oxr share slump hold fat prophets, page-14

Goldman JBWere research (p1 only):

Event:
• OXR has announced today it has executed a Memorandum of
Understanding (MOU) with the major Indonesian mining company PT
Antam Tbk (Antam).
• The objective is to form joint ventures or other cooperative ventures for
the exploration, development and operation of precious or base metal
or bulk commodity projects within Indonesia.
• Separately OXR has provided a positive update on Prominent Hill.
Key Take Outs:
• Antam will acquire an interest in OXR's Martabe gold and silver project
in Indonesia. The transaction is subject to the approval of both Boards
and government authorities. Details are as follows:
o OXR to sell 10% interest in Martabe to Antam for
US$66.5m.
o An option to enable Antam to acquire a further 10% of the
Martabe project for a further US$66.5m (subject to
adjustments in market prices for gold, silver, operating
and capital costs on commissioning).
o A further option to Antam to enable Antam to acquire a
further 5% of the Martabe project for a consideration
based on the market value of the project at the time.
Antam will contribute its proportionate share of the capital
expenditure.
o Antam contributes its share of development costs for the
Martabe project.
Earnings and Valuation Impact:
• Minor changes due to the higher cash balance now offset later by lower
gold earnings.
Investment View:
• In our view, this transaction is accretive for OXR (higher price received
than our current DCF valuation).
• The consideration received for the 10% interest of US$66.5m is above
our (10% interest equals A$32.5m) implied valuation based on our
Martabe valuation of ~A$325m.
• A key secondary outcome in our view is the MOU improves OXR's ability
to operate in Indonesia and potentially acquire other projects.
• The update for Prominent Hill suggests this should meet expectations
near term and exceed these in the longer term.
• No change to the BUY recommendation.