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ABO
ABO
ABO - Absolute - Independent Valuation of the Quartzite Deposits at
Lekkersing as at 18 May 2010
ABSOLUTE HOLDINGS LIMITED
(to be renamed Bauba Platinum Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1986/004649/06)
Share code: ABO ISIN No: ZAE000144267
("Absolute" or "the Company")
Independent Valuation of the Quartzite Deposits at Lekkersing as at 18 May
2010
Executive Summary (T1.1)
Absolute Holdings Limited (Absolute) is a junior mining and exploration
company listed on the JSE Limited (JSE). Absolute has developed a natural
stone portfolio, produced and marketed by Lenopodi (Pty) Limited (Lenopodi),
a wholly-owned subsidiary of Absolute.
The directors of Absolute requested that Venmyn Rand (Pty) Limited (Venmyn)
prepare an independent report on the Lekkersing Quartzite Mine and processing
facility (Lekkersing Mine). This was prepared in accordance with the South
African Code for the Reporting of Mineral Asset Valuation (SAMVAL Code, 2008)
and the South African Code for the Reporting of Identified Mineral Resources
and Ore Reserves (SAMREC Code, 2008) to determine the merits of the
Lekkersing Mine. This Executive Summary was based on a Competent Person`s
Report (CPR) compiled by Creo Design dated 14th November 2008 and updated on
28th February 2010.
Venmyn used two methods to determine the Mineral Asset Valuation of the
Lekkersing Mine. These included the Cash Flow Approach, which relies on the
"value in use" principle that requires determination of the present value of
future cash flows over the useful life of the Mineral Asset. The Historical
Cost Approach was used in order to ensure a comparative method.
However, it should be noted that the mine is presently in a state of care and-
maintenance and the company does not anticipate it being brought back into
production until world markets recover, and in particular the European
market, which has been an important market for the quartzite product. The
cash flow assumptions are important because they demonstrate that there are
"reasonable and realistic prospects for eventual economic extraction".
Finding directly comparable market related transactions was not possible
because of the unique characteristics of the Lekkersing quartzite deposit.
Venmyn utilised the historical cost approach as a comparison.
Previously due to labour constraints within the Lekkersing area, Venmyn
revised Absolute`s projected maximum annual mine production to half of the
projected mine production levels. This was done in consultation with Mr
Marinus Hesselink, an industry specialist with more than 30 years experience
and familiar with the Lekkersing operations. However, the mine is presently
on care-and-maintenance.
The historical cost, as presented by Absolute was ZAR17.564m as an
acquisition cost and ZAR9.493m as development costs, giving a total
ofZAR27.057m. Given that the mine has since been placed on care-and
maintenance only 70% of that value is considered as the current value at
ZAR18.94m.
Using a Cash Flow Approach, Venmyn had previously calculated a "Fair Value"
for the Lekkersing Mine of ZAR90.3m using a real discount rate of 15% and a
production rate of two times at the proposed mine rate (base case) in
December 2009.
EXECUTIVE SUMMARY (T1.1)
Varying the mine production and discount rates, resulted in a range of
indicative cash flow "Fair Values" as outlined in Table below
ESTIMATED VALUE (ZARm)
PRODUCTION FACTOR DISCOUNT RATE
Production 80% 90% 100% 110% 120%
Levels
Discount 10% 88.1 104.3 120.5 136.8 153
Rate
15% 65.7 78 90.3 102.6 114.9
20% 51 60.6 70.3 80 89.6
This cash flow valuation generated ZAR90.3m. At this stage, the value could
be assessed as 20% of the original ZAR90.3.m or ZAR18.06m, until the mine
enters production again.
Clearly the adjusted historical cost and the cash flow valuation almost
coincide and a Fair Value of ZAR18.5m is considered reasonable for
Lekkersing.
The Technical details of this project have been presented in an Executive
Summary Report prepared by Venmyn and dated 28th February 2010 as submitted
to the JSE.
Introduction and scope (T1.2)
The directors of Absolute requested Venmyn on 14th May 2010 to prepare an
Independent Valuation Report on the Lekkersing Mine in compliance with the
Listing Requirements of the JSE and the SAMVAL Code. This document has been
compiled in order to incorporate newly available and material information.
Venmyn carried out a due diligence, as independent expert, based on a CPR
completed by Creo Design and discussions with Mr Hesselink. The due diligence
process included:
- review of the CPR findings and in particular the input parameters to the
valuation of the contributing mineral assets, enabling the intrinsic
value of the mineral asset forming the basis of the proposed
transaction;
- assessment of the percentage holdings to ensure that the net transaction
values are correctly determined; and
- estimation of the fair value of the Lekkersing Mine based on the
Historical Cost and Cash Flow Approaches.
Neither Venmyn nor its staff have or have had any interest in this project
capable of affecting their ability to give an unbiased opinion, and have not
and will not receive any pecuniary or other benefits in connection with this
assignment, other than normal consulting fees.
IDENTITY AND TENURE (T1.3)
Identity and Tenure (T1.3)
The Quartzite Deposits lie directly adjacent to the town of Lekkersing,
situated 40km northeast of Port Nolloth and approximately 120km northwest of
Springbok at an altitude of 350m above sea level.
Ownership of the land on which the Lekkersing Mine is located is held by the
State in trust (T58935/1996) on behalf of the Richtersveld Community.
Transfer of the land, including this farm, is expected to be effected to The
Communal Property Association, representing the community. Absolute through
its subsidiary Lubtalk Investments (Pty) Limited (Lubtalk), originally
acquired a cession of the entire old order mineral right held by Richtersveld
Quartzite Limited and Allied Quartzite (Pty) Limited. The rights expire in
2066 and 2069 respectively. However, the new order mining right, under
reference number (NC) 30/5/1/2/2/506 MR, including the Environmental
Management Programme Report, were approved and granted in August 2007 on a
thirty year term. The new order mining right area granted is identical to the
old order right.
Lubtalk has negotiated a surface rental agreement with the Richtersveld
Community comprising an annual surface rental and a monthly rental for the
factory facilities. A royalty of 1% is payable to the State.
History (T1.4)HISTORY (T1.4)
The discovery of the Lekkersing quartzites dates back to the early 1930`s.
Diamond Quartzite Holdings (Pty) Limited began commercial exploitation in
1965 and the company was terminated in the late 1970`s. During the 1970`s,
quartzite from Lekkersing was very successfully marketed in both England and
Holland.
In 1983, the Namaqualand Quartzite (Pty) Limited, Allied Quartzite (Pty)
Limited and Richtersveld Quartzite Company (Pty) Limited were formed (the
latter two held the mineral rights and mining licences). These were sold in
1984 to Nama Quartzite (Pty) Limited (Nama Quartzite).
Geological Setting (T1.5)
The Lekkersing quartzite deposits occur in a quartzite horizon, the
Lekkersing Formation, belonging to the Stinkfontein Subgroup of the Gariep
Supergroup. The formation consists of two quartzite horizons separated by and
overlain conglomerate units. Sediments of the Stinkfontein Subgroup were
deposited during the Pre- Cambrian Namibian era (approximately 900ma years
ago) in a shallow marine environment.
The Lekkersing area occupies the upper near horizontal limb of a major
regional asymmetric fold verging east. The main fold axis is orientated north-
northeast to south-southwest, gently plunging in a south-southwesterly
direction.
The main axial plane is generally parallel to the upper limb resulting in the
bedding planes being very regular, unfolded and therefore always parallel.
The Lekkersing quartzite is a whitish, laminated micaceous quartzite which is
generally recrystallised, with muscovite mica on the bedding-planes giving
the surface an attractive silvery appearance with a vitreous lustre. The
quartzite is a metamorphic assemblage of quartz (96-98%), mica (2-3%) and
trace amounts of iron, aluminium and titanium.
The quartzite is made up of well-sorted, medium to coarse silica grains and
is slightly porous with a high compressive strength. The high mica content in
the micaceous layers allowed for easy separation of layers and therefore good
recovery of quartzite slabs at depths exceeding 30m below surface.
The dominant structural feature that has significant influence on the mining
and recovery of quartzite is the well-developed joints present in the
quartzite (Cosi, 1994). Cleavage predominantly follows the layering of
primary sedimentary bedding planes dipping 35 to 45 on a bearing of 290 west-
northwest. In the weathered zone near the surface, cleavage planes have been
accentuated by weathering and are particularly enhanced by the limonitisation
along the mica rich layers.
Good exposures of laminated grey quartzite outcrops occur in the excavations
of the main quarry. Cross bedding layers are relatively even in thickness and
display fairly smooth surfaces. Sterile bands of greywacke approximately 150m
wide run north-south across the flat bedded quartzite.
At Lekkersing the best quality quartzite is obtained from the beds that
exhibit bedding with a pronounced lamination, the planes of which are from
approximately 2.5mm to 80mm apart.
Mica rich layers tend to enhance the cleavability of the quartzite and
therefore the recovery of good quality cleft stone. The uniqueness of the
deposit lies in the nature and quality of the flat-bedded quartzite,
traditionally referred to as flagstone.
The quartzite slab exhibits a very uniform thickness and sufficient hardness
to allow the production of high quality natural tiles at a very low cost.
These factors render the Lekkersing quartzite highly suitable for the
manufacture of a range of products by the processing facility on site.
Mineral Resources and Mineral Reserves (T1.6)
The Lekkersing Quartzite deposit is considered to be a mineral resource,
being an occurrence of economic interest in such form, quality and quantity
that there are reasonable and realistic prospects of quartzite extraction for
the market. The location, quantity, grade, continuity and other geological
characteristics of this mineral resource are known, estimated from specific
geological evidence and knowledge.
At Blommyn Quarry, Lekkersing Mine, the quarry and immediate surroundings was
identified by Creo Design and classified into the following Measured Mineral
Resource, for which tonnage, densities, shape, physical characteristics, and
grade were estimated below
MINERAL RESOURCE CATEGORY TOTAL VOLUME (m3)
Measured 418,332
Indicated 16,804,668
These parameters were determined from exploration, sampling and testing of
material from locations spaced closely enough to confirm geological and grade
continuity.
The method used to estimate volumes of the deposit was a combination of
geostatistical calculations of the historic mining yield and surface mapping
of the deposit. The quartzite outcrop was surveyed in terms of the surface
exposure of the quartzite and in the case of the indicated resource, the
assumption was made that the quartzite body maintains the same degree of
structural deformation and weathering throughout. Recent boreholes have added
additional confidence to the resource.
For a centralised mining operation in an area with a proven history of
sustainable quartzite production for the market, the Blommyn Quarry was
identified as an area close to the existing processing facility and with the
prospects of a reasonable life-of-mine. A 50m x 50m strike-orientated and
borehole grid of twelve drilling positions were laid out and drilled east-
southeast of the existing workings, in order to establish continuity of the
quarry deposit with the aim of declaring a Mineral Resource suitable for a
substantial life-of-mine. A Mineral Resource Statement was prepared on the
quartzite deposit at Blommyn Quarry (part of Lekkersing Mine), using all
geological, drilling and mining data available as at end 2008 in accordance
with the SAMREC Code (2008) and updated to March 2010.
Since the mine is on care and maintenance no Mineral Reserves are declared.
Modifying factors (T1.7)
The modifying factors that were previously applied in the calculation of
economic:-
MODIFYING FACTORS AMOUNT AND EXPLANATION
Quarry Recovery % Losses of the in situ material
due to the mining operation is
approximately 65%. Dependent on
the condition of quartzite.
Process Recovery % Losses of the mined product at
the processing facility is
approximately 17%. Dependent on
the condition of the quartzite
and the specific final product
produced.
Mining\Treatment Costs (1,937)
(ZAR/m3/t)
Mining\Treatment Fixed (707)
Costs (ZAR/m3/t)
State Royalty 1% of sales
Tax Rate 28.00%
Valuation Approaches and Methods (T1.8)
Venmyn`s due diligence and valuation exercises are founded on the principles
of professional best practice as established by the Australasian Institute of
Mining and Metallurgy. Our personnel are also members of the various
regulatory bodies in South Africa that enable us to report to the SAMREC Code
under the auspices of the South African Institute of Mining and Metallurgy.
Venmyn has based its Mineral Asset Valuation of the Lekkersing Mine on the
Cash Flow Approach generating a value range for the Lekkersing Mine based on
the value in use principle which requires determination of the present value
of future cash flows over the useful life of the Mineral Asset.
This has then been compared with the Historical Cost Approach.
Valuation Date (T1.9)
17th May 2010
Valuation Summary and Conclusions (T1.10)
The historical cost, as presented by Absolute was ZAR17.564m as an
acquisition cost and ZAR9.493m as development costs, giving a total of
ZAR27.057m. Given that the mine has since been placed on care-and maintenance
only 70% of that value is considered as the current value or ZAR18.94m.
Venmyn had calculated a "Fair Value" for the Lekkersing Mine of ZAR90.3m
using a real discount rate of 15% and a production rate of two times at the
proposed mine rate (base case) in December 2009. Varying the mine production
and discount rates, resulted in a range of indicative cash flow "Fair Values"
as outlined in Table below
ESTIMATED VALUE (ZARm)
PRODUCTION FACTOR DISCOUNT RATE
Production 80% 90% 100% 110% 120%
Levels
Discount 10% 88.1 104.3 120.5 136.8 153
Rate
15% 65.7 78 90.3 102.6 114.9
20% 51 60.6 70.3 80 89.6
This cash flow valuation generated ZAR90.3m. At this stage, the value could
be assessed as 20% of the original ZAR90.3.m or ZAR18.06m until the mine
enters production again.
Clearly the adjusted historical cost and the cash flow valuation almost
coincide and a Fair Value of ZAR18.5m is considered reasonable for
Lekkersing.
Sources of Information (T1.11)
Information was supplied to Venmyn by Absolute and included:-
- the-annual financial statements for the period ended 30 December 2009;
- the production statistics (26 May to 28 October 2008);
- independent CPR on the Exploitation of the Quartzite Deposits at
Lekkersing, Northern Cape, prepared by Creo Design; and
- financial business (cash flow) model.
Previous Valuations (T1.12)
Previous Venmyn valuation 1st December 2008.
Competent Persons and Other Experts (T1.13)
Mr Andy Clay, M.Sc. (Geol), M.Sc. (Min.Eng.), Dip. Bus.M., Pr. Sci.
Nat.,MSAIMM, FAusIMM, FGSSA, IOD, AAPG, CIMMP.
Mr Johan Hattingh, Ph.D. (Geology) Pr.Sci.Nat.
The Competent Valuator reviewed and made use of a CPR by Dr Johan Hattingh
and Mr J.G. Botha of Creo Design.
Furthermore, the Competent Valuator had discussions with Mr. Marinus
Hesselink, industry specialist familiar with the Lekkersing Mine, with more
than 30 years of natural stone experience.
Competent Valuator (T1.15)
Mr Andy Clay, M.Sc. (Geol), M.Sc. (Min.Eng.), Dip. Bus.M., Pr. Sci. Nat.,
MSAIMM, FAusIMM, FGSSA, IOD, AAPG, CIMMP.
RANGE OF VALUES (T1.15
Range of values (T1.15)
The mine production rates, the post tax cash flows were changed, and
different NPV`s calculated for different discount rates generating a range of
"Fair Values" as outlined in the following table
ESTIMATED VALUE (ZARm)
PRODUCTION FACTOR DISCOUNT RATE
Production 80% 90% 100% 110% 120%
Levels
Discount 10% 88.1 104.3 120.5 136.8 153
Rate
15% 65.7 78 90.3 102.6 114.9
20% 51 60.6 70.3 80 89.6
At this stage, the value could be assessed as 20% of the original ZAR90.3.m
or ZAR18.05m until the mine enters production again.
The Historical Cost value is ZAR18.94m with a preferred value of ZAR18.5m.
Identifiable Component Assets (ICA) Values (T1.16)
The process facility and mine is a single unit since sales from the
Lekkersing mine will be based only on the finished products and no rough
blocks or run-of-mine material is sold. Consequently, no separate
identifiable Components Assets exists within the Lekkersing Mine.
Historical Verification (T1.17)
Historic production figures as supplied by Absolute indicate a total of
4,650m2 of tiles were packed since commencement of production on 26th May
2008 till 28th October 2008. This amounts to only 6.0% of the first year`s
projected production of 77,998m2. Since then it has been on care-and-
maintenance.
Market Assessment (T1.18)
In recent years, most dimension stone has been used in construction
applications. Product development includes not only new colours but also
finishes and materials in addition to granite and marble.
Total world production of natural stone in 2001 was almost 69Mt of raw
materials (22Mt from Europe and 27Mt from Asia), with Asia being the biggest
natural stone producer in the world. South Africa`s production of natural
stone in 2001 was estimated to be 8.7Mt (ZAR724.8m). Italy was by far South
Africa`s leading customer, taking 26% by volume (28% by value) of exports.
The Department of Minerals and Energy conducted a review of the dimension
stone industry in 2002 and concluded with the following on slate and
quartzite. "The South African stand at the Marmomacc Dimension Stone
Exhibition in Verona (September 2001), received a number of enquiries on the
availability of good quality slate and quartzite and thus it appears that
there is good export potential for slate and quartzite"
Quartzite from Lekkersing shares some of the physical characteristics of the
American, Norwegian and Brazilian quartzites whilst having the advantage of
substantial supply from vast resources and lower inputs costs. The threat
from China and India in terms of pricing is offset by a poorer quality of
supply.
Over the past five years there has been a tremendous swing away from
modernistic architecture towards a more neo-classical type of architecture
that favours the use of natural looking stone. A more humane and
environmentally orientated architecture is being strived for globally.
The management team have regularly attended the major international natural
stone and tile trade shows and have gained exposure to all of the major
industry players. One of the biggest problems buyers face is reliability and
consistency of supply. Credibility will only be attained through service and
delivery.
Audits and Reviews (T1.19)
The Competent Valuator is not aware of any audits or reviews of the Mineral
Asset Valuation.
MR. ANDY CLAY
M.Sc.(Geol), M.Sc.(Min. Eng.), Dip.Bus.M., Pr.Sci.Nat., MSAIMM,
FAusIMM, FGSSA, IOD, AAPG, CIMMP.
MANAGING DIRECTOR (Venmyn)
MS. CAROL. TAYLOR
B.Sc.Hons (Geol),
Pr Sci Nat, MGSSA, MGASA,
MINERAL PROJECT ADVISOR (Venmyn)
Johannesburg
25 May 2010
Sponsor
Arcay Moela Sponsors (Proprietary) Limited
Date: 25/05/2010 15:22:01 Produced by the JSE SENS Department.
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