PRECIOUS METALS,DIAMONDS & GEMSTONES INVESTMENT SUMMIT
THE LONDON CHAMBER OF COMMERCE AND INDUSTRY ● THURSDAY, 20 MAY 2010www.ObjectiveCapitalConferences.com
2.00 – 2.40 Panel Discussion: Outlook for the Precious Metals Markets
David Wilson – Director - Metals Research, Société GénéraleBill Fisher – Director, RX Exploration IncDavid Hargreaves – CEO, Fair Trade Gemstones
CONFIDENTIAL
An overview of Platinum market drivers
May 2010
David WilsonDirector – Metals [email protected]+44 (0)20-7762-5384
Important Notice: The circumstances in which this publication has been produced are such that it is not appropriate to characterise it as independent investment research as referred to in European MIF directive and that it should be treated as a marketing material even if it contains a research recommendation (« recommandation d’investissement à caractère promotionnel »).
Platinum’s surplus (prior to ETF investment activity) is increasing due to: A recovery in South African production. Increasing supply from other areas including automotive scrap The recent falls in automotive demand, which will take a long time to be recouped Bullish longer-term fundamentals (non-OECD demand vs. maturing supply).
Platinum is still in surplus, but rising mining costs and improving sentiment in autos in particular should support prices
2
Source: GFMS & SG Cross Asset Research
4 000
5 000
6 000
7 000
8 000
9 000
10 000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
F
2011
F
000 oz
-1200
-800
-400
0
400
800
1200000 oz
Supply Demand Balance, rh scale
This is equivalent to roughly 24 weeks’ demand But the market has been able accommodate new ETF instruments as the balance has shifted into surplus And there is plenty of liquidity in the market With one month lease rates below 0.5%, and twelve months below 2%
Global platinum inventories are estimated to have fallen by 2.4 million ounces since the start of 1999
3
Source: GFMS & SG Cross Asset Research
-4500
-4000
-3500
-3000
-2500
-2000
-1500
-1000
-500
0
1999 2003 2007 2011F0
5
10
15
20
25
30
35
000 ounces weeks' demand
Although this interest has been distorted by the new ETF in New York Platinum ETFs have absorbed approximately 330,000 ounces so far this year With some small attrition in the ETF Securities London-listed funds, a slight increase in ZKB and over 330,000 ounces into the New
York ETF If this rate of accrual were to continue then ETFs would more than absorb this year’s industrial surplus, but this looks doubtful
4
Source: GFMS & SG Cross Asset Research
ETF net investment has taken up over a third of a million ounces of platinum so far this year, augmenting demand by an ~15%
0
200
400
600
800
1 000
1 200
Apr-07 Apr-08 Apr-09 Apr-10
000 oz
ETF ZKB ETF NY
This is starting to look top-heavy and may point towards a short term price correction This position is equivalent to 18% of one year’s industrial demand And the gross long position is just off a record level and comprises 41% of total open interest, vs a 38% average over the past
fifteen months
Net speculative platinum positions on NYMEX reached a record in mid-April at 1.38 million ounces
5
Source: CFTC & SG Cross Asset Research
-200
0
200
400
600
800
1 000
1 200
1 400
1 600
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
000 oz
South Africa’s major producers continue to watch the purse-strings Although the major producers are running cost profiles lower than prevailing prices, their balance sheets have been under strain And the Eskom price increases will contribute to roughly 10% per annum cost increases This is unlikely – barring any extreme problems from external causes such as power loss – to affect output plans, but is likely to
continue to defer marginal expansion programmes
South Africa remains the primary source of platinum supply with 76% of mine production and 64% of total
6
Source: GFMS & SG Cross Asset Research
South Africa76%
North America5%
Russia13%
Other6%
Platinum use in autocats contracted sharply in the global downturn And while recovering, will lose market share to palladium as Europe, which is platinum-intensive, continues to struggle Especially by comparison with the recoveries elsewhere and the strength in China Jewellery demand has rebounded, but now needs to consolidate and may struggle at higher prices
Emission control demand remains the key to platinum, with jewellery in second place for platinum
7
Source: GFMS & SG Cross Asset Research
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003
2004
2005
2006
2007
2008
2009
2010
J ewellery Autocats Other
China’s jewellery demand rebounded last year and was almost certainly the second highest year on record But conditions slowed in late 2009 and the market is now consolidating in response to higher prices The country’s robust auto sector is underpinning its platinum demand, but is more important for palladium While the country’s economic growth is supporting demand in the glass and other sectors, suggesting that China is now likely to be
the world’s second largest platinum consumer behind Europe
China remains key to platinum demand, especially in the jewellery sector
8
Source: GFMS & SG Cross Asset Research
0
300
600
900
1 200
1 500
1 800
1999 2001 2003 2005 2007 2009
000 oz
0
15
30
45
60
75
90%
China J ewellery As % of jewellery total
Palladium demand in the auto sector is likely to grow by more than 10% this year The Chinese auto market is not yet mature and new emission control limits are being rolled out across the country The industry is gasoline fuelled in the main and therefore much more reliant on palladium While it must not be forgotten that palladium is also now taking market share from platinum in the diesel sector
China’s automotive sector; palladium the primary beneficiary9
Source: GFMS & SG Cross Asset Research
0
100
200
300
400
500
600
700
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
000 oz
Platinum Palladium
Price recoveries have been driven by an improving economic outlook With palladium especially boosted by the auto and electronic sectors While platinum has been boosted by improving jewellery (allied to reduced scrap return) But the majority of the recovery is now out of the way and there is a case for a mild retraction in prices
By late April, Platinum had unwound 63% of the fall from its 2009 high, while palladium has unwound 84% of its fall
10
Source: GFMS & SG Cross Asset Research
700
1 400
2 100
2 800
Jan-
08
Apr-0
8
Jul-0
8
Oct
-08
Jan-
09
Apr-0
9
Jul-0
9
Oct
-09
Jan-
10
Apr-1
0
P latinum US$/oz
150
300
450
600Palladium US$/oz
Platinum Palladium
11
Platinum market to remain in surplus in 2010 (excluding investment demand)
Source: SGCIB
PLATINUM000oz 2005 2006 2007 2008 2009 2010 fNon-Russian primary product ion 5,632 5,447 5,074 4,671 4,600 4,720Russian product ion 960 948 917 835 840 860Other 13 628 591 645 635 700
Fabricat ion demand: - Autocatalyst** 3,056 3,251 3,218 2,816 1,950 2,050- Jewellery 1,792 1,682 1,329 736 1,800 1,700- Industrial 1,827 1,849 1,950 2,273 1,500 1,701
Investment in ETF/ ETCs 194 104 384Residual balance -70 241 -217 222 441 830
Pr i ce – p m f i x, $ / oz 897 1 ,142 1 ,303 1 ,578 1 ,209 1 ,650* Nat ional Defence Stockpile, automot ive industry, futures exchanges ** net of scrap
Forecast risks
Upside risks
Further postponement/cancellation of expansion projects
Energy related disruption at South African operations
Faster than expected demand recovery in world outside China
Further and higher than expected investment flows (into ETFs)
Downside risks
Slower than expected global economic growth in 2010 / evaporation of positive investor sentiment
Further palladium inroads into the diesel auto cat sector
12
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Disclaimer13
An overview of Platinum market drivers
Date - Location
David WilsonDirector – Metals [email protected]+44 (0)20-7762-5384
Important Notice: The circumstances in which this publication has been produced are such that it is not appropriate to characterise it as independent investment research as referred to in European MIF directive and that it should be treated as a marketing material even if it contains a research recommendation (« recommandation d’investissement à caractère promotionnel »).
PRECIOUS METALS,DIAMONDS & GEMSTONES INVESTMENT SUMMIT
THE LONDON CHAMBER OF COMMERCE AND INDUSTRY ● THURSDAY, 20 MAY 2010www.ObjectiveCapitalConferences.com
1
12.15 – 12.40 Focus on Gold: Challenges of gold mining in the US –reopening the Drumlummon Mine in MontanaBill Fisher – Director, RX Exploration
May 2010
Gold and Silver Production in North America
3
Safe Harbor
The following presentation may include certain “forward-looking statements” within the meaning of the United StatesPrivate Litigation Reform Act of 1995 and applicable Canadian Securities Laws. All statements, other than statements ofhistorical fact, included in the presentation, including, without limitation, statements regarding potential mineralization andreserves, exploration results, and future plans and objectives of RX Exploration Inc., are forward-looking statements.Words such as “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “intend”, “believe” and other similar expressions areforward-looking statements. Forward-looking statements are not guarantees of future results and conditions but ratherreflect our current views with respect to future events and are subject to risks, uncertainties, assumptions and other factors,and actual results and future events could differ materially from those anticipated in such statements. There can be noassurance that such forward-looking statements will prove to be accurate.
Some of the important factors that could cause actual results to differ materially from our expectations are disclosed underthe heading “Risk Factors” and elsewhere in documents filed from time to time with the Canadian provincial securitiesregulators. We base our forward-looking statements on information currently available to us and we do not assume anyobligation to update them, except as required by law.
An additional Cautionary Note to Investors – In the event that we use certain terms in this presentation, such as“resource”, “measured resource”, “indicated resource” and “inferred resource”. U.S investors are cautioned that, while suchterms are recognized and required by Canadian Securities Laws, the United States Securities and Exchange Commissiondoes not recognize them. Under U.S. standards, mineralization may not be classified as a “reserve” unless thedetermination has been made that the mineralization could be economically and legally produced or extracted at the timethe reserve determination has been made. U.S. investors should not assume that all or any part of measured or indicatedresources will ever be converted into reserves. In addition, “inferred resources” have a great amount of uncertainty as totheir existence and as to whether they can be mined legally or economically. Accordingly, information concerningdescriptions of mineralization in this presentation may not be comparable to information made public by companies that aresubject to the SEC’s Industry Guide 7.
4
RX Exploration : Gold and silver developer 100% ownership of Montana’s Drumlummon mine, subject to 2%
NSR Historic development at numerous levels up to 1600 feet 1 million ounces gold produced, 1885 -1905 Never fully explored or exploited by previous operators
Fully permitted; Grid power and year round paved road access
Test mining operations in progress
Development drift averages 41 g/t gold and 1,901 g/t silver over 3.2 metre width
Gold and silver bulk sampling commenced April 2010
1,000 tpd permitted Philipsburg mill leased May 2010
Multiple Exploration targets. Drill results include: 178 g/t (5.2 opt) gold and 97.3 g/t (2.84 opt) silver over 0.30 metres
5
Share Capital
1 As of May 12, 2010
Listing CNSX Symbol “RXE” Recent share price1 CAD $0.61/share 52 week low–high CAD $0.165–$0.65 Shares outstanding 109 million – basic
196 million – fully diluted Market capitalization CAD $66.5 million Cash CAD ~$6 million Share ownership
RX Management (~20%); Spruce Ridge Resources (~10%)
Funds (May 2010) Sprott Asset Management (4.6% basic or ~ 5.1% fully diluted)
The company has commenced application for listing on the TSX Venture Exchange. All of the company’s filings are current.
6
The RX Exploration TeamManagementCEO: Murray Nye – Co-founder, director, principal of Venbanc, Inc., an investment and merchant bankspecializing in the structuring and financing of start-up companies; provides follow-up financial andmanagement advisory assistance.
CFO: Max Polinsky, B.Comm – Co-founder, director and principal of Venbanc, Inc.
Director of Mining Operations: Mike Gunsinger – Mike was employed for 40 years by Patrick Harrisonand Co., underground mining contractor, servicing major mining companies such as Inco and Noranda,and the US Military. Upon retirement, established his own underground contracting company and hasbeen active in Utah and Montana.
Consulting Mine Geologist: Ben Porterfield – Ben leads a team of geologists at the Drumlummonmine. He was formerly a geologist for Kennecott, focused on their Terra gold project in Alaska.Following Kennecott’s divestiture of the project, Ben continues to develop the project independently.
Board of DirectorsChairman John O’Donnell, (B.A. Econ, L.L.B.)DirectorsMurray NyeMax PolinskyBill Fisher, (P.Geo.) Former Chairman, Aurelian Resources and VP Exploration, Boliden Ltd.John Ryan (CGA) President, Spruce Ridge ResourcesEdward Ellwood (MBA) Management ConsultantPaul Teodorovici Property Management Consultant
7
The Drumlummon Mine - Marysville, MontanaMarysville, Montana is located 25 miles North-West of Helena, Montana’s capital city.Contact Mill, Philipsburg, 114 miles by road southwest from Marysville
Philipsburg
Marysville
HELENA
RX Exploration Drumlummon Mine and Contact Mill locations
8
Drumlummon Mine Property MapThe property consists of 26 patented mining claims (290 acres) and 68 staked claims (1,390 acres) May 2010 added Bald Butte Gold/Moly projects
A
A’
9
0
100
200
300
400
500
600
700
800
900
1000
1883
1892
1901
1910
1919
1928
1937
1946
1955
1964
1973
1982
1991
2000
2009
Year
Ann
ual A
vera
ge G
old
Pric
es in
US
Dol
lars
per
O
unce
History of the Drumlummon Mine1876: Drumlummon deposit discovered by Thomas Cruse
1883 - 1901: Montana Co. puts mine into production. Loses claim dispute in 1901 and floods mine to 400 foot level.
1902 – 1910: Production continues above 400 foot level by Montana Co while claim appeals in progress. Loses appeal.
1910 - 1929: St Louis Company takes ownership. Leases mine periodically. Production sourced above the 400 foot level. Market crash of ’29 stops production.
1941 - 1951: Montana Rainbow Co. dewaters and restarts production in 1946. Mill burns down in 1950 and production ceases. Rebuilding the mill not economically viable.
2007: RX consolidates all land claims, initiates surface drilling, completes NI 43-101 report. Begins underground rehabilitation.
2008: Charly Vein system discovered
2010: RX reopens the mine
10
Mining Strategy - 2010 Bulk sampling, leading to trial mining, will target ore from two key areas of the
Drumlummon Mine (D Block and Charly Vein)
Both areas are being developed by drifting, followed by trial stoping
Currently taking bulk sample with a target grade of over 10 g/t gold and 400 g/t silver
Contracted trucking fleet already shipping ore to mill
Company is processing a series of 100+ ton bulk samples to fine tune existing gravity and flotation circuits (Metallurgy lab tests showed gold recovery of 92%)
Bulk sampling in May 2010 estimated at a rate of 200 tons per day increasing to trial mining at a rate of 500 tons per day by Q1 2011
Ore to be shipped to RX’s leased mill, at Philipsburg, for processing
11
Drumlummon Development VisionMine development will expand from existing workings – drilling will extend the target envelope, with follow up from rehabilitated workings
9 Hour Workings
SouthSurface
North
Drumlummon Workings Surface Setup
Previously Disputed Ground
Xmas VeinShaft No.2
1600 Level
1000 Level
700 Level
400 Level
Charly Vein
A A’
9 Hour Workings
Xmas Vein
South North
ExplorationTarget
ExplorationTarget
ExplorationTarget
ExplorationTarget
Drumlummon Workings
Charly Vein
400 Level
700 Level
Shaft No.2
1000 Level
1600 Level
PreviouslyDisputed Ground
12
Drumlummon Development philosophy“Drill for Structure…”
Drill Hole From (m)
To (m)
Width (m)
Gold (g/t)
Silver(g/t)
DDH 08-05 119.5 121.4 1.8 37.8 1,081.4
DDH 08-15 122.9 125.8 2.9 44.1 1,393.0
DDH 08-26 123.8 125.6 1.8 33.5 350.4
DDH 08-28 143.2 145.5 2.3 51.8 380.6
DDH 08-29 1.2 3.6 2.4 9.9 1,821.3
DDH 09-102 73.2 76.8 3.7 41.1 572.6
DDH 10-115 9.7 16.5 6.8 (true width 3 m)
21.1 57.8
DDH 10-120 4.3 12.3 8.0 (true width 3 m)
19.76 45.2
13
400 Level
1600 Level
700 Level
Drumlummon Development philosophy“… drift for Grade”
1000 Level
D Block
70 metres of Charly vein development drift averaged 41 g/t gold and 1,901 g/t silver over faces averaging 3.2 metres in width (PR May 2010)
Charly Vein
Xmas Vein
D-block
500 level cross-cut through Charly Vein
14
Development Progress 400 level haulage drifts and internal ramps
fully operational for test mining (over 500 ton per day ore and waste capacity)
By April 2010,142 holes (44,863 feet) of drilling completed defining multiple high grade gold and silver zones. New hanging wall drill station commissioned (May 2010)
Fully permitted water treatment plant currently dewatering mine – able to drain system at 100 ft depth per month
Portal completed for 800 level decline decision in Q3 2010 – for haulage capacity to reach 1,000 tpd
Charly Vein
500 level cross-cut
15
RX’s Fully Permitted Philipsburg Mill Existing mill 114 miles from mine
accessible by paved highway ($20.50 per ton hauling cost), on care and maintenance from 2008
Two separate 500 ton per day circuits including crusher, regrind mills, gravity and flotation circuits
Facility has milled more than 1 million tons of ore from Inspiration’s poly metallic Black Pine Mine
1.5 million tons of tailings space currently available at the mill site
Leased for $30,000 per month plus per ton milling fee
16
Bulk Sampling and Exploration Schedule
17
Property Exploration of Resource Potential Objectives : Consolidate medium-term mine plan and drill/drift on multi-
million ounce gold/silver potential along strike and at depth
Continue exploration of D Block, Charly Vein and newly discovered mineralization to upgrade known resource Charly vein remains open to the north, south and at depth; may
represent the extension of the partially mined high-grade Xmas Vein.
New drill stations in the hanging wall of the Charly vein enables exploration of new and existing targets laterally as well as at depth
Continue rehabilitating historical workings over 1500 m. to the south in order to access and drill “Previously Disputed Ground” and beyond This ground was never mined due to the historic claim dispute
Additional land has been acquired in the vicinity of the mine for future exploration Specifically the Bald Butte Moly/gold/silver property located 5 km to the
SW
18
Permitting and Community Relations RX has received all permits and exemptions required
for production:
Approval of exploration license including water discharge by the Montana Department of Environmental Quality
Approval of small miner exemption which permits the company to mine so long as surface operations do not exceed five acres
Approval of the alternative mine rescue capabilities by the U.S. Mine Safety and Health Administration
Approval of the ventilation, escape and evacuation plan by the U.S. Mine Safety and Health Administration
RX has been conducting regular Town Hall meetings to encourage community involvement and has addressed all of the concerns of the people of Marysville
19
RX Exploration : Programs to Add Value Develop the Drumlummon mine
plan systematically, at a sustainable rate for short, medium and long term profitable operations
Step up mine production over time to match the 1,000 ton per day Phillpsburg mill capacity while maintaining grade and recoveries
Consolidate existing resources and their extensions, and convert to formal 43-101 reserves
Aggressively drill to test multi-million ounce gold/silver potential using the first class access down to 500 metres depth and for over 1.5 kilometres in length
20
Value Drivers: Assessing RX’s value by gold produced Peer Group High-Grade Gold Producers <100,000 oz gold/year
Company
Shares Outstanding
(millions)
Enterprise Value(USD
millions)
Recovered Grade (gold equivalent -grams per tonne)
2009 Production(ounces)
EV/Oz Produced
(US$)
Wesdome Gold Mines 100.4 $229 9.0 96,150 2,381
Richmont Mines 26.1 $99 5.0 63,500 1,555
Orvana Mineras Corp 115.2 $110 5.1 62,644 1,758
Medusa Mines 170.8 $693 16.7 47,869 14,481
Apollo Gold Corp 261.6 $195 2.7 44,739 4,358
Kirkland Lake Gold 63.3 $443 11.9 43,545 10,163
Alexis Minerals 147.7 $41 5.8 38,461 1,067
San Gold Mines 266 $1,133 18.0 23,500 48,234
Olympus Pacific Minerals 322.7 $114 10.3 23,000 4,987
Metanor Resources 122.4 $80 7.4 20,000 3,975
St Andrews Goldfields 326 $342 6.5 15,000 22,767
Avnel Gold Mining 79.2 $28 12.1 13,045 2,161
RX Exploration 109 $55 22.1* NA NA
Average $274 10.2 40,952 $9,824
*NI 43-101 grade and 92% met recovery
21
How the market values high grade gold producersInvestors should compare RX to this peer group
Potential Annual Production (oz Au)
Based on average Enterprise Value per Ounce Gold produced (US $9,824)
$-
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,000
20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000
Pote
ntia
l Ent
erpr
ise
Valu
e ($
US
Mill
ions
)
22
RX Exploration : Summary
Cash on hand - C$6 million
Achieving immediate serial production in high grade Drumlummon mine, with operations to pay for all development and exploration work
Continuous exploration by drilling and rehabilitation of old workings to follow up encouraging drilling results
Surface exploration of Drumlummon extensions and nearby mineralization
Build treasury for development and future corporate development (in-the-money warrants would bring in C$29 million)
23
406 – 138 Portage Ave. EastWinnipeg, Manitoba
CanadaR3C 0A1
T: (204) 989-2434 F: (204) 989-2433
Drumlummon – A Golden Future for a Historic Mine
24
Appendix A: NI 43-101 Compliant Resource - Charly Vein and Historic Resource Calculated from 59 drill holes drilled into the Charly Vein System A cutoff mining width of 5 feet was used as well as a minimum grade of 0.1 oz/t Au
400E Vein Tonnage Grade Au Grade Ag Ounces Au
Ounces Ag(oz/t) (g/t) (oz/t) (g/t)
A 67,284 0.39 13.4 12.2 418 26,192 820,166
B 39,740 0.53 18.2 7.3 250 21,097 291,053
C 48,494 0.48 16.5 16.6 569 23,414 804,341
Total Inferred Resource 155,518 0.45 15.6 12.3 422 70,703 1,915,560
Tonnage Grade Au Grade Ag Ounces Au
Ounces Ag(oz/t) (g/t) (oz/t) (g/t)
Historic Resource* 841,000 0.50 17.14 5.00 171.43 463,000 4,635,000
* Historic Resource is not NI 43-101 compliant
Recommended
