PRESS CUTTING

TERTIARY MINERALS PLC

FAT PROPHETS – 30 APRIL 2012

Second fluorspar project to prove its worth Like most microcap stocks Tertiary Minerals has seen a volatile share price and is a stock for high risk and patient investors. An economic assessment of its second fluorspar project, Lassedalen, is provisionally scheduled for this summer and should highlight the project’s value. Tertiary won’t see production until 2015 at the earliest but we remain optimistic, given the backdrop of strong fluorspar prices, and rate the shares as a buy. Early stage resource companies face a host of challenges in moving towards the development of their projects. Even if a mine is economic it can be difficult to attract finance, complete the project to budget and then mine it without any operational upsets. Furthermore regulatory and political factors can come into play while the outlook for the commodity in question can weaken. An adept metaphor is perhaps the struggle faced by salmon when migrated upriver – although clearly with much worse odds. The upside is that the resource stock in question eventually “makes it” and in doing so generates significant value. The two key projects for Tertiary Minerals are in politically stable countries – Norway and Sweden – with excellent infrastructure and focus on a commodity, fluorspar, which is seeing demand outstrip supply. Thus in our view the company has a robust chance of not seeing too many upsets in its core projects and generating significant value over time. However, production is at least three-and-a-half years away and the share price is illiquid and volatile making it a share best accumulated overtime and on price weakness.

There has been a slight disappointment to Tertiary’s outlook, over the last three months, from a charting perspective. Technically, prices have fallen below long-term support at 6.25p, and so, we cannot rule out further consolidation over the coming weeks. Additional support is located at 3.75p.

The weekly chart reveals the extent of the basing pattern that formed between 2008 and 2010. Moreover, following a firm break higher, prices have largely consolidated above the upper boundary of the pattern over the past two years. While additional consolidation may be likely in the near-term, we believe the 2011 lows offers significant support. Flurospar Reviewing the fluorspar market and this looks underpinned as the world’s largest producer with over half world output, China, focuses output towards domestic consumption. China is also the largest consumer of fluorspar and could become a net importer of the commodity within 5 years as exports continue to fall. Meanwhile Europe is the next biggest consumer of the commodity and has demand which is more than double domestic supply. Testament to the supply/demand imbalance is the recent price performance of the commodity which has moved up 5-fold since 2000 and up two-thirds in 2011.

Flurospar has many industrial uses with half of it being for fluorocarbons which are used in refrigerant gas which is used for air conditioning and fridges – it is also used in the steel and aluminum industries. With large industrial firms it is perhaps no surprise that Europe is the second largest consumer of the commodity. Thus Tertiary is in the right geographic location and may able to achieve off-take agreements with European fluorspar producers to help fund its projects. The group has ambitious aims with a focus on becoming: “Europe’s largest fluorspar producer” but at present sits with a market value of around £7m. Developing two fluorspar projects The key for investors is for Tertiary to advance its two fluorspar projects through to production on schedule, on budget and with attractive financing. The most advanced project is the Storuman project in Sweden which has already had a scoping study to assess its value. The second project is the Lassedalen project in Norway which is set to see a scoping study completed this summer. As a reminder the Storuman scoping study in July 10 generated a 24% IRR and a US$33m NPV in the base case and US$41m with an extended life. This assumed fluorspar prices of US$357/tonne (equivalent to US$287/tonne China). Since then the fluorspar price has moved up with the company noting in June 11 that using current prices the Storuman project would see the base case NPV move up from US$33m to US$158m and the IRR move up to 58%.

Following the scoping study an updated JORC resource estimate for Storuman has seen the resource increase to 27.8Mt at 10.21% fluorspar. This increase the open-pittable fluorspar by 28% on the basis of 46 drill holes completed in late 2010 with further drilling showing the resource is open and suggesting a “step-change for scale of mineralisation”.

The bottom line is that Stourman looks very economic with the scope to increase the resource and with high fluorspar prices. The US$46m initial capex isn’t expensive compared to the typical cost of a new mine and is partially due to the site lying right next to a tarmac highway.

The group’s second project is, Lassedalen, in Sweden and has a JORC resource of 4 million tonnes at 25% fluorspar. Thus about 1 millon tonnes of fluorspar compared to 2.8m tonnes at Stourman but with a better grade as Sturoman’s grade is 28m tonnes at 10.2% fluorspar. A scoping study to assess Lassedalen’s worth has been commissioned and should be completed in the summer which most probably means late Q3. Given the lower resource at Lassedalen the likely value of the project will be lower but with a much higher flurospare grade the economics – i.e. the IRR – should be more robust. Timelines Both projects are some way away from production but updates before then should serve to highlight the group’s value. The below graphic gives the indicative timeline for both projects:

Storuman is currently undergoing a pre-feasibility study which should be completed in under a year – i.e. Q1 2013 - while as discussed Lassdedalen is undergoing a scoping study. A pre-feasibility study for Storuman is targeted for Q1 2013 while Lassedalen is for Q2 2013. Both projects could start construction in Q4 2014, subject to financing, and then start production a year later in Q4 2015. Thus construction is around two-and-a-half-years away while production is three-and-a-half years away. However timelines often slip so these are likely to be best case scenarios. Both projects have excellent infrastructure nearby with Storuman next to a tarmac road and Lassedalen 500m away. This helps underpin the investment case while further resource upgrades underpin the economics.

Summary and valuation In terms of the valuation the stock is not expensive versus the value of Storuman alone given the open nature of the resource and strong fluorspar prices. Meanwhile the economics for Lassedalen should be robust given the high grades even if it is smaller in size than Stourman. Using a resource in the ground approach Tertiary notes its fluorspar resource would converted to a gold resource of 1.2million ounces. This is using fluorspar prices of US$500/t and gold at US$1,650 which may be fairly aggressive with regards to the fluorspar price. In any event using the average enterprise value per gold resource ounce at £36 for junior Canadian gold miners in December would give a value of Tertiary at 36p. Thus there looks to be robust upside if Tertiary can smoothly move towards production and further resource upgrades. While the shares will always be volatile and illiquid we think they are worth holding for their long-term value. Tertiary looks like it has the right ingredients to make it to production in projects that have robust economics and look comparatively low risk compared to many junior mining plays. Accordingly, Tertiary Minerals will remain firmly held in the Fat Prophets portfolio. For members without exposure we recommend the shares as a buy.