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Gold/Mining/Energy : SOUTHERNERA (t.SUF) -- Ignore unavailable to you. Want to Upgrade?

To: Claude Cormier who wrote (2799)	4/11/1999 7:28:00 PM
From: Gord Bolton	Read Replies (3) \| Respond to of 7235

I just got a copy of this via email. Does anyone have any comments on the potential here? Is this a bargain now? Does anyone have house positions since this was issued? First Marathon Securities Limited Daily Note February 9, 1999 SOUTHERNERA RESOURCES - SUF $7.25 Visit to Marsfontein — Simple Mining and also Very Profitable Kerry Smith (416) 869-7117 ksmith@fmarathon.com Recommendation: FOCUS BUY Estimates 97A 98E 99E EPS ($0.33) $1.20 $1.45 CFPS($0.04) $1.75 $1.90 Valuation 98E 99E P/E 6.Ox 5.Ox P/CF 4.lx 3.8x Basic Information 52 Week Range Mkt Val. (mm) $13.85-$4.50 $187.8 Shs O/S(mln) 25.9 · We recently had an opportunity to visit the Marsfontein diamond property in South Africa, a 60/40 joint venture between De Beers and SouthernEra. · Since startup last August, the joint venture has mined 390,000 carats at a grade of 5.8 carats per tonne from the alluvials overlying the Ml pipe, and another 200,000 carats, at a grade of 3.3 carats per tonne, from the kimberlite. · This operation is well located, has excellent infrastructure and is a very straight forward and simple operation. In addition, this mine is extremely profitable — the joint venture expects to mine about 1 million carats from the Ml pipe in 1999, with revenues expected to be around U.S. $150 million and operating costs less than U.S. $15 million. · For 1999, budgeted grade is estimated at 2.25 carats per tonne, with actual grades in January of 2.85 carats per tonne. We viewed 48,000 carats of Marsfontein production at De Beers sorting facility in Kimberley — the goods appear to be high quality, with many large gemstones over 10 carats in size. Recently, the mine produced a 210 carat stone — demonstrating the potential of Ml. · Mining is Very Simple. At Ml, a contractor delivers 40,000 tonnes per month of kimberlite to a stockpile beside the pit. The pit is currently about 250 meters across with mining to a depth of about 30 meters. Blasting of kimberlite has, to date, not been necessary and currently 30,000 tonnes of kimberlite are stockpiled at the mine. Once stockpiled, the kimberlite is trucked to the plant, located 17 kilometers away, for processing. The joint venture plans to deepen the ultimate pit to a depth of 150 meters from the current 100 meter deep design. In addition to the kimberlite reserve at Ml, the mine is currently stockpiling diamondiferous gravels and diamondiferous kimberlitic diabase encountered during mining. This material, currently totaling over 500,000 tonnes, will be sampled for grade once the new 50 tonne per hour plant is operational in March. Preliminary estimates of 0.3 — 0.35 carats per tonne with values of U.S. $150 per carat indicate this material could be very profitable since all in mining costs would be in the range of U.S. $20 per tonne. · Security is Excellent. Many of the senior personnel are ex-De Beers employees, and as a joint venture partner, De Beers regularly audits the security at the site. All plant employees have daily full body searches upon leaving the plant and the mining area is encompassed by an electrified fence. De Beers regularly removes Marsfontein production by helicopter to Kimberley for sorting. · Further Potential at Marsfontein. The current reserve at Marsfontein is 700,000 tonnes of kimberlite to 100 meters deep. Deepening of the open pit to 150 meters will increase the Ml reserve to about 1 million tonnes of kimberlite. This reserve only includes the Ml pipe and does not include the diamondiferous gravels or diamondiferous kimberlitic diabase. To date, 390,000 extra carats of high quality stones have been recovered from the gravels on top of Ml and the mine continues to add to the existing 500,000 tonne stockpile of gravels and diabase. A gravel anomaly extends 500 meters south of Ml, with two trenches completed to date. Further trenching and bulk sampling is planned to evaluate this potential resource. At M3, a fissure located 1 kilometer west of Ml, diamondiferous gravels 10 meters thick have been located. The upper 4 meters of these gravels were sampled at a grade of 1.37 carats per tonne. Sampling of the lower gravels, which are expected to be higher grade, is planned in 1999. These gravels could be extensive, would be cheap to mine and could have diamonds with an average value of at least that seen at Ml. With Ml values of U.S. $150 per carat and costs of $20 per tonne, gross margins would be on the order of 90%. · Exploration is Just Starting. Until the recent signing of the joint venture agreement between De Beers and SouthernEra, exploration received little attention at Marsfontein. The joint venture has recently approved a Rand 2.7 million budget to look for other kimberlitic and gravel resources on Marsfontein. Soil sampling on a 50 meter grid has now been completed on most of the property with results received on about 15% of the samples. These results have shown a strong anomaly trending west from Ml towards M3 which will be further evaluated in 1999. This anomaly is very exciting since the Ml pipe, arguably the richest pipe worldwide, would comfortably fit between the 50 meter sample sites taken so far. · Recommendation — Focus Buy. Ml is a very profitable pipe and will generate strong cash flows into 2000. In addition, the property has excellent potential for mineable alluvial gravels, and/or kimberlitic diabase, plus excellent exploration potential for additional gravels and small kimberlite pipes. The shares are recommended as a focus buy for all resource accounts.