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ABID - South Boulder - Due Diligence and Valuation Report




Arrowhead BID


04 Jan 2013





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South Boulder Mines Ltd is an Australia-listed exploration firm focused on Potash assets in Eritrea and nickel and gold prospects in Western Australia. The company’s primary asset is the Colluli Potash Project, which is the world’s shallowest deposit and one of the few Greenfield deposits to be developed in the next decade. In April 2012, South Boulder updated JORC resource estimates of the Colluli Potash Project to 1,079MMT @ 17.97% KCl for 194.09MMT of potash. It aims to achieve a JORC exploration target of 1.25-1.75BT in the Colluli deposit, with an estimated grade of 18-20% KCl. The company expects a start-up production of 1Mtpa by 2016 for over 20 years. Arrowhead believes that this is a significant landmark which reduces the resource risk and improves the company’s upside potential. The company is currently conducting a Definitive Feasibility Study (DFS) which is expected to be completed by 2013. Preliminary DFS results released in June 2012 suggest processing of Carnallite as well as Sylvinite. As part of potential future expansion, the company completed an Engineering Scoping Study (ESS-2) in November 2012 to assess technical aspects related to mining and processing of underlying Carnallite mineralization. The study suggested lower operating costs and higher ore recovery by processing Sylvinite and Carnallite, compared with ESS-1 completed in November 2011. The company plans to work on Carnallite expansion opportunities after the completion of DFS. The company has also agreed to submit an alternative proposal for ENAMCO to participate in the Colluli Potash project by way of a 50:50 profit share, wherein South Boulder is expected to pay 100% of the development costs. The profit sharing negotiations are underway and are expected to address a range of matters with a focus on potential financing strategies. The company plans to transfer non-potash assets (Nickel JV and Gold Projects) to Duketon Mining Ltd (DML). The demerger is expected through an in specie distribution of 100% of Duketon shares to company’s shareholders on a one-for-four basis. A total consideration of AU$5.6MM will be paid by Duketon on completion of the demerger. It is also proposed that Duketon Mining Limited will complete a capital raising of approximately AU$1.6MM to further fund its exploration programs. In the Nickel JV Project, an extensive diamond and RC drilling program commenced in February 2012 to test the economic potential at Rosie and C2 prospects. In the Gold Project, the Company plans to further conduct RC drilling and expects ~350koz production by 2012/2013. Given due diligence and valuation estimations based on discounted cash flow method, Arrowhead believes that South Boulder Mines Limited fair share value per share lies in the AU$1.18 to AU$1.68 bracket. This valuation is based solely on the Eritrean Potash and Duketon Nickel projects and does not consider potential value of the company’s other prospects. We have also presented a comparable valuation based on EV/resource and EV /proposed capacity.

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