The case for S32 buying Vendetta, by @Pete

First publication: 19/07/18

Update: 29/01/19

CANNINGTON Mine is operated by S32:

- lays roughly 30km from Pegmont

- Mill capacity =3.2Mt. Guidance for FY19 is 2.4Mt to be processed => 800kt free capacity

- ROIC of 68% in 2017 (best performer in the S32 group)

- sustaining capital for FY18: 51Million USD & guidance for FY19: 50Mil USD

- OPEX costs trending up due to complexity of the underground operations

- Just as Pegmont, this is a lead-silver mine Broken Hill type deposit

- Met results from Pegmont compare favorably with the Cannington ones (see VTT presentation)

- FY18-20 Guidance has been revised down, "upping" tonnage to make up for dropping grade is not materializing. NSR of Pegmont open pit material is twice the value of the Cannington Open Pit ore (According to Vendetta).

- We are still very much active in searching for deals" South32 Chief Executive Officer Graham Kerr said in a phone interview. 17/06/18 after the AZ Deal was announced. “People want us to put their cash to work.” https://www.bloomberg.com/amp/news/articles/2018-06-17/south32-agrees-1-3-billion-deal-to-acquire-arizona-mining

OPEX Costs estimates:

- Pegmont PEA: 74.3 $/t (=53.3 USD$/t)

-Cannington FY18 results: 150 USD$/t & FY19 guidance: 147 USD/t

=> If Pegmont was used a satellite deposit, trucking costs should be added to the comparison. Trucking cost were estimated by Caesersreport at 15 USD/t (see link below).

Metal Prices:

Notes:

- Arizona link: S32 took a first position in Arizona one month after the PEA release (15% position), one year later we see a full buy-out for US$1.3B.

- CASH equivalents: US$2.8B as of 31/03/2018 (so excl. the AZ deal of US$1.3B)

- Compitition to buy out VTT can come from Chinova who has a nearby mill that run out of ore in June '18( Osborne Copper-Gold operations and Starra Gold-Copper Mine). Or Sandfire Resources, with an adjacent project but no local mill. Or from Private Equity groups who have shown recent interest in the project. Or....

- S32 generating 4Mil USD in Free CashFlow per day (FY18)