Petra Capital Analysis

Petra Capital latest analysis on SIR and other Nickel stocks - from noodles.com
22 July 2014

POS more attractively valued than SIR Buy

Poseidon Nickel (POS) recently acquired the Black Swan nickel project in Western Australia, transforming the company into a near-term producer. The acquisition enables POS to be in production within 6 months and capture the benefits of a rising nickel price environment.
Sirius Resources (SIR) is the other key emerging Australian nickel producer and recently completed a definitive feasibility study (DFS) on the Nova-Bollinger deposit in Western Australia. There are key points of difference between the two companies (Figs 1-5) however in our view, the value within POS is compelling. We recommend buying POS which is trading at a material discount to NPV (A$0.46/share).

Black Swan studies commence Studies now underway to restart Black Swan.·
Work includes:·
resource reviewØ
tailings dam assessmentØ
transport and logistics studiesØ
cost and schedule to restart plantØ
integrated study on Black Swan/WindarraØ
Completion of this work is expected by the end of July.·
POS has low capex and short timeline to production Capex estimates of $40M (POS) vs $473M (SIR).·
Infrastructure in place (POS) vs yet to construct (SIR).·
First production in 2015 (POS) vs 2017 (SIR).·
Contained Ni resource· >300kt (POS) vs 325kt (SIR).
POS cheaper than SIR on all EV metrics (Figs 3-5).·
POS brownfield operations = low risk restart Q3 2014 - Conclude funding requirements for restart.·
Q4 2014 - Mining restarts at Mt Windarra.·
Q4 2014 - First ore sent to 3rd party facility.·
Q2 2015 - Black Swan restarts on stockpiled ore.·
Company Data
Shares - ordinary (free float) 513.9M Unlisted Options (22c/sh 2016) 7.2M Conv. Notes (30c & 40c/sh Mar 2017) 101.5M Market capitalisation ($M) 79.7
12 month low/high ($) $0.07/ $0.19
Average monthly turnover ($M) 2.1
Average monthly volume (M) 17.6

Financial Summary ( diluted for further A$15M equity raise) Year end June 2014F 2015F 2016F 2017F 2018F
Revenue ($M) 0.0 60.4 150.8 179.1 191.5
Costs ($M) 3.0 39.3 107.9 119.3 129.2
EBITDA ($M) (3.0) 21.0 42.9 59.8 62.3
NPAT ($M) (4.6) 14.7 31.5 41.5 41.8
EPS (¢ps) (0.8) 2.4 5.1 6.8 6.8
EPS Growth (%) na +100 +100 31.7 0.9
PER (x) na 6.5 3.0 2.3 2.3
Cashflow (Gross $M) (4.6) 19.4 41.4 59.8 58.3
CFPS (¢ps) (0.8) 3.2 6.7 9.7 9.5
PCFPS (x) na 4.9 2.3 1.6 1.6
Enterprise Value ($M) 120.7 109.1 95.7 48.9 3.6
EV / EBITDA (x) (40.2) 5.2 2.2 0.8 0.1
Substantial Shareholders (FPO) Shares (M) (%)
Andrew Forrest 129.8 25.3%
POS (A$ps) - performance over one year
$0.20
$0.18
$0.16
$0.00
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Disclosure and Disclaimer
This report must be read with the disclosure and disclaimer on the final page of this document. Petra Capital was a broker to the issue of 46.7M shares at
$0.08/share in May 2014, raising A$3.7M. A fee was received.
David Cotterell Andrew Richards
+61 2 9239 9630 +61 2 9239 9605
Poseidon Nickel POS A$0.16/share
22 July 2014

Figure 1: POS vs. SIR comparison - key metrics

POS SIRMarket capitalisation $80M $1,070M Cash position (Mar 31st) $6.6M* (Jun 30th) $59M Throughput 1.1Mtpa 1.5Mtpa Ni head grade (blended for POS) 1.3% Ni 2.0% Ni
Nickel recoveries 80% 89% Production 12ktpa 26ktpa Estimated payable cash costs US$6.70/lb US$2.70/lb** Conc. Grade 12% Ni 14% Ni Mine life 10 years 10 years First production 2015 2017
Capital cost A$40M A$473M DFS Completed Completed Mining licence Granted Pending
Source: Company data, Petra Capital. *Cash includes capital raise in May of $3.7M **Includes copper credits
POS has outperformed in recent weeks following the acquisition of Black Swan.
Figure 2: Relative share price performance since Indonesian export ban in January280
255
230
205
POS
180
SIR
155
130
105
80
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Source: IRESS, Petra Capital
Nickel prices are up
35% since the export ban in mid-January.
Figure 3: Spot nickel price performance since Indonesian export ban in January160
150
140
130
120
110
100
90
80
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Source: IRESS, Petra Capital
2

22 July 2014

Figure 4: EV/Resource tonne (A$)- Australian listed nickel producers and emerging stocksPOS is the most attractive of the emerging producers, at A$340/t (EV/Resource tonne).
3,000
2,500
2,000
(A$/t)
1,500
1,000
500
0
Sirius Resources Western Areas Panoramic
Resources
Independence
Group
Mincor
Resources
Poseidon Nickel Mirabela Nickel
Source: IRESS, Company data, Petra Capital
Figure 5: Mkt Cap/Resource tonne (A$)- ASX listed nickel producers and emerging stocksPOS is the 2nd cheapest stock on a market cap/resource basis.
3,000
2,500
(A$/t)
2,000
1,500
1,000
500
0
Sirius
Resources
Western Areas Panoramic
Resources
Mincor
Resources
Independence
Group
Poseidon Nickel Mirabela Nickel
Source: IRESS, Company data, Petra Capital
Figure 6: EV/Production tonne ($) - Australian listed nickel producers and emerging stocksOn an EV/Production basis POS is trading at a discount to
peers.
50,000
40,000
(A$/t)
30,000
20,000
10,000
0
Western Areas Sirius Resources Mirabela Nickel Mincor Resources Panoramic
Resources
Poseidon Nickel
Source: IRESS, Company data, Petra Capital. Note: Sirius and Poseidon calculated on forecast production
3
22 July 2014

Analysis (fully diluted fora further $15M of equity funding)Poseidon Nickel Limited
(POS)
Share Pnce lss. Shares
($) 1
(M) 63
22-Jul-14
Year End 30 June
lss. Opttons
Converttble Notes Converttble Notes Fully diluted equtty Mkt Cap
(M) (M) (M) (M)
($M)
7.2 Exptre Aug &Nov 2016 (Exc. @ $0.22/sh)
36.5 Exptre March 2017 (Exc. @ $0.40/sh)
64 9 Expire March 2017 (Exc @ $0 30/sh)
7226
95 2 Undiluted for options & convertible notes
PROFIT & LOSS 2013A 2014F 2015F 2016F 2017F RESERVESIRESOURCES 2013A 2014F 2015F 2016F 2017F
Sales Revenue $M Other Incom e $M Operattng Cos ts $M Exploratton $M Other $M EBITDA $M Depreciation & Amort $M EBIT $M Net lnterest $M
00
0.5
3.3
1.3
2. 3 (6.4)
00 (6.5)
69
00
00
3 .0
00
00 (3.0)
00 (3.0)
1 6
60.4
00
39.3
00
00
21.0
46
16.4
1 7
150.8
00
107.9
00
00
View