverDefence
Takeover Defence
2010 2010 2010 2009 2009 2007 2007
Advised Polaris Advised Indophil Advised Advised Energy Advised Brandrill Advised Summit Advised Tethyan on
Metals NL on on $545m Centaurus Metals on its $86m Limited on its Resources on its its $220m
$178m takeover recommended Resources on its proportional takeover $45m takeover A$1.2bn takeover competing takeover
offer by Mineral offer from Zijin $20m merger offer by China offer by Ausdrill by Paladin Energy. offer by Crosby and
Resources with Glengarry Guangdong Nuclear Limited. Antogafasta/Barrick.
Limited. Resources. Power Group.
Strategic Advisory, JointJoint Ventures and Capital Markets
Strategic Advisory, Ventures and Capital Markets
2010 2010 2009 2008 2009/08 2008 2008
Advised BHP Introduced Advised BHP Advised Advised Iluka on its Advised Advised Iluka
Billiton on its Denham Capital to Billiton on the Bannerman $114m Murchison Metals Resources on its
US$116bn iron Trans Tasman disposal of the Resources on its institutional on its joint venture $54m Narama coal
ore production Resources resulting Yabulu Nickel financing with placement and with Mitsubishi. divestment to
joint venture with in NZ iron sands refinery. Resource Capital $353m accelerated Xstrata.
Rio Tinto. investment. Funds. right issue.
Gresham Advisory Partners Limited
A.B.N. 97 003 344 269
Level 17, 167 Macquarie Street, Level 10, 1 Collins Street, Level 3, 28 The Esplanade,
Sydney NSW 2000 Melbourne VIC 3000 Perth WA 6000
Telephone: 61 2 9221 5133 Telephone: 61 3 9664 0300 Telephone: 61 8 9486 7077
Facsimile: 61 2 9221 6814 Facsimile: 61 3 9650 7722 Facsimile: 61 8 9486 7024
Website: www.gresham.com.au
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