18 cent valuation report below

Intrepid Minerals Proves Intrepidness Yet Again with NuStar Merger
Intrepid Minerals (IAU-T C$0.57); NuStar Mining Corporation Ltd (NMC-AX A$0.053)
Soft-spoken Australian CEO Laurence Curtis PhD has shown he has not forgotten the potential of the old
country (Australia) as a complement to the new country (Argentina). MI Research Partner Intrepid
Minerals Ltd is going to merge with Australian producer NuStar Mining Corp, and the resultant entity has
a compelling valuation.
NuStar has the Paulsen’s gold deposit in Western Australia, not far from the hamlet of Paraburdoo.
Search ‘Tourism in Paraburdoo’ on Google and you get…not much. A quick check of the topography on
Google Earth suggests a lush environment of natural beauty, including three big iron ore mines. More than
one ‘tourism in Palaburdoo’ reference mentioned that this area is totally mining focused; is there a better
environment that would help NuStar profitability? Paulsen’s is an underground mine operating now on six
production levels at a quarterly rate of 16,000 oz, expected to increase to 20,000 oz per quarter since the
deposit is still in the late startup stage (we use 64koz in the model). Cash costs should run to just over
US$235/oz, but should decrease both as a function of produced ounces, but also on an absolute basis
once the deposit processes are streamlined. Exploration potential is great; the gold-bearing structure has
been traced an additional 150m (498 ft) down below the gold reserve and in the context of Australian
underground mines, should eventually be traced to a lot deeper than that. The NuStar reserve base we
use is about 0.5MM oz proven and probable; for Intrepid, we’re using the indicated resource from the last
report.
The key to merger success, however, appears to be the 12:1 consolidation NuStar will achieve prior to
uniting the two companies. With current issued capital approaching one billion shares, and the excess
liquidity that stops the share price from rising above the A$0.05-A$0.10 mark, a post-rollback 82MM
shares will be much easier to handle.
NuStar and Intrepid will merge on a 1:1 share basis, yielding about 132MM issued shares. The merged
company, to be named ‘Intrepid Mines Ltd, will have about US$20MM in net debt and a mark-to-market
hedge loss of US$7.9MM at current gold prices (not a problem; see below).
Intrepid Mines Ltd in the MiningInsights™ Global Gold Comparative Model (Reserves)
The valuation effect of the foregoing using conservative inputs puts the inherent value of a NuStar/Intrepid
share at C$1.85 based on the net cashflow effect of the produced reserve base at current gold prices
(undiscounted, but then the gold price doesn’t appreciate by the net contango either; see the Martingale
futures pricing argument link in MI ORESEARCH 127 for more information).
Intrepid Mines Ltd in the MiningInsights™ Global Gold Comparative Model (Production)
Since the only current production is coming from NuStar, the addition of the non-producing share base of
Intrepid dilutes the multiple somewhat. Post-rollback NuStar shows a premium on production of 80%, the
second cheapest gold equity in the valuation universe after MI Research Partner Gryphon Gold. Once the
Intrepid Minerals contribution is added, the premium on production rises to 155% and ranks fifth behind
Gryphon, MI Research Partner Patricia Mining, Patricia’s partner Richmont Mining, and Harmony Gold.
The merged company shows very good sensitivity to gold price moves up and defensive sensitivity to gold
price moves down. With a hedge position at US$473, further correction in the gold price will allow
NuStar to capture the opportunity cost of delivering gold into the hedge book below spot rates.
MI Investment View: Favourable for long term value realisation.