psl initiate coverage, 70c price target

Our NAV for SFZ is $0.70/share. This is based on an NPV for stage 1 production of 1mpta
beginning in the March Q FY11 and ramp up to 3mtpa by FY13. Our model is based on a 20
year mine life, however a 150mt resource will support a much longer mine life.
We have assumed stage 2 pre-production capital costs of US$130m and cash operating
costs of US$24/t (Mining and Crushing: US$3/t, processing: US$6.50/t, Road Rail & Port:
US$13.50/t, Royalty: 2%). Equivalent projects in Australia have average cash costs of circa
A$35/t.
We rate SFZ as a buy; Ponte Verdes plant will be commissioned within weeks and domestic
sales will commence shortly after. We forecast stage 1 operating profit to be ~US$30m per
annum, with Stage 2 operating profit at $70m per annum. SFZ is trading on very attractive
multiples of 3.6x FY12 EBITDA and 1.1x FY14 EBITDA.