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credit suisse report- igr dio avo (sarge17)
Forum: ASX - By Stock (Back)
Code: IGR - INTEGRA MINING LIMITED ( 24c (+4.348%) | Price Chart | Announcements | Google IGR)
Post: 4319033 (Start of thread) Views: 4
Posted: 01/08/09 9:46:44 AM Stock Price (at time of posting): 24c Sentiment: Buy Disclosure: Stock Held From: 58.179.xxx.xxx

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Below is a cut and paste of a post by Karmalocust a few weeks ago. It did not get nearly as much comment or thanks as it should have. It is by far the most in depth and insightful coverage of potential consolidation in the eastern gold fields and the issue of excess mill capacity versus feed constraints directly affecting players such as DIO, Lamancha, IGR and AVO. Essential reading if you own IGR, AVO or DIO. Thanks again KL.

03 June 2009
Asia Pacific/Australia
Equity Research
Precious Metals
Avoca Resources (AVO.AX / AVO AU)
DOWNGRADE RATING
Dioro = ticket to Kalgoorlie consolidation
party?
■ Event: As we had expected, Dioro last week rejected Avoca’s 2.82 for 1 scrip
takeover offer, and we now wait for the next move to be made. Given Avoca’s
current production outlook, we believe that Avoca will have done well to acquire
Dioro for anything close to a 2.82 for 1 bid. Where we differ from Avoca
guidance however, are our views on the rationale behind the deal. We see the
operational synergies between Avoca and Dioro as insignificant, and the
proposed acquisition driven by a desire to be involved in the consolidation
process expected to take place further north of Avoca’s Higginsville.
■ We believe that the Dioro bid is the first step in a larger consolidation
process, ultimately likely to involve peers La Mancha and Integra; however,
if the subsequent steps in this consolidation process cannot be executed
then Avoca risks being stuck with a basket of non-synergistic assets and our
current concerns about mine life would only be exacerbated.
■ Since initiation of coverage, our primary concern with Avoca’s Higginsville
mine is the lack of mine life. Factoring in the past 12 months of depletion, we
believe the company is now sitting on less than about 2.5 years of reserves.
Having reached a high-grade section at Trident, and realising that its current
premium may not be sustainable, we consider now is the time for Avoca to
use its paper for maximum leverage.
■ Avoca has no need for another approximately 1mtpa mill (Dioro’s Jubilee) in
the goldfields with looming uncertainty about sourcing of ore feed – it already
has one of these.

Our earnings changes reflect an update to our Jubilee modelling following a recent site visit.
Valuation
We have downgraded our target price on Avoca Resources to A$1.40/share in line with
our SOTP NAV as illustrated below. The main changes in our modelling are reduced mine
life expectations for Higginsville, reduced gold multiple applied to Higginsville, and
increase SOI. We assume a 2:1 scrip offer by Avoca to acquire Dioro, an increase from
the recently rejected 2.82 for 1 offer.
The challenge with valuing Avoca at present is that we do not know (a) how much it is
willing to pay for Dioro and whether it will ultimately be successful, and (b) although we are
confident that Avoca will chase subsequent acquisitions after Dioro, we do not know the
price it will be willing to pay for the lead role in the consolidation process.
Figure 3: NAV based SOTP
Operational A$mn A$/sh Equity A$mn A$/sh Multiple A$mn A$/sh % of total
Higginsvile 275 0.99 100% 275 0.99 1.10 303 1.09 82%
Jubliee 65 0.24 100% 65 0.24 1.00 65 0.24 18%
Sub-Total 340 1.23 340 1.23 368 1.33 100%
Non-Operational A$m A$/sh Equity A$m A$/sh Multiple A$m A$/sh % of total
Net Debt -20 -0.07 100% -20 -0.07 1.00 -20 -0.07 35%
Corporate -26 -0.09 100% -26 -0.09 1.00 -26 -0.09 46%
Put Options -11 -0.04 100% -11 -0.04 1.00 -11 -0.04 19%
Sub-Total -57 -0.21 -57 -0.21 -57 -0.21 100%
Non-Project A$m A$/sh
Mineral Resources 2008 koz @ A$ 30 /oz = 60 0.22
Total 283 1.24 283 1.24 371 1.34
DCF Attributable DCF Valuation
Valuation
DCF Attributable NAV Sum of parts Valuation
Source: Company data, Credit Suisse estimates
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 4
Introduction
South of Kalgoorlie lie assets owned by a number of small and mid cap gold names,
including La Mancha, Dioro Exploration, Integra, and further south Avoca. In our view, the
region is typified by an oversupply of milling capacity and undersupply of mill feed relative
to the available milling capacity. After a long and at times prosperous history in gold
mining, the larger and higher quality deposits of the region have long been depleted, and
many of the proposed mines in the region are now on their second or third lease of life.
The current ‘long milling capacity / short ounces’ situation is likely to be compounded if
proposed new mills by La Mancha (near White Foil / Frog’s Leg) and Integra (near Aldiss /
Randall) go ahead.
If our current forecasts for a five-year mine life at Higginsville are correct, then our
calculations indicate that Higginsville should have in fact never been built. Had the highgrade
ore mined from Trident been trucked to Jubilee instead (~$9/t), the ore could have
been processed more efficiently ($16/t, instead of $22/t) and G&A costs could have been
reduced (we assume $6/t instead of $10/t at Higginsville). The net impact on cash costs
would have seen an increase from current A$450/oz to perhaps A$480/oz; however, this
would have been more than offset with potential for A$60/oz depreciation savings on the
lower capex requirements.
We do not believe there are any operational synergies between Avoca and Dioro.
Higginsville (Avoca) and Jubilee (Dioro) are similar sized mills; however, they are different
makes and are understood to have few common spares aside from operator hard hats.
Operationally, we believe that the last thing Avoca needs is another ~1mtpa mill in the
Kalgoorlie goldfields with looming uncertainty around ore feed. Despite no obvious
synergies, Avoca appears to be positioning itself to drive a longer-term consolidation
process of assets further north of Dioro’s Jubilee. The only thing Avoca brings to the party
is its currency – overpriced scrip.
Figure 4 over page provides an overview of the region and its assets.
The remainder of this note provides our thoughts and observations around the following
key questions:
■ Why bid for Dioro?
■ What does Dioro own, and what is it worth?
■ Where to from here?
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 5
Figure 4: South Kalgoorlie goldfields map

Kambalda
Kalgoorlie
Coolgardie
Jubilee (0.9 – 1.2mtpa)
and HBJ open pit
Mt Marion
Frogs Leg
White Foil
Avoca Resources
Dioro Exploration
La Mancha
Dioro & La Mancha
Integra Mining
Greenfields and 3 Mile
Hill Toll Treating mills
Mt Martin
Burbanks (0.18mtpa),
Remelias Resources
Wattle Dam,
Remelias Resources
Super Pit, KCGM
Lakewood (0.3mtpa), Silverlake
St Ives, Goldfields
Aldiss & Randall Projects
(incl Salt Creek)
Higginsville (1 mt)
Source: Company data, Credit Suisse estimates
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 6
Why bid for Dioro?
Given Avoca’s current production outlook, we believe that the bid for Dioro was / is a great
move, and to acquire Dioro for anything close to a 2.82 : 1 offer would be an outstanding
outcome. Where we differ to Avoca’s public guidance however, are our views on the rationale
behind the bid. We believe that the motivation for the Dioro bid is driven by:
■ below-expectation exploration success at Higginsville, and a realisation that the
current mine life of the asset is a lot less than the ten years management expects. We
estimate below that Higginsville has an economic life of less than five years without
material exploration success. With limited scope for organic growth, the long-term
existence of Avoca is likely to be dependent on acquired growth. Avoca has not
updated reserves for 2.5 years – could this be because update = downgrade? Avoca’s
current debt position may be limiting the cash it has available to inject into exploration.
■ The Dioro assets hold few synergies with Avoca’s, and are, in our opinion, in no way
complementary. As we pointed out in our note titled ‘Dioro: Bargain buying, or more of
what they don’t need?’ on the day of the announcement (15 April), we see little need
for Avoca to own another ~1mtpa mill in the goldfields with looming ore supply
uncertainty. What Avoca does need however, is to be involved in the real
consolidation process, which is likely to take place to the north of them, potentially
involving Dioro Exploration, La Mancha and Integra Mining. In order to generate real
synergies from owning Dioro, Avoca would subsequently need to engage with either
La Mancha, Integra or perhaps both.
■ Avoca has hit a production sweet patch in high grade sections of Trident, and is likely
to be producing strong results from Higginsville for the next 12–24 months. With a
strong near term production base supporting an already over priced scrip, now is the
time to be using this paper for acquisitions.
Lack of mine life at Higginsville
Since initiation of coverage, our primary concern with Avoca’s Higginsville mine is the lack
of mine life. Factoring in the last 12 months of depletion, we believe the company is now
sitting on around 2.5 years of reserves. Beyond this 2.5-year reserve life, we see potential
for another 1.5 years of economic resources from the Trident Resources, and perhaps a
few months from Chalice, for a total remnant mine life of about five years.
Although Avoca has identified a new EOS lode in FY09 drilling results, the bulk of its
drilling has been infill and grade control drilling – which should improve confidence in the
deposit, but does not generally add more tonnes.
In assessing Avoca’s longer-term mine life prospects, we present two scenarios in
estimating the cash costs:
■ The bull case uses spot gold prices, highly favourable open pits strip ratios (1:1),
lower unit operating costs, and assumes no additional capital is required to exploit the
non-Trident deposits. The current asset base is being depreciated on Trident
resources, so in this scenario we assume no additional depreciation post-Trident.
■ The bear case uses Credit Suisse long-term gold price forecasts (US$700/oz and FX
0.72 for A$972/oz) and more conservative strip ratios and unit operating costs.
Essentially, each deposit must ‘pay its own way’, so we assess each of Avoca’s stated
deposits on a stand alone basis, i.e. assuming that each is the only source of mill feed at any
given time. The reality is that the various ore sources would be blended; however, if a particular
ore stream cannot pay its own way through the mill it is considered net value destructive.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 7
BULL scenario of Avoca operating costs
Figure 5: Higginsville mine life economics – BULL scenario
Mine Trident
reserve
Trident
resource
Fairplay Open
Pit
Palaeo
channels
Trident
stockpiles
Chalice
Underground
’Other’
Mill Higginsville Higginsville Higginsville Higginsville Higginsville Higginsville Higginsville
Spot Gold Price A$/oz 1204 1204 1204 1204 1204 1204 1204
Production
Milled tonnage mt 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Strip ratio 0.00 0.00 1.00 1.00 0.00 0.00 1.00
Material Moved mt 1.00 1.00 2.00 2.00 1.00 1.00 2.00
Grade g/t 5.30 7.58 1.80 2.00 2.70 5.20 1.20
Recovery % 95% 95% 95% 95% 95% 95% 95%
Annualised Production koz 161.9 231.5 55.0 61.1 82.5 158.8 36.7
LOM production 550.4 351.4 197.8 84.2 25.4 117.7 48.0
Total Tonnes mt 3.40 1.52 3.60 1.38 0.31 0.74 1.31
Life years 3.400 1.518 3.598 1.379 0.308 0.741 1.310
3.4 1.518 0 0 0 0.741 0
Costs
Mining Cost A$/oz 247 173 127 115 485 315 191
Mining Cost per tonne mined A$/t 40.00 40.00 3.50 3.50 40.00 50.00 3.50
Ore trucking cost A$/oz 0 0 36 33 2 25 55
Ore trucking cost A$/t 0.00 0.00 2.00 2.00 0.20 4.00 2.00
Milling Cost A$/oz 136 95 400 360 267 139 600
Milling cost A$/t 22.00 22.00 22.00 22.00 22.00 22.00 22.00
G&A Cost A$/oz 62 43 182 164 121 63 273
G&A cost A$/t 10.00 10.00 10.00 10.00 10.00 10.00 10.00
Cash Costs A$/oz 445 311 746 671 876 541 1,119
Royalties A$/oz 139 139 139 139 139 139 139
1. Spot revenue A$/oz 30 30 30 30 30 30 30
2. MS royalty A$/oz 48 48 48 48 48 48 48
3. MS royalty A$/oz 60 60 60 60 60 60 60
Total Cash Costs A$/oz 583 450 884 810 1,014 680 1,257
Annual Depreciation on existing plant A$mn 36 36 0 0 0 0 0
Additional capex required A$mn 0 0 0 0 0 0 0
Depreciation A$/oz 222 155 0 0 0 0 0
Total Production Cost A$/oz 806 605 884 810 1014 680 1257
Sustaining capital A$mn 10 10 5 5 5 5 5
Sustaining capital A$/oz 62 43 91 82 61 31 136
Exploration A$mn 11.5 11.5 11.5 11.5 11.5 11.5 11.5
Exploration A$/oz 71 50 209 188 139 72 314
Corporate / Other costs A$mn 7.5 7.5 7.5 7.5 7.5 7.5 7.5
Corporate / Other costs A$/oz 46 32 136 123 91 47 205
Expensed put options A$/oz 30 30 30 30 30 30 30
All-In production cost A$/oz 1015 760 1351 1233 1335 861 1942
Margin A$/oz 189 444 -147 -29 -131 343 -738
Undiscounted reserve/resource value A$mn 31 103 -8 -2 -11 54 -27
Source: Company data, Credit Suisse estimates
Although Avoca reports cash costs of A$450/oz, after adding royalties, depreciation
(calculated based on Trident reserve + resource tonnage), sustaining capital, corporate
costs, exploration and expensed put options we estimate an ‘all in’ operating cost of
A$1,023/oz for Trident reserves, and A$760/oz for the higher grade Trident resources.
Both of these figures exclude financing costs on current net debt position.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 8
■ Our BULL scenario suggests that Trident reserves, Trident resources, and perhaps
the high grade Chalice underground could be economic – providing a total of 5.7 years
mine life based on nameplate 1mtpa throughput.
■ The undiscounted reserve/resource value of these three deposits is A$188mn,
however if 100% of Avoca’s resources were mined (regardless of their economics) the
total undiscounted reserve/resource value is A$140mn.
Figure 6: Higginsville mine life economics – BULL scenario
0
500
1,000
1,500
2,000
2,500
Trident reserve Trident resource Fairplay Open Pit Palaeo channels Trident stockpiles Chalice
Underground
’Other’
A$/oz
Mining Cost Ore trucking cost Milling Cost G&A Cost
Royalties Depreciation Sustaining capital Corporate / Other costs
Expensed put options Exploration Spot Gold Price
Source: Company data, Credit Suisse estimates
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 9
BEAR scenario of Avoca operating costs
Figure 7: Higginsville mine life economics – BEAR scenario
Mine Trident
reserve
Trident
resource
Fairplay Open
Pit
Palaeo
channels
Trident
stockpiles
Chalice
Underground
’Other’
Mill Higginsville Higginsville Higginsville Higginsville Higginsville Higginsville Higginsville
CS LT gold forecast A$/oz 972 972 972 972 972 972 972
Production
Milled tonnage mt 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Strip ratio 0.00 0.00 4.00 4.00 0.00 0.00 4.00
Material Moved mt 1.00 1.00 5.00 5.00 1.00 1.00 5.00
Grade g/t 5.30 7.58 1.80 2.00 2.70 5.20 1.20
Recovery % 95% 95% 95% 95% 95% 95% 95%
Annualised Production koz 161.9 231.5 55.0 61.1 82.5 158.8 36.7
Total Tonnes mt 3.400 1.518 3.598 1.379 0.308 0.741 1.310
Life years 3.400 1.518 3.598 1.379 0.308 0.741 1.310
0 1.518 0 0 0 0 0
Costs
Mining Cost A$/oz 247 173 409 368 485 378 614
Mining Cost per tonne mined A$/t 40.00 40.00 4.50 4.50 40.00 60.00 4.50
Ore trucking cost A$/oz 0 0 36 33 2 25 55
Ore trucking cost A$/t 0.00 0.00 2.00 2.00 0.20 4.00 2.00
Milling Cost A$/oz 136 95 400 360 267 139 600
Milling cost A$/t 22.00 22.00 22.00 22.00 22.00 22.00 22.00
G&A Cost A$/oz 62 43 182 164 121 63 273
G&A cost A$mn 10.00 10.00 10.00 10.00 10.00 10.00 10.00
Cash Costs A$/oz 445 311 1,028 925 876 604 1,542
Royalties A$/oz 100 100 100 100 100 100 100
1. Spot revenue A$/oz 24 24 24 24 24 24 24
2. MS royalty A$/oz 39 39 39 39 39 39 39
3. MS royalty A$/oz 37 37 37 37 37 37 37
Total Cash Costs A$/oz 545 411 1,128 1,025 976 705 1,642
Depreciation on existing plant A$mn 36 36 0 0 0 0 0
Additional capex required A$mn 0 0 10 10 0 20 20
Depreciation A$/oz 222 155 51 119 0 170 417
Total Production Cost A$/oz 768 567 1179 1144 976 875 2058
Sustaining capital A$mn 20 20 10 10 10 10 10
Sustaining capital A$/oz 124 86 182 164 121 63 273
Exploration A$mn 11.5 11.5 11.5 11.5 11.5 11.5 11.5
Exploration A$/oz 71 50 209 188 139 72 314
Corporate / Other costs A$mn 7.5 7.5 7.5 7.5 7.5 7.5 7.5
Corporate / Other costs A$/oz 46 32 136 123 91 47 205
Expensed put options A$/oz 30 30 30 30 30 30 30
All-In production cost A$/oz 1039 765 1736 1649 1358 1087 2880
Margin A$/oz -66 207 -764 -677 -385 -115 -1908
Undiscounted reserve/resource value A$mn -11 48 -42 -41 -32 -18 -70
Source: Company data, Credit Suisse estimates
In our bear case scenario we increase strip ratios, unit operating costs, sustaining capital
assumptions, and additional capex requirements relative to the bull case scenario and
compare these to our long-term gold price forecast (US$700/oz and FX 0.72 for A$972/oz).
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 10
■ Our BULL scenario suggests that it is only the high-grade Trident resource, which is in
fact economic, and that ‘all in’ costs for all other deposits are above our long-term gold
price assumption.
■ The undiscounted resource value of Trident is A$48mn, however if 100% of Avoca’s
resources were mined (regardless of their economics) the total undiscounted
reserve/resource value is -A$166mn.
Figure 8: Higginsville mine life economics – BEAR scenario
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Trident reserve Trident resource Fairplay Open Pit Palaeo channels Trident stockpiles Chalice
Underground
’Other’
A$/oz
Mining Cost Ore trucking cost Milling Cost G&A Cost
Royalties Depreciation Sustaining capital Corporate / Other costs
Expensed put options Exploration CS LT gold forecast
Source: Company data, Credit Suisse estimates
Operational synergies
We do not see any operational synergies between Avoca and Dioro.
■ As we illustrate above, Higginsville is already short of longer-term ore supply, so we
see no sense in trucking ore away from Avoca’s Higginsville north to Dioro’s Jubilee.
■ As we discuss further below, Jubilee is also short ore and most of the ore supply (both
current and future) for Jubilee is further north. This ore would have to be trucked past
the front gate of Jubilee in order to get to Higginsville so we see no sense in trucking
ore down to Higginsville either.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 11
Figure 9: Dioro share price and deal implied share price
-$0.10
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
1/01/09 15/01/09 29/01/09 12/02/09 26/02/09 12/03/09 26/03/09 9/04/09 23/04/09 7/05/09 21/05/09
Share price (A$)
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
Premium (%)
Premium/Discount on actual share price DIO share price
Takeover offer implied DIO share price (2.82:1) Deal announcement
The 34% deal premium
would have been > 100%
earlier this year
Markets began expecting a
better offer less than a week
after the offer was announced
Source: Company data, Credit Suisse estimates
If there were operational synergies between Avoca and Dioro, then these same synergies
would have existed earlier this year, at which point a scrip-based bid would have had far
more leverage. The takeover proposal was announced when the implied premium in a
2.82 for 1 offer had already eroded from > 100% (January 2009) to just 34%.
Avoca paper over priced
Be it an earnings multiple, NPV multiple, or mineral inventory-based metric, we believe
that Avoca is expensive. In our view, the share price implies an expectation that current
cash costs are maintained for a ten-year production period, and as we illustrate above
neither of these assumptions appear reasonable on current resources. By positioning itself
alongside other more diversified gold names, Avoca has been fortunate enough to have
been priced on similar multiples. We believe that the most relevant comparables for Avoca
are its immediate peers; La Mancha, Dioro Exploration, Integra Mining and Norton
Goldfields. For illustrative purposes we calculate Avoca’s valuation on current EV/Reserve
and EV/Resource multiples of this peer group.
We acknowledge that many small and mid cap exploration plays are priced not on current
mineral inventories, but on expectations for future growth. To this end, we note that the
majority of Avoca’s recent drilling results have been grade control and infill drilling – which
may improve understanding of existing deposits, but is unlikely to add tonnage.
During a site visit in November 2008, we were told by management that the MarQ09 would
deliver 40–45koz, and that ore sourcing could be managed so as to deliver the requisite
grades ensuring this production was achieved. It would appear that there had been some
deficiencies in the grade reconciliation in the upper portion of the Trident deposit given that
the company subsequently delivered just 27koz in the MarQ09 on grade of only 3.2g/t.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 12
Figure 10: Avoca valuations based on comparable peer EV/Resource metrics
Company Ticker Share
price
Share
price
SOI Mkt Cap EV Resourc
es
EV /
Resc oz
Avoca
implied
EV
Avoca
implied
Mkt Cap
Avoca
implied
Mkt Cap
Avoca
implied
US$ A$ mn US$mn US$mn moz US$/oz US$mn US$mn A$mn A$/sh
Avoca AVO.AX 1.51 1.86 229.1 343 422.6 1.4 292
Norton Gold fields NGF.AX 0.22 0.27 420.5 91 99 4.1 24 35 -44 -55 -0.91
Dioro Exploration DIO.AX 0.60 0.74 91.6 55 50 2.2 23 34 -46 -56 -1.55
Integra Mining IGR.AX 0.30 0.37 470.5 140 125 1.3 96 139 60 74 0.80
La Mancha LMA.TO 0.86 1.05 142.0 122 117.2 1.8 66 96 16 20 0.25
Source: Company data, Credit Suisse estimates
If we apply comparable peer EV/Resource multiples which range from US$23 to 96/oz to
Avoca (currently trading at US$292/oz) and adjust for net debt, the valuations derived for
Avoca’s 1.4moz of resources range from MINUS $1.85 to $0.80/share.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 13
What does Dioro own?
The notable assets owned by Dioro are (see Figure 4):
■ Jubilee Mill (0.9 – 1.2mtpa) – 100% interest. This mill is part of the ‘South Kalgoorlie
Operations’.
■ Frog’s Leg – 49% interest (the other 51% interest is owned by La Mancha)
■ South Kalgoorlie mining operations, which include Hampton-Boulder Jubilee (HBJ), Mt
Marion and Mt Martin – 100% interest
■ Various other deposits scatter through the region, including Bakers Flat, Triumph and
Shirl underground – 100% interest.
Figure 11: Dioro Reserves and Resources
Resources (M&I only) Reserves
kt grade koz kt grade koz
Frog’s Leg 2,302 7.0 515 1,736 5.3 296
South Kalgoorlie 29,825 1.7 1,675 4,442 1.5 220
Total 32,127 2.1 2,190 6,178 2.6 516
Source: Company data, Credit Suisse estimates
Jubilee Mill (100%)
Figure 12: Jubilee Mill - Process Flow Diagram
Source: Company data
Jubilee is a 22 year old conventional CIP mill, acquired from Harmony in 2006. The mill
has a nameplate capacity of 1.2mtpa, however this throughput requires optimised mill feed
with a significant oxide contribution. The reality is that most of the feed available to Jubilee
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 14
is fresh material, and on this feed 900ktpa is more realistic. Jubilee is currently operating
for approximately A$16 - 17/t, which includes a legacy Harmony power contract which
expires 2013, providing access to 8.5 c/kwh grid power.
Although the estimated replacement value of the Jubilee mill is ~ A$50mn, the ‘market’
value in its current condition is estimated at less than A$10mn. The only part of the mill
that could be economically salvaged for relocation is the front end crushing and grinding
circuit. Re-use of the front end would only offer a small saving (perhaps $5mn) off the cost
of building an all new plant. The steel work throughout the plant is highly corroded –
evidence of the 22 years it has spent operating in a hyper-saline environment. This said,
Dioro believe that the mill could be serviceable for another 10 years with A$3-4mn spent
on maintenance. An additional $4 – 6mn upgrade to the front end of Jubilee could take
capacity on fresh rock from the current 900kt to 1.2mtpa.
Figure 13: Jubilee mill Figure 14: An example of the Jubilee steel work
Source: Credit Suisse Source: Credit Suisse
Frog’s Leg (49%)
The most valuable asset within the Dioro portfolio is Frog’s Leg. Following a brief
campaign as an open pit, Frog’s Leg is now a promising underground operation. Frog’s
Leg is owned and operated by the Mungari East Joint Venture (MEJV), which is
subsequently 51% owned (and 100% operated) by TSX listed La Mancha, and 49%
owned by Dioro. Effectively, Dioro receives 49% of the stockpiled ore along with an invoice
for 49% of the operating costs each month. Dioro are currently processing their 49%
allocation of ore through the Jubilee mill which incurs a $9/t trucking cost, and La Mancha
processes its 51% share through the Greenfields mill in Coolgardie, although a 58kt trial
has recently been completed that saw 100% of the ore treated at Frog’s Leg.
Although Dioro do have some say in the operation of the asset through the management
JV, the mine is currently being operated and directly managed by an experienced and very
competent team at La Mancha which has a long history in the area. There would seem to
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 15
be limited opportunities for Dioro, or any other 49% owner of Frog’s Leg, to have a
material impact on optimisation of the mine.
Figure 15: Development face showing quartz veining Figure 16: End of an active development drive
Source: Credit Suisse Source: Credit Suisse
Frog’s Leg is a high grade quartz mineralisation forming at the contact layer between
surrounding volcanoclastic and a catrock/basalt materials. Frog’s Leg should ultimately
produce approximately 600ktpa at cash costs of A$450/oz, yielding 95koz p.a. (100%
basis). The northern end of the Frog’s Leg mine is defined by a lease boundary (adjoining
a Barrack property) and beyond the southern end of the current resource the structure is
believed to continue on the MEJV tenements for up to a kilometre.
The first structures to be identified within Frog’s Leg were the Rocket (South) and Mist
(North) Lodes, however mining has recently reach a level within the ore body where two
parallel lodes are present, being the Fog and Whistle Lodes, laying parallel to the original
Lodes. The deposit is to be mined with longhole stoping, with the stoping being a
combination of open stoping and backfilled stoping using cement stabilised fill. In the
thinner upper parts of the ore body a single development drive has been used at each
level, however now that parallel veins are being mined a second development drive is
being used on each 15m bench.
Near term resource growth is likely to come from swelling of the quartz vein into the
catrock, and although the grades of this material (perhaps 5g/t) would see the resource
grade (7.0 g/t) diluted, the incremental tonnage could be significant.
A $5–6mn paste fill plant will be required in order to optimise the mine design at depth and
manage stresses in surrounding rock. The mining cost for Frog’s Leg is currently
understood to be A$60–65/t, and although the paste backfill will add to the costs as
activities deepen, this is expected to be offset by efficiencies gained in the wider parts of
the ore body.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 16
La Mancha Resources
Figure 17: La Mancha Tenement map (MEJV shown in grey)
Source: Company data
In addition to Frog’s Leg, La Mancha Resources also own the nearby (2km south west)
White Foil. White Foil is also a historic open pit, and La Mancha believes that it can mine
80kt per month of 1.2g/t material from the mine with a cut back of the existing pit. (Which,
incidentally, has also seen a wall failure).
La Mancha envisage building a new plant (the Mungarie Mill) immediately adjacent their
White Foil pit, in order to process material from both White Foil and their 51% share of
Frog’s Leg. The low grade nature of the White Foil ore does not make it an economic
candidate for long haulage. To us the White Foil economics don’t quite add up. Again, this
appears a gold bull market project.
South Kalgoorlie Operations
We believe that Avoca has over-estimated the potential of the south Kalgoorlie assets.
Dioro has a mine plan for these assets covering at best the next 18 months, although
reality could quite easily be closer to 3 months.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 17
Figure 18: South Kalgoorlie Operations Location Plan
Source: Company data
The potential 18 month mine plan for South Kalgoorlie captures contributions from Mt
Martin, Mt Marion, and HBJ which are considered the ‘Tier 1’ projects. Beyond these three
pits (and aside from Frog’s Leg) feed is dependent on a number of ‘Tier 2’ projects which
may make sense in the current gold price environment, but are probably not feasible on
longer term commodity price assumptions.
Mt Martin
Mount Martin is located east of Jubilee with access via an unsealed haul road. The pit was
last mined in 1999. Dioro are planning to steeped the access ramp from 1:9 to 1:6, in
doing so allowing them to take a 20m cut from the floor of the pit. The pit is currently being
dewatered, and mining is expected to commence in June. A 4 month mining campaign will
see Dioro finish in the pit before the end of the year, at which time the current lease
expires and owner Australian Mines will regain control of the pit.
We estimate Mt Martin’s all in operating cost (excl financing) would be ~ A$958/oz as
illustrated below in Figure 22.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 18
Figure 19: Mt Martin pit with dewatering pump highlighted
Source: Credit Suisse
Mt Marion
The south west wall of the Mt Marion pit collapsed in late 2008, exposing a paellochannel
system adjacent to the pit, subsequently resulting in water issues within the pit.
Engineering works are currently being completed for installation of a retaining wall system
that will support the unstable material. A solution involving shotcrete and rock anchors is
estimated to take 2 months to install, after which a 6 week mining campaign should see ~
96kt of 4 - 5g/t material mined for a campaign period of up to 6 weeks.
Mt Marion’s grades make it the most cost attractive of the South Kalgoorlie pits. We
estimate Mt Marion’s all in operating cost (excl financing) would be ~ A$616/oz as
illustrated below in Figure 22.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 19
Figure 20: Mt Marion
Source: Company data
Hampton Boulder Jubilee (HBJ)
The western wall of the south end of the HBJ collapsed in December 2008 (highlighted
below in Figure 21), with 1.675mt of material capturing approximately 38koz of otherwise
recoverable gold at the bottom of the pit. A feasibility review is currently being completed
on the HBJ pit, which could see the entire pit shell expanded (read higher strip ratios and
cash costs) or alternatively the southern end of the pit could be abandoned and a small
scale project executed at the shallower northern end of the pit. Grades of 1.7 – 1.8g/t had
been achieved in the northern portion of the pit, however it is understood that 1.5g/t is
more representative of the possible northern end. High strip ratios and low grades make
HBJ the least attractive of the South Kalgoorlie Tier 1 prospects, and out estimated all in
operating cost (excl financing) is A$1,733/oz. We see a low probability of HBJ being mined.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 20
Figure 21: Hamption Boulder Jubilee pit
Source: Company data
The South Kalgoorlie operations together carry a rehabilitation liability of approximately
A$10-15mn, and in our valuation of the company this is the value we have used for the
South Kalgoorlie mines.
Other
In addition to the above open pit material, Dioro have available approximately 700kt of low
grade (averaging 0.8g/t) stockpiled material (spread all the way from Jubilee to
Coolgardie) that can be used for make up feed.
The tier two projects which could pay their way through Jubilee include Bakers Flat,
Triumph and Shirl underground (historical open pit). Each of these is a potential three to
four-month project, requiring A$950/oz gold to make a return.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 21
Figure 22: Estimated operating costs on Dioro operations
Mine Frogs Leg
Resources
Mt Martin Mt Marion HBJ
Mill Jubilee Jubilee Jubilee Jubilee
Spot Gold Price A$/oz 1204 1204 1204 1204
Production
Milled tonnage mt 1.00 1.00 1.00 1.00
Strip ratio 0.00 1.00 2.00 5.00
Material Moved mt 1.00 2.00 3.00 6.00
Grade g/t 5.30 1.80 4.50 1.25
Recovery % 95% 95% 95% 95%
Annualised Production koz 161.9 55.0 137.4 38.2
LOM production 372.6 19.8 13.2 63.8
Total Tonnes mt 2.30 0.36 0.10 1.67
Life years 2.302 0.360 0.096 1.670
Costs
Mining Cost A$/oz 340 127 76 550
Mining Cost per tonne mined A$/t 55.00 3.50 3.50 3.50
Ore trucking cost A$/oz 56 36 29 0
Ore trucking cost A$/t 9.00 2.00 4.00 0.00
Milling Cost A$/oz 99 273 109 419
Milling cost A$/t 16.00 15.00 15.00 16.00
G&A Cost A$/oz 31 182 73 262
G&A cost A$/t 5.00 10.00 10.00 10.00
Cash Costs A$/oz 525 618 287 1,231
Royalties A$/oz 30 30 30 30
1. Spot revenue A$/oz 30 30 30 30
2. MS royalty A$/oz 0 0 0 0
3. MS royalty A$/oz 0 0 0 0
Total Cash Costs A$/oz 555 649 317 1,261
Annual Depreciation on existing plant A$mn 15 6 20 20
Additional capex required A$mn 0 0 10 0
Depreciation A$/oz 93 109 903 524
Total Production Cost A$/oz 648 758 1221 1785
Sustaining capital A$mn 5 5 5 5
Sustaining capital A$/oz 31 91 36 131
Exploration A$mn 2 2 2 2
Exploration A$/oz 12 36 15 52
Corporate / Other costs A$mn 3 3 3 3
Corporate / Other costs A$/oz 19 55 22 79
Expensed put options A$/oz
All-In production cost A$/oz 710 940 1294 2047
Margin A$/oz 495 265 -89 -843
Undiscounted reserve/resource value A$mn 80 15 -12 -32
Source: Company data, Credit Suisse estimates
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 22
What is Dioro worth?
On spot commodities and FX our valuation for Dioro is estimated as follows:
■ + A$100mn for economic ounces recoverable from Frog’s Leg and Mt Martin.
■ – A$10mn rehabilitation costs for South Kalgoorlie assets
■ – A$6mn for hedging
■ + A$5mn for partial salvage of Jubilee Mill
■ – A$5.5mn net debt
■ For a total of A$83.5mn, or $0.91/share.
The most logical acquirer of Dioro seems to be La Mancha; however, the most eager
acquirer of Dioro is Avoca. We see potential for Avoca to pay a premium of perhaps 20%
over and above $0.91/share, given that without Dioro Avoca does not have a seat at the
consolidation table.
We feel that valuations published by Dioro’s independent experts are overly ambitious –
most notably in the $81mn valuation of non-project resources. Given that even Dioro’s tier
two projects are economically questionable in the current gold price environment, we
struggle to recognise any value in ‘other resources and exploration potential’.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 23
Where to from here?
Beyond Dioro, we believe that Avoca is likely to be planning:
■ acquisition of La Mancha’s 51% interest in Frog’s Leg—as the anchor to its Australian
presence, we do not see La Mancha as a willing seller;
■ acquisition of Integra Resources, or at worst a toll treating arrangement with Integra
that would prevent it from building new milling capacity to the east.
In our opinion, this region already has more than enough milling capacity, and what needs
to take place is asset consolidation rather than new mill construction. Despite this, there
are potentially three new sources of milling capacity becoming available over the next one
to two years:
■ La Mancha is proposing a ‘Mungari Mill’ next to its White Foil open pit, to process ore
from both White Foil and its 51% share of Frog’s Leg. The low grade White Foil ore is
unlikely to pay its way for trucking to Coolgardie, so this may be La Mancha’s only
alternative for mining this 76koz reserve. La Mancha’s 51% Frog’s Leg ore can be
economically milled at Jubilee, Greenfields (Coolgardie), and next year capacity at 3
Mile Hill (Coolgardie) will also be available.
■ To the east of Jubilee lie Integra’s Aldiss and Randall projects, so too the former New
Celebration mill (in pieces) which Integra purchased from Newcrest for A$3mn. Integra
is currently reviewing the possibility of assembling the New Celebration mill. The last
published feasibility study is currently being revisited and is expected to indicate a
reduction in scale (1.1mtpa to 0.8mtpa), capex ($88mn to $60mn) but increase in
operating costs (A$504/oz to A$600/oz).
■ We understand that additional milling capacity will become available at the 3 Mile Hill
toll treating facility in Coolgardie from 2010.
If the La Mancha, Dioro and Integra assets can be consolidated, we see no reason for either
La Mancha or Integra’s mills to be build. Our calculations indicate that the higher cash costs
are offset by lower depreciation charges as a result of the reduced capital expenditure.
The next steps
As highlighted in the recent target’s statement from Dioro, the capital structure of the
combined Avoca (88%) / Dioro (12%) is highly disproportionate to the asset contributions
of the two companies, and as we had previously predicted the deal now seems very
unlikely to proceed on a 2.82 for 1 basis.
Frog’s Leg – 49% Dioro / 51% La Mancha
The process of splitting the ore into two separate piles adds ~$1/t to the overall processing
costs, and whether it is the shortest transport route or the cheapest milling capacity (or
both) that determines the most economic route, we struggle to understand how using two
different milling facilities for the one source of ore can be the most value accretive on a net
basis. Perhaps realising this, Dioro and La Mancha recently completed a 58kt trial of
putting 100% of Frog’s Leg ore through Jubilee. The outcome of this trial is not entirely
clear at this stage; however, it is understood that an oversized tails pipeline may have
resulted in the mill being overloaded with soft material in order to maintain tails velocity in
the pipeline and prevent sedimentation. The increased throughput (and hence decreased
retention times) is likely to have been at the expense of recoveries.
For La Mancha to have agreed to this trial implies that the economics between Coolgardie or
Jubilee processing are similar from its perspective, but given that La Mancha has two other
options (3 Mile and Greenfields) for processing this ore and is considering building a third
(Mungari) Dioro would probably need to be fairly competitive with its toll treating margins if it is
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 24
to attract this business. It is slightly ironic to note that the Frog’s Leg mine is currently being
managed by a metallurgist and the Jubilee mill by a geologist and mining engineer.
As the anchor for their presence in the region, La Mancha does not appear to be a ready
seller of its 51% interest in Frog’s Leg. Given the real synergy opportunities between La
Mancha and Dioro, we believe that La Mancha would seem the more obvious acquirers of
Dioro. Given La Mancha’s relatively low NPV multiple and TSX listing status, preference
may be for an all cash offer on Dioro. La Mancha claims however, that it is not interested
in acquiring Dioro due to the unwanted South Kalgoorlie rehabilitation liabilities. These
liabilities are estimated to be worth A$10-15mn, and perhaps now that there exists slightly
more clarity on their magnitude (discussed in targets statement) La Mancha may be a little
more confident than they were in considering a counter-bid for Dioro. We understand that
La Mancha is likely to have access to cheaper debt through its 64% majority shareholder
Areva than might otherwise be available to a mid to small cap gold producer.
Integra
Even with 100% of Frog’s Leg being milled at Jubilee (600–800kt) there is still excess
capacity at the 0.9–1.2mtpa Jubilee. This shortfall could, in our view, be provided from
Integra’s assets to the East, either through a toll treating arrangement or by the one
consolidated entity.
We estimate over page that the additional haulage costs involved in trucking ore from
Integra’s Randalls project to Jubilee would be more than offset by the savings in capex
(and hence depreciation) for a net saving from a total operating cost perspective.
Regarding Figure 23 over page, we note the following:
■ An estimated $50mn has been included for La Mancha’s Mungari mill – pro rata
allocated to Frog’s Leg and White Foil resources.
■ On a total cost basis, the economics between La Mancha’s three milling options
appears marginal (or four options including 3 Mile Hill).
■ Given the low grade of White Foil, it is far more economical to mine this at a proposed
Mungari Mill (located next to the White Foil pit) than to truck this material to another
plant. Without Mungari, White Foil will probably not be mined.
■ There appear to be material total costs savings for Integra via a toll treating
arrangement with Dioro’s Jubilee relative to the proposal of building their own mill
(using the salvage New Celebration mill).
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 25
Figure 23: Estimated operating costs on La Mancha and Integra operations under various milling scenarios
La Mancha La Mancha La Mancha La Mancha La Mancha Integra Integra
Mine
Mill Greenfields Jubilee Mungari Mungari Jubilee Jubilee Old ’New
Celebration’ mill
Spot Gold Price A$/oz 1204 1204 1204 1204 1204 1204 1204
Production
Milled tonnage mt 1.00 1.00 0.44 0.44 1.00 0.80 0.80
Strip ratio 0.00 0.00 0.00 5.50 5.50 9.00 9.00
Material Moved mt 1.00 1.00 0.44 2.83 6.50 8.00 8.00
Grade g/t 5.30 5.30 5.30 2.41 2.41 3.40 3.40
Recovery % 92% 92% 91% 91% 92% 92% 92%
Annualised Production koz 156.8 156.8 67.5 30.7 71.3 80.5 80.5
LOM production 573.0 573.0 566.8 69.1 69.9 472.7 472.7
Total Tonnes mt 3.66 3.66 3.66 0.98 0.98 4.70 4.70
Life years 3.655 3.655 8.402 2.253 0.980 5.875 5.875
Costs
Mining Cost A$/oz 351 351 355 369 365 398 398
Mining Cost per tonne mined A$/t 55.00 55.00 55.00 4.00 4.00 4.00 4.00
Ore trucking cost A$/oz 29 51 0 0 112 80 0
Ore trucking cost A$/t 4.50 8.00 0.00 0.00 8.00 8.00 0.00
Milling Cost A$/oz 121 102 142 312 224 179 179
Milling cost A$/t 19.00 16.00 22.00 22.00 16.00 18.00 18.00
G&A Cost A$/oz 32 32 64 142 70 50 50
G&A cost A$/t 5.00 5.00 10.00 10.00 5.00 5.00 5.00
Cash Costs A$/oz 533 536 561 823 772 706 626
Royalties A$/oz 30 30 30 30 30 30 30
1. Spot revenue A$/oz 30 30 30 30 30 30 30
2. MS royalty A$/oz 0 0 0 0 0 0 0
3. MS royalty A$/oz 0 0 0 0 0 0 0
Total Cash Costs A$/oz 563 566 591 853 802 736 657
Annual Depreciation on existing plant A$mn 10 10 0 5 5 5 5
Additional capex required A$mn 0 0 45 5 0 0 60
Depreciation A$/oz 64 64 79 242 70 62 189
Total Production Cost A$/oz 627 630 670 1094 872 798 846
Sustaining capital A$mn 1.5 1.5 3 3 1.5 2 2
Sustaining capital A$/oz 10 10 44 98 21 25 25
Exploration A$mn 2 2 2 2 2 1 1
Exploration A$/oz 13 13 30 65 28 12 12
Corporate / Other costs A$mn 1.5 1.5 3 3 1.5 2 2
Corporate / Other costs A$/oz 10 10 44 98 21 25 25
Expensed put options A$/oz
All-In production cost A$/oz 658 662 788 1355 942 860 908
Margin A$/oz 546 543 416 -151 262 344 297
Undiscounted reserve/resource value A$mn 86 85 28 -5 19 28 24
Frogs Leg White Foil Randalls
Source: Company data, Credit Suisse estimates
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 26
Figure 24: Proposed ore treatment arrangement for South Kalgoorlie goldfields
Source: Company data, Credit Suisse estimates
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 27
Companies Mentioned (Price as of 02 Jun 09)
Australian Mines (MJH.BE, Eu0.01, NOT RATED)
Avoca Resources (AVO.AX, A$1.86, UNDERPERFORM [V], TP A$1.40)
Dioro Exploration (DIO.AX, A$.79)
*Gold Fields Limited (GFIJ.J, R107.00, UNDERPERFORM [V], TP R129.00)
*Harmony Gold (HARJ.J, R95.35, NEUTRAL [V], TP R126.00)
Integra Mining Ltd (IGR.AX, A$0.365, NOT RATED)
La Mancha Resources (LMA.TO, C$.93)
Newcrest Mining (NCM.AX, A$33.89, NEUTRAL [V], TP A$35.00)
Norton Gold Fields (NGF.AX, A$0.265, NOT RATED)
Ramelius Resources (RMS.AX, A$0.62, NOT RATED)
Silver Lake Resources (SLR.AX, A$0.735, NOT RATED)
*Denotes a Credit Suisse Standard Securities covered company, a joint venture involving Credit Suisse. For information
regarding companies covered by CSSS, full research reports, definitions of analysts’ stock ratings, and disclosure information,
please refer to: www.researchandanalytics.com.
Disclosure Appendix
Important Global Disclosures
I, Michael Slifirski, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this report.
See the Companies Mentioned section for full company names.
3-Year Price, Target Price and Rating Change History Chart for AVO.AX
AVO.AX Closing
Price
Target
Price
Initiation/
Date (AUD) (AUD) Rating Assumption
21-Jan-09 1.575 1.7 N X
21-Jan-09
1.7
N
0.64
1.14
1.64
2.14
2.64
3-Jun-06
3-Aug-06
3-Oct-06
3-Dec-06
3-Feb-07
3-Apr-07
3-Jun-07
3-Aug-07
3-Oct-07
3-Dec-07
3-Feb-08
3-Apr-08
3-Jun-08
3-Aug-08
3-Oct-08
3-Dec-08
3-Feb-09
3-Apr-09
Closing Price Target Price Initiation/Assumption Rating
AUD
O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse’s total
revenues, a portion of which are generated by Credit Suisse’s investment banking activities.
Analysts’ stock ratings are defined as follows:
Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived
risk) over the next 12 months.
Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months.
Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months.
*Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total
return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**,
with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities.
Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry
factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of
the relevant country or regional index; for European stocks, ratings are based on a stock’s total return relative to the analyst’s coverage universe**.
For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating
definitions, respectively, subject to analysts’ perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral
stock rating definition, respectively, subject to analysts’ perceived risk.
**An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector.
Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse’s engagement in an investment banking transaction and in certain other
circumstances.
03 June 2009
Avoca Resources (AVO.AX / AVO AU) 28
Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected
performance of an analyst’s coverage universe* versus the relevant broad market benchmark**:
Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
*An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector.
**The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months.
Credit Suisse’s distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Outperform/Buy* 35% (58% banking clients)
Neutral/Hold* 43% (58% banking clients)
Underperform/Sell* 20% (47% banking clients)
Restricted 2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy,
Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor’s
decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse’s policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit
Suisse’s Policies for Managing Conflicts of Interest in connection with Investment Research:
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Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot
be used, by any taxpayer for the purposes of avoiding any penalties.
See the Companies Mentioned section for full company names.
Price Target: (12 months) for (AVO.AX)
Method: Our $1.40 target price on Avoca Resources is set using a discounted cashflow-based, sum-of-the-parts valuation. We use a beta of 1.0,
risk free rate of 5.7% and weighted average cost of capital of 12.4%.
Risks: The risks to AVO to achieving our $1.40 target price include gold price, ramp up/production risk, mine life risk (such as Higginsville) and
exchange rate risk.
Please refer to the firm’s disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
Important Regional Disclosures
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (AVO.AX) within the past 12
months.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
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