deutsche rohstoff ag

18 November 2010
Deutsche Rohstoff AG
FIRST BERLIN
Equity Research
DRAG
DEUTSCHE ROHSTOFF AG
18 November 2010
GERMANY / RAW MATERIALS
RATING:
Frankfurt
Bloomberg symbol: DR0
RAISING PRICE TARGET
Buy
PRICE TARGET:
€20.00
RETURN POTENTIAL:
RISK RATING:
ISIN: DE000A0XYG76
41.0%
Speculative
POSITIVE NEWSFLOW COMING THICK AND FAST
COMPANY PROFILE
The start of gold mining at Georgetown in Australia coupled with
rising raw material prices have caused the share price to double
since our initiating coverage study in July. However we see further
upside from abundant positive newsflow over the next few
months. Our valuation, which is based on a combination of in situ
and NPV methodology, is €20.00 (previously €13.70). The rating
remains Buy.
Deutsche Rohstoff AG (DRAG) is a resources
company with a portfolio of properties in gold,
oil/gas, base metals and so-called high tech metals
such as indium, gallium and rare earths. The business
model is based on production of reserves in well
explored areas in politically stable countries. Based
in Heidelberg, Germany, DRAG had 22 employees as
of 30 June 2010.
Mining started at Georgetown in October DRAG plans to mine 50,000
tonnes of oxide gold ore at the Red Dam and Electric Light sites by the end
of December. This corresponds to the entire current resource estimate of
oxide ore at these sites. Processing will begin in November and is expected
to run at 2,000 oz of gold a month for six months from November.
Jubilee Plunger update During the summer DRAG dug six trenches at the
Jubilee Plunger site south of Georgetown. Management believe there may be
significant resources at the site and that it may be possible to begin mining as
early as 2011. We expect publication of the results of the drilling program at
Jubilee Plunger before the end of this year.
Farm-out deals on buntsandstein fields in prospect Industry interest
in the buntsandstein strata of the Upper Rhine Graben has risen greatly since
the publication of a 50m barrel resource estimate (proven and probable) for
Gaz de France’s Speyer field earlier this year. DRAG has interests in three
buntsandstein fields. Management tell us that a farm-out deal with respect to
one or more of these fields is likely by the end of this year.
Resource upgrade likely at Wrigley in Canada Under the terms of a
farm-out agreement concluded in July, Glencore is currently carrying out a
4,500 metre drilling programme. The NI 43-101 compliant resource estimate
commissioned by Devonian Metals earlier this year identified an orebody of
3.1m tonnes with 9% zinc/lead. However, this estimate covered only part of
the known orebody at Wrigley. In 1974 Cominco estimated the size of the
orebody at 10m tonnes. It is likely that the results of the current drilling
programme will allow upgrades to the current NI 43-101 resource estimate.
TRADING DATA
Closing price (17.11.10)
Shares outstanding
Market capitalisation
52-week range
STOCK OVERVIEW
16.2
1050
14.2
1000
950
12.2
900
10.2
850
8.2
800
6.2
750
May 10
Aug 10
Deutsche Rohstoff
NMDP Index
COMPANY DATA (as of 30 June 2010)
Saxon tin, high tech metals assets back on the radar In our July
initiating coverage study we valued DRAG’s Saxon tin and high tech metal
assets (indium, gallium, rare earths) at zero because the then prevailing raw
materials prices made mining uneconomic. Since July the tin price has climbed
from below $20,000/tonne to over $27,000/tonne. Meanwhile, concerns
over western industry’s reliance on Chinese high tech metal supplies have
sparked interest in DRAG’s assets. A farm-out agreement with an
international mining company is likely next year.
Liquid assets
Current assets
Intangible assets
Total assets
Current liabilities
Shareholders’ equity
Georgetown start-up will boost cash position Providing that mining at
Georgetown goes according to plan, we expect the cash generated to enable
DRAG to finance the next stage of mining at the site (the sulphide ore) while
leaving surplus funds for other projects.
SHAREHOLDERS
RISKS
Risks include negative movements in raw materials prices, higher than
expected operating costs, loss of key personnel, failure of exploration efforts.
€14.18
4.03m
€57.17m
€6.70 / 14.98
Titus Gebel
Thomas Gutschlag
BASF-VC
Institutional private investors
€3.20m
€0.10m
€0.09m
€11.02m
€0.00m
€11.01m
19.7%
12.0%
7.9%
60.4%
Analyst: Simon Scholes, Tel. +49 (0) 30 - 91 68 41 05
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18 November 2010
Deutsche Rohstoff AG
FIRST BERLIN RECOMMENDATION & PRICE TARGET HISTORY
Report
No.:
Date of
publication
Previous day
closing price
Recommendation
Price
target
Initial
Report
22 July 2010
€7.45
Buy
€13.20
2...1
↓
↓
↓
↓
FIRST BERLIN DISCLAIMER
2
23 July 2010
€7.39
Buy
€13.70
3
24 September 2010
€9.10
Buy
€13.70
4
8 October 2010
€9.84
Buy
€13.70
5
Today
€14.18
Buy
€20.00
Disclaimer
Simon Scholes
First Berlin
Equity Research GmbH
Mohrenstraße 34
10117 Berlin
Tel. +49 (0) 30 - 91 68 41 05
Fax +49 (0)30 - 80 93 96 87
[email protected]
www.firstberlin.com
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ANALYST CERTIFICATION
I, Simon Scholes, certify that the views expressed in this report accurately reflect my personal and professional views about the subject
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ADD: Expected return between 0% and 25%
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