Nomura Initiaties Gold

A new era for gold producers
Initiating coverage of the European

gold sector with a Bullish rating

In this Anchor Report, we undertake a detailed analysis of gold
market supply/demand fundamentals. We conclude that the gold
price should stay elevated with significant upside risks through 2015,
translating into a new era for gold producers.

A cash build in the producers should drive growth, spur M&A and
push dividends higher. This improving outlook has yet to be priced
into gold equities, which are trading at historical lows in terms of
valuation, offering an attractive entry point given current market
instability. We see light at the end of the tunnel for gold equity
investors.

We initiate coverage of six European gold equities. Our top picks are
Randgold Resources, African Barrick Gold and Avocet Mining.
Key analysis in this report includes:
x Proprietary scenario analysis on central bank demand for gold.
x A review of shifts in the aggregate global gold producer income
statement and balance sheet.
x How this new era translates into stock-specific opportunities
within the European gold sector.

EQUI TY RESEARCH

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January 18, 2012
Research analysts
European Metals & Mining
Tyler Broda, CFA NIplc
tyler.broda@nomura.com
+44 20 7102 4770
Jonathan Wright NIplc
jonathan.wright@nomura.com
+44 20 7102 7326
David Radclyffe NIplc
david.radclyffe@nomura.com
+44 20 7102 8434
Juho Lahdenpera, CFA NIplc
juho.lahdenpera@nomura.com
+44 20 7102 7450
Patrick Jones NIplc
patrick.jones@nomura.com
+44 20 7102 5486
Neil Sampat NIplc
neil.sampat@nomura.com
+44 20 7102 1871
Ashraf Khan
ashraf.khan@nomura.com
+91 22 3053 3231

Industry specialist
Matthew Kates
matthew.kates@nomura.com
+44 20 7103 1402
See Appendix A-1 for analyst
certification, important
disclosures and the status of
non-US analysts.

European Gold Sector Initiation
EUROPEAN METALS & MNNG

EQU TY RESEARCH

ANCHOR REPORT: A new era for gold producers
Cash build to usher in a new
era for gold equities

January 18, 2012
Sector view
Remains
Bullish

Gold prices to stay elevated for longer
Gold prices have risen substantially over the past 10 years. Market
expectations of future price movements are extremely varied at the
moment as multiple uncertainties in the global financial system provide the
potential for large swings in demand.
Our analysis suggests that gold prices are well supported at current levels
as paradigm shifts in central bank and investment demand alongside
constrained supply are likely to provide elevated prices beyond 2014.
High profitability to persist for gold equities
mportantly for gold equities, high levels of profitability are likely to be
sustained. The resultant cash build within the global gold equity balance
sheet is likely to usher in a new era for the gold equities as increased
dividends, higher valuations for growth potential and valuation tension from
an expected pickup in M&A provide the basis for a rally in the gold mining
sector.
Gold equities look attractive in current equity market
Gold equities have underperformed gold bullion over the past five years.
Sector P/E and EV/EBTDA ratios are near 20-year lows. We believe this
is about to change. ncreasing market expectations of higher longer-term
gold price forecasts, cash margins above USD 1,300/oz and a 15%
average 2013 free cash flow yield for the companies analysed herein
should increase investor interest in the sector. This new era of elevated
profitability and cash flow should see gold equities outperform gold bullion
once again.
Top picks: Randgold Resources, African Barrick Gold & Avocet Mining
Our recommendations are built around these emerging themes. The
European gold equity sector consists of generally smaller companies and
is an eclectic group from a global perspective; however, we believe there
are some intriguing opportunities. Our top picks included in this report are:
Randgold Resources (RRS, Buy, 9,850p TP), in our view, offers the best
exposure to diversified growth and the purest exposure to the gold price
of the companies included in this report.
African Barrick Gold (ABG, Buy, 750p TP) is likely to see its very
significant cash build continue, and we believe the shares possess an
as-yet-unpriced strategic optionality within its strong balance sheet.
Avocet Mining (AVM, Buy, 310p TP) has a significant medium-term
growth profile and catalysts, and could benefit from increasing M&A
activity in the sector.

Research analysts

Tyler Broda, CFA - NIplc
Tyler.Broda@nomura.com
+44 20 7102 4770
Jonathan Wright - NIplc
+44 20 7102 7326
David Radclyffe - NIplc
+61 2 8062 8434
Juho Lahdenpera, CFA - NIplc
+44 20 7102 7450
Patrick Jones - NIplc
+44 20 7102 5486
Neil Sampat - NIplc
+44 20 7102 1808

Industry specialist
Matthew Kates - NIplc
+44 20 7103 1402

See Appendix A-1 for analyst
certification, important
disclosures and the status of
non-US analysts.
Nomura | European Gold Sector nitiation January 18, 2012

2
Contents

3
Executive summary
5
Company summaries
8
A longer-term perspective on gold
11
Forecast gold prices
12
Supply
17
Demand
25
A new era for gold equities
30
European sector review
34
RRS Randgold Resources (Buy, 9,850p TP)
44
AVM Avocet Mining (Buy, 310p TP)
52
ABG African Barrick Gold (Buy, 750p TP)
64
CEY Centamin (Neutral, 120p TP)
72
POG Petropavlovsk (Reduce, 860p TP)
82
POLY Polymetal International (Reduce, 1,400p TP)
92
SA US Seabridge Gold (Buy, USD 31.80 TP)
101
Appendix A-1

Research analysts

Tyler Broda, CFA - NIplc
Tyler.Broda@nomura.com
+44 20 7102 4770
Jonathan Wright - NIplc
+44 20 7102 7326
David Radclyffe - NIplc
+61 2 8062 8434
Juho Lahdenpera, CFA - NIplc
+44 20 7102 7450
Patrick Jones - NIplc
+44 20 7102 5486
Neil Sampat - NIplc
+44 20 7102 1808

Industry specialist
Matthew Kates - NIplc
+44 20 7103 1402


3
Executive summary
Our Bullish sector view is built on three key premises.
The current gold price is well supported and should continue
to rise in the medium term
Secular Asian demand growth, low and/or negative real interest rates, increasing central
bank demand and potential increases in investment sentiment indicate that demand
levels will grow. On the supply side, a lack of flexibility in near-term mine supply and a
levelling off of scrap gold supply is likely to continue to put upward pressure on the spot
gold price.
Our proprietary analysis suggests that central bank demand has the potential to grow
from virtually nothing to nearly half of the level currently seen by jewellery (which
accounts for 40% of the market). This, in conjunction with a potential wider shift in asset
allocation to gold, could see gold prices de-anchoring from current levels. We have used
relatively conservative gold demand forecasts in our overall estimates, leaving the gold
price with significant upside risk, in our view.
Our gold price forecasts remain near 2012 consensus at USD 1,788/oz, and slightly
above 2013 consensus at USD 2,063/oz. mportantly for the gold equities, we expect the
gold price to stay above 2010 levels through 2015 and expect long-term equilibrium
prices of USD 1,200/oz.
The strong gold price will likely result in a period of rapid
EBITDA growth and cash build for the miners
The aggregate industry EBTDA (based on the DS World Gold Mining ndex) is set to
reach USD 60bn by 2013 compared with the roughly USD 10bn generated in each of the
years between 2006 and 2009. This should translate into increasing cash balances for
producers. We expect dividends to grow, new expansion projects to progress and M&A
activity to also increase sharply. Net debt levels are already low (only two of the seven
companies in our coverage universe have net debt positions).
Cash heavy balance sheets have important implications for the sector. As seen in the
case of Eldorado Gold Corporation's recent bid for European Goldfields, M&A activity,
especially for growth ounces, is likely to increase, in our view. All of the companies in this
report are in a position to benefit from this trend either as acquirers, acquirees or both.
Gold equity valuations are at historical lows
Despite increased profitability and improved balance sheets, gold equities have
underperformed gold bullion since 2006 and are trading near 20-year lows in terms of
P/E and EV/EBTDA multiples. Even without recovery in sector multiples, the rapid
EBTDA growth to c. USD 60bn a year by 2013E (2011: c. USD 30bn), would imply a
significant increase in the enterprise value of gold equities over the next two years.
The producers have failed to participate in the recent gold price rally, with gold
increasing by 9% in 2011 as global gold equities fell by c.20%. The global gold P/Es
have averaged 23x since 2000, whereas the stocks now trade below a 2012E P/E of
15x, providing space for valuation uplift.
The current sector dividend yield is 1.0% and in recent years a number of companies
have announced new dividend policies. Assuming yields remain at current levels, FY13E
consensus dividends imply a global market capitalisation approaching USD 500bn or
nearly 50% upside potential.
On a P/NAV basis, all of our stocks, with the exception of Randgold, trade at below 1.0x
(at spot gold prices). We calculate an average implied price of USD 1,488/oz. This
implies that investors are not yet pricing in the full potential for gold prices to stay
stronger for longer.
We forecast gold producers to
achieve record levels of EBTDA
and net cash
Cash balances are likely to
translate into greater M&A
activity and higher dividends,
increasing equity valuations
Valuations remain low, despite
the high gold price and the
related earnings uplift
P/NAV multiples imply value at
current spot prices
We expect diversified demand
drivers to support the gold price

4
Fig. 1: Forecast gold price
Consensus gold expectations are varied
Source: Bloomberg, Nomura research

Fig. 2: Historical and consensus EBITDA and net debt
Gold producers are set for a period of rising EBTDA and rising cash levels
Source: Datastream

Fig. 3: Price to NAV
On average, the equities are trading at 0.8x based on the spot gold price and all except Randgold trade
below 1.0x
Source: Nomura estimates, using a 5% discount rate and spot gold prices of USD 1,640/oz

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Net debt EBTDA ($m)
$
m
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
Centamin Af rican Barrick
Gold
Avocet Mining Petropavlovsk Polymetal Randgold
Resources
P/NAV
Nomura gold price forecasts are
roughly in line with consensus in
each of the next four years
Forecast gold prices would push
global sector EBTDA to
USD 60bn by FY13E, with a
related build in net cash
Even given the recent fall in the
price of gold, the London-based
producers (with the exception of
Randgold) are still trading at a
discount to NAV; given the
potential upside to the current
gold price, the miners provide
excellent value, in our view

5
Company summaries
We see upside potential from current levels for all of the gold companies included in this
report. In our view, the increasingly compelling macro outlook for gold should provide
outperformance for gold equities as compared with the wider market. We see average
upside potential of 42% in our universe. Nomura uses a relative rating system, therefore
we have attempted to balance our ratings between those with higher upside potential
and those with lower upside potential or higher risks. Our top European
recommendations include Randgold Resources, African Barrick Gold and Avocet Mining.
Fig. 4: Company summary

Current prices as at close of 16 January 2012.
Source: Datastream, Nomura estimates
African Barrick Gold PLC (ABG LN, Buy, TP 750p)
Spun out of parent Barrick Gold in 2010, African Barrick Gold is an intermediate gold
producer with four gold mines in Tanzania. We estimate that the group produced
697,000oz of gold in 2011 at a cash cost of USD 692/oz. ABG trades at 0.6x our spot
gold P/NAV estimates, a valuation which, in our view, is hampered by the continued
production disappointments since its PO.
ABG has an exceptionally strong balance sheet and the group's strategic optionality
does not appear to have been priced into the current share price. We see 2012 as a
potentially transformational year for the group as high profitability and further cash
generation (we expect a free cash flow yield (FCFY) of 24% for the group by 2013)
should increase tension on a current slack market valuation. Nomura initiates on ABG
with a Buy rating and a 750p target price, which is equivalent to a P/NAV of 0.8x based
on our 2012 exit gold price forecast of USD 1,900/oz.
Avocet Mining PLC (AVM LN, Buy, TP 310p)
Now a pure-play West African junior producer, Avocet Mining is turning its full attention
to growth both at its current nata operations in Burkina Faso and its Guinean exploration
asset. We expect 2012 to provide continued positive catalysts as the group better
defines its growth potential, for which we believe there is significant upside potential.
We forecast that Avocet produced 164,000oz of gold in 2011 at a cash cost of
USD 706/oz. The shares underperformed the wider gold equity market in 2011. We
believe that the market has yet to price in Avocet's new exposure to the gold price
(following its renegotiation of hedge deliveries) or the potential, as disclosed in the 2011
interim results, to expand nata once again. Nomura initiates on AVM with a Buy rating
and a 310p target price, which is equivalent to a P/NAV of 0.9x based on our 2012 exit
gold price forecast of USD 1,900/oz.
Centamin PLC (CEY LN, Neutral, TP 120p)
Centamin is a growing junior-intermediate gold producer. t operates the 9.1moz Sukari
open-pit and underground mine in southern Egypt. t produced 202,000oz of gold at a
forecast cash cost of USD 572/oz in 2011 and our forecasts suggest higher production
will result from further plant and mining expansions in 2012.
Centamin's shares fell by c.50% in 2011 both owing to missed production guidance and
to the uncertainty generated by the Egyptian revolution. n addition, the company will
begin to see half of the cash flows accrue to the Egyptian government as per the
extraction licence, eroding forward EPS growth. The 35% upside potential to the target
price reflects the fact that the shares appear to be underpriced and oversold. However,
we believe that CEY will maintain higher-than-average risks through the Egyptian
election period and as such Nomura initiates on CEY with a Neutral rating. Our 120p 12-
month target price is equivalent to 0.5x our 2012 exit gold price forecast of
USD 1,900/oz.
Company Ticker Market cap Current price Rating Target price
2012e EBITDA
Nomura estimate
2012e EBITDA
Consensus median
2012e EBITDA
Consensus high/low
Randgold Resources RRS 9,988 7115p Buy 9850p 959 1019 946 - 1344
Polymetal P OLY 6,448 1100p Reduce 1400p 1,208 1195 933 - 1472
African Barrick Gold ABG 2,904 462p Buy 750p 665 713 613 - 1,066
Petropavlovsk P OG 1,952 685p Reduce 860p 570 608 372 - 971
Centamin C EY 1,498 89p Neutral 120p 307 310 148 - 362
Avocet Mining AVM 654 214p Buy 310p 109 104 75 - 126
Seabridge Gold SA 817 $19.23 Buy $31.80 n/a n/a n/a
n our view, ABG's valuation is
overly hampered by previous
production misses
Our analysis indicates that high
profitability and significant
strategic optionality is not being
captured in the current valuation
AVM has an aggressive growth
programme
Avocet shareholders have not
as yet benefitted from strategic
changes in 2011
CEY's main Sukari asset
continues to expand
Egyptian risk and low EPS
growth mitigate upside potential
from attractive valuation

6
Petropavlovsk PLC (POG, Reduce, TP 860p)
Petropavlovsk, a Russian intermediate gold producer, operates four open-pit hard rock
gold mines in Russia's Amur region supported by a promising growth profile. We forecast
that POG produced 624,000oz of gold at a cash cost of USD 762/oz in 2011. The main
production growth is likely to come from the POX Hub being built at Pokrovskiy. This hub
will process refractory ore and should open up a further avenue of growth for POG.
n our view, Petropavlovsk continues to have an attractive valuation and, although the
company has made significant progress in rationalising its targets, there remain
roadblocks in achieving a full re-rating in 2012, in our view. The relatively high net-debt
position, persisting Russian risk discount, the non-precious metal RC stake and general
declining mined grades should continue to place pressure on the P/NAV multiples as the
company moves toward commissioning of the POX hub in 2013. Nomura initiates on
POG with a Reduce rating and an 860p target price, which is equivalent to 0.7x our 2012
exit gold price forecast of USD 1,900/oz.
Polymetal International (POLY LN, Reduce, TP, 1,400p)
New to the FTSE 100 ndex, Polymetal is a leading Russian intermediate gold and silver
producer. t operates six mining complexes in Russia using a hub approach to rationalise
capital costs. Polymetal has one of the leading growth profiles of the London gold
equities and provides an interesting split to investors in context of its roughly 50-50
gold/silver exposure. We forecast that it will produce 1,006,000oz of gold equivalent in
2012 at an average cost of USD 752/oz.
Polymetal appears fully priced at the moment, in our view. t has outperformed the sector
since its London PO and now trades on our spot P/NAV estimate of 0.9x. Although there
are many positives, including the attractive growth profile, there are many delivery risks
that could put this premium rating under pressure in 2012. Nomura initiates on POLY
with a Reduce rating and a 1,400p target price, which is equivalent to a P/NAV of 0.9x
based on our 2012 exit gold price forecast of USD 1,900/oz.
Randgold Resources (RRS LN, Buy, TP 9,850p)
Randgold Resources' African growth story continues as production at the
Loulo/Gounkoto complex increases and the large Kibali open-pit and underground mine
in the DRC is built. We forecast that this intermediate gold producer produced 686,000oz
at a cash cost of USD 682/oz (excluding royalties) in 2011.
Randgold shares remain the most expensive in the London sector, as the company rates
highly on almost all categories including production growth, costs, diversification of risks
(both political and operational) and potential, as yet unpriced, NAV growth. Although the
shares are relatively expensive, Randgold's quality means that it is likely to give
investors the cleanest exposure to positive sector trends and maintain its multiple.
Nomura initiates on RRS with a Buy rating and a 9,850p target price, which is equivalent
to 1.7x our 2012 exit gold price forecast of USD 1,900/oz.
Seabridge Gold (SEA CN, Buy, TP USD 31.80)
ncluded in this report is a transfer of coverage update for Seabridge Gold. We maintain
the Buy rating and set a USD 31.80, 12-month target price (previously USD 51.00).
Seabridge Gold owns and is progressing the massive KSM gold-silver-copper-
molybdenum project and the Courageous Lake gold project in Canada.
Seabridge Gold provides perhaps the greatest relative exposure to higher gold prices, in
our view. The high expected capex levels for its main projects and its need for a partner
to progress these projects see the shares trade on a significant discount to its underlying
potential value. As gold prices increase, the probability of these assets being partnered,
financed and progressed should increase, reducing the discount in the P/NAV multiple.
We anticipate that KSM and Courageous Lake are unlikely to be in production until the
end of the decade (at earliest), and there remains significant uncertainty around
permitting, financing and development. A discount is, therefore, warranted.
However, investors will be able to gain long-term exposure to our new era for gold
equities theme as the Seabridge development story takes place. Our target is based on
a 0.4x P/NAV target price using our long-term gold price estimates and we note our
valuation is heavily risked for development and financing risks.
The POX hub at Pokrovskiy will
account for the main growth
from 2013
The attractive valuation will
continue to face headwinds, in
our view, in 2012
We expect Randgold's growth to
continue
A top-quality company that
provides the cleanest exposure
for growth-oriented gold equity
investors
Although not currently
producing, we believe that
Seabridge offers substantial
upside potential under our
forecast gold price
Polymetal is a solid company
with strong growth prospects
but, in our view, is fully priced

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Fig. 5: Valuation summary
Note: TB = Tyler Broda; DC = David Cotterell. Source: Datastream, company data, Nomura estimates

Analyst Rating Target Price Ticker Up(Down)side MktCap
P/NAV
@ spot EV/Prodn EV/Reserve EV/Resource '12e EPS '12e EBITDA
Gold (quote ccy) (quote ccy) Datastream % (U$m) (x) '11e, U$/oz U$/oz U$/oz U$ U$ 2010 2011E 2012E 2013E 2010 2011E 2012E 2013E 2010 2011E 2012E 2013E
Europe
Randgold Resources TB Buy 9850 7115 RRS 38% 9,988 1.5 13,932 583 337 6.85 959 95.4 26.9 15.9 12.9 58.2 16.6 10.0 8.1 -2.2 -0.7 -0.8 -1.3
Polymetal TB Reduce 1400 1100 P OLY 27% 6,448 0.9 9,201 487 258 1.99 1,208 21.5 16.6 8.8 4.8 18.2 11.5 6.0 3.5 1.7 1.3 0.4 -0.1
Polyus Gold Consensus NR NA 1054 RS:PYG NA 6,295 NA 4,282 74 55 4.14 1,214 18.8 10.1 8.0 nm 8.8 5.9 4.9 nm -0.4 -0.3 -0.2 nm
European Goldfields Consensus NR NA 769 E GU NA 2,161 NA nm 192 160 -0.12 22 nm nm nm nm nm nm nm nm 1.8 2.5 -2.6 -0.7
African Barrick Gold TB Buy 750 462 ABG 62% 2,904 0.6 3,137 120 75 0.13 665 13.3 9.9 8.0 5.4 5.2 3.9 3.3 2.4 -1.0 -1.3 -1.7 -1.9
Petropavlovsk plc TB Reduce 860 685 P OG 25% 1,952 0.8 3,966 272 107 1.47 570 96.6 6.6 7.2 3.9 10.3 5.0 5.0 3.2 0.8 1.1 1.6 1.1
Centamin plc TB Neutral 120 89 C EY 35% 1,498 0.4 6,704 301 187 0.20 307 28.0 7.7 6.7 5.5 16.1 5.4 4.0 1.7 -1.9 -0.6 -0.9 -0.9
Avocet Mining TB Buy 310 214 AVM 45% 653 0.8 3,467 431 144 0.33 109 43.8 39.9 10.0 6.2 6.6 6.5 5.2 3.6 0.3 -1.1 -0.4 -0.7
Global
Barrick Gold Consensus NR NA 49.44 C$ C:ABX NA 48,261 NA 6,537 307 172 5.81 10,404 14.5 9.9 8.3 7.4 8.6 5.7 4.9 4.7 0.5 0.3 0.3 0.3
GoldCorp Consensus NR NA 46.45 C$ C:G NA 36,714 NA 14,587 396 317 2.90 4,213 33.1 20.2 15.6 11.9 23.3 11.4 8.8 7.3 0.1 0.1 0.0 0.0
Newmont Consensus NR NA 63.39 U$ U:NEM NA 30,948 NA 6,026 322 317 3.14 6,773 16.5 14.0 10.6 10.3 6.2 6.0 4.6 4.4 0.1 0.1 0.1 0.1
Newcrest DC Buy 48.00 32.42 A$ A:NCMX 48% 24,817 NA 9,714 555 314 2.16 2,769 28.1 25.6 15.0 9.4 17.3 12.4 9.3 5.9 -0.2 0.3 0.4 -0.2
Kinross Gold Consensus NR NA 12.91 C$ C:K NA 14,332 NA 5,045 207 161 1.28 2,806 21.7 14.5 9.8 9.3 9.7 6.2 4.8 4.7 -0.7 -0.4 -0.3 -0.3
Yamana Gold Consensus NR NA 16.05 C$ C:YR NA 11,680 NA 10,382 387 270 1.22 1,621 25.7 16.1 12.8 10.0 12.7 8.8 7.3 6.1 0.2 0.1 0.1 0.1
Buenaventura Consensus NR NA 39.77 U$ U:BVN NA 10,932 NA 7,185 715 747 4.11 1,125 15.2 11.0 9.7 11.2 20.3 12.5 9.2 10.1 -1.2 -0.7 -0.5 -0.6
Eldorado Consensus NR NA 14.31 C$ C:ELD NA 7,704 NA 11,625 225 276 0.95 938 36.8 22.2 14.7 13.4 17.8 11.8 8.1 7.7 -0.3 -0.2 -0.2 -0.2
amgold Consensus NR NA 17.33 C$ C:MG NA 6,358 NA 6,407 371 207 1.43 990 22.3 13.9 11.8 10.1 9.8 6.6 6.1 5.3 -0.4 -0.3 -0.3 -0.2
Agnico-Eagle Mines Consensus NR NA 37.01 U$ U:AEM NA 6,317 NA 6,354 297 167 2.61 1,094 20.9 17.1 11.8 9.0 11.3 8.3 6.3 5.4 0.9 0.7 0.5 0.4
NewGold Consensus NR NA 10.76 C$ C:NGD NA 4,845 NA 11,809 490 300 0.67 468 43.8 22.8 15.7 11.8 21.1 14.0 9.8 7.5 -1.1 -0.7 -0.5 -0.4
Franco-Nevada Consensus NR NA 40.80 C$ C:FNV NA 5,509 NA n/a n/a n/a 1.50 424 76.6 36.9 26.5 23.8 27.6 15.5 12.0 11.3 -2.2 -1.3 -1.0 -0.9
Osisko Consensus NR NA 11.57 C$ C:OSK NA 4,353 NA 14,772 400 336 1.22 756 nm 141.1 9.3 9.6 nm 44.5 5.7 5.5 2.1 -0.7 -0.1 -0.1
Zijin mining Consensus NR NA 3.13 K$ K:FZM NA 2,421 NA not available not available not available 0.05 2,124 11.5 10.1 8.1 6.7 2.1 1.7 1.4 1.3 0.4 0.3 0.2 0.2
Semaf o Consensus NR NA 7.35 C$ C:SMF NA 1,958 NA 6,713 626 184 0.63 282 18.9 17.5 11.4 10.4 10.3 9.1 6.2 5.8 -1.2 -1.1 -0.7 -0.7
Zhaojin Consensus NR NA 12.70 K$ K:ZHAO NA 1,429 NA 2,395 199 101 0.13 651 25.2 16.4 12.6 12.6 4.8 3.3 2.5 2.4 0.5 0.4 0.3 0.3
Seabridge Gold TB Buy 3180 19.23 C$ C:SEA 69% 815 0.2 nm 17 12 -12.94 8 - nm nm nm nm nm nm nm nm nm nm nm nm
South Africa
Anglo Gold Ashanti Consensus NR NA 352 RR :ANGJ NA 16,496 NA 3,940 246 80 5.84 4,507 23.2 12.0 7.4 7.3 12.4 9.2 7.2 6.9 0.6 0.4 0.2 0.2
Goldfields Consensus NR NA 127 RR :GFJ NA 11,278 NA 3,552 164 46 2.42 3,640 28.7 11.4 6.4 6.6 7.5 7.7 5.5 4.8 0.7 0.6 0.4 0.4
Harmony Gold Consensus NR NA 97 RR :HARJ NA 5,127 NA 4,016 109 28 1.38 1,198 43.7 12.1 8.6 10.7 4.4 6.9 4.5 3.9 0.4 0.1 0.1 0.1
Median 6,472 301 172 25.2x 15.3x 9.9x 9.6x 10.3x 8.0x 5.8x 5.3x 0.1x 0.1x -0.1x -0.2x
Average 7,323 322 204 32.9x 21.6x 11.2x 9.6x 14.0x 9.9x 6.3x 5.3x 0.0x 0.0x -0.3x -0.2x
Nomura Precious Metals Valuation Summary 13/01/2012
P/E EV/EBITDA Net Debt / EBITDA

8
A longer-term perspective on gold
Ineffective global governmental and central bank responses to the financial crisis of 2008
and the related sovereign debt crisis are causing investors to rethink some of the
fundamental tenets of fiat currency systems. Associated with this, golds historical
position of importance has the potential to re-emerge, with many important
consequences for gold demand.
Gold has occupied a significant, yet constantly evolving place in the history of financial
markets. Gold coins were first minted in ancient times, beginning gold's tradition as the
ultimate store of value. The use of gold coins as a mainstream currency persisted until
the 16
th
century when significant discoveries of silver in Latin America saw a dual system
develop; with gold and silver competing for use in international and domestic trade. By
the early 18
th
century gold had re-emerged as the de facto monetary standard when
Britain set a gold/silver ratio that eventually relegated silver from significant use. By the
end of the 19
th
century most industrial countries adhered to a gold standard.
World War and its associated pressures on government expenditures saw the gold
standard end when major European countries halted the convertibility of their currencies
into gold. The gold standard was generally restored in the post-war years; however, this
return was short-lived, as leading economies once again suspended convertibility in
order to devalue their currencies in response to the Great Depression. The US remained
on a gold standard, although the 1934 Gold Reserve Act nationalised private gold
holdings and devalued the gold dollar.
The end of World War saw the implementation of what came to be known as the
Bretton Woods system, a two-tiered gold-exchange system where the US dollar was
backed by gold and all other currencies were pegged to the dollar. This lasted until 1971
when a combination of short-term pressures alongside the rise of German and Japanese
economic power caused US president Richard Nixon to end the gold standard.
Fig. 6: 40-year gold price chart nominal USD
A bull market rally that started almost 10 years ago
Source: Datastream, Nomura research

Fig. 7: US M1 money stock and rate of change
The current pace of monetary expansion in the US is near all-time highs
Source: Federal Reserve Bank of St. Louis, Nomura research

t has only been since 1971 that the world has shifted to a sustained, full-faith, fiat
currency system. Between 1980 and 2000 the gold price fell as economic prosperity and
contained inflation expectations led private investors, institutional investors and central
banks away from gold. The 2000s saw gold demand rebound as lower interest rates and
strong growth from Asian economies started a bull market that is ongoing today.
Nomura's Quantitative Research report, Why gold is cheap in Asia, dated 16 August
2011, on why Asian nominal income growth and not US CP has been the driver of the
gold bull market. t provides a crucial perspective shift in understanding that gold has
become a global commodity with global demand drivers and has been heavily influenced
by Asian economic growth.

0
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o
l
d

p
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/
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)

Gold Bullion LBM U$/Troy Ounce
-0.2%
-0.1%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0
500
1,000
1,500
2,000
2,500
Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10
U
S
M
1

m
o
n
e
y

s
u
p
p
ly

(
U
S
$
b
n
)

M1 Money Stock 52 wk rolling %weekly increase
The end of the Bretton Wood
system in 1971 saw gold-backed
currency replaced with a full
faith, fiat currency system
The past 40 years have seen a
fundamental shift in the nature
and location of gold demand

9
Gold has moved in and out of vogue many times over the past 100 years. Figure 6
provides perspective to the drop in gold prices that occurred at the end of 2011. A price
correction was arguably overdue, especially in the context of the cyclicality of certain
demand segments and the above-trend price increases in mid-2011. That said, our
analysis suggests that the forces that have pushed gold up by 480% in the past 10 years
are still in force and could well be exacerbated over the medium term.
Gold price appreciation has increased exponentially since the market stabilisation
following the initial impact of the 2008 financial crisis. Concerns around the stability of fiat
monetary systems in conjunction with exceedingly high sovereign debt levels are leading
investors to review alternative stores of value, increasing gold investment demand.
Gold certainly has a long and well-established pedigree when placed in the context of its
historical role in financial markets. We expect this re-emergence of gold as an asset
class to persist over the medium term even as the world emerges from the sovereign
debt crisis and continued shifts in the global economic landscape will see further shifts in
reserve currency systems.
This is likely to have important implications for the gold producers. Figure 8 shows global
P/E multiples for gold equities remain remarkably constrained despite the shift in gold
prices seen over the past 10 years.
Fig. 8: Global P/E for gold equities
Gold equities have not followed the gold price in valuation terms
Source: Datastream
The practical constraints of re-implementing a gold standard system after the financial
innovations of the past 40 years make a return to a Bretton Woods type system
unrealistic, especially when we consider the gold standard's lack of flexibility in
implementing Keynesian or monetarist economic policies. However, it is important in the
light of the current fragility of the world's financial system and the ongoing paradigm shift
with regard to the value of fiat currencies, to analyse gold from a broader historical
perspective. This time might not be different.
n addition to the paradigm shift questioning faith in fiat currencies and longer-term shifts
in world reserve currency systems; from a fundamental perspective, various longer-term
trends are supportive of the gold price including:
secular demand growth from Asia,
a lack of flexibility in medium-term mine supply growth potential; and
a shift in emerging market central bank attitudes toward gold as part of reserves.

0
5
10
15
20
25
30
35
40
45
Jan-92 Jul-93 Jan-95 Jul-96 Jan-98 Jul-99 Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11
12mth f orward PE
We expect that the increase in
the gold price since 2008 will
persist
Although a return to the gold
standard is unrealistic, fiat
currencies are under greater
scrutiny than ever before

10
Short-term volatility drivers
The exogenous risks are likely to favour gold prices, as well, in the context of a limited
response from near-term new mine supply. There are a number of factors that could
cause gold to trade above our estimates in the short term. These include:
the perceived threat from elevated inflation expectations from potential further
quantitative easing,
the potential for a lack of alternatives to the eurozone crisis, other than monetisation
of debt European Rates Insight: A multiplicity of risk factors into 2012, and
an increase in investor activity in an era with expected near-zero real interest rates.
The speed of the changing fundamentals within various sub-segment demand categories
will no doubt add volatility to the gold price. Current weakness in the ndian rupee has
seen ndian gold imports fall sharply. Financial system deleveraging can place pressure
on investment demand for gold, which tends to be a larger proportion of demand than for
other commodities.
Overall, our analysis suggests that the gold price remains well supported over the
medium term, albeit with potentially high volatility from the demand perspective causing
wide potential swings.

The gold price could see further,
and more profound, spikes in
the short term

11
Forecast gold prices
We continue to expect increasing gold prices into 2013 as the expected supply response
to the higher prices of the past few years underwhelms as compared with the positive
structural changes in demand.
Nomura's gold price forecasts remain near the upper end of the 2012 and 2013 estimate
ranges. However, as we have noted above, the supply side is relatively unprepared for
future unexpected demand shocks, and this could push the price much further along
trend and much higher than we are forecasting in our base-case estimates.
n 2012, we expect the gold price to stabilise following the year-end 2011 sell off as gold
continues to attract increased central bank demand, persisting demand growth from Asia
(in value terms) and below trend scrap supply growth.
Fig. 9: Nomura long-term gold price forecasts
We expect prices above 2010 levels over the longer term
Source: Bloomberg, Nomura estimates

Fig. 10: Consensus gold price forecasts
There remain considerable upside risks to our forecast
Source: Bloomberg, Nomura estimates

Fig. 11: Forecast supply and demand model
We expect the market to increase in size alongside the higher gold prices, but supply becomes constrained above forecast levels
Source: GFMS, Nomura estimates

0
500
1,000
1,500
2,000
2,500
2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Historical Nomura forecast
G
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S
$
/
o
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)
500
1,000
1,500
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3,500
2012e 2013e 2014e 2015e
Nomura High Mean Low
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(
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/
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)

2006 2007 2008 2009 2010 2011E 2012E 2013E
Supply
Mine production 2,481 2,472 2,408 2,581 2,688 2,794 2,988 3,005
Net central bank and MF sales 365 484 235 34 0 0 0 0
Scrap gold 1,133 982 1,316 1,695 1,651 1,679 1,949 2,105
Hedging 0 0 0 0 0 32 0 0
mplied disinvestment 0 0 58 0 0 0 0 0
Total supply 3,979 3,938 4,017 4,310 4,339 4,505 4,937 5,111
Demand
Jewellery 2,300 2,423 2,304 1,814 2,035 1,969 2,049 2,037
ndustrial and other 657 679 718 697 767 809 817 811
Net central bank and MF demand 0 0 0 0 77 336 750 800
Physical bar investment 237 244 645 531 859 1,065 953 823
Hedging 434 440 350 236 180 0 25 0
mplied investment 351 152 0 1,032 421 326 343 639
Total Demand 3,979 3,938 4,017 4,310 4,339 4,505 4,937 5,111
The current gold price is
supported by Asian secular
demand, a shift in central bank
attitudes to holding gold and
relatively inelastic supply

12
Supply
Gold is different from most commodities in the sense that the metal is not normally
'consumed' as it is used. Unlike a barrel of oil used in a vehicle or the wheat used to
make a loaf of bread, the precious nature of gold, its durability and its store of value
characteristics allow significant above ground stocks to exist. According to the World
Gold Council, over 165,000 tonnes have been mined in recorded history. The vast
majority of this gold is accounted for. This means that supply comes from not only from
new mine production and scrap gold, but also from shifts in net demand within multiple
categories of 'consumption'.
The nature of annual global gold supplies has changed over the past decade. Net
investment (new investment demand vs. previous investment sold back onto the market),
was persistently positive except for a brief period following the initial onset of the
financial crisis. Gold exhibits positive tail risk protection as discussed in this note from
Nomura FX research Why gold is cheap in Asia.
n 2009, central banks became net buyers of gold for the first time in years, removing
traditional sources of gold from the market. Central banks moving from supplying the
market to buying gold is a main paradigm shift that is revisited in the demand section
below. The end of the most recent MF gold sales programme of 403 tonnes announced
in 2009 has only solidified this trend.
Our analysis suggests these trends will persist over the coming years.
This leaves two main sources of gold supply in the current environment: new mine
production and recycled scrap gold (gold that has been returned to the market from
selling old jewellery and industrial products).
Mine production has stayed consistent over this period, accounting for 62% of total
supply in 2010 as compared with 67% in 2001. Higher prices have seen scrap gold's
contribution to supply increase from 19% of total supply in 2001 to 38% of total supply in
2010 (Fig. 12).
Fig. 12: Gold supply
Net central bank selling has stopped, leaving mine production and recycled scrap gold as main sources of
supply
Source: GFMS, Nomura research
The ability for gold supply to meet a further demand shock appears limited.
Mine production, after falling for most of the past decade, is increasing once again.
However, a lack of new, large-scale mines and the time frame required to find and
develop such projects are likely to place a cap on potential new mine supply in the
medium term. Higher prices are likely to drive unanticipated extensions to mine lives and
this will make certain currently uneconomic resources mineable, but this on the margin,
will not shift mine supply substantially in the near term, in our view.

0
1,000
2,000
3,000
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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
Mine production Scrap gold Net central bank and MF sales mplied disinvestment Hedging
G
o
l
d

(
t
)

Because it is not normally
'consumed', the supply of gold
comes from mining, recycling
and changes in net demand
Central banks are now net
buyers for the first time in years
Although increasing, mining and
recycling supply is unlikely to
meet additional spikes in
demand

13
Scrap gold supply has increased sharply on the back of the higher prices seen at the end
of the last decade. However, scrap supply figures in 2010 and 2011 have been lower
than expected, weakening a previously strong positive correlation between scrap supply
and gold prices. This suggests a potential exhaustion of available stocks or a change in
the relative utility of scrap gold from an investment perspective.
Despite the contained nature of the main supply increases, we forecast record aggregate
supply levels as higher prices elicit both higher levels of mine supply and scrap material.
n our view, however, the supply side from these two main categories is stretched and a
supply response would be limited were one of the various demand categories to exceed
projections.
Mine production
Gold mine production fell steadily last decade. Excluding a late decade surge in
production in 2009, production fell by an average of 1% per year during the 2000s. This
lost decade was driven by the low prices at the end of the 1990s, which saw structural
underinvestment in production capacity and exploration.
Fig. 13: Global new mine supply
Peak gold? Production is rising again, but for how long?
Source: Brook Hunt, a Wood Mackenzie company, Nomura research

Fig. 14: Expansion capital expenditure
Capital expenditure for expansions has not kept pace with the gold price
Source: Brook Hunt, a Wood Mackenzie company, Nomura research
The gold bull market starting in 2002, which has now seen prices increase by 480%, has
shifted the underlying dynamics for new mine supply. The persisting higher gold prices
have provided, what Brook Hunt expects to be, a new wave of production.
We have modified the costed Brook Hunt global mine supply forecasts (Fig. 13) to reflect
an estimate for global production to 2018. Fig. 13 shows production peaking in 2014 at
our adjusted estimate of 3,159 tonnes. t should be noted that this includes all lower
probability projects and could be viewed as a best-case estimate.
Brook Hunt notes that capital expenditure for new gold mine production hit a peak of
USD 8.5bn in 2008 and has since fallen (Fig. 14). We expect expansion capex to level
off at USD 5bn, although we would expect this to increase in conjunction with the
stronger balance sheets that are likely to build into 2012. The lack of recent near-term
capex begins to feed through after 2014, when production is expected to decline back
towards 2011 levels (Brook Hunt), suggesting that a structural medium-term shift in gold
demand cannot be met by new gold supply alone.
There is likely to be a response to the higher gold prices that is not captured in the above
estimates, and this could be significant in the longer term. High gold prices are likely to
increase the economics of previously discovered, but uneconomic deposits, and the
expected high margins will make smaller and less scalable operations, like the heap or
dump leaching of oxide material, more economic. The other expected outcome is likely
to be longer mine lives as current infrastructure is used to process previously
uneconomic near-mine deposits. These trends, in conjunction with a potential boom in
exploration and higher industry capital expenditure rates could potentially fill future
supply gaps. However, this would be a longer-term phenomenon and is dependent on
gold prices maintaining or exceeding current prices.

0
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5
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2
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1
6
e
2
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7
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8
e
adj possible adj probable adj base case adj operating mines
N
e
w

G
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d

m
i
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s
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(
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0.0
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7.0
8.0
9.0
10.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Capital expenditure Gold price
Peak production is 13% higher
than current levels
Capital expenditure for growth is
falling despite higher gold prices
Longer-term production rates
may be better than expected,
but this will not alleviate
expected medium-term tightness
Gold mine production is
increasing after falling for most
of the past decade

14
Fig. 15: Global mine production by country, 2000
Africa and North America were leaders a decade ago

Fig. 16: Global mine production by country, 2010
Asia and Latin America have seen the most growth
Geographical distribution of global gold production has stayed relatively similar on a
regional basis over the past decade (Fig. 15, 16), remaining one of the most diversified
commodities by production on a geographic basis. Thematically, Asia, Latin America,
Russia and Africa (ex-South Africa) have seen increasing production while South Africa,
the US and Australia and other developed countries have seen decreasing production
(Fig. 17).
Should gold prices remain high, we would expect this trend to persist. Average cash
margins for new projects are likely to provide a positive risk/reward outcome despite
higher political risks. This is particularly important for the European equity market where
African and CS-based assets constitute a significant part of the assets of the London-
listed gold companies.
Fig. 17: Key geographical shifts in gold production 2000-2010
Gold production is slowly shifting away from traditional producer countries.
Scrap gold
Recycled gold (from consumer consumption, mainly jewellery) accounts for 39% of our
2012 supply expectations. Scrap gold supply has increased markedly since the onset of
the 2008 crisis, and this has delivered scrap gold levels ahead of historical averages
when compared with gold price changes. However, data from 2010 and 2011 has seen
this relationship falter. Fig. 19 shows the relationship between annual gold price changes
and aggregate levels of scrap supply. We expect these forecasts to remain below trend
in the coming years.

1%
19%
14%
18%
25%
12%
11%
Europe North America Latin America Asia Africa Oceania Former Soviet Union
1%
12%
20%
25%
20%
10%
12%
Europe North America Latin America Asia Africa Oceania Former Soviet Union
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Africa ex-South Africa South Africa China
United States Russia Latin America
Australia
The European gold mining
equity market is skewed towards
African and CS-based assets

15
Fig. 18: Scrap gold supply by country
Asia and the Middle East have become leading scrap providers

Fig. 19: Scrap gold and the gold price
A higher gold price has meant higher scrap supply, but we forecast below
trend supplies in the coming years

There has been a divergence between scrap supply levels in emerging markets and
industrialised economies.
The emerging economies, owing to their rapidly-increasing consumption of gold
jewellery, have become more important in the scrap supply segment. ndia, the world's
largest jewellery consumer saw its scrap supply fall by 30% in 2010, and we expect
similar subpar figures for 2011. This is counterintuitive as the stock of potential emerging
market scrap stocks should be increasing with increasing gold jewellery consumption.
Looking at this another way, the return of scrap gold to the market falls along the similar
lines as the decision-making process for proactive gold investment; ie, not selling gold,
has the same net effect as buying gold. A wider shift in investment demand may perhaps
be weighing on historical scrap gold/gold price correlations a trend that could intensify
if a solution to sovereign debt issues includes substantial increases in USD money
supply.
n the industrialised world, difficult economic conditions have returned more scrap than
recent flow would have suggested, and this would be consistent with the deleveraging
ongoing among western consumers since the 2008 crisis. The net result is that the future
levels of available scrap supplies may perhaps be depleted to an extent, limiting scrap
gold's ability to meet new demand shocks.
Fig. 20: European jewellery demand vs. recycled scrap supply
The stock of jewellery available to return to the market has decreased as consumption falls
The risks to our forecast of moderate scrap supply response are partly dependent on no
large shocks hitting the fast-growing BRC economies. Economic hardship and growing
unemployment rates can increase the propensity for potential gold scrap to return to the
market in a fairly inelastic manner. This could reduce gold's potential as a perceived
safe-haven investment as this segment of the market does have highly cyclical
characteristics.
0
200
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600
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1,000
1,200
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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E
Europe North America Latin America Middle East ndian Sub Continent East Asia Africa Former Soviet Union
2006
2007
2008
2009
2010
2011E
2012E
2013E
y =735.03e
0.0005x
R =0.9045
0
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2,000
2,500
0 500 1,000 1 ,500 2 ,000 2, 500
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Scrap supply (t)
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
European gold jewellery consumption European scrap supply
Although developed economies
have seen increased scrapping,
2010 and 2011 have seen a
decline in scrap supply from
emerging economies
Assuming BRC economies
continue to follow the same
trend, available scrap supplies
from other sources may be
depleted

16
Producer hedging
Gold mining was a relatively unprofitable endeavour in the 1980s and 1990s. Tight
margins and a falling gold price left miners facing large capital expenditures with
uncertain long-term cash flows when analysing expansions. Raising equity funds was
difficult owing to these thin margins and as such, debt became a favoured financing tool.
The banks, however, needed certainty on margins and this led to substantial hedge
books being built.
The gold market rally in the 2000s and the emergence of alternative capital sources,
especially equity sources, reduced this reliance on hedging to build new capacity. Equity
investors strongly prefer unhedged exposure to the gold price through equities and
thematically over the past decade nearly all producer hedges have been delivered into or
bought out. This meant that producers had increased the annual demand for gold by
buying out hedges.
Fig. 21: Hedging annual impact on demand (supply) and total hedge book
A reduced global hedge book can no longer have a meaningful impact on demand, but we do not believe
hedging is about to return
With Anglogold Ashanti's closing of its 106 tonne hedge position in 2010, the global
hedge book is now fragmented and is less than 200 tonnes. Therefore, producer de-
hedging can no longer account for meaningful demand (as it has for the last 10 years).
We forecast that hedging impact on supply will stay near zero through 2013 as the cash
build in global producers provides the bulk of capital for expansions, via an internal
industry reallocation of cash. We expect that M&A will eventually group growth assets
with companies that have financial and technical resources to develop new projects.
However, a longer-term moderation of investment demand could see a turnaround in
gold price movements. n this scenario, we would expect hedging to return in some form
(albeit starting in a fragmented manner from low-cost, smaller production).

-500
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E
Annual impact Total hedge book gold
G
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(
t
We do not expect to see
demand for producer hedging in
the short to medium term

17
Demand
Gold demand has increased considerably over the past 10 years in value terms. The
market has grown from USD 34bn in 2001 to an estimated USD 240bn in 2011. n total
tonnes, however, this growth has been less pronounced; annual gold demand by volume
had actually stayed flat until 2009.
Our analysis suggests that demand in total volume terms will meet higher supply
resulting from higher prices. Although we forecast there will be more material on the
market, on balance, the main demand drivers and their exposure to further exogenous
shocks, should leave the price well supported, in our view.
Traditional sources of demand are jewellery, industrial demand (electronics, dental,
among others), and physical bar investment. A key change to the market has been the
emergence of net central bank buying. Emerging market central banks have been net
purchasers of gold since 2008, and the lack of desire to further erode the capital base of
central banks have seen sales through the CBGA agreement (Europe) come to an end
for the time being. This, in conjunction with a stronger implied investment category, may
well push the demand side out of balance with the supply side, resulting in higher prices.
Fig. 22: Segmental gold demand in volume terms
The aggregate level of gold demand has stayed constant, but has seen
shifts towards investment demand

Fig. 23: Segmental gold demand in value terms
A weaker USD has contributed to the value uplift

As gold is priced in US dollar terms, a weaker US dollar (as seen at the start of last the
decade) helped to kick-start the gold rally. Since 2008, however, this relationship has
broken down somewhat. Although there are insufficient data points for true statistical
evidence, the charts below show that this relationship has directionally weakened as the
R in the past 16 quarters is lower than the negative correlation between 2000 and 2008.
Notably, in recent periods, only two quarters in the past 10 quarters in which the dollar
has strengthened, has the gold price declined (this includes Q4 2011 when the gold price
saw its most recent correction).
Fig. 24: Gold vs. DXY 1980-2011

Source: Bloomberg

Fig. 25: Gold vs. DXY 2000-2008
Source: Bloomberg

Fig. 26: Gold vs. DXY 2008-2011
Source: Bloomberg

0
1,000
2,000
3,000
4,000
5,000
6,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
Jewellery ndustrial and other
Physical bar investment Net central bank and MF demand
Hedging mplied investment
70
75
80
85
90
95
100
105
110
115
120 0
50
100
150
200
250
300
350
400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
Jewellery ndustrial and other
Physical bar investment Net central bank and MF demand
Hedging mplied investment
G
o
l
d
d
e
m
a
n
d

(
U
S
D

b
n
) D
X
Y

(
i
n
v
e
r
t
e
d
)
y = -0.6363x + 0.0106
R = 0.1848
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%
G
o
ld
p
r
ic
e
c
h
n
a
g
e

DXY(USD/oz)
y = -0.6852x + 0.0299
R = 0.227
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
G
o
ld
p
r
ic
e
c
h
n
a
g
e

DXY(USD/oz)
y = -0.2227x + 0.0421
R = 0.0529
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-10.0% -5.0% 0.0% 5.0% 10.0% 15.0%
G
o
ld
p
r
ic
e
c
h
n
a
g
e

DXY(USD/oz)
We believe that the current gold
price is well supported by
demand

18
Perhaps more importantly for gold demand (especially for gold demand for investment
purposes), is that real interest rates are expected by Nomura to stay low over the next
two years. Fig. 27 presents Nomura's main interest rate forecasts to 2014. A traditional
drawback to gold as an investment is the lack of yield that it provides. n times of higher
interest rates (but stabilised inflation expectations) gold performs poorly owing to its lack
of yield. n the near term, the dovish monetary policy stance of most global central banks
and below-trend growth expectations should allow the general investment climate for
gold to stay relatively positive over the next two years.
Fig. 27: Real interest rates in major economies
With the exception of China, real interest rates are forecast by Nomura to stay negative through 2013
Jewellery
The gold jewellery market is perhaps the most sensitive demand subsector to higher
gold prices. n volume terms, we expect demand from ndia and East Asia to stay
relatively level over the next three years as higher prices erode total volume demand
(Fig. 28). n dollar value terms, however, we expect both regions to continue along the
path of structural growth (ndia has averaged 26% annual increases since 2003, China
31%), with the caveat that the uncertain economic environment may provide short-term
volatility in the growth rates.
Fig. 28: Gold jewellery demand in total tonnage terms
Higher prices are reducing gold demand on a volume basis

Fig. 29: Gold jewellery demand in USD billion
Gold jewellery demand in dollar terms continues to be driven by ndia and
China
Our gold jewellery forecasts are based on an extrapolation of demand trends over the
past 10 years and then modified to account for Nomura estimates for individual country
GDP growth rates. What this does not allow for, however, is for our model to capture
significant shifts in sub-segment specific demand trends. Gold imports into China from
Hong Kong in recent months have risen well past trend levels according to the Census
and Statistics department of Hong Kong. Media reports suggest that this is attributable to
a diversion of funds from the volatile property market or perhaps even PBOC buying.
The jewellery purchase decision can be tilted towards investment in an emerging middle
class and this could help to keep demand well supported if a wider positive shift in
investment demand is to occur owing to other global factors.
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2006 2007 2008 2009 2010 2011 2012E 2013E
US UK ECB China ndia
0
100
200
300
400
500
600
700
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
G
o
l
d
j
e
w
e
l
l
e
r
y
d
e
m
a
n
d
(
t
)
Europe North America Latin America Middle East Indian Sub Continent China
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
J
e
w
e
l
l
e
r
y
d
e
m
a
n
d
(
U
S
$

b
n
)
Europe North America Latin America Middle East Indian Sub Continent China
Low real interest rates will likely
support the attractiveness of
gold as an investment
Gold jewellery demand is largely
driven by ndia and China

19
Fig. 30: China imports of gold from Hong Kong
There has been a recent spike in the import of gold from Hong Kong into China
Source: Census and statistics department of Hong Kong, Nomura research
We do expect there to be volatility along this structural demand growth path. The
Bombay Bullion Association has reported that Q4 2011 gold imports into ndia fell by 125
tonnes or 56% y-o-y. The strong ndian Rupee has caused record gold prices in local
terms. The slowing ndian economy, falling inflation and the resultant increase in real
interest rates is likely to have contributed to this shift in imports. These trends could
continue into 2012 (and could perhaps extend through other emerging economies).
However, the total of 878 tonnes of gold imported in 2011, although down 9% y-o-y, is
still much higher than the 559 tonnes in 2009, especially when factoring in the 61%
increase in average gold prices. t should also be noted that shifts in fundamental
demand sub-categories, especially the cyclically exposed jewellery and industrial
categories, can cause the various investment categories to experience volatility. This can
cause near-term expectations on price to vary; however, in our view, despite the softer
Q4 imports, the longer-term global wealth transfer towards emerging markets, like ndia,
is likely to continue.
Central bank buying
Gold has traditionally held an important place within the balance sheets of central banks.
n the late 1990s, however, as gold prices reached their lows, many of the industrialised
world's central banks were reducing their gold holdings. Following a group of
unannounced sales by various central banks, and then the announcement by the UK that
it would sell the majority of its gold reserves, The Washington Agreement on Gold was
signed in 1999 between the US, the MF, the eurozone, Switzerland and Sweden
(CBGA).
Fig. 31: Top central bank gold holdings
The gold held in the central banks is mainly held by US and Europe
Source: World Gold Council

800
1000
1200
1400
1600
1800
2000
0
20
40
60
80
100
120
S
e
p
-
0
9
O
c
t
-
0
9
N
o
v
-
0
9
D
e
c
-
0
9
J
a
n
-
1
0
F
e
b
-
1
0
M
a
r
-
1
0
A
p
r
-
1
0
M
a
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-
1
0
J
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-
1
0
J
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A
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-
1
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S
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p
-
1
0
O
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-
1
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N
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v
-
1
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D
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c
-
1
0
J
a
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-
1
1
F
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b
-
1
1
M
a
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-
1
1
A
p
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-
1
1
M
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-
1
1
J
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-
1
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J
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-
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1
S
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p
-
1
1
O
c
t
-
1
1
N
o
v
-
1
1
mports (000 kg) Gold price ($/oz)
0
0
0

k
g
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Top 10 holders of gold
Central banks are now net
buyers of gold for the first time in
years

20
The CBGA was agreed to manage the sales of gold from central banks to mitigate the
risk of large price impacts on remaining gold reserves, hence ensuring greater stability in
the international financial system. The agreement set out the total tonnage that was
allowed to be sold by signatories over a set period, initially 400 tonnes per year for five
years. The agreement stated that gold "will remain an important element of global
monetary reserves. Notably, this took the form of a "gentlemen's agreement and is not
subject to international treaties. Through the past 10 years, and via a second and now a
third Washington agreement, a steady level of signatory selling occurred. The price
impact on gold was generally limited as was borne out by increasing prices in the 2000s.
Net central bank selling has now become net central bank buying. This shift is important
and its impact on the overall market dynamic should not be overlooked, in our view.
European sales under the CBGA 3 (mid-September 2009-2011) have amounted to 12
tonnes as the eurozone sovereign debt crisis has hamstrung central banks from eroding
their balance sheets further. The end of the MF's sale of 400 tonnes of gold in
November 2010 has also removed a source of supply, further shifting the aggregate
central banks category towards demand.
Fig. 32: Net central bank selling
Our forecasts suggest that central banks will become key buyers of gold in the coming years
Source: World Gold Council, Nomura estimates
There is a general divergence between the levels of gold held by central banks in
developed and emerging markets. Developed countries' central banks tend to hold gold
from an era where reserves were held both in US dollar and in gold (prior to the end of
the gold standard). Emerging economies by contrast have largely generated their
reserves over the past 40 years in the modern US dollar reserve currency system (and
notably post gold standard). EM central banks have far lower gold holdings as a
percentage of total US dollar reserves (c.5%).
Recent data suggest that emerging market economies are increasing their asset
allocation of reserves to gold. Fig. 33 provides the notable net changes in 2011 led by
Mexico, Russia and Thailand.
Fig. 33: 2011 changes in gold holdings
Multiple emerging market central banks have been buying significant amounts of gold
Source: World Gold Council Nov. estimates

-1,000
-800
-600
-400
-200
0
200
400
600
800
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
Net central bank selling
G
o
l
d
(
t
-40
-20
0
20
40
60
80
100
120
M
e
x
ic
o
R
u
s
s
ia
T
h
a
ila
n
d
K
o
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e
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B
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liv
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O
t
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T
a
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is
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a
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C
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m
b
ia
S
r
i
L
a
n
k
a
P
h
ilip
p
in
e
s
Net purchases (tonnes)
Emerging market economies are
increasingly looking to diversify
their reserves by buying gold

21
The recent bilateral currency agreement between China and Japan, which will promote
direct yuan-yen trade and will see Japan hold yuan in its foreign currency reserves for
the first time highlights the emergence of potential alternatives to the US dollar in regards
to its status as a global reserve currency. n our view, the longer-term uncertainty in
regards to how this will develop as emerging markets continue to grow (according to
The Economist, China is likely to eclipse US GDP by 2018), will see gold's re-emergence
as an international reserve persist.
To illustrate the potential impact of this shift in sentiment on the gold market, we have
run a scenario analysis that shows total demand for gold would be approximately 3,400
tonnes (total demand in FY11E is 4,505), if the 18 largest non-US/EU US dollar reserve
holders moved their allocation of gold to 10% of total reserves (note this is ex-China).
Fig. 34: Scenario analysis to increase gold holdings to 10% allocation
Significant purchases could come from multiple buyers

Source: World Gold Council
Notably, we have not included China in this scenario analysis. China is relatively unlikely
to shift from its current 1.7% gold allocation in a straightforward manner as this would
signal a lack of faith in its remaining USD 3.3trn in US dollar reserves. Were China to
merely maintain its 1.7% allocation in future years, based on the recent growth rates of
its reserves, China would need to purchase approximately 160 tonnes of gold a year.
Were China to increase its gold holdings to 10%, it would be required to purchase 5,146
tonnes of gold, or 113% of total global estimated annual demand.
The non-China, 3,400 tonnes of gold to be purchased amounts to 75% of a year's
demand (based on 2011E demand levels). Should a potential shift in gold asset
allocation levels occur in a rapid and unstructured manner, (ie, in the form of a shock to
the US dollar as a reserve, for instance), the buying would likely come from multiple
countries all looking to protect the value of its existing reserve position. n such a
scenario, the gold price would respond considerably, in our view. This aspect enhances
the tail risk protection of gold to counter potential US dollar stability concerns.
We are including under 25% of the above demand estimates (ex-China) for our global
net demand estimates for 2012 and 2013, and hence the risks to this demand category,
in our view, remains to the upside. The timing or rapidity of these changes is unknowable
at present, especially given the instability in the current market environment.
Net investment demand
The remaining gold demand consists of investment in physical bars and a range of
alternative products, including exchange traded funds (ETFs), medals and imitation
coins, and other financial products.
n the 40 years since the dissolution of the Bretton Woods system and its fixed price, the
geographical spread of gold demand has undergone a profound shift. n 1970, North
America and Europe accounted for 47% of the overall market (rising to 68% in 1980),
this has now fallen to 27%, with the ndian subcontinent and East Asia picking up the
majority of the balance (58% in 2010 vs. 35% in 1970).
0
100
200
300
400
500
600
700
800
900
Current holdings mplied increase
Gold demand has shifted east
over the past 40 years and is
now weighted towards the
ndian subcontinent and East
Asia

22
Fig. 35: Total gold demand is geographically diverse (2010)
Western investment demand is now below 50% of total
Source: World Gold Council, Nomura research

Fig. 36: Demand for physical investment in gold (2010)
ndia and China constitute 52% of demand for physical investment in gold
Source: World Gold Council, Nomura research

Physical investment
Rising income levels in emerging markets in particular in ndia and East Asia have
fuelled growth in demand for physical investment in gold (jewellery, bars, coins and
medals). n two of the fast-growing economies, ndia and China, gold is regarded as a
sign of prosperity and an integral part of religious ceremony, weddings and other
holidays (for example, the WGC has identified the Chinese New Year, the onset of Diwali
in October and weddings as typical occasions for gold purchasing). n the charts below,
we attempt to quantify this cultural affinity with gold in some developing markets, by
showing how a number of these countries have exhibited much higher gold consumption
than their GDP per capita would suggest. n 2009, for instance, demand for gold per
capita in China and ndia was roughly comparable with much more prosperous nations,
such as the UK.
Despite rising gold prices, this trend has actually accentuated in recent years with ndian
gold demand per capita rising from 0.49gm in 2009 to 0.82gm in 2010 to now account for
32% of the physical investment market (although this trend began to stall somewhat in
Q4 11). And in Q3 11, with global physical investment demand in tonnes stalling (overall
dollar demand continued to grow), two of the three markets that bucked this trend and
continued to grow were developing markets: China and Russia.
Fig. 37: 2009: GDP per capita (USD) vs. demand per capita
(mg)
Demand for gold per capita in China and ndia was roughly comparable
with much more prosperous nations, such as the UK
Source: World Gold Council, World Bank

Fig. 38: 2010: GDP per capita (USD) vs. demand per capita
(mg)
ndian demand per capita almost doubled in 2010. Demand in China and
Russia also increased
Source: World Gold Council, World Bank
Note: Demand includes all physical investment (including jewellery, but excluding the actions of central banks).
The regional dispersion of physical investment demand, its relative reweighting towards
'gold-friendly' emerging markets and growth despite rising prices support our assumption
that gold demand from physical investment will remain at or slightly below recent
historical levels despite continuing price pressure. Ongoing demand from developing
markets would constitute upside to this forecast; for instance, if Chinese consumption
continued to trend upwards and increase to the 0.82gm seen in ndia, this would imply
additional gold demand of 500 tonnes per annum.
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
nvest Jewellery Tech
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
ndia Greater
China
Other Europe ex
CS
US Middle
East
Turkey Vietnam Russia Thailand
ndia
China Thailand
ndonesia
Russia
United Kingdomtaly
US
South Korea
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
-0.10 - 0.10 0 .20 0. 30 0.40 0. 50 0.60 0. 70 0.80 0. 90 1. 00
ndia
China Thailand
ndonesia
Russia
United Kingdom
taly
US
South Korea
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
- 0.10 0.20 0 .30 0. 40 0.50 0 .60 0. 70 0.80 0 .90
Many of the countries with the
fastest-growing economies have
a strong cultural affinity with gold
We believe that physical
investment demand will fall
slightly from recent yearly highs.
Ongoing demand from
developing nations is a source
of potential upside to this
forecast
Recent years have also seen a
rise in the purchase of gold for
investment purposes in these
markets; in 2010, annual bar
and coin demand increased by
60% in ndia and 72% in China

23
Alternative investment
The vast majority of alternative investments relate to ETFs (c. 350 tonnes in 2010).
Launched in 2003, the number of available funds and their holdings has increased
rapidly as investors have sought exposure to fluctuations in the gold price through these
equity vehicles.
Fig. 39: All known gold ETF holdings
Consistent retail buying of gold ETF products have helped support the gold price
At the end of 2011, gold ETFs held around 2,360 tonnes of gold, an increase of 171
tonnes in the year (343 tonnes over the same period in 2010). We expect that these
funds and other alternative investments will remain net buyers of gold through 2013,
although below the levels seen in 2009 and 2010 in tonnage terms owing to higher
prices.
Consensus gold price
Consensus estimates have consistently underestimated the price of gold, but are now
both more uniform and more bullish. Although commodity prices are notoriously difficult
to predict, over the last four years, actual gold prices have consistently been at the high
end of consensus forecasts. n addition, the chart shows that 2012 estimates are more
tightly grouped than in previous years with the c. USD 500 low, which persisted until
2011, moving to USD 1,500. This shift in near-term gold price estimates may help to
underpin gold equity earnings expectations from a volatility perspective.
Fig. 40: One-year forward gold price consensus estimates
Actual gold prices have consistently been at the high end of expectations

0
10
20
30
40
50
60
70
80
90
Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
All known gold ETF holdings (moz)
0
500
1,000
1,500
2,000
2,500
2008 2009 2010 2011 2012
High Mean Low Actual
G
o
l
d
p
r
i
c
e

(
U
S
D
/
o
z
)

Having increased holdings
profoundly in 2009 and 2010, we
expect a cooling off of demand
from ETFs in the next couple of
years
Having repeatedly
underestimated the price of
gold, the consensus estimates
are now more tightly grouped in
the USD 1,500/oz to
USD 2,000/oz range

24
Conclusion
n summary, we foresee a limited near-term supply response to structural medium- and
longer-term shifts in demand that lead us to believe that the gold price is well positioned
as we progress through 2012.
Gold's recent price increases have left certain market commentators branding gold
prices as a bubble. There is potential that a strong change in investment sentiment, in
the context of gold having high levels of near-market supplies could see the price of gold
fall below marginal cost. However, the charts below show that gold maintains a
respectable position as compared with both the S&P 500 and the MSC world index in
the context of historical levels. n addition, the gold market remains moderate as
compared with the global bond and equity markets in regards to absolute size.
n our view, significant shocks to the global financial system including a change in the
global reserve currency system, a significant geopolitical occurrence, a currency/trade
'war' or material increases in global inflation expectations could trigger gold to move
higher than its longer-term trend rate.
Fig. 41: Gold vs. S&P 500
Gold has persistently outperformed the S&P 500 and MSC world index in
the 40 years since the end of the gold standard

Fig. 42: Gold vs. MSCI world index


Fig. 43: Equity market vs. bond market vs. gold market
Despite rapid price increases gold remains only 5% of market assets (excluding property, etc)
Source: Bank of nternational Settlements, World Gold Council, Bloomberg, Nomura research

0
2
4
6
8
10
12
14
16
18
20
Gold v S&P 500
0
2
4
6
8
10
12
14
16
Gold v MSC world
45.4
52.0
54.1
93.9
91.0
99.6
5.8
7.6 8.2
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2009 2010 Jun-11
Equity MV Bond MV Gold MV
U
S
$

t
n

25
A new era for gold equities
Nomuras analysis suggests that: gold will maintain current prices and push through
recent highs; that equity valuations are low; and that the associated expected cash build
in the gold equities will enhance valuations for gold producers. We forecast that the
excess cash will be spent on a mix of new development, M&A and dividends, which
should tighten the recent disconnect between gold prices and gold equities.
Summary
Fig. 44: Spot gold price and WORLD-DS Gold Mining index
Gold and gold equities have performed well despite stalling since 2009
Source: Datastream

Fig. 45: WORLD-DS Gold Mining index vs. spot gold price
and the MSCI world index
Gold equities have been outperforming the market, but not gold
Source: Datastream

Since 2002, the Datastream World DS Gold Mining ndex has increased by 354%, while
the gold price has risen by 480%. n periods of rising gold prices, it would rationally be
expected that the gold equities should provide a higher return as the effect of operational
leverage is enhanced with increasing gold prices. Despite this, the index has still
outperformed the MSC World ndex over the same period. (The World DS Gold Equity
ndex is a Datastream index that calculates an indexed return for 53 gold-related
producers, developers and explorers, including many of the companies that are included
in this note. The index is not a total return index.)
The red line in Fig. 44 shows that, in general, gold equities outperformed the gold price
in the 1980s and early 1990s. Gold equities then underperformed in the late 1990s
before outperforming once more into the mid-2000s. Since 2006, gold equities have
underperformed bullion prices.
We note two major points from these charts:
1) the disconnect in relative price movements in the past five years between the gold
producer share prices and the gold price; and
2) the historical relative valuation levels between the gold equities and the MSC World
ndex.
Fig. 46: Gold bullion vs. world gold mining index (rebased 2011)
n 2011 gold equities did not match the performance of gold
Source: Datastream

0
500
1,000
1,500
2,000
2,500
3,000
J
a
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a
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a
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a
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8
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a
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9
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a
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0
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a
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9
1
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a
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a
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a
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a
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a
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a
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a
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a
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a
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-
1
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J
a
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-
1
1
J
a
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-
1
2
Gold Bullion LBM U$/Troy Ounce WORLD-DS Gold Mining - PRCE NDEX
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
J
a
n
-
8
2
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a
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a
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2
WORLD DS Gold index t o Gold Bullion World DS Gold ndex to MSC World ndex
60
70
80
90
100
110
120
130
140
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov -11 Dec-11
Gold Bullion Rebase World DS Rebased
Since 2006, gold equities have
underperformed bullion prices

26
The recent pricing disconnect was amplified in 2011. The gold price, even when
accounting for the end-of-year weakness, was up 9% y-o-y, while the gold producers
traded down 20% (Fig. 45).
Fig. 45 shows that the WORLD DS Gold index has outperformed the MSC World ndex
since 2000. t is notable that, despite 10 years of outperformance (which perhaps reflects
an element of catch-up after the weak relative performance in the late 1990s), that gold
equities are still trading below historical highs when compared with general equities.
Fig. 47: Global gold equity P/E
P/E ratios are near 20-year lows
Source: Datastream

Fig. 48: Global gold equity EV/EBITDA
EV/EBTDA ratios are at 20-year lows
Datastream
Looking at valuations from a P/E or an EV/EBTDA multiple basis, similar dynamics are
at work. Although P/E ratios of 20x are unarguably high compared with average non-gold
equity levels, gold equity P/E valuations are near 20-year lows. Gold equities tend to
trade at a premium owing to the lower correlations that gold has traditionally had with
economic cycles, a trend we expect will only be enhanced in the unstable market
environment. EV/EBTDA valuation metrics reinforce this trend as well.
Fig. 49: Global gold equity EBITDA
The rising gold price is already significantly changing the cash flow and
balance sheet of gold mining equities
Source: Datastream

Fig. 50: Global gold equity EBITDA and capex
The rapid increase in EBTDA has not been matched by capex.
Companies are now generating free cash flows that are far in excess of
anything see over the last 20 years
Source: Datastream
Figure 49 provides the DS World Gold Mining ndex aggregate EBTDA with forecasts
based on consensus estimates out to 2013. These forecasts suggest that on an industry-
wide basis, close to USD 60bn in EBTDA will be generated in 2013E, up from
~USD 10bn in 2006-09.
This noticeable increase in profitability is likely to have important implications for the sector.
1) ncreasing balance sheet strength will, in our view, increase M&A activity.
Recent transactions including the Eldorado Gold Corp bid for European
Goldfields has provided an early example of potential activity. We see Avocet
Mining, Randgold Resources and Seabridge Gold benefitting most from this
trend. Additionally, in our view, African Barrick Gold is perhaps closest to
making an acquisition and the net result of a changed investment proposition
may also change sentiment surrounding the stock.
0
5
10
15
20
25
30
35
40
45
Jan-92 Jul-93 Jan-95 Jul-96 Jan-98 Jul-99 Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11
12mth f orward PE
0.0
5.0
10.0
15.0
20.0
25.0
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
EBTDA ($m)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
EBTDA ($m)
Capex ($m)
The pricing disconnect between
gold bullion and gold equities
has grown during 2011
Gold equity P/E and EV/EBTDA
ratios are near 20-year lows
EBTDA is set to rise to
USD 60bn by 2013E from
around USD 10bn in 2006-09

27
2) Excess cash will see development projects progress and exploration increase,
leading to a potential medium-term supply side response. n the near term,
however, we believe this will favour companies with high potential growth
characteristics. This would suggest that on a relative basis that the P/NAV
multiple for companies such as Randgold, Avocet, Polymetal and Petropavlovsk
would benefit the most.
3) A significant portion of cash will be returned to shareholders, in our view. This
should favour net cash positive companies with high free cash flow including
Centamin, Randgold Resources and African Barrick Gold.
Fig. 51: Global gold equity dividend yield
Source: Datastream
Fig. 51 shows that the consensus 2011 sector dividend yield is running just below 1%.
Consensus dividends for the WORLD DS index for FY13 are roughly USD 4.6bn. At a
dividend yield of 0.9% (2011), this would imply a market capitalisation of USD 489.0bn or
47.2% upside to existing prices. Notably consensus average 2013 gold forecasts are at
USD 1,937/oz. f gold prices increase, this would likely enhance potential sector upside
regardless of increased capital spending.
The disconnect between USD 60bn in EBTDA generation and the USD 4.6bn
consensus forecast for dividends suggest dividends are likely to come in ahead of
current consensus, in our view.
Fig. 52: Global gold net debt
With the exception of acquisitions by Newmont Mining and Barrick Gold,
which added a combined USD 10.6bn of net debt in Q3 11, sector net debt
has been falling since the start of 2009
Source: Datastream

Fig. 53: Global gold net debt to EBITDA
The net debt to equity ratio is forecast to become negative in 2013
Source: Datastream

The remaining cash should strengthen balance sheets. The large spike in Fig. 52 in
sector net debt in 2011 stemmed from the additions made by majors Barrick Gold
Corporation and Newmont Mining to finance their respective acquisitions of Equinox
Minerals and Fronteer Gold. Despite this, as would be expected at such high rates of
profitability, we expect sector net debt to fall rapidly. The sector as a whole is likely to be
in a firmly positive net cash position in 2013.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Dividend yield
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
Net debt ($m)
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
Net debt to EBTDA
Assuming dividend yield
remains at c. 1.0%, FY13E
consensus dividends implies
47% upside potential to existing
prices
EBTDA growth will likely
translate into considerable
amounts of cash

28
Our analysis suggests that profitability ratios (Figs. 54 and 55), which are already high,
will move higher, suggesting the sector is about to move into a period of super profit.
Owing to the shifts we have noted above in gold demand dynamics, and the delayed
time frame for which new gold projects can be discovered and built, in our view, this
excess economic profit situation could persist for some time. This is likely to encourage
investor interest as gold equity valuations retrace towards higher P/E and EV/EBTDA
multiples.
Fig. 54: Global gold return on equity
Return on equity is at a 10-year high and trending upwards
Source: Datastream

Fig. 55: Global gold net profit margins
Net profit margins are also at a recent high and set to increase further
Source: Datastream

The above analysis suggests that the increase in the gold price over the past 12 months
and the underlying shift in fundamental economics for the gold producers have yet to be
priced in. We expect that as gold prices persist at higher levels, investors will begin to
recognise the persisting sector cash build and the implications that this has on industry
structure. This will, in our view, have far reaching impact on valuations.
P/NAV multiples have compressed in line with higher gold prices but steady equity
prices. There remain valid reasons for this, in our view, including the emergence of ETFs
as a liquid and easily accessible alternative to buying mining stocks that are affected by
significant operational and political risks. n addition, longer-term forecasts for gold
remain compressed as uncertainty surrounding the macro environment is hampering
conviction in longer-term views. However, the disconnect has now grown too wide, in our
view, and we expect both P/E and P/NAV multiples to begin to retrace closer to historical
levels. ncreasing M&A activity could act as a catalyst, in our view.
The downside scenario
Despite what we believe to be a very well-supported, medium-term supply/demand
balance, since 2008, a higher proportion of gold consumption has been in the form of
investment demand. On balance, we see the potential for investment demand to
increase sharply depending on the progression of the many current macro uncertainties.
Although this will come with higher prices, and will, in our view, accelerate the above-
analysed valuation increases, the increasing proportion of gold held near-market means
that the volatility surrounding net investment demand, and hence gold price volatility, is
likely to increase.
-6.0
-4.0
-2.0
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Return on Equity
-15.0
-10.0
-5.0
-
5.0
10.0
15.0
20.0
25.0
30.0
Net profit margin
We believe that EBTDA and net
cash growth will lead to both P/E
and P/NAV multiples moving
closer to historical levels
The increasing proportion of
gold held 'near-market' means
that the volatility of net
investment demand will likely
increase

29
Fig. 56: Gold investment demand as a percentage of total demand
Since the 2008 financial crisis, gold demand as an investment has increased
Source: GFMS
n the longer term, this may become an issue for gold producers. As shifts in sentiment
tend to happen rapidly, a substantial shift from net investment demand to net
disinvestment (especially after the gold price has increased which raises the propensity
for profit-taking), could have a considerable impact on the gold price.
Because of the relative size of above-ground stocks, the price protection that normally
comes from the marginal cost of production will not necessarily be as robust as that for
iron ore and copper, for instance. n this scenario, rapidly-depleting profitability is likely to
see producers hedge what remaining profitable production they have as production costs
are rationalised (having grown well beyond historical levels). This hedging may
exacerbate the pressure on profitability.
Following this rationalisation, we would then expect prices to retrace toward marginal
cost levels, currently at c. USD 1,200/oz. Further affecting this, and dependent on how
long structurally higher investment is to persist, there may also be longer-term mine
overcapacity (however, this scenario is likely 5-10 years away, at best). Thankfully, gold
equity balance sheets are the strongest they have ever been, and are likely to increase
in strength over the coming years helping provide insulation, in our view.
t is difficult to judge whether this potential shift in investment sentiment will occur (if at
all), in the context of the structural changes occurring in our financial system. n our view,
the benefits to equity investors from near- and medium-term valuation increases
outweigh potential downside scenarios (which are longer-term in their nature), although it
is worth remaining cognisant of this potential should the sentiment towards investment
demand change sharply.
Figure 57 provides a cost curve for 2011 showing where production costs are globally.
Fig. 57: Cash cost curve
The six companies in our coverage universe are relatively grouped in terms of cash costs
Source: Brent wood (Q4 2011 estimates), Nomura research (FY11E)

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
Demand: nvestment
-500
0
500
1,000
1,500
2,000
Cash cost curve Analysed companies

30
European sector review
The European gold producer sector is generally made up of smaller intermediate gold
producers with greater exposure to political risk, in general, than the senior North
American gold producers. With this greater risk can come greater reward. However we
do favour West African exposure over the Russian companies for stock-specific reasons.
n this report, we initiate on the six London-listed gold companies below. Our top picks
are Randgold Resources, African Barrick Gold and Avocet Mining, which screen well
against our emerging themes from our top-down analysis, being: growth, cash flow and
potential to participate in a valuation uplift from increased M&A activity in the gold sector.
We see significant value in all of our non-Buy rated stocks in absolute terms, although in
relative terms we favour the higher upside potential in ABG and AVM and the lower risk
profile of RRS over the long-term attractive but risky CEY and the lower relative upside
potential from the Russian producers POLY and POG.
Fig. 58: European gold producers
Although we see value in all our stocks, in relative terms we favour the higher upside potential of ABG and AVM along with the lower risk offered by RRS
Source: Nomura estimates

Fig. 59: Target price upside potential
We like the upside potential on African Barrick and Avocet and the lower
risk offered by Randgold's diversification and size
Source: Nomura research

Fig. 60: Share price movements (indexed 03/2010)
Source: Datastream

The gold equities generally continue to price in valuation levels lower than the spot price
on an NAV basis (using a 5% discount rate), although the recent pullback in the gold
price from highs of USD 1,900/oz to now USD 1,640/oz has left the mispricing gap
marginally lower (suggesting that gold equity participants had in fact correctly anticipated
that gold bullion was ahead of short-term trend levels). That said, the disconnect
between spot P/NAV multiples and historical multiples of 1.0x or higher (as can also be
seen by the P/E and EV/EBTDA sector de-rating in Figs 47 and 48) persists in most
stocks except for the larger, and perceived higher growth, stocks of Randgold and
Polymetal.

Company Ticker Market cap Spot multiple Target multiple Current price Target price Potential upside Rating
African Barrick Gold ABG 2,904 0.6x 0.8x 462p 750p 62% Buy
Avocet Mining AVM 654 0.8x 0.9x 214p 310p 45% Buy
Centamin C EY 1,498 0.4x 0.5x 89p 120p 34% Neutral
Petropavlovsk P OG 1,952 0.8x 0.7x 685p 860p 25% Reduce
Polymetal P OLY 6,448 0.9x 0.9x 1100p 1400p 27% Reduce
Randgold Resources RRS 9,988 1.5x 1.7x 7115p 9850p 38% Buy
Seabridge Gold SA 817 0.4x $19.23 $31.80 65% Buy
65.4%
62.2%
44.9%
38.4%
34.5%
27.3%
25.5%
0%
10%
20%
30%
40%
50%
60%
70%
Seabridge Gold Af rican Barrick Gold Av ocet Mining Randgold Resources Centamin Poly metal Petropav lov sk
0
50
100
150
200
250
300
AVM LN Equity ABG LN Equity CEY LN Equity POG LN Equity POLY LN Equity
RRS LN Equity GDM ndex GOLDS Comdty SXXP ndex SPX ndex

31
Fig. 61: Valuation sensitivity to gold price
Generally attractive valuations at spot and our year-end prices

Fig. 62: Implied spot price at 5% discount rate
With the exception of Randgold, all of the valuations of our coverage companies imply a gold price below the spot price
The sector has de-rated as gold prices have increased and we expect that the cash build
and impending M&A as noted above could help to provide a re-rating for all gold stocks.
We note that global gold P/Es have averaged above 20x over the course of the bull market
that started in 2000 and that the London stocks all trade below a 2012E P/E of 15x.
Should the gold price stabilise at current levels (even disregarding the potential for
higher prices), we would expect that the London gold companies may well see a sectoral
lift in multiples in conjunction with the cash build and M&A that we expect will help to
change the shape of the sector in the coming months. The London gold equities are not
pricing in onerous valuations in a historical context, in our view.
Fig. 63: 2012E P/NAV vs. cash costs
Bubbles represent EBTDA size

Fig. 64: 2013E P/NAV vs. cash costs
Centamin has seen its rating decline considerably despite its leading cost
position
The London-listed gold equities tend to group at the USD 700-800/oz cash cost level (ex-
Centamin) vs. a global average cash cost of approximately USD 625/oz. This shows the
European-listed stocks tend to have lower-quality assets than the average global
companies (in cost terms) and this does affect potential P/NAV multiples.
We do note that the general relationship between P/NAV and cash costs (lower cash
costs should translate into higher P/NAV multiples), remains evident and is perhaps
enhanced by the shifts in 2013 costs. As the gold price moves higher, the 'safety margin'
Company Ticker Current
price
African Barrick Gold ABG 462p 512p 0.9x 724p 0.6x 941p 0.5x
Avocet Mining AVM 214p 246p 0.9x 285p 0.8x 348p 0.6x
Centamin C EY 89p 154p 0.6x 207p 0.4x 255p 0.3x
Petropavlovsk P OG 685p 621p 1.1x 858p 0.8x 1226p 0.6x
Polymetal P OLY 1100p 967p 1.1x 1192p 0.9x 1620p 0.7x
Randgold Resources RRS 7115p 3660p 1.9x 4623p 1.5x 5791p 1.2x
Seabridge Gold SA $19.23
NAV @ 5% discount rate
$1,900/oz
Spot
Long term
2,196
1,545
1,510
1,365
1,325
987
0
500
1,000
1,500
2,000
2,500
Randgold Resources Polymetal Petropavlovsk Avocet Mining African Barrick Gold Centamin
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
2.0x
$400 $500 $600 $700 $800 $900 $1,000 $1,100
2012 E cash costs (USD/oz)
Centamin Randgold Resources Avocet Mining Polymetal African Barrick Gold Petropavlovsk
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
2.0x
$400 $500 $600 $700 $800 $900 $1,000 $1,100
2013 E cash costs (USD/oz)
Centamin Randgold Resources Avocet Mining Polymetal African BarrickGold Petropavlovsk

32
or cash margin per ounce should expand and thereby reduce the impact from this trend
(causing a general flattening of the line). We believe this will favour the relative P/NAV
multiples for both African Barrick Gold and Avocet Mining as the companies with the
most relative cost control (largely owing to structural deflation and moderations in strip
ratios rather than a lack of inflation) in a rising gold price environment. This is one of the
reasons why we see ABG and AVM benefiting the most from P/NAV multiple expansion
over the coming year.
Centamin plc should be pricing in a higher P/NAV multiple based solely on its strong
cash cost position, although increased Egyptian political risks continue to weigh on the
share price.
Fig. 65: Spot multiple vs. two-year forward EBITDA growth
Near-term growth appears to be deceptive based on our valuation analysis
Polymetal has the leading two-year EBTDA growth. Polymetal's growth is also very
heavily weighted to 2013 and is dependent on the successful commissioning of the
Amursk refractory operation and Polymetal's shares appear to be pricing in a large
portion of this growth, in our view. n addition, our silver forecasts also enhance the
relative 2013 EBTDA growth for Polymetal, which produces almost 50% of its revenues
from silver.
Randgold maintains its premium multiple, in our view, for the historical delivery and
future potential for growth, which remains beyond the reach of the two-year EBTDA
growth chart. African Barrick Gold is a notable laggard in near-term growth and with its
strong balance sheet, we expect the company to move towards an acquisition while
Avocet will see its new growth from nata in 2014 and onwards.
A key chart, in our view, for why the sector may see a re-rating in general is the changes
in balance sheets towards strong net cash positions. Notably, only Petropavlovsk has a
net debt position in 2015E. We also note that Polymetal maintains significant debt levels
at the moment, and although its debt position is improving, it remains relatively more
exposed in a downside gold price scenario.
Fig. 66: Net debt to EBITDA
Our forecasts suggest that all of the companies in our report will have negative net debt to EBTDA by
2013 (except Petropavlovsk)
Polymetal has the largest gold equivalent production as can been seen in Fig. 66.
Petropavlovsk, which should it be able to achieve production on time at its new
Pokrovskiy Hub, will move back in line with Randgold in production terms. Centamin's
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
2.0x
100% 150% 200% 250% 300% 350%
African Barrick Gold Centamin Petropavlovsk Polymetal Avocet Mining Randgold Resources
2011-2013 EBTDA Growth
-2.5x
-2.0x
-1.5x
-1.0x
-0.5x
0.0x
0.5x
1.0x
1.5x
2.0x
2010 2011E 2012E 2013E
AVERAGE African Barrick Gold Avocet Mining Centamin Petropavlovsk Randgold Resources Polymetal

33
ramping underground production as well as the Stage V expansion at Sukari makes this
very attractive from a growth standpoint, although as we note below, the increasing
government share of profits and the heightened perceived political risk mitigate the
positives at present.
Fig. 67: Estimated production profiles to 2015E
Growth rates of production will slow into 2015

Fig. 68: Cash costs profile to 2015E
Rising production and larger operations and new mines should keep cost inflation in check - translating
into higher cash flow from operations
Cash cost inflation, in our view, is likely to stay relatively moderate as compared with the
increases seen over the past few years, for various reasons, including the ramping up of
operations and general producer currency weakness (ruble, CFA franc, South African
rand). On our forecasts, the near USD 1,000/oz cash margin seen in 2011E will expand
to average above USD 1,300/oz by 2013E. This profitability should see increasing
production. Free cash flow yields (ex the next unannounced stage of projects) are
elevated from 2013E as well.
Fig. 69: Cash margins

Fig. 70: Cash flow yield

0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2010 2011 2012 2013 2014 2015
P
r
o
d
u
c
t
i
o
n
(
g
o
l
d
e
q
u
i
v
a
l
e
n
t
o
z
)
Af rican Barrick Gold Av ocet Mining Centamin
Petropav lov sk Poly metal Randgold Resources
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014 2015
C
a
s
h
c
o
s
t
s
(
$
/
o
z
)
Af rican Barrick Gold Av ocet Mining Centamin
Petropav lov sk Poly metal Randgold Resources
0
200
400
600
800
1,000
1,200
1,400
1,600
2010 2011 2012 2013
Af rican Barrick Gold Av ocet Mining Centamin Petropav lov sk Poly metal Randgold Resources
C
a
s
h

m
a
r
g
in

U
S
D
/
o
z
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2010 2011E 2012E 2013E
Af rican Barrick Gold Av ocet Mining Centamin Petropav lov sk Poly metal Randgold Resources

34
RRS Randgold Resources
(Buy, 9,850p TP)
Randgold Resources is one of Nomuras top picks in the London gold sector. The
company is expensive compared with its London peers, but we believe its premium
rating, which has persisted for years, is warranted. Buy Randgold for the cleanest, most
liquid exposure to gold in the London market.
Relatively expensive, but high growth potential a premium
asset in a new era
Randgold Resources, a West African pure-play gold producer, has been one of the more
successful growth stories in the gold sector over the past 10 years. Nomura believes that
Randgold is well placed to continue its longer-term outperformance of the wider gold
equity universe, despite its current aggressive market rating.
The shares, trading on our calculations at a P/NAV of 1.5x using the spot gold price,
appear expensive as compared with other London gold producers, but less so when
compared with larger global growth gold producers. n our view, Randgold's diversified
production base (both on a geographical and asset basis) and high probability growth
that has not yet been fully priced into our NAV calculations make RRS the premium
London gold equity exposure. This is especially true in the context of the rest of the
London listed gold companies, which tend to have concentrated risks. n addition,
Randgold has a very strong balance sheet (net cash of USD 729m in 2012E), and has
the second lowest long-term cash cost forecasts in our London universe.
Owing to this best-in-class pedigree, Randgold is, in our view, best placed to participate
in the general gold equity response to higher gold prices over the medium term. t is also
likely to be one of the first movers to respond to this shift should equity markets stay in a
'risk off' framework over the next six months. Although our calculated 12-month upside
potential is lower than some of its peers (as this high quality has likely been priced into
the market), the risk profile is more favourable, in our view.
Randgold also screens well on our key forward themes. ts world-class exploration
portfolio should see its growth potential remain high for years to come. ts already strong
balance sheet suggests that substantial dividends or further as yet unvalued growth, may
be on the horizon, even after the material production growth from Kibali.
Fig. 71: Attributable reserves (oz) per share
Randgold has created value in the past ...

Source: Company data, Nomura research

Fig. 72: Project pipeline
... and the current portfolio looks poised to deliver in the future

0.00
0.05
0.10
0.15
0.20
0.25
2005 2006 2007 2008 2009 2010
Attributable reserv es per share
Reservedefinition
16
ndicated and
measured resources
5
nferred resources
11
Advanced targets
12
Follow up targets
33
dentified targets
51
Regional exploration
148
16
6
4
5
3
11
30
C
e
r
t
a
i
n
t
y
8 9 4
6 13 3
2 3 4
1 5
1
1 2 7
43 60 30 4 11
Senegal Cote d'voire Mali Burkina Faso DRC
Mines (x3)
Development project (x1)
Feasibility project (x1)
Mining
Feasi
projec
resou
reserv
Explo
target
dentif
geolo
anom

35
On the downside, Randgold's premium rating perhaps exposes the share price to further
operational setbacks. Randgold reduced its 2011 production guidance in November to
690,000700,000oz of gold from 700,000750,000oz of gold (consolidated basis).
However, the difficulties faced at Tongon and Gounkoto appear to be generally one-off in
nature. When considering that the Yalea underground operation continues to take longer
than initially expected to reach full steam, investors should take solace from the robust
response from the share price, maintaining a relative premium to the other gold equities
in spite of the downgrade and the gold price weakness at the end of 2011. We do note,
however, that the company is poised to lose this protection if 2012 does not provide
production successes as investors in the London market rightly remain wary of gold
mining companies missing production guidance, in our view.
We expect 2012, and the increasing grade profile from the Yalea underground as well as
the full tie in of Gounkoto ore, will see group production improve markedly to 912,000oz
of gold (up 33% on 2011 production). The higher production should also provide lower
cash costs. We forecast cash costs of USD 614/oz (pre-royalty). This should translate
into EBTDA generation of USD 959m in 2012.
Many catalysts for future NPV additions remain
Randgold has many catalysts for future NPV additions, which help to bring the current
high P/NAV rating into context. Key among these include:
Changing economic cut-off to USD 1,000/oz for open-pit reserves.
Morila mine life extension and/or tailings processing.
Tax holiday negotiation for Gounkoto.
Ongoing deposit discoveries at Kibali and potential increase in size to 6mtpa.
Gounkoto Underground to extend mine life at end of decade.
Massawa exploration project to return to development pipeline.
Advancement of prime Northern vory Coast exploration portfolio.

Valuation
Nomura's sum-of-the-parts NAV estimate (using Nomura's year-end gold price forecast
of USD 1,900/oz) provides a value of 5,791p/share. At the current spot gold price of
USD 1,640/oz, Nomura calculates a NAV of 4,623p/per share implying a 1.5x P/NAV
multiple. Nomura initiates on RRS with a Buy rating based on a one-year forward P/NAV
multiple of 1.7x, which equates to 9,850p.
Fig. 73: Randgolds valuation is diversified among three major operations

Based on flat 2012 year end forward gold price est. of USD 1,900/oz

Valuation (NPV @ 5%) $M 0Yr +1 Yr +2 Yr +3 Yr
Loulo / Gounkoto
3862.0 $42.35 $39.00 $34.82 $31.33
Morila
96.8 $1.06 $0.38 $0.00 $0.00
Tongon
2046.7 $25.22 $22.01 $19.42 $16.60
Kibali
1501.7 $16.47 $20.78 $24.63 $27.62
Other Resources
112.5 $1.23 $1.23 $1.23 $1.23
Corporate -229.5 -$2.52 -$2.47 -$2.42 -$2.37
Net Cash (Debt) 402.6 $4.41 $8.83 $16.32 $22.79
Total 7792.9 $88.22 $89.76 $94.00 $97.20
GBPUSD 1.55
Total GBP 5028 5791p
Current share price (p)
7115p
P/NAV 1.2x
Target multiple 1.7x
Target price 9850p
Upside
38%

36
Fig. 74: RRS Waterfall chart

Fig. 75: RRS valuation trend

Fig. 76: Map of operations
The company operates three mines in Mali and the vory Coast. The company is building the Kibali project in the DRC with partner Anglogold Ashanti

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IVORY COAST
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Tongon
Loulo/Gounkoto
Morila

37
Company summary
Randgold Resources is an intermediate gold producer listed on the LSE (RRS) and
NASDAQ (GOLD). Randgold operates four mines/projects in sub-Saharan Africa
including the Loulo/Gounkoto (80%) underground and open-pit gold complex in Mali, the
later-life Morila (45%) mine in Mali, the Tongon (90%) open-pit gold mine in the vory
Coast and the Kibali (45%) open-pit and underground development project in the DRC.
Randgold also holds substantial exploration ground in West Africa in Mali, vory Coast,
Burkina Faso, Senegal and the DRC.
Fig. 77: RRS production and cash costs forecast
Attributable production shows big gains in 2012E
Source: Company data, Nomura estimates
Asset Summary
Loulo-Gounkoto complex (80%) Mali
Loulo
The Loulo/Gounkoto mining complex, located on the border of Mali and Senegal, lies
within the Kedougou-Kenieba inlier of Birimian geology, which is host to several major
gold deposits. The complex is made up of three open-pit mines (Loulo 3, Yalea and
Gara) and two underground operations (Yalea and Gara). Randgold owns 80% of the
operations with the remaining 20% held by the State of Mali, whose stake is financed by
way of a shareholder loan; this gives Randgold control over 100% of the cash flows until
this loan is repaid (c. USD 350m outstanding as at the end of 2010).
Loulo/Gounkoto is undergoing a phase of significant development and has failed to meet
its initial production guidance in each of the past two years. The 2010 production level of
316,539oz (target: 400,000oz) was forecast to remain roughly flat in 2011, but has been
affected by abnormal rainfall in August (a once-in-a-hundred-year event) and unexpected
downtime associated with the tie-in of new tailings pipeline. On the upside, the Yalea
underground development has now reached the higher grade 'purple patch', an area of
c. 10g/t, which, along with the higher grades from Gounkoto, should provide a boost to
output and help mitigate cash cost inflation.
Having upgraded the secondary ore crushing circuit in 2010, Randgold is now upgrading
the power plant and is building a new mill. By 2015, the mine has the potential to
produce over 750,000oz of gold per year. Our forecasts are somewhat conservative
owing to a flatter grade profile with production maxing out near 620,000oz (including
Gounkoto). As per the 2010 resource update, reserves at the Loulo mine are 6.52moz
(resources 11.37moz), implying a mine life of around nine years. However, given the
continued underground development and exploration at Yalea and Gara, the potential to
process open-pit resources from other nearby satellite deposits and the potential for
Gounkoto, the complex is likely to stay active for far longer than this.
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Loulo / Gounkoto Morila Tongon Kibali Cash cost per ounce
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38
Gounkoto
Gounkoto is 22.5km south of the main Loulo complex. nitially expected to be developed
as a standalone project, management opted to utilise the existing Loulo plant to process
Gounkoto ore (crushing is done onsite). At the end of 2010, reserves of 2.8moz (all open
pit) and resources of 5.5moz (2.0moz of which are underground), had been identified.
Mining began in January with ore stockpiled until production started in June. By the end
of Q3, the mine had produced 50,051oz of gold. Randgold eventually hopes to produce
up to 300,000oz of gold per year from the open pit over an 11-year mine life. The
inferred resource estimates from the underground mine would add a further 11 years to
the operating life of the mine at current levels.
Fig. 78: Loulo/Gounkoto production
The Loulo/Gounkoto complex remains the engine for Randgold production
For Loulo/Gounkoto as a whole, we forecast production (on a 100% basis) will increase
next year to 546,000oz and this will see costs fall to near the USD 600/oz level. We
expect the performance of the Loulo/Gounkoto complex may well be the main non-gold
price driver for Randgold shares in 2012.
Tongon (89%) Ivory Coast
The Tongon open-pit mine is located in the north of the vory Coast, close to the border
with Mali. The country has seen disruptions and violence (largely in the south) in the
wake of the presidential elections at the end of 2010. Since May 2011, when Alassane
Ouattara formally assumed the presidency, the country has, however, experienced a
period of relative stability although some reports of violence near the capital of Abdijan
continue.
Having begun mining in April, Tongon produced 28,126oz in 2010 and a further
206,058oz in the first nine months of 2011. The second half of the year has, however,
seen a number of difficulties at the mine, with delays associated with wet weather and
the mining of transitional ore, exacerbated by union disputes, parts failure and ongoing
difficulties connecting to the national grid. These problems are largely isolated and
should be overcome by 2012. We expect gold production at Tongon of 282,000oz,
higher than 2011, but mitigated by falling head grades (2.7g/t vs. 2.9g/t in 2011).
The plant is designed to treat 3.6Mt pa of ore (2.4Mt were milled in the first nine months
of 2011), and the latest declaration identified 2.9moz of reserves at an average grade of
2.5g/t and 4.2moz of resources at 2.9g/t. Reserves currently only include gold from the
open pit and stockpiles, meaning that underground mineral resources could provide
upside to our forecasts.
Morila (40%) Mali (JV with Anglogold Ashanti)
Morila has produced around 5.8moz of gold since it was commissioned in October 2000,
but is now nearing the end of its life. n 2009, the mine transitioned from an open-pit
operation to a stockpile retreatment operation, which will run until the end of 2013.
Production in 2011 was around 240,000oz, but this will decrease as the stockpile is
exhausted. We forecast 100% production of 209,000oz in 2012E at a cash cost of
USD 882/oz.

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39
n 2010, management began investigating the feasibility of re-treating low grade Tailing
Storage Facility material; a detailed schedule and financial model is planned to be
communicated to the market in the coming weeks. nitial estimates suggest that this will
extend the mine life by a further five years. The higher gold prices are also providing the
potential for another pushback of the open pit. We have not included any upside
potential from these projects in our current valuation, although Morila could be
reasonably expected to last longer and provide additional cash flow at the current higher
gold prices.
Kibali (45%) DRC (JV with Anglogold Ashanti)
Kibali is a very large development project located in the north-eastern corner of the
Democratic Republic of Congo with reserves of 10.1moz and resources (including
inferred) of 18.5moz. The project is 90% owned by a Randgold and Anglogold Ashanti
joint venture, with the remaining 10% equity held by the government.
The project is in the early stages, with the RAP (Relocation Action Plan) resettling 250
families and developing local infrastructure; the pit opening is planned for 2012 with
production beginning in late 2013. Based on current resource estimates, Randgold
expects that the completed mill will process 4Mtpa over a mine life of 19 years, split
roughly equally between open-pit and underground ore (37mt).
Owing to positive subsequent exploration results, and an already long life of mine, we
expect Kibali will be built to process 6mtpa or more of ore. We have included the 6mtpa
level in our forecasts, but a larger Kibali would provide yet another potential P/NAV
catalyst.
Total capital expenditure, including that already spent in 2010, is estimated at
USD 1.4bn, for the 4mtpa plant, we expect that this is likely to be closer to USD 1.7bn for
the larger project. This includes the capital covers for hydropower installations and the
ongoing capital requirements to develop the underground. As such, Kibali and
Randgold's 40% share of the capital cost, will be a significant drain on free cash flow in
the next couple of years, but is then estimated to produce upwards of 500,000oz by 2016
with cash costs over the life of the mine estimated to be only around USD 380/oz.
This world-class project encompasses an area of 1,834 sq km, with a number of
prospective, but as-yet-unquantified gold deposits. Fig. 78 shows the new trend to the
west of the main KCD deposit. We note that this region may contain far more ounces
than the current resource and there could be the potential for a further project to be
developed in the region in due course.
Fig. 79: Kibali region map
A new trend to the East of KCD could provide further regional resource upside at Kibali
Source: Company data

Gold deposit
Gold target
KCD
Au ppb
N
Ikamva
Kalimva
Oere
Mofu
KCD
Renzi
Aindi Watsa
Zambula
Kulikongo
Gambari
Lulu
North/South
Hotel
Dembu fold
Zambula
West
Ogagu
Abimva
Abimva
North East
Rambi Kiasi
Zambula
Target
10km

40
One notable negative for Randgold is the political risk perceptions surrounding the DRC.
We have included a 7.5% discount rate in valuing the cash flows from Kibali (as
compared with our standard 5%). Using a 5% discount rate for Kibali would increase our
NAV by nearly 800p per share, which would once again lower what appears to be an
exceptionally high P/NAV multiple. However, we do believe that the history of western
mining companies in the DRC has generally been of higher risk and we note a
deterioration in the political situation in the DRC following the recent elections could
affect negative sentiment even further.
Strategically, and as Kibali becomes an increasing share of Randgold's production and
cash flow, we believe that Randgold's board of directors may have increasing incentive
to merge/sell the company to a larger entity in order to reshape the risk profile by diluting
the cash-flow contribution coming from the DRC (we expect Kibali to contribute near
30% of EBTDA in 2017). However, as this shift in geographical contribution is longer-
term in nature, Randgold should benefit from being able to ascertain exactly how large
the Kibali development might be before making strategic changes to company structure.
Fig. 80: RRS reserves and resources
Exploration
n addition to its operating mines, Randgold has an extensive portfolio of prospective
targets spread across five countries in West Africa. Of the 276 total targets, 130 are
satellite targets to existing operations, while 146 are potential stand-alone mines. These
targets are in various stages of development (see Fig. 72) with the key hurdle to viability
being reserves of 3moz and an RR of 20%. This leaves Randgold in an enviable
position of being able to progress only higher-quality projects, reducing the likelihood that
value is destroyed from the eventual spend from the expected cash build.
Management's present focus is on the development of its existing operations and the
evaluation of surrounding deposits coupled with completion of the Massawa (Senegal)
feasibility study and exploration programme. Randgold is also looking to begin
development of at least one new exploration footprint. With 16 projects at the reserve
definition stage and a record of converting prospects, we expect that Randgold's
exploration will provide a series of catalysts to NPV in the medium to long term.
Risks
As noted above, Randgold operates in West African countries and the political stability of
the vory Coast, Mali and the DRC can all have material impact on its share price. The
Yalea and Gara underground operations are still ramping up and meeting production
targets can be more difficult in this development stage. The Kibali project is large and
capex cost-overruns remain possible.
Balance sheet
Randgold possesses a very strong balance sheet, which will provide significant
optionality for future growth when viewed in the context of its exploration portfolio.
Currently in a net cash position (USD 410m in 2011E), we expect net cash of USD 1.5bn
by 2013 generated through operations via increasing production and higher gold prices.
Tonnes Gold Contained gold Attributable
Deposit Name Country Ownership Mt (g/t) Moz Moz
Loulo / Gounkoto Mali 80% 62.5 4.64 9.3 7.5
Morila Mali 40% 12.6 1.39 0.6 0.2
Tongon vory Coast 89% 37.1 2.46 2.9 2.6
Kibali DRC 45% 74.3 4.21 10.1 4.5
Massawa Senegal 83% 17.4 3.36 1.9 1.6
Total 203.9 3.78 24.8 16.4
Total Resources (Incl. Inferred)
Loulo / Gounkoto Mali 80% 120.4 4.37 16.9 13.5
Morila Mali 40% 14.5 1.31 0.6 0.2
Tongon vory Coast 89% 46.9 2.85 4.3 3.8
Kibali DRC 45% 183.6 3.13 18.5 8.3
Massawa Senegal 83% 23.7 3.96 3.0 2.5
Total 389.1 3.46 43.3 28.4
Total Reserves

41
Fig. 81: RRS EBITDA and capex profile
Already strong EBTDA is expected to increase

Fig. 82: RRS debt profile and debt ratio
Even after Kibali capital spending we calculate a generous cash build

Fig. 83: RRS EPS and P/E forecasts @USD 1,900/oz flat gold
EPS is expected to increase keeping the P/E at below historical levels

Fig. 84: RRS EPS and P/E forecasts @ long-term prices
P/E remains below 20x despite falling mid decade gold price

Fig. 85: Price chart (GBp)
2011 was a year of two halves, the company outperformed in the second
half following the end of conflict in the vory Coast
Source: Datastream

Fig. 86: Historical P/E
Randgold's shares have de-rated in line with the sector
Source: Datastream

DS World gold mining index, indexed to RRS at Jan. 2009
Management and significant shareholders
Board/management
Chairman Philippe Litard
CEO Mark Bristow
CFO Graham Shuttleworth
Significant shareholders
Blackrock 13.9%
Fidelity 9.9%

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42

Source: Datastream, Company data, Nomura estimates

P&L (US$M) FY10 FY11E FY12E FY13E
Revenues 507 1,124 1,640 1,856
Rating B uy Bloomberg Ticker Operating Costs -298 -495 -677 -672
Target Price (GBp) 9,850 RRS LN Other -45 -52 -4 -4
EBITDA 164 577 959 1,181
Price (GBp) 7,115 DataStream Ticker D&A -28 -88 -48 -46
RRS EBIT 136 489 911 1,135
Net nterest -4 -1 0 0
Shares (M) 91 Taxes -25 -60 -137 -171
Minority nterest -17 -59 -150 -192
Mcap ( US$M) 9,967 Non r ecurring a nd o thers 13 0 0 0
Net debt (US$M) -403 Net Profit 104 369 624 771
EV (US$M) 9,564
EPS () 114 405 685 846
Year E nd December DPS () 20 22 24 27
Assumptions FY10 FY11E FY12E FY13E
Cash Flows (US$M) FY10 FY11E FY12E FY13E
Gold (US$/oz) 1,225 1,571 1,788 2,063
Copper (USc/lb) 7,540 8,942 8,816 7,934 Receipts 145 488 911 1,135
Silver (US$/oz) 20 38 42 49 Payments 28 88 48 46
Net nterest 9 -1 0 0
Taxes -10 -30 -137 -171
EURUSD 1.33 1.38 1.33 1.35 Other -40 17 0 0
GBPUSD 1.55 1.59 1.61 1.65 Operating Cash Flows 108 464 647 1,010
Capex -411 -417 -308 -238
Key Ratios FY10 FY11E FY12E FY13E Disposals 24 0 0 0
Exploration 0 0 0 0
PE ( x) 95.7 26.9 15.9 12.9 Other 42 0 0 0
EV/EBTDA (x) 58.2 16.6 10.0 8.1 Investing Cash Flows -345 -417 -308 -238
EPS Growth (%) 33% 255% 69% 24%
ROE (%) 6% 16% 21% 19% Change i n B orrowings -1 0 0 0
Net Debt to Equity (%) -20% -18% -24% -37% Dividends -15 -18 -20 -22
Net Debt to EBTDA (x) -2.2 -0.7 -0.8 -1.3 Equity ssues 31 16 0 0
EBTDA M argin(%) 32% 51% 58% 64% Other 0 0 0 0
FCF Yield (%) -3% 0% 3% 8% Financing Cash Flows 14 -3 -20 -22
Net change in cash -223 44 319 750
Production & Costs FY10 FY11E FY12E FY13E
Gold Balance Sheet (US$M) FY10 FY11E FY12E FY13E
Gold Production (koz) 440.1 686.5 912.0 900.5
Cash cost (US$/oz) 632.0 681.7 613.8 604.8 Cash 366 410 729 1,480
Receivables 98 197 309 303
By Product nventories 196 152 238 233
Silver P roduction ( koz) 0.0 0.0 0.0 0.0 Other 16 8 8 8
Copper Production (kt) 0.0 0.0 0.0 0.0 Current Assets 676 767 1,285 2,025
EBIT (US$M) FY10 FY11E FY12E FY13E Property, Plant and Equip 1,308 1,623 1,884 2,076
Long-term s tockpile 9 4 4 4
Loulo / Gounkoto 140.9 233.3 581.8 768.9 Other 2 3 3 3
Morila 40.4 67.7 61.7 52.9 Non Current Assets 1,319 1,631 1,891 2,084
Tongon 4.4 279.0 305.7 348.9
Kibali 0.0 0.0 0.0 0.0 Total Assets 1,994 2,398 3,176 4,108
Borrowings 0 0 0 0
NPV (US$M) Payables 95 69 92 83
Provisions 8 20 20 20
Loulo / Gounkoto 2,638 28.93 18.66 Other 0 0 0 0
Morila 97 1.07 0.69 Current Liabilities 104 89 112 103
Tongon 1,505 18.54 11.96
Kibali 528 5.78 3.73 Borrowings 0 0 0 0
Other Resources 112 1.23 0.80 Provisions 32 33 33 33
Corporate -229 -2.52 -1.62 Other 13 13 13 13
Exploration 0 0.00 0.00 Non Current Liabilities 45 45 45 45
Net Cash (Debt) 403 4.41 2.85
Total US$ 5,053 57.45 37.06 Total Liabilities 148 134 158 149
Total Equity 1,846 2,264 3,018 3,959
Randgold Resources
Per Share
Primary Analyst: Tyler Broda

43


44
AVM Avocet Mining (Buy, 310p TP)
Avocet Mining plans to use its cash flow to once again expand the Inata gold mine.
Although there are challenges at Inata, the resource potential from the wider Belahouro
district will provide Avocet with a strong platform for growth, in our view.
Upside potential at Inata to drive West African growth story
Now a focused West African producer, we expect AVM to be a key beneficiary of
our emerging gold sector themes
Avocet Mining had a busy 2011. The company was transformed by the USD 200m sale
of its former South-East Asian gold assets. The sale not only streamlined Avocet into a
focused West African pure-play, but it also enabled the company to pay down debt and
partially restructure its hedge book, enabling greater exposure to the gold price. This
lower net debt position in conjunction with higher cash flows allows Avocet to focus on
speeding up its growth profile via aggressive drilling and mine expansion in West Africa.
AVM shareholders went unrewarded in 2011 as the share price fell by 22% alongside the
difficult equity market. Sharply higher cash costs and the emergence of refractory ore at
the main nata operation also contributed to the sell-off. n our view, Avocet shares
should outperform in 2012 as the company continues to delineate resources and
provides plans on the further expansion at nata. n addition, we expect that the rate of
cost inflation will slow as the mine sees remedial actions taken in response to the preg-
robbing issues that arose in 2012.
Avocet fits well within our sector themes as increased M&A activity and a renewed focus
on growth should increase the tension on sector P/NAV multiples, especially as Avocet is
now a one-mine producer.
Inata to keep growing
The nata gold mine (90%) in Burkina Faso is beginning to show its potential despite a
disappointing 2011 drilling campaign. The drilling programme failed to achieve its targets
owing to poor contractor performance and labour disruptions. This resulted in AVM
reporting the drilling results for 2010/11 in two steps with the second tranche of drilling
results now expected in Q1 2012.
The company expects the drilling campaign in the Belahouro district (which hosts nata)
to delineate enough reserves/resources to expand the operation once again while
maintaining a mine life above seven years. (n 2011, plant capacity and mining
equipment were augmented to increase production capacity to approximately
165,000oz). AVM expects to complete a scoping study in Q1 2012 on a second
expansion to 240,000oz of gold production capacity, with first production in 2013.
Fig. 87: Belahouro district hosts potential for significant resource growth
Drilling in 2012 to focus on regional targets

The sale of the South-East
Asian assets has transformed
the company
The strategic gains made in
2011 were not rewarded in
share price performance
Q1 is expected to provide
positive catalysts including an
increase in reserves and the
scoping study on another
expansion

45
Guinea to provide blue sky beyond Inata
Beyond nata, Avocet continues to progress the Tri-K exploration asset in the Siguiri
Basin in Guinea. Guinea hosts two large scale gold mines: AngloGold Ashanti's 5.6moz
Siguiri mine and Nord Gold's 5.9moz LEFA mine. A total of USD 40.5m is budgeted
group wide for the 2011/12 exploration season, and of this, USD 15m is likely to be spent
in Guinea. Current resources of 2.2moz at Tri-K and the Guinean exploration programme
could provide a meaningful catalyst for the shares in 2012.
Expanded, de-hedged Inata not priced in
Following Avocet's decision to use USD 40m in proceeds from the South-East Asian
asset sale to reduce the size of the hedge book, the nata mine is now contracted to
deliver 33,000oz per year at a price of USD 950/oz until 2018 vs. 100,000oz at
USD 970/oz until 2014 previously. Although this increases the length of the hedge, the
transaction has increased nata's exposure to the gold price (which we now calculate to
be 90% for 2012) and was incrementally positive to our NPV assumptions.
An expansion of nata is likely to only reduce the impact of the hedge further. We
calculate a positive NPV of USD 465m for a USD 150m capital expansion
(conservatively higher than management guidance of USD 120m). This could generate
gold production capacity of 240,000oz by mid-2013. We have included this value (with a
20% completion risk) in our valuation. Following the recent difficulties at the operations,
the market has thus far taken a wait-and-see approach, and we believe this provides an
interesting entry point.
Valuation
Nomura's one-year forward sum-of-the-parts NAV estimate (using Nomura's year-end
quarterly gold price forecast of USD 1,900/oz and a 5% discount rate) provides a value
of 348p/share. At the current spot gold price of USD 1,640/oz Nomura calculates a NAV
of 285p/per share implying a 0.8x P/NAV multiple. Nomura initiates on AVM with a Buy
rating based on a one-year exit gold price of USD 1,900/oz and a P/NAV multiple of 0.9x,
which equates to 310p.
Fig. 88: Inata accounts for the vast majority of our asset level valuation
Source: Nomura estimates based on flat one-year forward gold price est. of USD 1,900/oz

nata
1006.6 $4.93 $5.04 $4.83 $4.53
Other Resources
124.1 $0.62 $0.62 $0.62 $0.62
Corporate -116.7 -$0.58 -$0.57 -$0.55 -$0.53
Exploration 0.0 $0.00 $0.00 $0.00 $0.00
Net Cash (Debt) -85.4 -$0.43 $0.30 $0.51 $1.36
Total 928.6 $4.54 $5.39 $5.41 $5.99
GBPUSD 1.55
Total GBP 599 348p
214p
P/NAV 0.6x
Target price 310p
Upside
45%
Siguiri Basin in Guinea provides
upside potential for the company
in Koulekoun and Koderian
targets
The impact from the hedge has
been reduced by the proceeds
from the asset sale we
calculate AVM will achieve 90%
of spot in 2012
An nata expansion, unrisked,
would provide an incremental
USD 252m in NAV

46
Fig. 89: NPV waterfall chart
Value driven by flagship nata asset

Fig. 90: Valuation trend
Short mine life and near-term cost inflation keep valuation relatively flat
West African focused gold producer

Fig. 92: AVM production and cash cost forecasts
Cash costs to moderate following potential expansion

-50p
0p
50p
100p
150p
200p
250p
300p
350p
400p
nata Other
Resources
Corporate Exploration Net Cash
(Debt)
Total
293p
348p 349p
386p
0p
100p
200p
300p
400p
500p
600p
0Yr +1 Yr +2 Yr +3 Yr
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
900.00
0
50,000
100,000
150,000
200,000
250,000
2009 2010 2011E 2012E 2013E 2014E 2015E
nata Cost per ounce

47
Company summary
Avocet Mining is an LSE- and Oslo-listed junior gold producer with operations in Burkina
Faso and Guinea. Avocet divested its non-core Asian assets (the Penjom gold mine in
Malaysia and the North Lanut gold mine in ndonesia) in 2011 for USD 200m in cash.
The company's flagship asset is the nata gold mine in Burkina Faso, responsible for
100% of group production. AVM also has exploration activities in Guinea and Mali.
Asset summary
Inata Gold Mine (90%) Burkina Faso
The open-pit nata gold mine is located in northern Burkina Faso near the border with
Mali. The mine produced 137,700oz of gold in 2010 at a cash cost of USD 531/oz. We
forecast production of 164,000oz of gold in 2011 at a cash cost of USD 706/oz.
Avocet Mining acquired the nata gold development project in 2009 by purchasing Wega
Mining, a junior Norwegian mining company, for USD 109m. The sale was at a
distressed price after cost overruns and the global financial crisis placed the
development in doubt.
Following the acquisition and a reset development plan, Avocet brought nata into
production, on time, and on budget, in Q2 2009. Total capex was USD 195m (of which
USD 43m was paid by Avocet post acquisition). Since then, nata has emerged as a
leading gold mine in Burkina Faso, which itself is emerging as a significant West African
producer. n 2010, Burkina Faso produced 25 tonnes of gold, up 85% on 2009. This
ranks the country 5th in Africa behind South Africa, Ghana, Tanzania and Mali in total
gold production.
As of 30 June, nata had 1.3moz of attributable gold reserves at an average grade of
1.9g/t and 2.1moz of attributable gold resource at an average grade of 1.7g/t. The level
of reserves has been constrained by the disappointing 2010/11 drilling campaign (in
West Africa, generally August and September are the wet season and exploration
activities are halted). The company expects to increase its booked reserves in Q1 as
follow-up drilling and the results from over 16,000 assays are announced to the market.
The company has a target of 1.6moz of attributable gold reserves, which would imply a
mine life of over 10 years based on current mining rates.
Fig. 93: Inata Gold Mine
Avocet's flagship asset
Source: Avocet Mining
Expansion potential
n July 2011, Avocet announced that it undergoing a new scoping study to increase
production at nata, again.
The former owners of the project were focussed on bringing nata into production as
soon as possible. This, in the context of successful post-acquisition drilling results, led to
the mine being built with far too small a production capacity for the total potential
resource base. Avocet has set out to change this.
nata was purchased by Avocet
as part of the Wega Mining
acquisition in 2009
Burkina Faso ranked 5
th
in
African gold production in 2012

48
The mine was expanded in 2010 from its original production capacity of 2.2m tonnes per
annum of throughput to 2.7m tonnes via the expansion of the elusion circuit and the
addition of mining equipment.
Avocet is now looking to increase capacity further. nitial plans are for Avocet to
announce the results of a scoping study analysing the potential to expand production to
4.0m tonnes of throughput which would allow for annual production of c. 240,000oz.
Management expects capital expenditure to be in the region of USD 120m.
We believe the announcement of the commissioning of this scoping study in advance of
the release of the full drill results from the 2010/2011 season bodes well for the potential
from the drill results in Q1. Fig. 87 shows that there remains significant regional potential
on top of the near-pit reserve extensions seen in Fig. 94.
Fig. 94: Avocets understanding of the ore body has improved
Source: Avocet Mining
We have included an expansion in our base-case scenario; however, we have risked its
value by 20% as the full value generated will be dependent on new, near-mine reserves
being added at similar grades to the current reserve statement. n addition, we have
included a 20% cost overrun on the capital expenditure to remain conservative in our
estimates. Our analysis provides a positive (unrisked) NPV of USD 465m.
Tri-K (85%) Guinea
Tri-K is an exploration project in the north-east of Guinea consisting of three main
licences: Koulkon, Kodiran and Kodiafaran. Per an update in December, drilling at
these sites has identified a combined 2.2moz of inferred resource at Koulkoun and
Kodiran and the former is now at the feasibility-study stage. The target is to continue to
increase mineral resources to 2.5moz before commencing construction.
Despite these mineral resources, Guinea even in the context of West Africa is a
difficult country in which to operate (ranked 179 of 183 in the World Bank's "Ease of
doing business index). The newly formed government of Guinea did, however, recently
release a draft of a new Mining Code and the company expects to meet officials in Q1
2012. Avocet's decision to move to the construction phase, potentially in 2012, will be
dependent on both the outcome of these meetings and continued positive results from
their exploratory drilling.


49
Fig. 95: Reserves and resources
Cost inflation in 2011
Cash costs increased sharply in 2011 at nata. Higher fuel prices, higher fuel costs for
explosives and higher national salaries saw cash costs increase from USD 533/oz in Q1
2011 to USD 830/oz in Q3 2011. We expect cash costs to moderate in Q4 owing to
higher production rates, bringing the 2011 average to USD 706/oz.
We do expect the cost inflation to continue, however, and we calculate cash costs will
approach USD 780/oz in 2013 before falling with the economies of scale that would
come from a potential expansion to a longer-term target of USD 650/oz.
Despite this, we continue to see the company increase its EBTDA margins owing to the
increasing gold price.
Risks
n our view, the key risks to our investment thesis would be a lack of exploration success
in 2012 in Burkina Faso and to a lesser extent in Guinea. The political situation of both
Burkina Faso and Guinea, although generally stable at present, remain elevated. n
addition, there has been a lawsuit filed by its former ndonesian partners. As the
company has divested all of its ndonesian operations, we would expect impact from this
USD 2.0bn lawsuit (total transaction of USD 200m) to be viewed as a non-event.
Balance sheet and cash flow
Avocet's cash flows have been affected by a number of non-recurring items in 2011,
including the disposal of the company's Asian assets, the buy-back of a number of
forward contracts at a cost of USD 40m, and repayment of USD 43m debt.
As a result, Avocet has a strong balance sheet, with around USD 120m of cash and only
USD 35m of remaining debt. We forecast free cash flow to be negative in 2012, as a
result of increased capital expenditure; although we expect that the business will then
generate positive cash flows. Management's decision to announce a dividend policy
commencing in 2012 reflects its confidence in the underlying financial position of the
business.

Deposit Country Ownership Mt (g/t) Moz Moz
nata Burkina Faso 90% 23.6 1.9 1.5 1.3
Total 23.6 1.9 1.5 1.3
Total Resources (incl. inferred)
Deposit Ownership Mt (g/t) Moz Moz
nata Burkina Faso 90% 33.2 1.7 1.8 1.6
Souma Burkina Faso 90% 10.7 1.7 0.6 0.5
Koulekoun Guinea 100% 44.2 1.3 1.8 1.8
Kodiran Guinea 100% 7.3 1.8 0.4 0.4
Total 88.2 1.5 4.2 3.9
Total Reserves

50
Fig. 96: EBITDA and capex profile

Fig. 97: Debt profile
From 2012, Avocet should begin to reap the rewards of its investment

Fig. 98: EPS and P/E forecasts @ USD 1,900/oz flat gold est
We estimate that capital allowances will be exhausted in 2016

Fig. 99: EPS and P/E forecasts at long-term forecasts

Source: Datastream

Source: Datastream
Board/management
Chairman Russell Edey
CEO Brett Richards
Finance director Mike Norris
Elliot Associates 18.0%
Datum A.S 12.3%
J.P. Morgan 6.5%

-200
-150
-100
-50
0
50
100
150
200
250
2010 2011e 2012e 2013e 2014e 2015e 2016e
EBTDA ($M) Capex ($M) Exploration
-100
0
100
200
300
400
500
600
2010 2011e 2012e 2013e 2014e 2015e 2016e
0
10
20
30
40
50
0
20
40
60
80
100
2010 2011e 2012e 2013e 2014e 2015e 2016e
EPS P/E (x)
0
10
20
30
40
50
0
20
40
60
80
100
2010 2011e 2012e 2013e 2014e 2015e 2016e
EPS P/E (x)
0
50
100
150
200
250
300
350
Av ocet mining DS World gold mining index
0
5
10
15
20
25
30
D
e
c
-
0
9
J
a
n
-
1
0
F
e
b
-
1
0
M
a
r
-
1
0
A
p
r
-
1
0
M
a
y
-
1
0
J
u
n
-
1
0
J
u
l
-
1
0
A
u
g
-
1
0
S
e
p
-
1
0
O
c
t
-
1
0
N
o
v
-
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0
D
e
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-
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0
J
a
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-
1
1
F
e
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-
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1
M
a
r
-
1
1
A
p
r
-
1
1
M
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-
1
1
J
u
n
-
1
1
J
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-
1
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A
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1
1
O
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-
1
1
N
o
v
-
1
1
D
e
c
-
1
1
Forward P/E

51

Source: Datastream, company data, Nomura estimates
Revenues 255 209 252 307
Rating Buy Bloomberg Ticker Operating Costs -143 -113 -121 -129
Target Price (GBp) 310 AVM LN Other -25 -10 -22 -22
EBITDA 86 87 109 156
Price (GBp) 214 Reuters DataStream Ticker D&A -48 -36 -32 -35
AVM EBIT 38 51 77 121
Net nterest -7 -5 -1 1
Shares ( M) 200 Taxes -15 3 0 0
Other 3 -31 0 0
Mcap (US$M) 653 Minority interest -4 -1 -10 -14
Net debt / (cash) (US$M) -85 Net Profit 15 17 66 107
EV (US$M) 567
EPS () 7 8 33 53
Year E nd December DPS ( ) 0 4 4 4
Assumptions FY10 FY11E FY12E FY13E Cash Flows (US$M) FY10 FY11E FY12E FY13E
Gold (US$/oz) 1,225 1,571 1,788 2,063 Profit after tax 18 18 76 122
Silver (US$/oz) 20.17 38.00 42.00 49.00 Tax expense 15 -3 0 0
Depreciation 48 36 32 35
EURUSD 1.33 1.38 1.33 1.35 Working capital changes -28 -29 -3 -17
GBPUSD 1.55 1.59 1.61 1.65 Net nterest -5 -2 0 0
ncome Tax Paid/Refunded 1 1 0 0
Other non-operating 14 34 0 0
Key Ratios FY10 FY11E FY12E FY13E Operating Cash Flows 63 56 105 140
PE (x) 43.8 39.9 10.0 6.2 Capex -49 -48 -113 -43
EV/EBTDA (x) 6.6 6.5 5.2 3.6 Disposals 10 177 0 0
EPS Growth (%) na 10% 299% 62% Exploration -13 -23 -20 -20
ROE (%) 5% 4% 15% 19% Other 4 17 0 0
Net Debt to Equity (%) 0.1 -0.2 -0.1 -0.2 Investing Cash Flows -48 123 -133 -63
Net Debt to EBTDA (x) 0.3 -1.1 -0.4 -0.7
Dividend Yield (%) 0% 3% 3% 3% Change in Borrowings -12 -49 -24 -5
FCF Yield (%) 0% -2% -4% 12% Dividends 0 -17 -20 -20
Equity ssues 0 -5 0 0
Other 0 -40 0 0
Production & Costs FY10 FY11E FY12E FY13E Financing Cash Flows -12 -111 -44 -25
Gold Production (koz) 138 164 156 167 Net cash flow 3 68 -72 52
Cash cost (US$/oz) 531.0 705.9 774.7 781.2
Balance Sheet (US$M) FY10 FY11E FY12E FY13E
EBIT (US$M) FY10 FY11E FY12E FY13E
Cash 50 121 51 103
nata 38 61 99 143 Recievables 16 27 27 34
nventories 20 43 43 56
Current Assets 86 191 120 193
NPV (US$M)
$ Properties, Equipments an 240 251 333 340
nata 704.4275 $3.43 $221.50 ntangibles 11 34 54 74
Other R esources 124.10 $0.62 $40.12 Other 22 4 4 4
Corporate -116.73 -$0.58 -$37.74 Non Current Assets 273 289 390 417
Exploration 0.00 $0.00 $0.00
Net Cash (Debt) -85.37 -$0.43 -$27.60 Total Assets 359 479 510 610
Total 626.42 $3.04 $196.28
Borrowings 24 29 5 0
Payables 28 47 44 47
Current Liabilities 52 76 49 47
Borrowings 54 0 0 0
Provisions 10 6 6 6
Other 4 4 4 4
Non Current Liabilities 67 10 10 10
Total Liabilities 120 86 59 57
Total Equity 319 395 451 553
Avocet Mining
Per Share

52
ABG African Barrick Gold
(Buy, 750p TP)
African Barrick Golds London history has been less than impressive, although we
believe that the cash build on the companys balance sheet cannot be ignored in the
context of potential transformational changes. We also see a significant value gap.
From Tanzanian Barrick to being a truly African Barrick
cash build to provide impetus for strategic change
Net cash of USD 1.7bn and a free cash flow yield of 24% by 2013
African Barrick Gold has already entered into a significant cash generation phase,
generating near USD 600m in net cash in the past two years. Our forecasts show that
this cash build will continue (subject to no new capex from as-yet-unconfirmed growth
projects) and add an additional USD 1.0bn based on our higher forecast gold prices and
a production level of 760,000oz in 2013E.
Some of this excess cash is likely to be spent on the potential North Mara underground
mine or on the construction of the Nyanzaga greenfields project, although we expect that
the cash position of the company will remain extremely robust in the near term. This
significantly increases flexibility at the corporate level. Of the six companies covered in
this report, ABG ranks highest on a two-year forward FCF yield basis (Fig. 70).
n our view, the two leading options following this cash build would be either a sizable
dividend or the funds to make a meaningful acquisition. A dividend would see funds flow
back up to parent Barrick Gold (74%) which will also be experiencing the positive impact
from improved gold prices. As growth has always been a stated strategy for African
Barrick since its PO in March 2011, it may well look towards an acquisition, and perhaps
sooner than its peers.
f our forecast of a structural increase in M&A activity is correct, then we would expect
the currently cheaper sector valuations to increase over time as the structural industry
cash-build progresses. Therefore, companies that made an acquisition sooner rather
than later would benefit. ABG has less organic growth opportunities relative to peers and
the company has consistently included acquisitions as a key strategy for growth, priming
the company for a near-term transaction.
What a difference a year might make
The current African Barrick Gold P/NAV multiple (which we calculate to be 0.6x P/NAV at
a spot gold of USD 1,640/oz), in our view, suffers from, not only lowered market
expectations (failure to meet guidance in first two years as a public company), but also
from concentrated political risk. The declines in P/E multiples in Randgold and Centamin
in 2011 owing to political change in the Cote D'voire and Egypt, respectively, has
understandably added to the sector's de-rating, in our view.
Should ABG make a, say, USD 1bn acquisition, based on consensus African mid-cap
and junior production multiples, this could add on average 250,000oz of production and
5.0moz of resource, or growth of c.35% and 20%, respectively.

ABG has the highest 2013 free
cash flow yield of the companies
in our report
ABG will likely benefit from
geographical diversification
Acting sooner rather than later
could provide value in a
competitive M&A landscape

53
Fig. 102: West African gold producers


Fig. 103: African production and resource multiples

Should a potential transaction be structured to include a share element, this could
potentially lower the parent Barrick's share and increase the public free float for ABG. Of
course, buying ounces at market or above market prices is difficult to make financial
sense of at the time of the transaction (especially following the sell-off at the end of
2011). However, Nomura believes that a transformation that could include: a) a new
geography, b) an increased free float, and c) new development growth could see the
shares re-rate substantially beyond this.
We have included a re-rating to 0.8x from the current spot multiple of 0.6x in our target
price multiple as current sentiment has fallen owing to the most recent downgrade and
as investors (rightly so) are likely to proceed with caution. Much like in 2011, however,
for African Barrick to achieve a re-rating, the company will need to see a solid year of
production. That said, we do not believe that this value gap will be able to persist with the
strategic options available to the company and a stronger gold price.
Valuation
Nomura's one-year forward sum-of-the-parts NAV estimate (which is run using Nomura's
one-year forward gold price forecast of USD 1,900/oz flat) provides a value of 941p per
share. At the current spot gold price of USD 1,640/oz, Nomura calculates a NAV of 724p
per share, which implies ABG is trading at a spot P/NAV multiple of 0.6x. Nomura
initiates on ABG with a Buy rating based on a one-year forward P/NAV target multiple of
0.8x, which equates to 750p share.
Fig. 104: ABG valuation
Bulyanhulu continues to drive the valuation

0
500
1000
1500
2000
2500
3000
3500
AFRCAN
BARRCK GOLD
SEMAFO PERSEUS
MNNG
RESOLUTE
MNNG
NEVSUN
RESOURCES
HGH RVER
GOLD MNES
BANRO AVON GOLD AVOCET MNNG TERANGA GOLD
MV EV
2,186.8
2,462.5
2,838.5 2,917.6 2,988.6
3,358.9 3,445.7
3,712.2
5,345.8
6,047.9
6,294.9
6,757.7
8,855.4
149.1
530.0
143.4 112.4 80.6 99.2 146.3 195.0 177.0 253.4 183.2 71.6
372.4
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
EV/oz production EV/oz resource
Bulyanhulu
3717.5 $9.06 $8.81 $8.52 $8.22
Buzwagi
1005.5 $2.45 $2.16 $1.91 $1.71
North Mara
1303.3 $3.18 $2.24 $2.35 $1.90
Tulawaka
63.1 $0.15 $0.00 $0.00 $0.00
Other Resources
79.6 $0.19 $0.19 $0.19 $0.19
Corporate -775.2 -$1.89 -$1.77 -$1.66 -$1.54
Exploration 0.0 $0.00 $0.00 $0.00 $0.00
Hedging 0.0 $0.00 $0.00 $0.00 $0.00
nvestments 0.0 $0.00 $0.00 $0.00 $0.00
Net Cash (Debt) 712.5 $1.74 $2.95 $4.22 $5.40
Total 6,106 $14.89 $14.58 $15.53 $15.89
GBPUSD 1.55
Total GBP NAV 3,940 941p
462
P/NAV 0.5x
Target price 750p
Upside
62%
ABG shows value even at
current levels
Transformative transaction could
see a new geography, increased
free float and new growth
options

54
Fig. 105: NPV waterfall chart
Bulyanhulu maintains its top asset status as Buzwagi struggles
Source: Nomura research based on flat one-year forward gold price est. of
USD 1,900/oz

Fig. 106: Valuation trend
Lack of growth in current visibility keeps value curve relatively flat
Source: Nomura research based on flat one-year forward gold price est. of
USD 1,900/oz
African Barrick Gold has four producing mines, all located in Tanzania


Fig. 108: ABG production and cash costs
Current production profile ready for a strategic step change

0p
100p
200p
300p
400p
500p
600p
700p
800p
900p
1000p
Bulyanhulu Buzwagi North Mara Tulawaka Net Cash
(Debt)
Total
961p
941p
1002p
1025p
0
200
400
600
800
1,000
1,200
0Yr +1 Yr +2 Yr +3 Yr
NPV Curve
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2009 2010 2011E 2012E 2013E 2014E 2015E
Bulyanhulu Buzwagi North Mara Tulawaka Cash cost per ounce

55
Company summary
African Barrick Gold is an LSE-listed gold producer with four producing gold mines
located in Tanzania. The company was formed via a spin-out of the African assets of
Barrick Gold in March 2010.
African Barrick Gold operates the Bulyanhulu underground mine, the North Mara open-
pit gold mine, the Buzwagi open-pit gold mine, and the underground Tulawaka mine.
ABG also has multiple exploration targets in Tanzania.
Not without its risks
African Barrick Gold has had a turbulent time as a publicly-listed gold company since it
was spun out from Barrick Gold in March 2010. n its two years as a standalone
company, ABG has twice missed production guidance. At Buzwagi, the company
discovered an organised fuel theft ring in October 2010. The remedial response in
conjunction with unstable power supplies caused production to be lower than expected.
n May 2011, seven illegal miners were killed (by local police) at ABG's North Mara mine
in a disturbance that highlighted the ongoing problems between the community and the
mine. Although management is proactively addressing this issue, the risks surrounding a
difficult operating location like remote Tanzania are likely to remain. Power problems
caused the most recent production downgrade as the company notified the market in
December 2011 that it would not reach its 2011 guidance of 700,000 ounces of gold.
Cash costs and cost inflation in Tanzania are also likely to be a risk. The structural
changes at Buzwagi, see below, and continued labour pressures could see average
group cash costs move above USD 800/oz in 2015. This would place ABG significantly
higher than current global average cash costs of ~USD 625 per ounce.
Fig. 109: A difficult first two years since going public
African Barrick Gold shares have yet to participate in gold's bull market

Source: Datastream
We think there are two main risks to our forecasts: 1) power-related problems, and 2)
tax/royalty changes.
The ongoing limited and variable grid power supply in Tanzania available through state-
owned TANESCO has disrupted group production plans. Although the miss of 2011
guidance of 700,000 ounces is likely to be limited (we expect production of 697,000
ounces of gold in 2011), in terms of production, the group is now likely to see structurally
higher costs from running back up power. There remain questions regarding power

300
350
400
450
500
550
600
650
700
AFRCAN BARRCK GOLD
ABG PO at 575p
Buzwagi fuel t heft r ing
discovered, pr oduction
guidance r educed to
2009 l evel of 716 k oz
of gold
Unrest at North Mara
mine sees 7 killed
European debt c risis
2010 g uidance reduced
to 750-800koz of gold
@ $500-$550/oz
Full year production
announced at 700koz
of gold
Press reports
surrounding pot ential
Tanzanian s uper profits
tax
Power troubles see
guidance down t o " just
short " of 700koz
Power problems will likely have
limited impact on forward
production, although costs could
be affected
African Barrick Gold operates in
a jurisdiction with higher political
and socio-economic risks than
average

56
availability for expansions. However, by the end of Q1 2012, all of ABG's operations will
have diesel-generated backup power available to keep current operations unaffected by
cuts. This should see ABG have a higher probability of meeting guidance.
Second, as in other African (and global) jurisdictions, governments are increasingly
looking at ways to increase their share of the high profits from basic materials sectors.
The Tanzanian government is reviewing various aspects of the overall government share
including fuel tax rebates and royalties.
ABG, like other operating mining companies, has mining development agreements
(MDAs) that were set at the time of the original granting of the licences. They provide for,
among other things, a royalty rate of 3% and a corporate tax rate of 30%. African Barrick
Gold has tax loss carry-forwards of over USD 1bn in Tanzania and therefore effectively
at the moment the government is only receiving cash taxes as part of royalties.
Negotiations between the mining companies and the government remain ongoing,
although the Tanzanian government, via newspaper announcements, has increased the
royalty rate to 4% gross vs. from 3% net. We have increased our royalty forecasts to 4%
in future periods from 3%, although we also note that we are enabling the cash flows
from ABG's Tanzanian assets to benefit from the full use of the tax-loss carryforwards.
Asset summary
Bulyanhulu gold mine underground (100%)
The Bulyanhulu gold mine is located in north-western Tanzania, 150km southwest of
Mwanza, near Lake Victoria. n 2010, the mine produced 260,000oz of gold at cash
costs of USD 649/oz. Bulyanhulu also produces by-products of copper and silver.
Nomura estimates gold will account for 92% of revenues in 2011 with the balance of
revenues being mainly from copper.
The mine hosts total reserves of 29.3m tonnes at a grade of 11.7g/t, making this a higher
grade underground operation. This amounts to 11.0m ounces in reserve (with an
additional 6.2moz of resources) and the company expects production to continue for
over 25 years. The company is reviewing a series of improvements that could see
production increase sequentially over the coming years. Current shaft capacity is for
1.1m tonnes per annum hauled and this is the main bottleneck to higher production.
Fig. 110: Bulyanhulu production estimates
Steadily improving production should see cash costs stay in check
Nomura forecasts 2011 production of 260,000oz of gold at a cash cost of USD 723/oz
and 2012 production of 282,000oz at cash cost of USD 714/oz.
The underground mining is transitioning to a conventional narrow-vein, long-hole open
stoping method from an underground trackless system. Year-to-date reported 2011
production has improved 3% over 2010 and there is a focus on driving increased tonnes
hoisted. This should bode well for the operations as we expect mined grade to revert
closer to reserve grade once blockages in the paste fill lines are alleviated and the mine
returns to higher grade levels.
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provide a risk to our forecasts
Long-life Bulyanhulu remains
ABG's main asset and should
provide a solid base for the
group as improvements increase
production

57
Despite being the flagship, steady-state, main cash flow generating asset for African
Barrick Gold, there is potential for Bulyanhulu to add material upside to numbers.
Scoping studies/preliminary assessments are being undertaken for:
Bulyanhulu Upper East Zone (Q1 2012) located 2.5km east of the main shaft is the
higher grade Upper East Zone scheduled to be mined at a later date in the mine plan.
ABG is progressing a feasibility study in order to determine the best mining method,
although infrastructure is already being increased. The company expects to provide an
update in Q1 2012 (formal approval by the board is to follow in Q3 once stoping method
tests are completed). We believe that this could bring forward an increase of grade,
which could increase near-term production by c. 10%.
Tailings (Q1 2012) ABG is progressing a feasibility study to expand the processing
plant at Bulyanhulu to process tailings. The tailings hold an estimated 8m-10m tonnes of
material at an average grade near 1.3g/t, which could provide an incremental 30koz of
gold per annum. A small capital programme to increase the plant size (which could work
well should unrelated near surface exploration be successful), in conjunction with the
higher-grade ore from underground and the tailings could see production increase to
closer to 400,000oz of gold per annum, significantly reducing unit costs.
Surface exploration Above the Upper East Zone is the potential for open-pit mining of
Reefs 1 and 2 from surface. Recent drilling shows results confirming near surface
mineralisation including 5m @ 36.3g/t from 32m, 6m @ 4.5g/t from 77m and 24m @
1.4g/t from 110m. There are further holes still pending and infill drilling is likely to develop
resources into 2012. n conjunction with the tailings development, near surface material
should be able to fill the excess capacity at the Bulyanhulu plant and incrementally
increase ounces.
North Mara open pit (100%)
ABG's North Mara mine is located near the Kenyan Border approximately 100km east of
Lake Victoria, the remotest of ABG's Tanzanian mines. n 2010, North Mara produced
213,000oz of gold at a cash cost USD 486/oz. Beginning production in 2002, North Mara
was added to the group in 2006 in as part of Barrick Gold's acquisition of Placer Dome.
As of 31 December 2010, North Mara hosted 27.6m tonnes of ore at an average grade
of 3.2g/t, containing 2.8moz of gold. The ore is mined from three open pits: Nyabirama,
Gokona, Nyabienga and is processed using a conventional CL process, which produces
gold dor. Nomura forecasts the mine life will continue at least until 2020 should no
further mineralisation be converted into reserve. There remains exploration upside
potential in the region, especially in the Gokona Corridor (15km of unexplored ground
between the Gokona and Nyanbenga open pits).
Fig. 111: North Mara production and cash cost estimates


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Bringing forward the Upper East
Zone, processing tailings and
near surface potential could
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Higher grades from North Mara
following the focus on waste
stripping in 2011 should provide
a return to 2010 production

58
Performance in 2011 has been heavily affected by an increase in waste stripping in order
to access higher-grade materials for the coming years. A reliance on lower-grade
stockpiles through this period of pre-stripping has caused production to be down sharply
in 2011 and this had a commensurate effect on costs. We forecast production of
177,000oz of gold at a cash cost of USD 785/oz in 2011 growing to 214,500oz of gold at
a moderated cash cost of USD 680/oz in 2012. We forecast further increases in
production in 2013 driven largely by an increase in grades following the completion of the
Gokona pit pushback.
A key risk to our forecast production profile is the renewal of the mining licence at North
Mara, which was expected to be completed in September. The current licence allows for
North Mara to be mined until a determination on the licence renewal has been made. n
addition, the company has yet to receive permitting approval for new waste dumps, for
which thus far, through mine sequencing, it has been able to mitigate the impact.
Underground at all three North Mara pits shows promise
North Mara Underground provides perhaps the best option for organic growth, in our
view. ABG has commissioned a feasibility study, the results of which we expect to be
released in the coming weeks, which covers the potential for an underground
development to be created below the Gokona and Nyabienga pits. Recent grades,
especially from drilling below the Gokona pit (including multiple 2m-5m intersections over
10g/t), appear to provide the basis for potential high grade zones. n our view, this
underground development could add to the production profile towards the end of the
decade and would aid in addressing a general perception that African Barrick Gold is ex-
growth.
Fig. 112: Gokona underground provides upside potential at North Mara
Although the final pit will be deeper at higher gold prices, there remains significant underground material

Buzwagi gold mine open pit (100%)
Commissioned in 2009, the Buzwagi open-pit operation is found 6km southeast from the
town of Kahama in Northern Tanzania.
n 2010, the mine produced 186,000oz of gold at a cash cost of USD 713/oz, below
original guidance, following the discovery of an organised fuel theft ring that had
integrated into the workforce at the mine. The remedial actions, including the dismissal of
a significant portion of the mining staff, caused the mine scheduling to be delayed. This
meant more time was spent mining the transitional ore zone, which caused problems
with both throughput at the plant and recoveries.

Disappointing Buzwagi still to
contribute USD 110m in EBTDA
per annum at current gold price
North Mara Underground is
likely to provide a catalyst as the
feasibility study is announced in
2012

59
The response from parent Barrick Gold, and in general, the performance in FY11 (with
the exception of the SAG mill motor outage in Q2), should not be overlooked in
Nomura's view. Barrick seconded 20 operators and shifted management resources
across the organisation to help African Barrick get Buzwagi back on track quicker than if
there had been no external aid. This, in our view, provides a competitive advantage for
ABG and its ability to manage multiple projects despite the various disappointments over
the past two years.
Buzwagi is a shear-hosted quartz veined deposit hosted in a porphyritic granite. As at
31 December 2010, the Buzwagi mine hosted 55.6mt of ore at an average grade of
1.6g/t containing 2.9moz of gold. The ore is mined via conventional open-pit methods
and is processed in a standard gravity flotation leach plant. The mine produces both
a gold/copper concentrate and gold dor bars. The capacity of the plant is 4.4m tonnes
of throughput per annum.
Fig. 113: Buzwagi cash costs and estimates
Buzwagi cash costs are to be higher than expected at PO, a return to reserve grade reduces production
The outlook for Buzwagi, however, is not as positive as it is for the other mines in the
portfolio. Following the decision to place the mine back on diesel generation owing to
grid power being too unreliable, costs have structurally increased. n addition, lower
grades and a higher strip ratio are likely to cause higher unit costs.
Golden Ridge to provide potential upside
ABG is developing a resource 55km north of from Buzwagi named Golden Ridge. The
initial indicated open-pit resource of 527,000oz of gold at a grade of 2.9g/t is being
investigated as a potential higher grade feed for the Buzwagi operation. The feasibility
study results have been pushed back to mid-2012 as current indications are that the
economics may perhaps be constrained by the transportation charges, which would be
incurred should Golden Ridge be progressed as a satellite operation. The company is
now exploring higher grade shoots at depth as well as attempting to convert some of the
152,000oz of inferred resource to reserve. We have not included any Golden Ridge
ounces in our Buzwagi model (and have valued them on USD 45/oz of resource),
although there remains potential for an increase in grade mid-decade at Buzwagi or for a
potential standalone development to be explored.
Tulawaka underground gold mine (70%)
The end-of-life Tulawaka underground mine is the fourth and smallest producing asset in
the group. The company originally expected to decommission the mine in 2011, but the
higher gold prices are making it economically sensible for ABG to extend the mine life
through further exploration drilling. The mining is done using a narrow-vein long hole
stoping method in an orebody with a quartz vein system with both free and disseminated
gold. n 2010, Tulawaka produced 42,000oz of gold at a cash cost of USD 769/oz
(29,000oz of gold attributable). The plant, which is a conventional gravity and CL
process plant, has a throughput capacity of 480,000 tonnes per annum.

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60
Higher mined grades have driven higher production thus far in 2011 and Nomura
forecasts production of 57,000oz (39,700oz) at a cash cost of USD 651/oz. Nomura is
forecasting production until the end of 2012, versus the current mine plan of mid-2012.
Should current gold prices persist, we expect that further mineralisation between the 10
and 15 levels would provide two more years of production before tailings capacity was
reduced (at approximately 50koz per annum). Although small, Tulawaka may provide
incremental production upside potential into the middle of the decade at relatively low
capital cost.
Nyanzaga (Tusker) (100%)
n April 2010, ABG purchased 100% of the Nyanzaga project by purchasing JV partner
Tusker Gold Mines Limited. This asset, located 35km northeast of Bulyanhulu is the
most advanced of the greenfields projects in the ABG portfolio. Nyanzaga hosts a
resource of 1.0moz. Drilling is being undertaken in order to both increase the overall size
of the resource by delineating strike and down-dip targets at both the Tusker and
Kilimani mineralised zones.
Fig. 114: ABG reserves and resources
Catalysts
African Barrick has less potential organic growth than some of its peers, although it still
has a modest portfolio of projects and balance sheet flexibility to progress them without
the usual financial constraints.
Fig. 115: African Barrick growth pipeline
More catalysts than the market perceives?

Tonnes Gold Contained gold By product Attributable
Deposit Name Country Ownership Mt (g/t) Moz Moz (gold equivalent) Moz
Bulyanhulu Tanzania 100% 29.3 11.7 11.0 1.1 12.1
Buzwagi Tanzania 100% 55.6 1.6 2.9 0.3 3.2
North Mara Tanzania 100% 27.6 3.2 2.8 0.0 2.8
Tulawaka Tanzania 70% 0.3 6.5 0.1 0.0 0.1
Total 112.9 4.6 16.8 1.4 18.2
Tonnes Gold Contained gold By product Attributable
Deposit Name Country Ownership Mt (g/t) Moz Moz (gold equivalent) Moz
Bulyanhulu Tanzania 100% 49.2 10.9 17.2 1.8 19.1
Buzwagi Tanzania 100% 79.9 1.4 3.7 0.4 4.1
North Mara Tanzania 100% 48.1 3.1 4.8 0.0 4.8
Tulawaka Tanzania 70% 0.9 5.7 0.2 0.0 0.2
Nyanzaga Tanzania 100% 10.5 2.8 1.0 0.0 1.0
Total 188.7 4.4 26.9 2.2 29.1
Total Reserves
Scoping and Feasibility Expected results date Description
Gokona / Nyabigena UG Q1 FY12
Feasibility completed and results expected to be announced after board review in Q1 12.
Project aim to increase the ounce profile of the North Mara mine and to extend mine life.
Aim to increase resource profile from 370koz to >1Moz.
Bulyanhuly Upper East Zone and Tailings
Q1 FY12
Expansion project of the Bulyanhulu underground mine. nfrastructure study completed,
metallurgical and geotechnical study ongoing with expected completion in Q1 FY12. The
group aims to build a test stope for mining method validation by Q3 FY12. Details
surrounding the tailings operation are expected in Q1.
Tulawaka Deeps Mid to late FY12
Mine life extension project. The life of the mine has already been extended to FY12,
further assessment ongoing. Ongoing drilling in FY12 will begin to target high grade
extensions below the East Pit.
Golden Ridge
Detailed update expected by year end
FY11
Satellite operation exploration which is operationally challenging (50km hauling distance).
nitial resource declared in March FY11 527koz @2.94g/t indicated and 152koz@2.52g/t
inferred.
Nyanzaga: Tusker and Kilimani By FY11 end
Lake Victoria goldfields which ABG fully owns after its acquisition of Tusker Gold in FY10.
Positive drilling results at Tusker and Kilimani results in Q3 11, resource update expected
by y/e FY11.
Nyabirama deeps FY12
Scoping study ongoing relating to expansion of the North Mara pit mine underground. nfill
and step-out drilling program ongoing.

61
Fig. 116: ABG EBITDA and capex profile
Organic growth has not as yet provided a home for sustained op. profits

Fig. 117: ABG debt profile and debt ratio
Strong net cash position to provide significant corporate optionality

Fig. 118: EPS and P/E forecasts @1,900/oz flat gold

Fig. 119: EPS and P/E forecasts @ long-term prices


Source: Datastream

Source: Datastream

Board/management
Chairman Aaron Regent
CEO Greg Hawkins
CFO Kevin Jennings
Barrick Gold Corporation 73.9%
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Net Cash (Debt) ($M) Net Debt/EBTDA (x)
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Forward P/E

62

Revenues 964 1,232 1,394 1,660
Rating Buy Bloomberg Ticker Operating Costs -545 -668 -730 -764
Target Price (GBp) 750 ABG LN EBITDA 419 564 665 896
D&A -109 -126 -125 -128
Price (GBp) 462 DataStream Ticker EBT 310 438 540 767
ABG Share of Equity Profit 310 438 540 767
Net nterest -1 -5 0 0
Shares (M) 410 Taxes -86 -129 -162 -230
Adjustments 0 0 0 0
Mcap (US$M) 2898 Net Profit 218 293 364 537
Net debt (US$M) -713
EV (US$M) 2185 EPS () 53 71 89 131
DPS () 5 10 13 20
Year End December
Assumptions FY10 FY11E FY12E FY13E Cash Flows (US$M) FY10 FY11E FY12E FY13E
Gold (US$/oz) 1,225 1,571 1,788 2,063 EBTDA 417 560 665 896
Copper (US$/t) 7,540 8,942 8,816 7,934 Working capital changes -84 -15 -50 -22
Silver (US$/oz) 20 38 42 49 Net nterest 1 -4 0 0
ncome Tax Paid/Refunded 0 0 0 -78
EURUSD 1.33 1.38 1.33 1.35 Other 1 2 11 0 0
GBPUSD 1.55 1.59 1.61 1.65 Operating Cash Flows 345 552 615 796
Capex -224 -228 -132 -124
Key Ratios FY10 FY11E FY12E FY13E Disposals 0 0 0 0
Exploration - 63 0 0 0
PE (x) 13.3 9.9 8.0 5.4 Other 12 3 0 0
EV/EBTDA (x) 5.2 3.9 3.3 2.4 Investing Cash Flows -276 -226 -132 -124
EPS Growth (%) 272% 34% 24% 48%
ROE (%) 9% 10% 11% 14% Change in Borrowings -575 0 0 0
Net Debt to Equity (%) -16% -25% -34% -44% Dividends -260 -41 -55 -81
Net Debt to EBTDA (x) -1.0 -1.3 -1.7 -1.9 Equity ssues 865 0 0 0
Dividend Yield (%) 1% 1% 2% 3% Other 231 27 0 0
FCF Yield (%) 4% 11% 17% 23% Financing Cash Flows 262 -14 -55 -81
Production & Costs FY10 FY11E FY12E FY13E Balance Sheet (US$M) FY10 FY11E FY12E FY13E
Gold Cash 401 713 1,141 1,732
Gold Production (koz) 700.7 696.6 733.7 765.1 Recievables 59 57 73 80
Cash cost (US$/oz) 569 692 724 732 nventories 228 149 193 211
Other 70 63 63 63
By Product Current Assets 759 981 1,470 2,086
Copper Production (kt) 1.5 5.7 9.1 10.3
Exploration 259 259 259 259
Property, Plant and Equipme 1,615 1,720 1,727 1,723
EBIT (US$M) FY10 FY11E FY12E FY13E ntangibles 69 69 69 69
Other 104 197 197 197
Bulyanhulu 149.6 221.4 280.9 359.8 Non Current Assets 2,047 2,245 2,252 2,248
Buzwagi 67.3 131.3 107.1 148.5
North Mara 124.8 102.1 186.5 340.7 Total Assets 2,927 3,226 3,722 4,334
Tulawaka 28.4 44.3 47.0 0.0
Nyanzaga 0.0 0.0 0.0 0.0 Borrowings 0 0 0 0
Payables 120 82 92 96
Provisions 4 4 4 4
NPV (US$M) Other 6 3 3 3
$ Current Liabilities 130 89 100 103
Bulyanhulu 2,035 $4.96 3.20
Buzwagi 574 $1.40 0.90 Borrowings 0 0 0 0
North Mara 894 $2.18 1.41 Provisions 109 113 113 113
Tulawaka 57 $0.14 0.09 Other 9 31 31 31
Nyanzaga 0 $0.00 0.00 Non Current Liabilities 118 144 144 144
Other -733 -$1.79 -1.15
Net Cash 713 $1.74 1.12 Total Liabilities 384 392 402 405
Total US$ 3,541 $8.63 5.57
Total Equity 2,543 2,834 3,320 3,929
African Barrick Gold
Per Share

63


64
CEY Centamin (Neutral, 120p TP)
Centamin and its high-quality Sukari gold mine is, in our view, significantly underpriced in
the longer term. However, near-term political risk concerns are likely to remain the focus
of investors and leave Centamin at a relatively low valuation through 2012.
Egyptian risk to persist through 2012 elections
Centamin is a one-mine gold producer and as such its risks are concentrated on the
Sukari asset located in southern Egypt near the Red Sea. Centamin was a market
favourite with its high-quality growth and low cash cost position, although the revolution
in Egypt, the resultant political uncertainty and production missing guidance have put
pressure on the share price. Centamin's shares fell by c. 50% in 2011.
Egypt's near-term stability remains a concern, in our view. Parliamentary elections held
in recent months have seen nearly 70% of seats won by slamist parties, which signals a
potential shift in Egyptian geopolitical positioning. The ruling Military Council has
announced that presidential elections will be held after the drafting of a new constitution
prior to June. Although there is no direct link between Centamin's current operations and
the political changes, the sell-off in Centamin's shares sparked by renewed violence in
Cairo in November served as a reminder of the inherently unstable situation.
Economically, Egypt's position continues to deteriorate. Egypt's major tourism industry
fell by 30% in 2011 and the government will be seeking a record USD 28bn in bond
issuance in Q1 2012 alongside a negotiation with the MF for funds. The Egyptian
government has recently removed a fuel subsidy for heavy industry. Although this is yet
to affect Centamin, further deterioration in the government's fiscal position could see this
potentially affect operations (removal of the subsidy could see an estimated increase of
USD 50 to USD 100 per ounce in costs). Fiscal instability and political uncertainty in
Egypt will continue to weigh on sentiment, in our view, in the coming months.
We believe that as the current high levels of uncertainty stemming from political change
in Egypt are removed in due course, that Centamin shares will see what could be a
substantial rerating. That said, at this point, we do not believe that investor sentiment
towards Egypt is likely to change substantially enough over our target price horizon,
leaving Centamin less exposed to our positive macro gold outlook over the near term.
n our view, the shares are likely oversold and are close to bottoming (on current
available information) as the P/NAV begins to reach heavily-discounted territory. As
such, we expect the P/NAV to settle out at slightly higher levels than what is currently
implied by spot prices, at 0.5 P/NAV vs. 0.4 P/NAV. As such, we see upside potential
from current levels, although in our relative rating framework, which provides further
upside from other gold equities, we rate Centamin as Neutral with a 120p target price.
Expanded cash flows should pay for the government stake
As there is no mining code in Egypt (and prospects for a new code are unlikely in the
context of political changes), the Sukari licence is modelled on a general oil and gas
production and sharing agreement split 50-50 between Centamin and the Arab Republic
of Egypt. Centamin has fully funded the capital expenditure at Sukari, but is entitled to
recover these costs (to a maximum of 33% per annum). Although Centamin must pay a
3% net revenue royalty, there is no corporate tax paid on the profits from Sukari.
Owing to the higher gold prices, the capital recovery balances are being depleted faster
than originally forecast. This includes the capital being spent on the Stage 4 expansion
at Sukari and the continued underground development. We calculate (based on our long-
term gold price forecasts) that the government will receive 45% of the cash flows from
Sukari starting in 2013. The government's share then increases to 50% in 2015.


65
After the Stage 4 expansion is completed and the underground operations have
matured, we forecast that Sukari will produce 530,000oz of gold in 2015 or a 160%
increase on 2011E levels. Based on spot pricing (in order to remove the effect of gold
price changes), Nomura forecasts that Centamin's EBTDA will reflect this increasing
production reaching over USD 600m in 2014. EPS, however, will actually decline on
2011 numbers as cost inflation and the increase to a 50% government take erode
Centamin's share.
Fig. 122: EBITDA and EPS: 201015E
Centamin's EPS will likely not increase in line with EBTDA as the
government increases its share of the company's cash flows

Fig. 123: CEYs share price vs. EGX 30 (indexed at Jan. 11)
Centamin's exposure to country risk has been reflected in the way in which
its shares have tracked the Egyptian stock market
Source: Datastream
World-class Sukari provides long-term value
The Sukari gold mine remains one of the few top-tier assets in the world held outside of
the major gold companies. We believe this makes Centamin a unique investment
opportunity for longer-term investors, current country risks aside. Despite higher costs in
2011, we expect that cash costs will moderate to USD 500/oz as the underground
operations reach full production and economies of scale begin to be generated from the
Sukari expansion to 10m tonnes per annum.
This 500,000oz plus of gold production and the associated cash flow generation potential
should be exceptionally strong compared with peers. We calculate a FCF yield of 30%
for Centamin in 2013E. n our view, this strong balance sheet, coupled with strong
forward cash generation potential, should allow Centamin to look at expanding into a
new geography (beyond its current Ethiopian exploration programme). However, owing
to the size and quality of Sukari, there are limited assets that would diversify production
in a meaningful way without giving up too much longer-term value at Sukari. This may
see Centamin pay substantial dividends from 2013 onwards.
We therefore believe that management's apparent strategy of focussing on longer-term
potential (progressing with the Stage V expansion in current political climate,
progressing exploration assets), while waiting for the cash build to tighten valuations, is a
prudent one in the current circumstances. We initiate on Centamin with a Neutral rating
as on a risk-adjusted basis the downside risk from the potential consequences of the
changing political system and this associated uncertainty mitigates upside opportunities
for the time being.

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Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov -11 Dec-11
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66
Valuation
Nomura's one-year forward sum-of-the-parts NAV estimate (using Nomura's one-year
forward quarterly gold price forecast of USD 1,900/oz) provides a value of 255p/share. At
the current spot gold price of USD 1,600/oz, Nomura calculates a NAV of 207p/per share
implying a P/NAV multiple of 0.4x. Nomura initiates on CEY with a Neutral rating based
on a one-year forward P/NAV multiple of 0.5x, which equates to 120p.
Fig. 124: Sum-of-the-parts NAV
Valuation shows upside potential, assuming political risk perceptions stabilise following Egyptian elections

Valuation (NPV @ 5%) $M Current Per Share +1 Yr +2 Yr +3 Yr
Sukari
4026.7 $3.67 $3.74 $3.63 $3.45
Other Resources
15.0 $0.01 $0.01 $0.01 $0.01
Corporate -80.0 -$0.07 -$0.07 -$0.07 -$0.06
Exploration 0.0 $0.00 $0.00 $0.00 $0.00
Hedging 0.0 $0.00 $0.00 $0.00 $0.00
nvestments 0.0 $0.00 $0.00 $0.00 $0.00
Net Cash (Debt) 160.3 $0.15 $0.27 $0.46 $0.79
Total 4122.0 $3.76 $3.95 $4.04 $4.19
GBPUSD 1.55
Total GBP 2659 255p
89
P/NAV 0.3x
Target price 120p
Upside
34%

67
Fig. 125: CEY NPV waterfall chart
Centamin's value is near 100% focused in Egypt

Fig. 126: CEY valuation trend
Despite Egyptian risk there remains significant value in Centamin

Centamin is focused on the Nubian shield of East Africa

Fig. 128: CEY production and cash cost forecasts
Cash costs should be contained once Stage V and underground ramp up has expanded production

0p
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242.6
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68
Company summary
Centamin Egypt is an LSE- (CEY) and TSX- (CEE) listed junior gold producer operating
the large Sukari deposit in southern Egypt. As well as regional exploration in and around
its main asset, the company has exploration assets in northern Ethiopia that it expects to
progress in 2012.
Asset summary
Sukari Gold Mine
The Sukari open-pit and underground mine is located near the western edge of the Red
Sea, approximately 600km south of Cairo. t is Egypt's first (and only) modern gold mine.
Centamin began exploring in the region in 1995 and was granted a 160 sq km
exploitation lease for Sukari in 2005. Construction for the staged ramp-up began in 2007
and first gold production was in 2009. Underground operations began in late 2010.
Preliminary production was reported as 202,000oz. We forecast a cash cost of
USD 572/oz for 2011. Centamin's results are scheduled for 30 January.
The latest phase of development is the Stage V plant expansion, which should increase
throughput capacity to 10mtpa. The company expects the expansion to cost USD 255m
and includes spending on a new power station, a second pipeline and increased capacity
of the Tailings Storage Facility. From 2014, management is targeting ongoing annual
production of around 500,000oz at a cash cost of between USD 450/oz and USD 500/oz.
Fig. 129: Sukari operations
Stage 2 pit - the scale of the operations and potential 70mtpa of total material moved make this a very
large project
Source: Buchanan Communications


69
The Sukari mine has had limited disruptions since the revolution that forced former
president Hosni Mubarak to resign in February 2011. Through the height of the
revolution, Centamin had difficulties in shipping blast materials from Alexandria, but the
impact on Q1 production was relatively limited. Local blast inspectors, however, did
cause Q2 blasting to fall behind schedule, which pushed back the mining schedule and
caused a downgrade in 2011 production guidance to 200,000-210,000oz of gold at a
higher cash cost of USD 550/oz. Q3 saw increased production rates and Q4 saw record
production of 59,000oz.
This trend should continue into 2012 and we expect stronger production of 260,000oz in
2012. Owing to the delays in the mine sequencing plan, and the shift from the Stage 2 pit
to the Stage 3 pit pushback, we expect that the open-pit operations will have a higher
strip ratio in 2012 and that this will keep costs relatively elevated at USD 532/oz.
The mine is owned by the Egyptian government by means of a concession agreement,
the details of which are:
no taxes and duties for 15 years (and an option to extend for a further 15 years),
but a 3% royalty rate;
a 50% profit-sharing arrangement, once Centamin has recovered the cost of any
capital expenditure (estimated by Nomura to be in Q4 2013);
the details of this agreement are unchanged since they were signed in 1994.
Sukari had 4.5moz of attributable gold reserves at an average grade of 1.2g/t and
7.2moz of attributable gold resource at an average grade of 1.5g/t.
Expansion potential
The underground operations of the Sukari mine hold the greatest potential for expansion.
n Q4 2011, we expect Centamin to announce an expansion of the underground reserve
and in 2012 the company will undertake a new programme of resource drilling (USD 18m
in capex), which will target deeper into the orebody. This secondary decline will take
underground activity away from the current pit shell and allow the company to run two
separate production sources. The average plant feed grade is also markedly higher
underground (10-12g/t) than it is in the open pit (1.8g/t), although the company is
increasingly encountering problems with recoveries that may reduce final output.
Centamin is also exploring seven other prospects within the Sukari licence area and
holds four exploration licences in Ethiopia that were acquired as part of the Sheba
Exploration plc acquisition in 2011. Centamin plans on advancing the Una Deriam
prospect in Ethiopia in 2012 as well as continuing exploration on the Quartz Ridge and
V-Shear zones at Sukari. Centamin is scheduled to report a new resource and reserve
statement on 30 January.
Balance sheet
With no debt, USD 160m of cash (Q3) and cash from operating activities set to
accelerate from its current quarterly level of USD 62.5m, Centamin is, we believe, well
positioned to fund its Sukari development strategy without recourse to further financing.

Total Reserves
Deposit Name Ownership Mt (g/t) Oz Oz
Sukari 50% 245.4 1.2 9.1 4.5
Total 245.4 1.15 9.1 4.5
Total Resources (incl. nf erred)
Deposit Name Ownership Mt (g/t) Oz Oz
Sukari 50% 304.6 1.5 14.5 7.2
Total 304.6 1.48 14.5 7.2

70
Fig. 131: CEY EBITDA and capex profile
As Stage 4 completes, Centamin should begin to see EBTDA benefits

Fig. 132: CEY net cash
Centamin's net cash position is forecast to increase to c. USD 1bn by
2015

Fig. 133: CEY EPS and P/E @ USD 1,900/oz


Fig. 134: CEY EPS and P/E @ Nomura long-term price
estimates


Fig. 135: CEY historical price chart
Despite the 2011 gold price rally, Centamin shares have been weighed
down by the political unrest in Egypt
Source: Datastream

Fig. 136: Historical 12-month forward P/E

Source: Datastream

Board/management
Chairman Josef El-Raghy
CFO Pierre Louw
Legal & General 5%
Baring Asset Management 5%

-$300
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71


Revenues 124.5 362.1 462.1 821.3
Rating Neutral Bloomberg ticker Operating Costs -52.5 -111.6 -155.5 -241.4
Target Price (p) 120 CEY LN Other - - - -
Price (p) 89 CEE CN EBITDA 72.0 250.6 306.6 579.9
D&A -32.8 -58.6 -83.9 -123.0
DataStream Ticker EBT 39.1 192.0 222.7 457.0
CEY Net nterest - 0.2 2.0 3.6
Shares (M) 1,096 Taxes - - - -
Minority nterests - - -3.0 -189.4
Net Profit 39.1 192.2 221.7 271.1
Mcap (US$M) 1,495
Net debt (US$M) -139.6 EPS () 4.9 17.7 20.3 24.8
EV (US$M) 1,355 DPS () - - - -
Year End December
Assumptions FY10 FY11E FY12E FY13E Receipts 123.8 329.8 462.1 821.3
Payments -62.8 -136.8 -155.5 -241.4
Gold price (US$/oz) 1,226.5 1,571.1 1, 762.5 2,062.5 N et nterest - 0.2 2.0 3.6
EUR/USD 1.35 1.35 1.35 1.35 Taxes - - - -
GBP/USD 1.65 1.65 1.65 1.65 Other 0.2 -9.5 -22.2 -130.0
Discount rate 5% 5% 5% 5% Operating Cash Flows 61.3 183.7 286.5 453.5
Capex -100.0 -169.5 -144.0 -40.0
Key Ratios FY10 FY11E FY12E FY13E Disposals 36.5 - - -
Exploration -11. 7 -9.4 -4.0 -4.0
PE (x) 28.0 7.7 6.7 5.5 Other 0.5 -27.2 0.0 0.0
EV/EBTDA (x) 16.1 5.4 4.0 1.7 Investing Cash Flows -74.8 -206.2 -148.0 -44.0
EPS Growth n/a 2.6 0.1 0.2
ROE (%) 8% 24% 21% 21% Change in Borrowings - - - -
Net Debt t o Equity (%) -25% -17% -26% -38% Dividends - - - -
Net Debt t o EBTDA (x) -1.9 -0.6 -0.9 -0.9 Equity 141.9 8.2 0.0 0.0
Dividend Yield (%) 0% 0% 0% 0% Minority interest / ot her 0.6 0.8 -3.0 -189.4
FCF Yield (%) -4% -2% 9% 28% Financing Cash Flows 142.5 9.0 -3.0 -189.4
Production & Costs FY10 FY11E FY12E FY13E
Balance Sheet (US$M) FY10 FY11E FY12E FY13E
Gold production (koz) 154 202 258 396
Cash costs ($/oz) 54 9 572 532 542 Cash 154.3 139.6 275.1 495.2
Recievables 0.0 67.2 81.6 162.9
nventories 36.3 51.7 62.8 125.3
EBIT FY10 FY11E FY12E FY13E Other 0.5 0.4 0.4 0.4
Current Assets 191.1 258.9 419.9 783.9
Sukari 21.9 179.3 226.7 461.0
Exploration 167.9 221.3 225.3 229.3
NPV (US$M) $/sh p/sh Property, Plant and Equipmen 280.0 359.0 419.1 336.2
ntangibles - - - -
Sukari 2,415.6 2.20 142.19 Other - 3.6 3.6 3.6
Other resources 15.0 0.01 0.88 Non Current Assets 447.9 583.9 647.9 569.0
Corporate -80.0 (0.07) (4.71)
Net cash 139.6 0.13 8.22 Total Assets 639.0 842.8 1,067.8 1,352.8
Total US$ 2,490.2 2.27 146.58 Borrowings - - - -
Payables 15.2 18.1 21.5 35.3
Provisions 0.7 0.7 0.7 0.7
Other 0.4 0.6 0.6 0.6
Current Liabilities 16.3 19.4 22.8 36.6
Borrowings - - - -
Provisions 2.6 2.6 2.6 2.6
Other - - - -
Non Current Liabilities 2.6 2.6 2.6 2.6
Total Liabilities 19.0 22.0 25.4 39.2
Total Equity 620.0 820.8 1,042.4 1,313.6
CENTAMIN EGYPT

72
POG Petropavlovsk (Reduce, 860p TP)
Petropavlovsk is undergoing a period of rapid growth as the company brings its vast
Russian land packages and projects to account. Fundamental value is far higher than
the current share price. However, we do not expect 2012 to provide a re-rating in
advance of the commissioning of the technically-challenging POX hub, hence our
relative Reduce rating.
Attractive, but risks outweigh significant upside potential
until POX production begins
Petropavlovsk continues to rapidly progress its vast suite of mineral assets in Russia's
Far East Amur region. The recently commissioned Albyn mine became the fourth hard
rock gold mine built by the group and the company is analysing yet another expansion at
its Pioneer mine. We expect Petropavlovsk's precious metals operations to increase
production from 0.6moz of gold in 2011 to almost 1.0moz of gold in 2014.
The majority of the current growth portfolio comes from the new POX Hub at Pokrovskiy.
POX (pressure oxidization) is a processing method that allows refractory ore (sulphide
material where gold extraction cannot be completed through traditional techniques), to
be processed via high pressure oxidization in autoclaves. The hub, which will process
ore from Pioneer and Malomir remains on time and on budget for a mid-2013
commissioning at USD 480m in total capital expenditure.
The progress to date is encouraging. However, as the milled grades decline at the other
mines, the POX Hub will account for 38% of our total gold production estimates by 2014.
We believe that Petropavlovsk has a firm understanding of the challenges that will arise
with this entry to POX processing, but we believe these risks will remain highlighted
during a 'show-me' year for Petropavlovsk, in context of the company's past production
guidance misses.
Fig. 137: Petropavlovsk milled grades and refractory production
Petropavlovsk will likely be facing declining grades at its main operations while adding more challenging
POX production
On a P/NAV basis, we calculate that Petropavlovsk is trading at 0.8x P/NAV as using
spot gold prices. n our view, there are fundamental structural issues blocking the
potential for a significant P/NAV re-rating over the next 12 months.
1) Petropavlovsk is likely to be heading deeper into a net-debt position (40% net
debt to equity), owing to the high capex for the POX Hub at a time when the
market generally prefers less leveraged balance sheets.
2) nvestor perceptions of Russian risks are unlikely to dissipate, especially
following the unexpected public reaction to the Russian parliamentary elections.
Petropavlovsk's political risk exposure remains concentrated and therefore we
believe there is less potential for Petropavlovsk to take part in M&A than its
peers.
3) The lower expected grades in the precious metals division should see
increasing unit costs in future years, reducing the safety margin from an already
relatively high cash cost position.
5.8
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73
4) The 65.6% stake in Hong Kong listed iron ore/titanomagnetite-producer RC
reduces the pure-play gold exposure and at the suppressed RC equity prices,
we do not expect the company to revisit this in the next 12 months.
5) The potential for operational challenges to arise surrounding the POX
operations are likely to reach their peak in the next 18 months.

Near-term upside potential?
Despite the negatives mentioned above, Petropavlovsk is poised to announce an
increased reserves and resources statement following an USD 80m exploration spend in
2011. This could have material positive impact on the company's shares in the near
term.
The Pioneer mine is running out of non-refractory gold. The current reserve supports not
much more than 3 or 4 years of production, and the bulk of that is likely to come at a
lower grades as the higher grade Andreevskaya pit runs out of reserve sooner. However
the company plans to bring forward another grinding block to increase capacity. This, in
our view, indicates that the February resource update, at Pioneer at least, is likely to add
positive NAV to our valuation and this could have significant positive impact on near-term
mine lives and cash flow.
Three longer-term opportunities are likely to help Petropavlovsk management enhance
shareholder value: 1) Petropavlovsk has rationalised its communications to the market
and we believe that achieving 2011 production guidance will go a long way toward
increasing investor perception of the investment opportunity. 2) f successful, the POX
Hub, which is located on the Trans Siberian Railway and is scalable, could become a
centre for processing refractory gold, of which Russia has many stranded deposits. 3)
The RC stake, and strategic optionality, over the long-run, could develop significant
value for the group.
n addition, the disparity between Petropavlovsk and Polymetal's P/NAV multiples
despite the relative similarities of the companies is also a potential positive for
Petropavlovsk. We expect that if Petropavlovsk executes over the next two years, the
disparity in the P/NAV multiples will decrease (and likely in POG's favour).
Valuation
of USD 1,900/oz and a 5% discount rate) provides a value of 1,226p/share. At the
current spot gold price of USD 1,640/oz, Nomura calculates a NAV of 858p/per share
implying a P/NAV multiple of 0.8x. Nomura initiates on POG with a Reduce rating based
on a one-year forward P/NAV multiple of 0.7x, which equates to 860p.
Fig. 138: POG valuation
Petropavlovsk is highly dependent on the outcome of the POX Hub

Pioneer
513.3 $2.73 $1.88 $1.30 $1.12
Pokrovskiy 393.3 $2.09 $1.75 $1.38 $1.10
Malomir 230.0 $1.22 $0.78 $0.49 $0.25
Albyn 694.5 $3.70 $3.45 $2.55 $1.68
Pokrovskiy Hub 2059.1 $10.96 $13.41 $13.65 $12.56
Alluvials
493.8 $2.63 $2.39 $2.14 $1.88
RC (65.6%)
305.5 $1.63 $1.63 $1.63 $1.63
Other Resources
168.8 $0.90 $0.90 $0.90 $0.90
Corporate -532.8 -$2.84 -$2.45 -$2.15 -$1.84
Net Cash (Debt) -525.4 -$2.80 -$4.72 -$5.06 -$2.16
Total 3800.0 $20.23 $19.01 $16.83 $17.11
GBPUSD 1.55
Current share price (p) 679
P/NAV 0.6x
Target price 859p
Upside
27%

74
Fig. 139: POG NPV waterfall chart
Pokrovskiy hub is the future for Petropavlovsk at higher gold prices

Fig. 140: POG valuation trend
Shorter mine lives with increased capital spending sees NPV drifting
Petropavlovsk's operations are focused on the Amur region of Eastern Russia

Fig. 142: POG precious metals division production and cash cost forecasts

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75
Company summary
Petropavlovsk (formerly Peter Hambro Mining) is an intermediate gold producer listed on
the LSE (POG). Petropavlovsk operates four mines hardrock open-pit gold mining
projects in the Amur region of Russia, including Pioneer (98.6%), Pokrovskiy (98.6%),
Malomir (100%) and Albyn (100%%). The company is building the POX Hub at
Pokrovskiy to process the substantial refractory gold resources owned in the region,
starting with Pioneer and Malomir. Petropavlovsk also operates seasonal alluvial gold
mines. n addition to multiple exploration prospects, the company owns a 65.6% stake in
its former wholly-owned Hong Kong-listed RC Limited (1029 HK). RC is developing the
K+S and Kurynakh projects iron ore and titanomagnetite projects, also found in the Amur
region.
Asset summary
Pioneer (98.6%)
The Pioneer Gold mine is located in the Amur region of Russia, 40km from the
Pokrovskiy mine, near the Chinese border. n 2010, Pioneer produced 230,000oz of gold
at a cash cost of USD 565/oz. Nomura forecasts 2011 production to be 326,000oz at a
cash cost of USD 645/oz.
Pioneer consists of multiple steeply-dipping ore zones formed as a result of hydrothermal
activity associated with the collision of the Eurasian and Amur plates. Andreevskaya, a
higher grade pit, is found to the south-east of the main structure. The processing facilities
include a 5.0mtpa RP (resin in pulp) plant and a seasonal heap leaching facility that has
an estimated capacity of 0.7mtpa. The company will report in January 2012 on a
potential expansion to increase grinding capacity to 7.0mtpa. 2011 saw significant pre-
stripping as the mine prepares to extract refractory ore.
The ore at Pioneer is both refractory and non-refractory. As part of the POX Hub being
built at Pokrovskiy, a series of three flotation circuits are being installed at Pioneer that
will generate a refractory concentrate that will be processed at Pokrovskiy. Pioneer has
524 sq km of nearby exploration ground and we expect that positive exploration results
could provide rationale for a further increase of the front-end of the plant that should see
Pioneer continuing to process non-refractory material, past 2015, augmenting group
production.
The reserve consists of 67.3mt of ore at an average grade of 1.2g/t. t is unclear what
proportion of ore is refractory and what proportion is non-refractory; making it difficult to
forecast with accuracy how long the RP operations at Pioneer can continue.
Petropavlovsk is likely to update the market on this point shortly. Additionally, the recent
mined grades have been substantially higher than the reserve grade, suggesting that
higher costs are likely in the future as lower grade ore is mined and processed.
Owing to the lower grades, we forecast 276,000oz of gold production at a cash cost of
USD 789/oz in 2012. Positive exploration results that add new, higher grade, non-
refractory deposits could provide upside potential beyond our 2013 forecasts.
Pokrovskiy (98.6%) and POX Hub
Pokrovskiy is the initial hard rock mine developed by Petropavlovsk and is located 10km
from the Trans Siberian railway, Pokrovskiy will be host to the new POX Hub and will
process refractory ore from the region, beginning with material from Pioneer and
Malomir. The non-refractory operations at Pokrovskiy produced 145,000oz of gold at
USD 570/oz in 2010. We forecast production of 102,000oz of gold at a cash cost of
USD 657/oz in 2011, down owing to lower expected grades.
Current operations are likely to continue until 2014 (heap leach until 2017). After this, the
1.7mtpa RP plant and spare milling capacity should provide extra flexibility for the POX
Hub. The main source of ore in 2012 is likely to be from the Pokrovska 2 pit as the
original pit has come towards the end of its mine life. The newly-discovered Zheltunak
resource should also incrementally add ounces to production. Owing to decreasing
grades (the reserve grade is 0.9g/t), we forecast 2012 production to fall to 88,000oz of
gold at a cash cost of USD 767/oz.

76
The future for Pokrovskiy and, in our view, for Petropavlovsk itself, will be determined by
the success of the POX Hub. Petropavlovsk is budgeting USD 480m on developing a
regional centre to process refractory gold ore. Two flotation plants will be built at Pioneer
and Malomir, where gold concentrate will be shipped 40km and 670km by road,
respectively, to Pokrovskiy. The POX hub will have a capacity of 600ktpa of concentrate
per annum 330ktpa from Malomir and 240ktpa from Pioneer. The operation is larger
than Polymetal's Amursk Hub which is delivering a similar project along a similar
timeframe.
Fig. 143: POX Hub regional diagram
The hub is located next to the Trans Siberian railway, 40km from Pioneer, 670km from Malomir

The Hub is being constructed at Pokrovskiy as the current mine has many favourable
advantages including low-cost hydropower electricity, significant limestone and clay
deposits, and existing nearby tailings facilities. There is already a skilled workforce in
place.
Production from the autoclaves is expected by the company to commence in mid-2013.
nitially Petropavlovsk had expected to process concentrate via third-party copper
smelters in advance of the construction of the autoclaves; however, the company might
now stockpile material in order to avoid the punitive refining costs. This is likely to delay
first production until 2013, when proper gold production from the autoclaves was
scheduled in the first place (leaving the project on time).
Fig. 144: POX Hub production and cash cost estimates
Once construction has completed, POX Hub should account for a significant portion of POG production

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77
The risks surrounding the implementation of POX technology are greater than traditional
processing techniques. That said, Petropavlovsk has taken a measured approach to this
shift in group strategy via extensive design and testing. The group has hired experienced
POX practitioners and thus far the project is on time and budget.
Malomir (100%)
The Malomir mine is located in the northeast corner of the Amur region in Russia. The
RP plant for processing non-refractory ore was commissioned in August 2010. The
majority of the ore at Malomir is refractory. The mine produced 36,000oz in 2010 and we
expect production to increase to 88,000oz in 2011 at a cash cost of USD 667/oz.
The capacity of the plant was increased in 2011 with the addition of a second crushing
and grinding line. The current operations are mining the higher grade Quartzitovitze pit,
which has a reserve grade of 1.1g/t as compared with the current milled grade in 2011E
of 3.7g/t. As such, we expect grades to fall next year, but the new capacity of 1.4mtpa
should provide increased gold production. We expect Malomir to produce 97,000oz of
gold in 2012 at a cash cost of USD 738/oz.
Malomir is likely to be the biggest contributor to the POX hub. Malomir will send 330ktpa
of refractory concentrate to Pokrovskiy from 6.0mtpa of ore mined. The company
expects that the first flotation line will be commissioned in mid-2012.
Albyn (100%)
Albyn was commissioned in 2011 with an initial capacity of 1.8mtpa of throughput. The
group is considering expanding the capacity with the addition of a second processing
line, which should bring total production to 3.6mtpa. We forecast Albyn will produce (on a
pre-expanded basis) 133,000oz of gold at a cash cost of USD 740/oz in 2012. We
forecast production of 212,000oz of gold in 2013.
The mine has a life of eight years, although there is potential for other regional resources
to be added to the overall resource. Albyn has a reserve grade of 2.0g/t, well above the
group reserve grade of 1.2g/t and this mine should provide higher operational flexibility
for the group. On the downside, we expect the strip ratio to be 22:1, which will leave
costs relatively exposed to mining cost inflation.
IRC Limited (65.6%)
RC Limited is a subsidiary of Petropavlovsk listed on the Hong Kong stock exchange
(1029 HK). RC is an emerging iron ore and ilmenite producer with three development
stage projects located in Russia's Amur region near the Chinese border. The assets
include Kuranakh, which produces an iron ore and a titanomagnetite concentrate, K+S a
large magnetite deposit under development and Garinskoye, a longer-term magnetite
development deposit.
Kuranakh is ramping up production to a forecast 900ktpa of iron ore concentrate and
290ktpa of ilmenite concentrate. The larger K+S deposit is likely to begin production in
2013, reaching a total of 3.2mt Fe (a 65% concentrate) at full capacity.
As Petropavlovsk consolidates its majority stake in RC into the group figures, the capex
spend in the near term (we calculate over USD 400m of capital expenditure over the next
two years) is likely to weigh on the Petropavlovsk balance sheet. A total of USD 740m in
debt and project financing has been arranged with CBC and CNEEC and therefore the
K+S project is financed to expected completion the company had a cash balance of
USD 122m as at 30 June 2011.
Our risked valuation for Petropavlovsk's 65.6% stake in RC is USD 317m, close to the
pure equity read-through value of USD 331m. n our view, the RC stake within
Petropavlovsk has the potential to create unrecognised value once the ownership
structure is streamlined and as development de-risking allows RC to trade closer to its
NAV. A further divestment will be difficult in the near term, however, as Petropavlovsk
has guaranteed certain of the current RC debt facilities. There are also significant
crossover synergies from an operational perspective between the two companies.
Therefore, the two companies may remained intertwined at the group level for a while
longer.

78
Other assets
Petropavlovsk also owns multiple additional late-stage exploration/early-stage
development projects including the Vysokoe Heap Leach operation (expected by the
company to commence in FY2013), the 0.5moz Yamal project, the higher grade
VerkhneAllinskoe underground development and the smaller Tokur tailings and open-
pit operation.
We value Petropavlovsk's other assets at a resource multiple derived USD 168.8m. By
bringing forward these projects there is potential, as would be expected, for valuations to
increase.

Tonnes Goldntained gold Attributable
Pioneer Russia 99% 67.3 1.2 2.6 2.6
Pokrovskiy Russia 99% 26.5 0.9 0.8 0.8
Malomir Russia 100% 117.0 1.1 4.1 4.1
Albyn Russia 100% 16.7 2.0 1.1 1.1
Tokur Russia 100% 4.2 1.5 0.2 0.2
Petropavlovskoye Russia 100% 11.0 1.1 0.4 0.4
Total 242.8 1.2 9.1 9.1
Tonnes Goldntained gold Attributable
Pioneer Russia 99% 153.4 0.9 4.6 4.5
Pokrovskiy Russia 99% 45.4 0.9 1.3 1.3
Malomir Russia 100% 372.1 0.8 9.8 9.8
Albyn Russia 100% 27.1 2.1 1.8 1.8
Tokur R ussia 100% 38.8 1.1 1.4 1.4
Petropavlovskoye Russia 100% 22.7 1.0 0.7 0.7
Visokoe (Krasnoyarsk Region) Russia 100% 58.0 1.1 2.0 2.0
Olenka Russia 100% 11.1 1.5 0.5 0.5
Verhne-Alilinskoe Russia 100% 3.7 8.0 0.9 0.9
Total 732.2 0.0 23.1 23.0
Total Reserves

79
Fig. 146: POG EBITDA and capex profile

Fig. 147: POG debt and debt ratio

Fig. 148: POG EPS and P/E @ USD 1,900/oz


Fig. 149: POG EPS and P/E @ Nomura long-term price
estimates
Fig. 150: POG historical price chart
Petropavlovsk has not participated in the gold price rally of 2011
Source: Datastream

Fig. 151: Historical 12-month forward P/E ratio

Source: Datastream
Board/management
Chairman Peter Hambro
CEO Sergey Ermolenko
CFO Brian Egan
Blackrock 11.1%
Pavel Maslovskiy 7.9%
J P Morgan 6.2%
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Petropav lov sk DS World gold mining index
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80

Revenues 612 1,233 1,512 2,107
Rating Reduce Bloomberg Ticker Operating Costs -275 -572 -754 -995
Target Price GBp 860 POG LN Other -132 -165 -188 -218
EBITDA 205 495 570 894
Price (GBp) 685 DataStream Ticker D&A -87 -82 -145 -145
POG EBT 118 413 425 749
Associate 0 0 0 0
Shares Outstanding (M) 188 Net nterest -23 -39 -42 -34
Taxes - 46 -97 -107 -200
Mcap (US$M) 1948 Adjustments -26 14 0 0
Net debt (US$M) 526 Net Profit 23 291 276 514
EV (US$M) 2474
EPS () 11 162 147 274
Year End December DPS () 7 7 7 14
Assumptions FY10 FY11E FY12E FY13E
Gold (US$/oz) 1,225 1,571 1,788 2,063
Copper (USc/lb) 3.04 3.94 4.11 3.95 Cash generated f rom operations 201 525 570 894
Silver (US$/oz) 20.17 38.00 42.00 49.00 Working capital changes -121 -176 -90 -332
ron Ore (US/%Fe) 0 0 250 206 Net nterest -27 -35 -42 -34
Taxes -15 -93 -107 -200
Operating Cash Flows 38 220 331 328
GBP/USD 0.96 1.55 1.55 1.55
AUD/USD 0.88 0.99 1.03 1.02 Capex -507 -562 -644 -288
Disposals 1 0 0 0
Exploration 0 0 -63 -63
Key Ratios FY10 FY11E FY12E FY13E Other 4 -2 0 0
Investing Cash Flows -503 -564 -707 -351
PE (x) 96.6 6.6 7.2 3.9
EV/EBTDA (x) 10.3 5.0 5.0 3.2 Change in Borrowings 408 190 310 -70
EPS Growth (%) -89% 1370% -9% 86% Dividends -28 -9 -10 -16
ROE (%) 1% 15% 12% 18% Equity 336 0 0 0
Net Debt to Equity (%) 10% 27% 41% 35% Other -4 -2 0 0
Net Debt to EBTDA (x) 0.84 1.06 1.60 1.06 Financing Cash Flows 712 179 300 -86
Dividend Yield (%) 2% 2% 2% 3%
FCF Yield (%) -30.4% -17.3% -15.8% 2.1%
Net debt / (cash) 171.1 526.0 912.1 951.3 Balance Sheet (US$M) FY10 FY11E FY12E FY13E
Cash 321 165 89 -20
Production & Costs FY10 FY11E FY12E FY13E Recievables 219 341 444 668
nventories 210 356 378 561
Gold Production (koz) 507 624 682 884 Other 2 0 0 0
Cash cost (US$/oz) 617.0 762.3 789.8 963.3 Current Assets 751 862 910 1,209
Recievables 29 31 31 31
EBIT (US$m) FY10 FY11E FY12E FY13E nvestments 12 2 2 2
Property, Plant and Equipment 1,320 1,731 2,230 2,372
Pioneer 111 324 268 163 ntangibles 369 393 425 488
Prokrovskiy 72 81 78 99 Other 7 15 47 47
Malomir 19 72 91 72 Non Current Assets 1,737 2,173 2,735 2,941
Albyn 0 2 148 170
Prokrovskiy Hub 0 0 -78 278 Total Assets 2,488 3,035 3,645 4,150
Alluvials 24 95 71 91
RC 26 -47 -4 54 Borrowings 93 199 199 199
Payables 143 217 252 329
Provisions 10 0 0 0
NPV (US$M) US$/sh GBp/sh Other 0 6 6 6
Pioneer 418 $2.23 1.44
Prokrovskiy 309 $1.64 1.06 Borrowings 399 491 801 731
Malomir 175 $0.93 0.60 Provisions 134 13 13 13
Albyn 477 $2.54 1.64 Other 11 141 141 141
Prokrovskiy Hub 1,032 $5.49 3.54 Non Current Liabilities 544 645 955 885
Alluvials 304 $1.62 1.05
RC 305 $1.63 1.05
Net Cash -526 -$2.80 -1.81 Total Liabilities 789 1,068 1,413 1,419
Total US$ $11.34 7.32
Total Equity 1,699 1,967 2,233 2,731
Petropavlovsk PLC

81


82
POLY Polymetal International
(Reduce, 1,400p TP)
New to the London market, Polymetal offers investors a compelling split between silver
and gold production. The second-largest precious metals producer in Russia, the
company has ambitious growth targets, which if achieved will make Polymetal the
leading precious metals producer among current London companies. However, there
remain significant delivery risks and relative to peers we believe Polymetal is fully priced
for the time being.
From Russia with growth
Polymetal joins the London market at an interesting stage of its development. This
Russian gold and silver producer is one of the higher profile companies to have recently
listed in London, joining the FTSE100 index in December 2011.
Our analysis points to many positives for Polymetal. The company has the highest near-
term (three-year) growth rates as compared with its peers and we expect significant
growth catalysts to continue to drive momentum in the shares. The new London listing
provides a valuable currency for acquisitions, a space in which Polymetal has been
aggressive in the past. We also expect that Polymetal's balance sheet will move from a
net debt to a net cash position over the next three years. n addition, based on 2012E
revenues Polymetal's revenues are split 52% and 48% between gold and silver,
providing a unique equity exposure to precious metals.
We do expect some headwinds for Polymetal in its first year as a London-listed
company. Polymetal trades close to its spot NAV (0.9x P/NAV vs. the relatively
comparable Petropavlovsk, which trades at 0.8x P/NAV). We expect 2012 to provide
operational risks as well as benefits as the market analyses initial performance from the
newly-commissioned Amursk POX operation. This potential delivery risk is likely to be
amplified by expected declining grades at two of its operations, placing 2012 in a higher
cost and lower growth category than trend. With the declining political stability in Russia,
and an end to index buying, we have a difficult time in seeing what drives further
outperformance in the next 12 months at this juncture.
Similar to the other precious metals companies in this note, we see upside potential from
current price levels. However, we expect that the relatively expensive P/NAV multiple
may drift over 2012, as technological and logistical risks in the growth profile reach their
peak, leaving Polymetal as a relative underperformer. We initiate coverage of Polymetal
with a Reduce rating and a 1,400p target price (roughly 27% upside potential).
An attractive pipeline of growth projects
Polymetal has a clear pipeline of projects to increase its production towards its medium-
term target of 1.4moz gold equivalent production in FY14. We forecast the majority of its
growth will come from the commissioning of the Amursk Hub for processing refractory
ores (expected in Q1 2012) and the ongoing ramping up of Dukat and Omolon.
Fig. 152: Near-term catalysts
Polymetal will have a series of catalysts to help recent share price momentum but also has plenty to
deliver on

Reporting segment Mine Study/announcement Time line
Dukat Lunnoye Underground mine feasibility in Lunnoye Zone-7 Q4 11
Omolon Kubaka plant New process commissioning for high silver content ore Q4 11
Amursk Hub Amursk Pox plant First gold pour expected in Q1 12 Q1 12
Omolon Birkachan heap leach Operating during summers only. Plan to commission a new year round facility Q2 12
Khakanja Ozerny Resource update and life of mine plan Q3 12
Amursk hub Mayskoye Mayskoye concentrator commissioning Q3 12
Amursk hub Albazino Resource estimate and feasibility of expanding concentrator capacity Q4 12
Omolon Oroch Preliminary study anticipates a four year mine life. A JORC compliant reserve is expected in Q412 Q4 12
Omolon Dalniy Feasibility study in coming months and a JORC compliant reserve estimate in Q412 Q4 12
Varvara Varvara Mine expansion plan feasibility study FY12
Voro Fevralskoye Fevralskoye feasibility study FY12
Dukat Goltsovoye Reserve update FY12
New New Establish feasibility of constructing two new stand-alone mines by 2013. FY13

83
We have generally based our production forecasts on current reserves and the
competent person's report forecasts from the recent LSE prospectus making our
forecasts generally lower than management's production targets. Therefore, should
management execute on its growth plans, over time, there is potential NAV upside risk to
our forecasts.
Fig. 153: Polymetals recent acquisition history
The company has been aggressive with growth in the past and new London listing will likely see this
continue, but perhaps at a more moderate pace
Polymetal nternational has been one of the more active acquirers in the past three
years, acquiring over USD 700m of assets. We think this trend will continue as
management has stated an ambition to expand the company inorganically, which it also
stated in conjunction with its recent London listing.
The new listing should ease the use of share capital as an M&A currency, but we note
that the group's relatively high net debt balance and capex schedule is likely to restrict it
from larger transactions in the near future.
Valuation
of USD 1,900/oz and a discount rate of 5%) provides a value of 1,620p/share. At the
current spot gold price of USD 1,640/oz, Nomura calculates a NAV of 1,192p/per share
implying a P/NAV multiple of 0.9x. Nomura initiates on POLY with a Reduce rating based
on a one-year forward P/NAV multiple of 0.9x, which equates to 1,400p.
Fig. 154: Polymetal NPV

Acquisition Resources EV US$m
US$/oz
resource Strategic rationale
Goltsovoye 1.1 47 45 Bolt-on to Dukat
Sopka 1.4 95 67 Bolt-on to Omolon
Mayskoye 7.5 166 22 Strategic fit with Albazino
Varvara 3.8 258 68 Cash flow and entry to Kazakhstan
Avlayakan and
Kirankan 0.5 65 142
mmediate cash flows, bolt-on to
Khakanja
Svetloye 1.4 9 7 Bolt-on to Khakanja
Kutyn 1 .2 67 56 Advanced exploration property in the
strategic region
Total 16.9 707 42
Dukat Hub
3971.6 $10.38 $9.59 $8.67 $7.60
Amursk POX
2475.9 $6.47 $7.27 $7.07 $6.81
Omolon
1810.5 $4.73 $4.53 $4.27 $3.91
Voro
382.7 $2.18 $1.82 $1.57 $1.43
Khakanja
637.7 $1.67 $1.27 $1.03 $0.79
Varvara
818.1 $2.14 $1.78 $1.47 $1.25
Other Resources
302.1 $0.79 $0.79 $0.79 $0.79
Corporate -236.4 -$0.62 -$0.57 -$0.49 -$0.45
Exploration 0.0 $0.00 $0.00 $0.00 $0.00
Hedging 0.0 $0.00 $0.00 $0.00 $0.00
nvestments 0.0 $0.00 $0.00 $0.00 $0.00
Net Cash (Debt) -836.0 -$2.18 -$1.37 $0.71 $3.45
Total 9326.3 $25.55 $25.11 $25.09 $25.58
1400p 1399p 1426p
GBPUSD 1.55
1100
P/NAV 0.7x
Target price 1400p
Upside
27%

84
Fig. 155: POLY waterfall chart

Fig. 156: NPV curve
Polymetal has operations across Russia and Kazakhstan

Fig. 158: Polymetal production and cash cost forecasts
Like Petropavlovsk, Polymetal's growth comes from the refractory Amursk POX hub, but is more balanced
with the emergence of Omolon

0p
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1,600p
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Dukat Hub Amursk
POX
Omolon Voro Khakanja Varv ara Other
Resources
Corporate Net Cash
(Debt)
Total
1648p
1620p
1619p
1650p
1,500
1,520
1,540
1,560
1,580
1,600
1,620
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2009 2010 2011E 2012E 2013E 2014E 2015E
Dukat Hub Amursk POX Omolon Voro Khakanja Varvara Cash costs

85
Company summary
Polymetal nternational is an intermediate gold and silver producer listed on the LSE and
is a member of the FTSE 100 index. The company has an ambitious target to increase
production from current 790,000oz of gold equivalent in 2011 to 1.4moz of gold
equivalent by 2014.
Polymetal operates three 'hub' operations with multiple mines/processing centres and
three standalone mines. The hubs, all located in Far East Russia, consist of the largely
silver producing Dukat operations, the nearby Omolon hub and the Amursk refractory
POX hub. Amursk is due to be commissioned in Q1 2012. The standalone mines consist
of the Voro and Khakanja gold and silver mines in Russia and the Varavara copper-gold
mine in Kazakhstan.
Based on our estimates, we expect the group's net debt to peak at about USD 840m in
FY11 below declining to a small net cash balance by FY13E. From a relative standpoint,
as we show above in our industry analysis, the group's net debt is higher than its peers,
which we highlight as a risk factor.
We also believe that the group is likely to start paying dividends owing to our forecast for
an ongoing improvement in its profitability and free cash flow generation. Management's
stated dividend policy is to pay total dividends of 20% if the net-debt-to-EBTDA ratio is
less than 1.75x. We are cautiously forecasting dividend payout ratios of 20% for FY11
(DPSe: 20p) and 20% for FY12 (DPSe 39p), which is in line with management guidance.


86
Asset summary
Dukat hub (100%)
The Dukat mining hub includes the Omsukchan concentrator, Lunnoye processing plant
and four separate mines. t is the largest of the group's operations and given our forecast
for a steady production increase at Dukat (and low capex expectations) we expect it to
remain the group's main cash generator in the coming years. The Dukat hub is located in
the Magadan region in Russia and mining is done both using open-pit and underground
methods. The reserves at Dukat are predominantly silver. The mine hosts 275.8moz of
silver but there is also 700,000oz of gold. n 2011 production on a gold equivalent basis,
90% of production was silver.
The Omsukchan concentrator has a capacity of 1.5Mtpa. The concentrate from the plant
is either treated in Lunnoye's cyanide leaching circuit (capacity 300ktpa) or shipped to a
third party for further processing. Based on the ore grades and processing volumes we
expect the hub's production to grow from 275,000koz of gold in 2010 to 460,000oz by
2014E.
On the basis of the latest reserves at Dukat, we expect the operations to continue until
2020, although we expect the Omsukchan concentrator is likely to operate below its
capacity/below reserve grades during this period. We note that the group is mining some
ore outside its established reserves which increases forecasting uncertainty. However
we think this uncertainty should alleviate somewhat once the Goltsovoye reserve grades
and Lunnoye underground mine feasibility study are released in 2012.
Fig. 159: Dukat hub

Dukat Mine (F (incl. Nachalny-2
FY11):
Management plan open pit mining to terminate in FY12
and underground in FY21. Current capacity of 1000ktpa
but mgmt plan to expandto 1320ktpa by FY14.
Nachalny-2 mine :
Located 4km North of the Dukat mine.
The mine is opening inH2 11 terminating in FY13 .The
group expects to mine a total of 292ktpa of ore by FY13
(=36.5ktp/quarter). Concentrates have low recoveries
from cyanidation and are planned to besold to off-
takers.
Omsukchan Concentrator
n FY10 debottlenecking enhanced capacity to current
1500ktpa.
Ore treatment:
Uses conventional sulphide flotation, different cycles
for different ore qualities. Nachalny -2 and Goltsovoye
have more complex ores.
Recoveries: 72-74% for silver, 73-75% for gold.
Lunnoye feed treatment:
Drying, homogenisation, sampling and packing. (before
07 smelting was done on site).
Goltsovoye mine (FY09):
Currently there are no reserve estimates but
management plan to publish estimates in FY12 following
a completionof a drilling program.
Concentrates from this mine havelowrecoveries from
cyanidation and are expected to be sold to off-takers.
The group started underground development in Q309 and
first ore was mined in Q410. Mining capacity of 120ktpa
in FY11 is expected to reach 180ktpa in FY12
Lunnoye Cyanide Leaching plant
Mixes concentrate from Omsukchan with ore from
Arylakh and Lunnoye mines.
This is processed into zinc precipitate via agitated-tank
cyanide leachingand the Merrill Crowe process and
transported back to Omsukchan concentrator for
drying, homogenisation, sampling and packing.
The plant is operating at full capacity, processing
300ktpa to 30-50ktpa of concentrate with gold recovery
of 92-94% and silver of 87-91%
Full year access
Arylakh Mine (FY06)
Open pit expected to be depleted by FY13.
Detailed delineation belowpit limit and
underground mine design is currently ongoing.
Underground development expected to
commence in Q1 13 and to operate for 3 years.
Perevalny project
Located 8km fromthe Dukat mine. Reserves
have not been established
Resource estimate 1.2Mt of mineralised material
grading 363g/t silver and 6.1gt gold.
Krasin project TBD
71km from the Omsukchan concentrator and
6km from existing road.
Resource estimate expected in FY12.
Lunnoye Mine (FY00):
Zone 9 underground mine: Current capacity of 150ktpa.
Further expansion to 300ktpa planned for FY17. Known
reserves expected to be depleted by FY23 but mgmt
believe extensions are likely.
Zone 7: High grade narrow-quartz veins. n-fill drilling
planned to start in Q412 to convert thezone from resource
to a reserve. Mgmt expect the underground mining
feasibility be established in Q411.

87
Omolon hub (100%)
The Omolon hub is also located in the Magadan region in a remote area accessible by
winter road. The Kubaka plant, acquired with alongside the Birkachan mine, in 2008, is
the main processing centre. The plant processes ore from the Sopka and Birkachan
mines and is also planned to process ore from planned future developments in Tsokol,
Oroch and Dalniy.
The Kubaka plant uses conventional CP cyanidation technology and has a current
capacity of 850ktpa. The plant processes mostly low grade Birkachan ore. A new section
is being commissioned for high silver grade ore including an agitated leaching, counter-
current decantation and Merrill Crowe recovery. Management expect the plant to be
commissioned in Q4 2011, which we see as a potential catalyst. n Q4 2012
management plan to complete feasibility studies to evaluate potential reserves at the
Oroch and Dalniy sites. Based on management's plans we note the facilities are planned
to be expanded to include a heap leaching operation at Birkachan which the company
expects to start operations in 2012 and a heap leach at Sopka from 2014 onwards.
We see Omolon production will contribute significantly to the group's production growth
and forecast gold equivalent production to grow to 230,000oz in FY14E (10,000oz in
FY10).
Fig. 160: Omolon hub

Kubaka plant (FY08)
Acquired in FY08 with four miningproperties including
Birkachan.
n Q410 the group started construction of a new
processing section to enable processing of ores with
high silver content from the Sopka deposit. The
upgraded plant is expected to be commissioned in Q411.
Process uses conventional CP cyanidation technology.
The operating capacity of the plant is 850ktpa .
Currently the plant processes mostly low grade
Birkachan ore, with a recovery of92% gold.
Sopka mine (FY09)
Property acquired in FY09 and open pit mining started in
FY10. The capacity is of 250kt or rock per month from
three pits which will merge into one pit later one. Only
high grade ore (Au eq 5g/t) is transported to the
Kubaka plant for processing. Current mine plan provides
for open pit mining until FY16 with processing continuing
until FY18.
Transportation volumes to limited to 300ktpa owing to
the road conditions as the road is only operational 4
months pa. Winter weather may further limit this
capacity. recoveries are expected to be 94%for gold
and 88% for silver.
Birkachan mine (FY08)
Property acquired in FY08. Following a bridge
construction in Q211 the site is accessible all year around
from Kubaka.
The earlier owner processed only the highest grade
material and stored lower grade on site .
Polymetal management plan to send the high grade
material to Kubaka and to heap leach low grade material
going forward. According to the current mgmtplan, open
pit operations are planned to last until FY17 followed by
underground to FY23.
Current mining capacity is 900ktp of rock /month.
Birkachan Heap leach (FY12e)
Polymetal is trialling dump or heap leaching this material
and a heap leaching facility is expected to start
operations in FY12e with a full year operations. The leach
will be heated to 14 degrees and distributed by buried
drippers in the winter. Aseparate building is being built
for processing through a CC circuit.
Sopka Heap leach (FY14e)
Low grade ore will be heap leached on-site after two-
stage crushing. Test work indicated recoveries of 6% for
gold and 55% for silver are achievable over two-year
leaching period. Processing expected by management to
start in FY14e.
Tsokol project (FY12e)
Property acquired in FY09 with Kubaka plant.
Highly weathered near-surface vein deposit .
No current reserves but resources are 1.3mt of
ore grading 8.1g/t gold.
Open pit mining expected to commence in Q312
reaching annual rate of 150ktpa in FY13. Ore
will be processed in the Kubaka plant.
Management expect open pit mining
operations until FY17 and underground until
FY19
Full year access
Oroch project (FY18e)
Exploration site located 20 km from the Sopka
mine road and 110km fromKubaka plant.
Resources are expected to be published in
Q412.
According to latest plans mining is expected to
start in FY18e but Polymetal management
thinks this could be earlier.
Dalniy project (FY15e)
Located 18km from the Sopka mine and
accessible using a winter road.
There are no resource or reserve estimates, for
the project. Management expect reserve
estimates by Q412.
Management expect mining o commence in
FY15e.
Management anticipate Dalniy to havea five
year mine live . High grade ore is transported to
Kubaka and low grade ore heap leached on site
jointly with material fromSopka.

88
Amursk POX Hub (100%)
The Amursk Hub is located in the Khabarovsk territory in Russia and includes two
operational mines, the Albazino mine in Khabarovsk territory and the Mayskoye mine
located nearly 2,600km away in the Chukotka territory near the Arctic circle.
t is one of the first facilities that will be able to process refractory ore in the region and
leads the Petropavlovsk Pokrovskiy Hub by roughly 18 months. Although a significant
growth opportunity, the Amursk operations are relatively challenging, both from a
technological and logistical perspective. First, the pressure oxidisation process is highly
complex and requires specific chemical and operating parameters, which can take time
to achieve expected rates of production. Second, the mines that will be producing
concentrate for the POX processing are in distant and remote areas (Albazino 755km,
Mayskoye 4,200km by ship and road) with only seasonal transport windows. This in our
view will mean that the production profile from Amursk is likely to be more volatile and
more affected by inherent risks. Full capacity at Amursk is 225ktpa concentrate.
The combined reserves of the two mines are 4.7moz of gold. We forecast Amursk to
ramp up production in FY12 and to grow to 270,000oz of gold by 2014. Consequently it
is a major component of the group's near term production growth, although we note that
our estimates are below management's target of 430,000oz in FY13.
Fig. 161: Amursk POX Hub
Voro (100%)
The Voro open-pit mine is located in the Sverdlovsk region of Russia, 370km north of
Ekaterinburg. Polymetal commenced mining at Voro in 1999 and heap leaching of
oxidised ore in 2000. A CP plant was commissioned in 2005 and later expanded to
current capacity of 940ktpa. Reserves at Voro are 1.4moz of contained gold.
The group has a satellite project at Fevralskoye for which a feasibility study is expected
to be published in FY12. An earlier satellite open-pit project at Degtyarskoye is closing in
FY11.
Central Pressure oxidation (POX) facility at Amursk
(FY12e)
Under construction in Q311. designed to accommodate the complementary
Mayskoye and ablation concentrates.
Designed capacity of 225ktpa of concentrate but only if sulphide sulphur
oxidation is below 22ktpa. f there is more sulphur in the concentrate the
capacity is lower.
First gold pour expected for Q1 2.
Average recovery of 92% of gold to dore was demonstrated, (combined
recovery of 81%).
Albazino mine (FY09)
Albazino has two open pit mines and capacity of
1.5mtpa
Transport to Amursk is by barging which is
restricted to 6 months of the year.
Updated resource estimate is expected by mgmt
in Q4 12 as well as an update on a possible
expansion of the concentrator capacity.
Mgmt have other targets identified on the property
including Maslov, Katya-2 and the watershed.
Current mine plan provides for open pit mining until
FY20e but mgmt state extensions are likely owing
to pit enlargements.
Albazino concentrator (FY11)
The ore is refractory and not amenable to recovery
by conventional cyanidation. Grinding capacity of
1,500ktpa achieved in Q311 running on full
capacity since Aug 2011. Designed recovery using
flotation of 87.5% and mass pull of 8%. Currently
processes oxidized ores which results in a recovery
of 65%. concentrate contains 45-55g/t of gold.
Mgmt plan processing to continue until FY23e.
Mayskoye mine (FY09)
Property acquired from Highland Gold in FY09.
Underground mine development had started in
FY08. Polymetal decided to link this with the
Amursk POX facility to reduce Capex. Mining at
Mayskoye will be done both using open pit and
underground methods
Development is expected to start in Q112e.
Underground development of 1,100m pm.
The current life of mine plan expects the mine to
operate until FY24e.
Mayskoye concentrator (FY12e)
Construction commenced in Q210 commissioning
expected in Q3FY12.
The concentrator has a capacity of 850ktpa which
is planned to be achieved by Q412. Concentrate is
expected to have 70-100g/t gold and RL recovery
is expected to be around 88%.
Transport will be in 14 tonne bags to the port of
Pevek, then by sea to Vanino and from there by rail
to Amursk plant. The other legs are year around but
sea shipment is restricted to the summer months.
Oxidized ore will be processed by RL cyanidation.

89
Owing to the current mining speed and low oxidised ore reserves, the Voro heap leach is
likely to operate at below operating capacity from FY12 onwards and to finish in 2017.
We model that the CP process will have enough material until 2024, although this is
likely to be extended once the Fevraslkoye reserves are established in FY12. Our
forecast for Voro reflects the maturity of the mine and declining reserves. We expect
production to decline to 87,000koz of gold equivalent by 2014. (n 2010 the mine
produced 186,000oz). We would see any increase in reserves at Fevralskoye or other
finds nearby as positive as this could improve the capacity utilisation at Voro, providing
expected benefits to cash cost and production volumes.
Varvara (100%)
The Varvara mine is located in Northern Kazakhstan and consists of an open-pit mine
and a processing plant. We note that management believes that owing to its
infrastructure and location, the Varvara mine has the potential to become a production
hub for other mines in the region. The group's current reserves at Varvara amount to
0.8moz of gold and 0.1MT of contained copper. Based on the reserves we expect
Varvara production to peak in FY11E at 140,000oz, but to decline from FY12E onwards
initially owing to lower grades at the Varvara mine and then owing to lower planned
mining volumes from FY14 onwards. Based on current reserves, we expect mining to
continue at Varvara until FY16E but note as a potential catalyst the Varvara mine
expansion feasibility study, which management aim to publish in FY12.
Khakanja Mine (100%)
The Khakanja mine is a combined gold and silver mine located in the Khabarovsk
territory in eastern Russia. Mining activities there consist of two open pits and the
Yurivskoye satellite project. Management plans to commence underground mining in
Khakanja from FY12E onwards until FY18E. The Khakanja mine is a mature asset and
we model production to (based on current reserves of 0.3Moz of Au and 18.2Moz of Ag)
continue until FY2020. We note that management aims to update resources and the life
of mine plan in Q3 2012E.
Balance sheet
With FY11E net debt of USD 836m, Polymetal's balance sheet is one of the most geared
companies in our universe. We think that the relatively high net debt position is
attributable to the group's high capex spending to ramp up its production as well as its
active M&A record. Based on our estimates we think the net debt will peak in FY11 and
improve to a moderate net cash position of USD 255m by 2013, owing to both a decline
in capex and an increase in production.

Total Reserves
Tonnes
Deposit Name Ownership Country Mt Gold Contained Attributable Silver Contained Attrib. Equiv Attrib Copper Contained Attrib. Equiv Attrib
(g/t) Oz Oz ( g/t) oz moz moz % mt mt moz
Dukat Hub 100% RUS 16.9 1.3 0.7 0.7 508.6 275.8 275.8 4.6 - 0.0 0.0 0.0
Amursk POX 100% RUS 25.4 5.8 4.7 4.7 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0
Omolon 100% RUS 16.7 2.9 1.6 1.6 41.4 22.3 22.3 0.4 - 0.0 0.0 0.0
Voro 100% RUS 15.5 2.8 1.4 1.4 3.9 1.9 1.9 0.0 - 0.0 0.0 0.0
Khakanja 100% RUS 2.5 3.5 0.3 0.3 230.7 18.2 18.2 0.3 - 0.0 0.0 0.0
Varvara 100% KAZ 28.5 0.9 0.8 0.8 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1
Total 105.5 2.8 9.5 9.5 93.8 318.3 318.3 5.3 0.0 0.1 0.1 0.1
Total Resources (Incl. inferred)
Tonnes
Deposit Name Ownership Country Mt Gold Contained Attributable Silver Contained Attrib. Equiv Attrib Copper Contained Attrib. Equiv Attrib
(g/t) Oz Oz ( g/t) oz moz moz % t t moz
Dukat Hub 100% RUS 28.9 1.0 0.9 0.9 479.0 430.1 430.1 7.2 - 0.0 0.0 0.0
Amursk POX 100% RUS 55.5 6.1 10.9 10.9 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0
Omolon 100% RUS 24.1 3.2 2.5 2.5 47.6 36.0 36.0 0.6 - 0.0 0.0 0.0
Voro 100% RUS 17.1 2.7 1.5 1.5 3.9 2.1 2.1 0.0 - 0.0 0.0 0.0
Khakanja 100% RUS 11.2 5.2 1.9 1.9 66.6 29.0 29.0 0.5 - 0.0 0.0 0.0
Varvara 100% KAZ 70.3 0.8 1.9 1.9 0.0 0.0 0.0 0.0 0.0 0.3 0.3 0.3
Total 207.0 2.9 19.6 19.6 73.8 497.1 497.1 8.3 0.0 0.3 0.3 0.3
Gold Silver Copper
Gold Silver Copper

90
Fig. 163: POLY EBITDA and capex

Fig. 164: POLY net debt and debt ratio

Fig. 165: POLY EPS and P/E @ USD 1,900/oz

Fig. 166: POLY EPS and P/E @ long term forecast

Fig. 167: POLY share price since listing

Fig. 168: Historical 12-month forward P/E (consensus)
Board/management
Chairman lya Yuzhanov
CEO Vitaly Nesis
CFO Sergey Cherkasin
Three main shareholders control about 47% of Polymetal shares, which puts the
company above the minimum 50% free float required for FTSE 100 listing. The largest
shareholder of the group is Czech Financier Petr Kellner who owns 20%. The group's
CEO Mr Vitaly Nesis's brother, Alexander Nesis is the second largest holder with a 17%
holding. The third largest holder is Alexander Mamut, with an approximate 10%
shareholding.
-$1,000
-$500
$0
$500
$1,000
$1,500
$2,000
$2,500
2009 2010 2011 2012 2013 2014 2015 2016
-1.0
-0.5
0.0
0.5
1.0
1.5
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-$2,000
$0
$2,000
$4,000
2009 2010 2011e 2012e 2013e 2014e 2015e 2016e
0
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15
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25
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2009 2010 2011e 2012e 2013e 2014e 2015e
EPS P/E (x)
0
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EPS P/E (x)
50.0
250.0
450.0
650.0
850.0
1,050.0
1,250.0
Oct-11 Nov -11 Dec-11
Poly metal DS World gold mining index
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POLYMETAL (~ ) POLYMETAL NTERNATONAL (~ )

91
Fig. 169: Forecast summary

Revenues 925 1,362 1,993 2,980
Rating R educe Operating Costs -527 -729 -786 -919
Target Price (GBp) 1350 Other 0 0 0 0
EBITDA 399 633 1,208 2,061
Price (GBp) 1,100 D&A -70 -78 -106 -157
EBT 328 553 1,098 1,900
Shares (M) 383 Price (US$) 16.99 Share of Equity Profit 328 553 1,098 1,900
Net nterest -26 -22 -87 -53
Mcap (US$M) 6,434 Net debt (US$M) 836 Taxes -67 -151 -283 -517
EV (US$M) 7,270 Net Profit 242 389 728 1,330
Year End December EPS () 67.00 107.20 199.44 364.44
DPS () 0.0 20.0 39.9 72.9
Assumptions FY10 FY11 FY12E FY13E
Gold (US$/oz) 1,225 1,587 1,788 2,063
Silver (US$/oz) 20.17 34.55 36.88 48.25 PBT 306 536 1,011 1,847
Copper (USc/lb) 3.42 4.06 4.00 3.60 Working Capital -120 -123 -309 -463
Net nterest -17 -62 -87 -53
GBP/USD 1.55 1.61 1.61 1.65 Taxes -80 -136 -283 -517
Other 126 122 193 210
Operating Cash Flows 215 337 524 1,024
Key Ratios FY10 FY11E FY12E FY13E
Capex -404 -380 -153 -87
PE ( x) 21.5 16.6 8.8 4.8 Disposals 0 0 0 0
EV/EBTDA ( x) 18.2 11.5 6.0 3.5 Exploration 0 0 0 0
EPS Growth (%) 139% 60% 86% 83% Other -6 -3 0 0
ROE (%) 18% 20% 28% 35% Investing Cash Flows -410 -382 -153 -87
Net Debt to Equity (%) 0.5 0.4 0.2 -0.1
Net Debt to EBTDA (x) 1.7 1.3 0.4 -0.1 Change in Borrowings 182 72 -299 -571
Dividend Yield (%) 0% 1% 2% 4% Dividends 0 0 -73 -146
FCF Y ield ( %) -4% -1% 6% 15% Equity ssues 0 0 0 0
Other -4 -5 0 0
Financing Cash Flows 178 67 -372 -716
Production koz (Au Eq) FY10 FY11E FY12E FY13E
Dukat 278 321 377 446 Balance Sheet (US$M) FY10 FY11E FY12E FY13E
Voro 186 157 120 126
Khakanja 170 114 139 109 Cash 11 33 33 255
Varvara 100 140 109 124 Recievables 167 259 379 566
Omolon 10 59 195 197 nventories 369 545 758 1,073
Amursk - - 67 256 Other 4 4 4 4
Total 743 790 1,006 1,258 Current Assets 551 841 1,174 1,898
Cash costs (US$M) FY10 FY11E FY12E FY13E Exploration 0 0 0 0
Property, Plant and Equipmen 1,643 2,110 2,157 2,087
Dukat 612 876 752 707 ntangibles 115 125 125 125
Voro 458 605 565 541 Other 111 146 146 146
Khakanja 462 678 522 590 Non Current Assets 1,869 2,381 2,427 2,357
Varvara 629 741 1,027 893
Omolon 981 1,484 511 688 Total Assets 2,420 3,222 3,601 4,255
Amursk 0 0 1,815 772
Total 546 815 752 709 Borrowings 91 217 217 0
Payables 90 169 192 232
Provisions 0 0 0 0
EBIT (US$M) FY10 FY11E FY12E FY13E Other 22 42 42 42
Dukat 131 294 497 895
Voro 108 139 134 176 Borrowings 595 652 354 0
Khakanja 105 83 174 178 Provisions 69 58 58 58
Varvara 31 94 73 122 Other 191 124 124 124
Omolon -10 1 247 271 Non Current Liabilities 856 835 536 183
Amursk -15 -19 -14 270
Total Liabilities 1,059 1,262 987 456
Total Equity 1,361 1,960 2,615 3,799
Nomura Polymetal model

92
SA US Seabridge Gold
(Buy, USD 31.80 TP)
We are assuming coverage of Seabridge Gold with a Buy rating and a USD 31.80 target
price. In our analysis, Seabridge Gold fits well into our top-down framework. This
development and exploration company with large, longer-term assets should benefit
directly from a structurally higher gold price.
A focused way to invest in a new era for gold equities
We believe Seabridge Gold provides a unique investment opportunity in our coverage
universe. With no operating mines, the current asset portfolio has a long-term production
profile that still faces significant hurdles including financing, construction and permitting.
The company has stated that its preferred route for realising the value from KSM and
Courageous Lake is through a partnership with a large gold producer. Therefore, the
destiny of catalysing value from moving through development to construction relies on
external factors.
However, in our view, the shares form what amounts to an indirect call option on a
potential new era for gold equities. The super-sized KSM project in Northern British
Columbia Canada, its c. 750,000oz of gold equivalent production potential and its
USD 4.7bn capital cost is likely to consume a vast amount of resources (financial and
otherwise) from an eventual partner. The sheer scale of the project limits the universe of
potential partners. As described in sections above, our analysis indicates that significant
levels of cash is likely to build on the global gold equity balance sheet. n our view, this
will increase the propensity of the company being able to negotiate a partnership that is
long-term value enhancing for Seabridge's shareholders.
n terms of valuation, we see significant potential upside for risk-tolerant longer-term
investors. Unrisked, and importantly unfinanced (and using the same 5% discount rate
for our other coverage universe and a flat gold price at USD 1,900/oz), our calculations
provide a value of USD 225.68/share. We note that achieving this valuation in the near-
term is unrealistic: a) a partnership is likely to see much of this upside given up; b) there
is no discount for financing; and c) our long-term gold price forecast likely provides a
more reasonable expectation (USD 90.76/share). However, should a large gold producer
look to add material production from a desirable country (such as Canada) from a risk
perspective, we believe that the KSM project would perhaps look more achievable in the
coming years.
A JV partnership for KSM or Courageous Lake with a major gold producer would be a
significant catalyst for the shares, and would allow for a de-risking of the valuation. We note
that Seabridge expects to announce an updated feasibility study for KSM in April 2012.
Fig. 170: Seabridge vs. volatility vs. gold vs. gold equities
Seabridge shares have generally outperformed the gold equity universe in a risk on environment
Source: Bloomberg


93
Valuation
We have taken a factor approach to valuing Seabridge Gold based on the multiple risk
factors including financing risk, permitting risk, construction risk and gold price risk.
Owing to the longer-term nature of the developments and lack of near-term production
potential we are using our base-case, long-term prices for valuation (rather than a flat
gold price of USD 1,900/oz).
Fig. 171: Valuation for Seabridge Gold
Based on Nomura's one-year forward sum-of-the-parts NAV estimate (using our long-
term gold price of USD 1200/oz and long-term estimates for copper, silver and
molybdenum), we estimate a value of USD 90.76/share. Through a multifactor discount
process to account for the risks above, we use a target 12-month P/NAV multiple of 0.4x,
generating a value of USD 31.80/share. We highlight that Seabridge Gold, with no cash
flows and no expectation of positive cash flows in the medium term, has much higher
risks as an investment and there remain many operational and structural factors that
could see variations in NAV estimates.

KSM
3131.2 $71.65 $77.22 $81.36 $85.71
Courageous Lake
496.1 $11.35 $12.57 $13.20 $14.05
Other Resources
65.4 $1.50 $1.50 $1.50 $1.50
Corporate -35.2 -$0.81 -$0.77 -$0.72 -$0.68
Exploration 0.0 $0.00 $0.00 $0.00 $0.00
Hedging 0.0 $0.00 $0.00 $0.00 $0.00
nvestments 0.0 $0.00 $0.00 $0.00 $0.00
Net Cash (Debt) 34.5 $0.79 $0.24 -$0.31 -$0.86
Total USD 3692.0 $84.49 $90.76 $95.03 $99.72
CAD $86.73 $93.17 $97.55 $102.37
USD/CAD 1.02655
Total USD 3790 $90.76
$17.03
09/01/2012
P/NAV 0.2x
Target price $31.77
Upside
87%

94
Fig. 172: Seabridge Gold valuation chart

Fig. 173: Seabridge Gold valuation trend
Fig. 174: Map of operations for Seabridge Gold
Asset summary
KSM (100%)
The Kerr-Sulphurets-Mitchell (KSM) project is located in northern British Columbia,
Canada and is the larger of the group's two main assets. The site consists of four
separate deposits and has total reserves of 38.5moz of gold (average grade 0.55g/t);
214.5moz of Silver (average grade 3g/t); 4.6mt of Copper (0.21%) and 257mp of
Molybdenum (53.2ppm).The asset is 100% owned by Seabridge Gold and based on our
analysis ranks as one of the largest current gold mine development projects in the world.
Management have published an updated preliminary feasibility study for KSM in June
2011, which increased the life of mine plan to 52 years with an average processing
throughput of 120kt per day. Ore is planned to be mined using open-pit methods and
processed in a flotation circuit to a combined copper/gold/silver concentrate, which is
planned to be transferred to an offsite smelter. Additionally, separate on-site processes
are also planned to produce Molybdenum concentrate and gold-silver dor.

0
10
20
30
40
50
60
70
80
90
100
KSM Courageous
Lake
Other
Resources
Net Cash
(Debt)
Corporate Total USD
$84.49
$90.76
$95.03
$99.72
75
80
85
90
95
100
105
Current Per Share +1 Yr +2 Yr +3 Yr
NPV Curve
NPV Curve
Canada
Courageous Lake
KSM

95
According to the feasibility study, the start-up capital costs for the project are estimated
at USD 4.7bn, which we think is beyond the group's financial means. We think that
mainly owing to the extensive financial resource requirements, management are openly
looking to partner the development of the mine. Consequently we think that progression
of the plan is highly dependent on finding a partner with sufficient financial resources and
risk appetite. n our model we estimate a development phase of 6 years and production
starting in FY19.
Courageous Lake (100%)
The Courageous Lake deposit is located in an isolated location in the North West
territories in Canada and consists of a 50km long greenstone belt FAT deposit. Total
resources amount to 11.3moz of gold at an average grade of 2.3g/t, reserves have not
been established to date.
Based on the preliminary economic assessment, which management released in June
2011 mining at Courageous Lake is planned to be done using open-pit mining methods
with operating life at 17,500 tonnes per day, 365 operating days per year and a 92%
plant availability. Annual throughput for the mill is estimated at 6.4m tonnes. With 101.1m
tonnes of in-pit mineralised material above cut-off, Courageous Lake's mine life is
estimated at approximately 16 years. Overall gold recovery is estimated at 89.9%
resulting in 6.05m ounces of gold production over the project's life averaging 383,000
ounces per year.
The project site is accessible only using a winter road and by air, and hence stand-alone
power supply and large warehousing storage facilities are required. Overall the start-up
capital costs for the project are estimated at USD 1.3bn. According to management's
latest estimates we understand that development of the project is likely to take 6 years,
and we forecast production to start in FY18. We note that owing to the high capital
expenditure, we believe that Seabridge gold requires external financing (or a partner) to
develop this project.
Other resources (100%)
The group also has a number of smaller gold assets in earlier stages of development.
These include the Grassy Mountain deposit which has resources of 1moz of gold (grade:
1.5g/t); Quartz Mountain 4.6moz of gold (grade 1.4g/t); Red Mountain 0.6moz (grade:
5.5g/t) and the Castle/Black Rock deposit, which has 0.3moz of gold at an average
grade of 0.5g/t.
Fig. 175: Seabridge reserves and resources

Total Reserves
Tonnes
Deposit Name Ownersh Country Mt Gold Contained Attributable Silver Contained Attrib. Equiv Attrib Copper Contained Attrib. Equiv Attrib Moly Contained Attrib. Equiv Attrib
(g/t) moz moz (g/t) moz moz moz % mt mt moz ppm mp mp moz
KSM 100% CAN 2194.4 0.6 38.5 38.5 3.0 214.5 214.5 3.6 0.21% 4.6 4.6 23.3 53.2 257.3 257.3 0.0 65.4
Total 2194.4 0.6 38.5 38.5 3.0 214.5 214.5 3.6 0.21% 4.6 4.6 23.3 53.2 257.3 257.3 0.0 65.4
Total Resources (Incl. inferred), excluding reserves
Tonnes
Deposit Name Ownersh Country Mt Gold Contained Attributable Silver Contained Attrib. Equiv Attrib Copper Contained Attrib. Equiv Attrib Moly Contained Attrib. Equiv Attrib
(g/t) Oz Oz ( g/t) oz moz moz % t t moz ppm mp mp moz
KSM 100% CAN 0.5 1455.2 0.4 20.8 20.8 3.0 138.9 138.9 2.3 0.18% 2.6 2.6 13.2 56.8 170.6 170.6 0.0 36.4
Courageous Lake 100% CAN 0.83 153.2 2.3 11.3 11.3 0.0 0.0 0.0 0.0 0.00% 0.0 0.0 0.0 0 0 0 0.0 11.3
Grassy mountain 100% CAN 0.55 20.4 1.5 1.0 1.0 0.0 0.0 0.0 0.0 0.00% 0.0 0.0 0.0 0 0 0 0.0 1.0
Quartz Mountain 100% CAN 0.34 102.6 1.4 4.6 4.6 0.0 0.0 0.0 0.0 0.00% 0.0 0.0 0.0 0 0 0 0.0 4.6
Red Mountain 100% CAN 1.00 3.7 5.5 0.6 0.6 0.0 0.0 0.0 0.0 0.00% 0.0 0.0 0.0 0 0 0 0.0 0.6
Castle/ Black Rock 100% CAN 0.25 20.3 0.5 0.3 0.3 0.0 0.0 0.0 0.0 0.00% 0.0 0.0 0.0 0 0 0 0.0 0.3
Total 1755.4 0.7 38.4 38.4 2.5 138.9 138.9 2.3 0.15% 2.6 2.6 13.2 47.1 170.6 170.6 0.0 54.0
Gold Silver Copper
Total Au Eq
Cut off
grade
Total Au Eq
Gold Silver Copper
Molybdenum
Molybdenum

96
Fig. 176: Seabridge Gold EBITDA and capex profile

Fig. 177: Seabridge Gold debt profile and debt ratio

Fig. 178: EPS and P/E

Fig. 179: Seabridge gold share price vs. DS world gold
mining index

Board/management
Chairman James S. Anthony
CEO Rudi P. Fronk
CFO Christopher J. Reynolds
Pan Atlantic 18.4%
Royce and Associates 14.1%

-$900
-$800
-$700
-$600
-$500
-$400
-$300
-$200
-$100
$0
2009 2010 2011e 2012e 2013e 2014e 2015e 2016e
-7.0
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
-$2,000
-$1,000
$0
$1,000
$2,000
2009 2010 2011e 2012e 2013e 2014e 2015e 2016e
-500
-400
-300
-200
-100
0
100
200
300
400
500
-0.5
-0.4
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
2009 2010 2011e 2012e 2013e 2014e 2015e
EPS ($) P/E (x)
0
5
10
15
20
25
30
35
40
Seabridge DS World gold mining i ndex

97
Fig. 180: Forecast summary

Revenues 0 0 0 0
Rating B uy Operating Costs -6 -17 -8 -8
Target Price USD 31.80 Other 10 0 0 0
EBITDA 4 -17 -8 -8
Price (US$) 19.23 D&A 0 0 0 0
NPV (US$) 90.76 EBIT 4 -17 -8 -8
Financial items 2 -1 0 0
Shares (M) 44 Price (CAD) 19.74 Net nterest 0 1 0 0
NPV(CAD) 93.17 Taxes - 3 1 3 3
Adjustments 0 0 0 0
Mcap (US$M) 815 Net debt (US$M) -34 Net Profit 4 -16 -5 -5
EV (US$M) 780
EPS () 9.00 -38.99 -12.94 -12.94
Year End December DPS () 0.00 0.00 0.00 0.00
Assumptions FY10 FY11 FY12E FY13E Cash Flows (US$M) FY10 FY11E FY12E FY13E
Gold (US$/oz) 1,369 1,571 1,788 2,063 Net income 4 -16 -5 -5
Silver (US$/oz) 26 35 37 48 Working capital -2 0 0 0
Copper (USc/lb) 4 4 4 4 Depreciation 0 0 0 0
Moly (USc/lb) 16 16 22 20 Taxes 0 -1 -3 -3
Other -10 13 4 4
CAD/USD 0.98 0.99 0.96 0.96 Operating Cash Flows -9 -4 -4 -4
Capex -38 -39 -20 -20
Disposals 10 0 0 0
Key Ratios FY10 FY11E FY12E FY13E Exploration - 32 1 42 0
Other 0 0 0 0
PE (x) 318.8 NA NA NA Investing Cash Flows -59 -38 22 -20
EV/EBTDA (x) 185.6 -45.1 -97.6 -97.6
EPS Growth (%) NM NM NM 0% Change in Borrowings 0 0 0 0
ROE (%) 0.0 -0.1 0.0 0.0 Dividends 0 0 0 0
Net Debt to Equity (%) -0.2 -0.2 -0.1 0.1 Equity ssues 69 33 0 0
Net Debt to EBTDA (x) -7.8 2.0 1.3 -1.7 Other 0 0 0 0
Dividend Yield (%) 0.0 0.0 0.0 0.0 Financing Cash Flows 69 33 0 0
FCF Yield (%) 0.0 0.0 0.0 0.0
NPV (USD$M) Per Share Balance Sheet (US$M) FY10 FY11E FY12E FY13E
KSM 3,131 $71.65 Cash 1 -8 10 -14
Courageous Lake 496 $11.35 Recievables 3 2 2 2
Other Resource 65 $1.50 nventories 0 0 0 0
Corporate -35 -$0.81 Other 32 42 0 0
Other 0 $0.00 Current Assets 36 37 13 -11
Net Cash 34 $0.79
Total 3,692 84.49 Exploration 132 162 162 162
Property, Plant and Equipm 0 4 24 44
ntangibles 0 0 0 0
Other 12 1 4 6
Non Current Assets 144 168 190 213
Total Assets 180 205 203 202
Borrowings 0 0 0 0
Payables 4 3 3 3
Provisions 0 0 0 0
Other 0 0 0 0
Borrowings 0 0 0 0
Provisions 2 2 2 2
Other 1 0 0 0
Non Current Liabilities 3 2 2 2
Total Liabilities 6 5 5 5
Total Equity 174 199 198 196
Seabridge Gold

98


99


100


101
Appendix A-1
Analyst Certification
, Tyler Broda, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any
or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be
directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my
compensation is tied to any specific investment banking transactions performed by Nomura Securities nternational, nc.,
Nomura nternational plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures
Mentioned companies

Issuer name Ticker Price Price date Stock rating Sector rating Disclosures
African Barrick Gold ABG LN 459p 16-Jan-2012 Buy Bullish
Avocet Mining AVM LN 214p 16-Jan-2012 Buy Bullish
Centamin Egypt CEY LN 91p 16-Jan-2012 Neutral Bullish
Petropavlovsk POG LN 681p 16-Jan-2012 Reduce Bullish
Polymetal nternational POLY LN 1091p 16-Jan-2012 Reduce Bullish
Randgold Resources RRS LN 7215p 16-Jan-2012 Buy Bullish 123
Seabridge Gold SA US USD 18.76 13-Jan-2012 Buy Bullish 123

Disclosures required in the U.S.
123 Market Maker - NSI
Nomura Securities nternational nc. makes a market in securities of the company.

Previous Rating

Issuer name Previous Rating Date of change
African Barrick Gold Not rated 18-Jan-2012
Avocet Mining Not rated 18-Jan-2012
Centamin Egypt Not rated 18-Jan-2012
Petropavlovsk Not rated 18-Jan-2012
Polymetal nternational Not rated 18-Jan-2012
Randgold Resources Not rated 18-Jan-2012
Seabridge Gold Not Rated 10-May-2010

Rating and target price changes
Ticker Old stock rating New stock rating Old target price New target price
African Barrick Gold ABG LN Not rated Buy N/A 750p
Avocet Mining AVM LN Not rated Buy N/A 310p
Centamin Egypt CEY LN Not rated Neutral N/A 120p
Petropavlovsk POG LN Not rated Reduce N/A 860p
Polymetal nternational POLY LN Not rated Reduce N/A 1400p
Randgold Resources RRS LN Not rated Buy N/A 9850p
Seabridge Gold SA US Buy Buy USD 51.00 USD 31.80


102
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Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS

103
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impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
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