xa.yimg.comxa.yimg.com/kq/groups/6548896/423660174/name/natural resources...hsbc is hosting more...

HSBC is hosting more than 70 leading companies from mining and metals, energy and

agriculture at the second Global Natural Resources Conference.

Featuring company presentations, small group meetings and speakers, the event provides

a great opportunity for corporates and investors to share insights on the

future of natural resources.

In this report, we feature the profiles of all presenting companies.

Disclosures and Disclaimer This report must be read with the disclosures and analyst

certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Global NaturalResources ConferenceSingapore – 26-27 September 2011

Natural Resources & Energy

Global Equities

September 2011

Natural Resources & Energy Global equity September 2011

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Metals and Mining 3 Aluminum Corp of China Ltd 4

Ampella Mining 6

Anglo American 7

AngloGold Ashanti 9

Aspire Mining 11

Centerra Gold 12

China Coal Energy 14

China Zhongwang 16

CST Mining 18

Gold Fields 19

Goldcorp 21

G-Resources 23

Hunnu Coal 24

Iluka Resources 25

Industries Qatar 26

IRC Ltd 28

Ivanhoe Mines 29

Ivanhoe Australia 30

Kinross Gold 31

Lonmin 33

Medusa Mining 34

Mongolia Energy 35

Nanjing I&S 36

Newmont Mining 37

Nyrstar, NYR BB 39

Petropavlovsk 41

PT Adaro Energy Tbk 43

PT Aneka Tambang Tbk 44

Royal Gold, RGLD US 45

Shougang Fushan Resources Group 47

Silver Wheaton 49

SouthGobi Resources 50

United Company Rusal 51

Vale 53

Western Areas 55

Contents

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Energy 57 BW Group 58

BW Offshore 59

CGGVeritas 61

Enviro Energy International 63

Grizzly Oil Sands 64

GS Holdings 65

Husky Energy 67

Ivanhoe Energy 68

Karoon Gas Australia 69

KazMunaiGas 70

Lukoil 71

MIE Holdings 73

Penn West Petroleum 74

Petrobras 75

PetroVietnam Group 77

PT AKR Corporindo 78

Salamander Energy 79

Sino Oil and Gas 81

SK Innovation 82

TNK-BP Holding 84

United Energy Group 85

Agriculture 87 Agrium 88

BrasilAgro SA 89

China XLX Fertilizer 91

Cresud SA 92

First Pacific 94

Golden Agri 95

Israel Chemicals 97

Mewah International 99

Olam International 101

Orascom Construction Ind 103

Sampoerna Agro 105

Tereos Internacional 106

Viterra 108

Disclosure appendix 109

Disclaimer 112

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Metals and Mining

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Aluminum Corp of China Ltd, 2600 HK, OW(V) Sarah Mak* Target price (HKD) 9.50 Index HANG SENG INDEXAnalyst Share price (HKD) 4.73 Bloomberg 2600 HKThe Hongkong and Shanghai Banking Corporation Limited Potential return (%) 100.8 +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 15,778 Absolute -20% -30% -28% Free float (%) 50

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Business description Chalco is the largest alumina and aluminium producer in China. It is the largest alumina producer and fourth largest

aluminium producer globally. It also has a presence in iron ore through its joint venture with Rio Tinto for Simandou iron

ore project in Guinea. Chalco operates through four business segments: alumina, aluminium, fabrication, and trading. The

company has current alumina capacity of c13mtpa, aluminium 4mtpa and fabrication 1.7mtpa. While Chalco is largely self

sufficient in alumina, it has only 50% self sufficiency in bauxite, 25% in coal and 25% in electricity.

Key points Chalco reported 1H11 net profit fell 22%, just 15% of 2011 consensus expectations. 2H11 looks challenging on cost

pressures given the power tariff hike for industrial users from June and high interest expenses. The company has been

falling behind on its cost savings target of RMB2.25bn in 2011.

Chalco is highly sensitive to aluminium prices. We estimate that a 5% decline in SHFE aluminium price from our base

case of RMB18,216 (including VAT) will result in a 66% decline in NPAT for 2011.

Valuation and risks Our target price for the H shares is HKD9.50, valuing the stock using a blended EV/EBITDA and NPV valuation

approach. We apply an EV/EBITDA multiple of 10.5x , in line with its five-year average, to our 2011e EBITDA for

Chalco and arrive at a value of HKD6.14 per share. We derive an NPV of HKD11.70 per share using DCF valuation

assuming a WACC of 9.0%. We value Chalco’s core business at HKD7.81 and Chalco’s stake in Simandou at HKD3.89.

Downside risks relate to movements in aluminium, alumina and energy prices.

Financial forecasts (CNYm)

Year to December 2010 2011e 2012e 2013e Key ratios 2010 2011e 2012e 2013e

Revenue 120,995 138,138 155,072 156,930 PE* (x) 67.4 11.6 9.8 9.2EBITDA 9,700 15,541 17,285 17,702 PB (x) 1.0 1.0 0.9 0.9EBIT 3,402 8,908 10,451 10,869 EV/EBITDA (x) 16.6 10.5 9.5 9.2Net income 778 4,514 5,357 5,703 Dividend yield 0.3% 2.6% 3.1% 3.3%EPS (CNY) 0.06 0.33 0.40 0.42 Net debt/equity 105.7% 101.2% 98.0% 91.4%

*Based on HSBC EPS (diluted). Source: HSBC estimates, Company data

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Financials & valuation Financial statements

Year to 12/2010 12/2011e 12/2012e 12/2013e

Profit & loss summary (CNYm)

Revenue 120,995 138,138 155,072 156,930EBITDA 9,700 15,541 17,285 17,702Depreciation & amortisation -6,299 -6,633 -6,834 -6,834Operating profit/EBIT 3,402 8,908 10,451 10,869Net interest -2,495 -2,678 -3,042 -2,998PBT 1,380 6,285 7,410 7,871HSBC PBT 1,380 6,285 7,410 7,871Taxation -411 -1,571 -1,852 -1,968Net profit 778 4,514 5,357 5,703HSBC net profit 778 4,514 5,357 5,703

Cash flow summary (CNYm)

Cash flow from operations 7,104 8,592 9,776 12,666Capex -8,983 -9,000 -9,000 -9,000Cash flow from investment -8,260 -8,900 -9,000 -9,000Dividends -154 -920 -2,154 -2,540Change in net debt 4,238 1,229 1,378 -1,126FCF equity -3,409 -363 776 3,666

Balance sheet summary (CNYm)

Intangible fixed assets 3,034 3,034 3,034 3,034Tangible fixed assets 92,960 95,327 97,493 99,659Current assets 41,325 43,367 45,472 42,721Cash & others 8,983 7,754 6,375 3,501Total assets 141,322 145,732 150,003 149,418Operating liabilities 14,014 14,630 15,498 15,550Gross debt 69,444 69,444 69,444 65,444Net debt 60,461 61,690 63,068 61,942Shareholders funds 51,581 55,174 58,377 61,540Invested capital 114,322 119,344 124,125 126,362

Ratio, growth and per share analysis

Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 72.2 14.2 12.3 1.2EBITDA 298.1 60.2 11.2 2.4Operating profit 161.9 17.3 4.0PBT 355.3 17.9 6.2HSBC EPS 480.2 18.7 6.5

Ratios (%)

Revenue/IC (x) 1.1 1.2 1.3 1.3ROIC 2.1 5.7 6.4 6.5ROE 1.5 8.5 9.4 9.5ROA 2.0 4.7 5.3 5.4EBITDA margin 8.0 11.3 11.1 11.3Operating profit margin 2.8 6.4 6.7 6.9EBITDA/net interest (x) 3.9 5.8 5.7 5.9Net debt/equity 105.7 101.2 98.0 91.4Net debt/EBITDA (x) 6.2 4.0 3.6 3.5CF from operations/net debt 11.7 13.9 15.5 20.4

Per share data (CNY)

EPS reported (fully diluted) 0.06 0.33 0.40 0.42HSBC EPS (fully diluted) 0.06 0.33 0.40 0.42DPS 0.01 0.10 0.12 0.13Book value 3.81 4.08 4.32 4.55

Key forecast drivers

Year to 12/2010 12/2011e 12/2012e 12/2013e

Alumina ASP (Rmb/t) 2,446 2,730 2,880 2,934Aluminium ASP inc VAT (Rmb/t) 16,226 18,727 19,758 20,128Exchange rate USD / RMB 6.77 6.50 6.24 5.90Alumina production (kt) 10,130 12,002 12,136 12,136Aluminium production (kt) 3,840 4,027 4,249 4,249Fabricated production (kt) 590 652 652 652

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 1.3 1.2 1.1 1.0EV/EBITDA 16.6 10.5 9.5 9.2EV/IC 1.4 1.4 1.3 1.3PE* 67.4 11.6 9.8 9.2P/Book value 1.0 1.0 0.9 0.9FCF yield (%) -3.4 -0.4 0.8 3.6Dividend yield (%) 0.3 2.6 3.1 3.3

Note: * = Based on HSBC EPS (fully diluted)

Price relative

23456789

101112

2009 2010 2011 2012

23456789101112

Aluminum Corp of China Rel to HANG SENG INDEX

Source: HSBC Note: price at close of 07 Sep 2011

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Ampella Mining, AMX AU, Not Rated Sarah Mak* Share price (AUD) 1.87 Index AS 30Analyst Bloomberg AMX AUThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 406 Absolute (%) -7 -13 -11 Free float (%) 94 Relative (%) -12 -6 -4

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Ampella Mining is an Australia-listed company that focuses on gold exploration in West Africa. It has been operating

exploration programs in Burkina Faso, West Africa since 2008. The company currently focuses on gold exploration on a

110km long gold bearing shear zone at its Batie West project, and its main drilling activity is at the Konkera resource that

has 2.2m ounces of JORC gold resources (indicated and inferred). The Batie West project has a total of 9 permits covering

1,800sq km of land.

Key points Ampella Mining is conducting a pre-feasibility study on the 2.2m ounces Kondera resource in order to assess the

feasibility of building an estimated 200koz gold pa production facility at its Kondera base, with target production in 1Q14.

The project will cost USD200m to build with an estimated cash cost of USD600 per ounce and a payback period of less

than two years. Ampella Mining also has plans to explore the rest of Batie West project and potentially construct more

production operations.

The Batie West project has not been previously explored using modern exploration techniques. Ampella Mining is

undergoing a USD31m exploration program in 2011 with the objective of identifying more resources across a number of

prospects. The program includes complete geochemistry work along the 110km shear zone, resource expansion at Konkera

resource and evaluation of 15 new gold targets.

Financial forecasts (AUDm)

Year to June 2010 2011 2012e 2013e Key ratios 2010 2011 2012e 2013e

Revenue 0 0 0 29 PE (x) -17.0 -26.7 -20.8 -93.5EBITDA -16 -25 -17 0 PB (x) nm 0.2 0.2 0.1EBIT -16 -26 -17 -2 EV/EBITDA (x) nm -22.1 -19.0 -4035.9Net income -16 -24 -17 -4 Dividend yield 0.0% 0.0% 0.0% 0.0%EPS (AUD) -0.11 -0.12 -0.09 -0.02 Net debt/equity nm -94.1% -89.4% -25.6%

Source: Company data, Datastream Consensus estimates

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Anglo American, AAL LN, OW Andrew Keen* Target price (GBP) 34.00 Index FTSE ALL-SHAREAnalyst Share price (GBP) 24.76 Bloomberg AAL LNHSBC Bank plc Potential return (%) 37.3 +44 20 7991 6764 [email protected]

Performance 1M 3M 12M Market cap (USDm) 52,233 Absolute 5% -15% -1% Free float (%) 100

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Anglo American is a global diversified miner with significant interests in copper (30% of 2010 EBITDA), iron ore (32%),

coal (18%) and – uniquely among the major miners – platinum (13%) through its 80% holding in Anglo Platinum.

The company has a strong presence in South Africa and South America with 51% and 35% of its operating profit (2010)

earned from operations in these geographies, respectively.

Key points 2011 is seeing the beginning of a series of project delivery targets, starting with the Barro Alto nickel project (41ktpa,

confirmed as in production on the last day of 1Q), Los Bronces in copper (278ktpa, due at the end of 2011, Kolomela

(9Mtpa) and Minas Rio (26.5Mtpa) iron ore projects due in 2012 and 2013, respectively.

Anglo American has delivered on its asset optimisation program by achieving USD2.5bn savings in 2010 (well ahead of 2010

target of USD2.0bn). The company further achieved USD1.3bn of benefits during 1H11 (target for 2011: USD2.0bn).

The company has completed its divestment programme for the non-core businesses (the company considers platinum, diamonds,

copper, nickel, iron ore and manganese and coal as its core businesses) with announced proceeds of USD3.3bn till date.

Valuation and risks Our one-year target price of 3,400p is based on a 50:50 blended average of our DCF model (USD47, risk-free rate 3.5%,

4.0% risk premium, beta 1.4) and 2012e EV/EBITDA yielding USD65 (multiple 5.5x) converted at the spot USD/GBP

rate of 1.62.

Downside risks include a broad market downturn (Anglo American is a high-beta stock), potential cost inflation in South Africa

due to currency and electricity tariff pressures and South African nationalisation of mining assets worrying investors.

Financial forecasts (USDm)


Revenue 27,960 29,067 30,467 31,967 PE* (x) 7.6 7.6 6.7 6.7EBITDA 11,983 14,213 15,516 15,762 PB (x) 1.4 1.2 1.1 1.0EBIT 10,064 12,629 13,713 13,768 EV/EBITDA (x) 4.5 3.8 3.5 3.3Net income 6,544 6,557 7,448 7,458 Dividend yield 1.6% 1.6% 1.6% 1.6%EPS (USD) 5.18 5.19 5.89 5.90 Net debt/ equity 18.5% 10.4% 4.5% -3.3%


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Year to 12/2010 12/2011e 12/2012e 12/2013e

Profit & loss summary (USDm)

Revenue 27,960 29,067 30,467 31,967EBITDA 11,983 14,213 15,516 15,762Depreciation & amortisation -1,919 -1,584 -1,803 -1,994Operating profit/EBIT 10,064 12,629 13,713 13,768Net interest -139 -126 -99 -23PBT 10,928 12,544 13,683 13,858HSBC PBT 10,928 12,544 13,683 13,858Taxation -2,809 -4,014 -4,515 -4,573Net profit 6,544 6,557 7,448 7,458HSBC net profit 6,544 6,557 7,448 7,458

Cash flow summary (USDm)

Cash flow from operations 7,727 9,694 10,639 10,548Capex -5,280 -5,986 -5,456 -3,586Cash flow from investment -2,470 -4,316 -5,486 -3,616Dividends -919 -2,757 -2,504 -2,611Change in net debt -4,008 -2,302 -2,411 -4,219FCF equity 3,375 3,954 5,516 7,275

Balance sheet summary (USDm)

Intangible fixed assets 2,316 2,316 2,316 2,316Tangible fixed assets 39,810 45,649 48,968 51,060Current assets 14,348 12,415 9,206 10,822Cash & others 6,401 4,371 1,268 2,425Total assets 66,656 69,766 69,877 73,585Operating liabilities 6,902 6,765 6,694 7,000Gross debt 13,439 9,107 3,592 531Net debt 7,038 4,736 2,324 -1,894Shareholders funds 34,239 39,846 43,821 48,459Invested capital 43,171 49,244 52,528 54,773


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 34.0 4.0 4.8 4.9EBITDA 74.5 18.6 9.2 1.6Operating profit 95.8 25.5 8.6 0.4PBT 171.2 14.8 9.1 1.3HSBC EPS 165.0 0.2 13.4 0.1

Ratios (%)

Revenue/IC (x) 0.7 0.6 0.6 0.6ROIC 18.2 18.6 18.1 17.2ROE 21.7 17.7 17.8 16.2ROA 14.1 12.9 13.4 13.1EBITDA margin 42.9 48.9 50.9 49.3Operating profit margin 36.0 43.4 45.0 43.1EBITDA/net interest (x) 86.2 112.6 156.8 694.0Net debt/equity 18.5 10.4 4.5 -3.3Net debt/EBITDA (x) 0.6 0.3 0.1 -0.1CF from operations/net debt 109.8 204.7 457.7

Per share data (USD)



Year to 12/2010 12/2011e 12/2012e 12/2013e

Platinum USD/oz 1,610 1,850 1,750 1,650Palladium USD/oz 527 825 750 725Rhodium USD/oz 2,455 2,334 2,300 3,000Copper USD/t 7,544 8,904 7,489 7,181Gold USD/oz 1,225 1,525 1,500 1,450Zinc USD/t 2,161 2,177 2,310 2,762

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 1.9 1.9 1.8 1.6EV/EBITDA 4.5 3.8 3.5 3.3EV/IC 1.3 1.1 1.0 0.9PE* 7.6 7.6 6.7 6.7P/Book value 1.4 1.2 1.1 1.0FCF yield (%) 7.1 7.9 10.7 13.6Dividend yield (%) 1.6 1.6 1.6 1.6


Price relative

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Anglo American Rel to FTSE ALL-SHARE


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AngloGold Ashanti, AU US, OW Sabrina Grandchamps Target price (USD) 76.00 Index S&P 500 COMPOSITEAnalyst Share price (USD) 46.26 Bloomberg AU USHSBC Securities (USA) Inc. Potential return (%) 64.3 +1 212 525 5150 [email protected]

Performance 1M 3M 12M Market cap (USDm) 17,654 Absolute 10% 7% 5% Free float (%) 83

Note: Price at close of 15 September 2011. Source: HSBC Business description AngloGold is a major gold mining company with gold production of 4.5m oz in 2010 from assets in Africa, America and

Australasia. Management is focused on developing new gold mining projects in the DRC, Australia and Latin America.

This is in addition to the rigorous, ongoing Project One initiative, which is designed to strengthen the company’s existing

operations by identifying and addressing specific inefficiencies at each of the operations.

Key points Now that the hedge is gone. We believe AngloGold Ashanti is well positioned to benefit from improving margins,

aggressive global exploration and project development, and is no longer distracted by its legacy hedge book. Management

expects production of c4.5m oz of gold in 2011 at cash costs of USD725-740/oz.

Fuel for growth. Expansions and underground developments at existing operations are expected to begin adding output in

2012. Further developments at Tropicana, Kibali, Gramalote and Mongbwalu, along with exploration results globally,

provide further upside potential as the parameters of the company’s next wave of projects become more defined.

Different from the rest. As the most diversified producer based in South Africa, we believe AngloGold Ashanti is well

positioned to manage the external cost pressures given regional diversity and improving overall asset performance. Despite

pressure from the rand in 2010, some notable improvements in safety, production stability and cost stability have been

made, differentiating company returns for the South African gold miners, in our view.

Valuation and risks We rate AngloGold Ashanti OW with a 12-month target price of USD76, based on a sum of real mine-by-mine DCF models.

Downside risks include gold price weakness or volatility or both, and a difficult cost environment in South Africa,

especially with higher winter electricity tariffs, but some relief from recent rand weakness.



Revenue 5,333 7,270 9,842 8,765 PE (x) -18.2 9.5 5.4 6.2EBITDA 1,208 3,531 5,975 5,300 PB (x) 4.3 3.1 1.9 1.4EBIT 518 2,730 5,287 4,642 EV/EBITDA (x) 15.6 5.0 2.6 2.5Net income 77 1,889 3,329 2,900 Dividend yield 0.0% 0.3% 0.0% 0.0%EPS (USD) -2.54 4.88 8.61 7.50 Net debt/equity 50.7% 14.3% -15.5% -26.3%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 5,333 7,270 9,842 8,765EBITDA 1,208 3,531 5,975 5,300Depreciation & amortisation -690 -801 -688 -658Operating profit/EBIT 518 2,730 5,287 4,642Net interest -178 -33 -68 -56PBT 405 2,896 5,344 4,650HSBC PBT 405 2,896 5,344 4,650Taxation -277 -935 -1,870 -1,628Net profit 77 1,889 3,329 2,900HSBC net profit 77 1,889 3,329 2,900


Cash flow from operations -943 2,646 4,400 3,770Capex -973 -1,288 -2,000 -2,479Cash flow from investment -871 -1,346 -2,000 -2,479Dividends 0 -54 0 0Change in net debt 1,320 -1,229 -2,332 -2,023FCF equity -518 939 2,207 1,170


Intangible fixed assets 194 201 201 201Tangible fixed assets 6,180 6,574 7,886 9,708Current assets 1,756 2,922 4,920 5,858Cash & others 618 1,513 3,625 4,641Total assets 9,532 11,194 14,504 17,263Operating liabilities 1,035 931 988 942Gross debt 2,704 2,371 2,151 1,144Net debt 2,086 857 -1,475 -3,498Shareholders funds 3,989 5,826 9,155 12,844Invested capital 6,477 7,253 8,395 10,183


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 41.5 36.3 35.4 -10.9EBITDA 250.1 192.3 69.2 -11.3Operating profit 427.1 93.7 -12.2PBT 615.1 84.5 -13.0HSBC EPS 76.3 -12.9

Ratios (%)

Revenue/IC (x) 1.0 1.1 1.3 0.9ROIC 3.2 26.9 43.9 32.5ROE 2.2 38.5 44.4 26.4ROA 2.0 19.3 27.4 19.3EBITDA margin 22.7 48.6 60.7 60.5Operating profit margin 9.7 37.6 53.7 53.0EBITDA/net interest (x) 6.8 107.7 87.2 93.9Net debt/equity 50.7 14.3 -15.5 -26.3Net debt/EBITDA (x) 1.7 0.2 -0.2 -0.7CF from operations/net debt 308.6


EPS reported (fully diluted) -2.54 4.88 8.61 7.50HSBC EPS (fully diluted) -2.54 4.88 8.61 7.50DPS 0.00 0.14 0.00 0.00Book value 10.74 15.11 23.74 33.31


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Gold price (USD/oz) 1,225 1,632 2,025 1,800Copper Price (USD/metric ton) 7,550 8,955 8,499 7,998ZAR/USD 7 7 7 7USD/AUD 1 1 1 1

Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e

EV/sales 3.5 2.4 1.6 1.5EV/EBITDA 15.6 5.0 2.6 2.5EV/IC 2.9 2.4 1.8 1.3PE* 9.5 5.4 6.2P/Book value 4.3 3.1 1.9 1.4FCF yield (%) -3.1 5.6 13.2 7.0Dividend yield (%) 0.0 0.3 0.0 0.0


Price relative

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AngloGold Ashanti Rel to JSE ALL SHARE


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Aspire Mining, AKM AU, Not Rated Sarah Mak* Share price (AUD) 0.55 Index AS 30Analyst Bloomberg AKM AUThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 315 Absolute 49% -11% 498% Free float (%) 40 Relative 44% -3% 505%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Aspire is a coal exploration company focused on Mongolia. Its main project is the development of its 100%-owned Ovoot

coking coal project, which is the largest coking coal deposit in northern Mongolia and has maiden JORC compliant coal

resource of 330.7mt (measured, indicated and inferred). The company is planning a two-stage development program for

the Ovoot project with stage 1 initial production in December 2012 of 0.5 to 1.0 mtpa and stage 2 full production from

2016 of as much as 12 mtpa. Aspire’s other Mongolian assets include the Nuramt coal project (100%), the Shanagan coal

project (100%) Jilchigbulag coal project (100%), and the Zavkhan iron ore project (earning 70%). In Western Australia,

Aspire also has a 49% interest in the Windy Knob gold and base metals project.

Key points Aspire is targeting resource upgrades at the Ovoot project. The project has more than 500sq km of tenement area and less

than 10% of total project area has been explored to date. The company is undergoing an exploration drilling program this

year, with the objective of boosting its resource base.

Stage 2 of the Ovoot project requires a rail line that links Ovoot with Erdenet in order to connect Ovoot to coal export

markets such as Japan, Korea and China. Rail path analysis identified a preferred and feasible option of connecting Ovoot

to Moron and Erdenet. The Northern Mongolian Rail Alliance was established to drive support for funding a rail link,

whereby Ovoot will provide the base load but other projects near Moron can also benefit from the rail link.

South Gobi Resources (1878 HK) became a strategic investor in Aspire through a private placement in October 2010, in

which South Gobi acquired 19.9% of Aspire for cAUD20.1m. Aspire has used the funds to fast track exploration and

development of the Ovoot coking coal project.



Revenue 0 na na 110 PE (x) -137.5 nm nm 55.0EBITDA -1 -3 -6 17 PB (x) nm 13.8 7.9 5.5EBIT -1 -3 -6 8 EV/EBITDA (x) nm -98.5 -52.0 17.5Net income -1 -2 -4 6 Dividend yield nm 0.0% 0.0% 0.0%EPS (AUD) 0.00 0.00 0.00 0.01 Net debt/equity nm -72.0% -24.9% 1.9%


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Centerra Gold, CG CN, OW(V) Sabrina Grandchamps Target price (CAD) 27.00 Index S&P/TSX COMPOSITE Analyst Share price (CAD) 22.20 Bloomberg CG CNHSBC Securities (USA) Inc. Potential return (%) 21.6 +1 212 525 5150 [email protected]


Note: Price at close of 15 September 2011. Source: HSBC Business description Centerra is a junior gold production and exploration company based in Canada with assets primarily in Central Asia. In 2010,

the company produced 679k oz of gold from its key gold assets, Kumtor, located in the Kyrgyz Republic, and Boroo, located

in Mongolia. We expect production for 2011 to be at the top end of the company’s full-year guidance of 600-650k oz at

attractive average cash costs estimated to be USD487/oz, within the company’s guidance of USD460-495/oz. Over the next

few years, management is focused on optimizing and extracting value from its existing operating projects (mainly Kumtor),

while conducting exploration work at prospective targets globally. Most recently, the company announced the discovery of a

precious and base metal deposit in northeast Mongolia on its Altan Tsagaan Ovoo (ATO) property.

Key points Centerra’s advanced development staged project, Gatsuurt, in Mongolia, has been held up by slow permitting progress,

providing an uncertain commissioning timeline for the new project. A proposal to reduce the impact of the law on

environmentally sound mining operations was discussed by a Mongolian parliamentary committee in 2Q11 and has been

referred to parliament for further discussion, which the company expects will occur in 2H11.

Solid performance at Kumtor has enabled the company to maximize growth activities and give cash back to investors,

showcasing the strength of the asset, despite continued delays in new developments in Mongolia.

Valuation and risks We have an Overweight (V) rating and a 12- month target price of CAD27, based on a sum of real mine-by-mine DCF models.

Downside risks include gold price weakness and political or labour union risks, prolonged delays in permitting approvals

in Mongolia, or any unforeseen macro events in Kyrgyzstan that could negatively impact output.



Revenue 846 1,059 1,304 1,162 PE (x) 15.7 11.7 8.2 11.0EBITDA 372 517 753 603 PB (x) 4.0 3.2 2.3 1.9EBIT 295 442 618 463 EV/EBITDA (x) 12.7 9.0 5.5 6.1Net income 323 434 618 463 Dividend yield 0.0% 2.0% 0.5% 0.5%EPS (USD) 1.37 1.84 2.61 1.96 Net debt/equity -26.2% -26.3% -42.1% -51.1%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 846 1,059 1,304 1,162EBITDA 372 517 753 603Depreciation & amortisation -77 -74 -135 -141Operating profit/EBIT 295 442 618 463Net interest 0 0 0 0PBT 330 442 618 463HSBC PBT 330 442 618 463Taxation -8 -8 0 0Net profit 323 434 618 463HSBC net profit 323 434 618 463


Cash flow from operations 271 522 753 603Capex -208 -207 -227 -160Cash flow from investment -110 -333 -227 -160Dividends 0 -99 -24 -24Change in net debt -154 -89 -502 -426FCF equity 69 304 526 443


Intangible fixed assets 130 130 130 130Tangible fixed assets 519 650 743 762Current assets 717 914 1,416 1,842Cash & others 331 420 922 1,348Total assets 1,400 1,729 2,323 2,768Operating liabilities 108 96 96 96Gross debt 0 0 0 0Net debt -331 -420 -922 -1,348Shareholders funds 1,262 1,599 2,193 2,638Invested capital 928 1,178 1,271 1,290


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 23.5 25.1 23.1 -10.9EBITDA 53.5 38.8 45.7 -19.9Operating profit 112.8 49.8 39.7 -25.2PBT 269.0 34.0 39.7 -25.2HSBC EPS 414.8 34.2 42.3 -25.1

Ratios (%)

Revenue/IC (x) 1.0 1.0 1.1 0.9ROIC 34.1 41.2 50.5 36.1ROE 29.1 30.4 32.6 19.1ROA 26.1 27.8 30.5 18.2EBITDA margin 44.0 48.8 57.7 51.9Operating profit margin 34.9 41.8 47.4 39.8EBITDA/net interest (x) Net debt/equity -26.2 -26.3 -42.1 -51.1Net debt/EBITDA (x) -0.9 -0.8 -1.2 -2.2CF from operations/net debt



Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e



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China Coal Energy, 1898 HK, N(V) Sarah Mak* Target price (HKD) 10.80 Index HANG SENG INDEXAnalyst Share price (HKD) 9.95 Bloomberg 1898 HKThe Hongkong and Shanghai Banking Corporation Limited Potential return (%) 8.5 +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 19,115 Absolute 0% -3% -15% Free float (%) 3

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description China Coal Energy is the second largest coal producer in China, and is dual listed in Hong Kong and Shanghai with a

market cap of USD19.1bn. The company also has a coke business and manufactures coal mining equipment. It targets to

double output to 200mtpy by 2014. Total coal resources of 10bt are spread over four coal bases.

Key points 1H11 results were in line: China Coal reported 1H net profit of RMB5.6bn (EPS RMB0.42), up 8% y-o-y on higher self-

produced coal ASP (up 7%) and sales volume (up 9%) but offset by higher unit costs (up 8%). The result was in line with

our expectation and accounts for 57% of our 2011 forecast of RMB9.82bn and 62% of Bloomberg consensus

(RMB9.08bn). 2Q net profit rose 16% q-o-q to RMB3bn (EPS RMB0.23).

More spot sales: China Coal increased thermal coal spot sales by 57% y-o-y to 21.4mt in 1H, which accounted for 44% of

its self-produced coal sales, rising from 30% in 2010 and in line with the company’s guidance of a more than 10% increase

in spot sales in 2011. Unit costs rose 8% y-o-y to RMB320/t, but were 7% lower than in 2H10. As has been the case in the

past, more costs are likely to be booked in 2H.

Valuation and risks China Coal’s H-share price has fallen 20% YTD due to a delay in the commissioning of new mines in 2011 and quality

issues. We remain Neutral (V) while awaiting visibility on new mine delivery in 2012. Our H-share target price of

HKD10.8 is based on Yanzhou Coal’s five-year average PE of 12x.

Upside risks include progress on the delivery of new mines and parent asset injections. Downside risks include riskier

investments in coal-to-chemical operations.



Revenue 70,303 80,090 89,084 98,441 PE 14.5 11.0 9.8 9.8EBITDA 14,499 18,309 21,234 22,403 PB 1.5 1.3 1.2 1.1EBIT 11,062 14,094 15,897 15,942 EV/EBITDA 6.9 6.0 5.4 5.3Net income 7,466 9,821 11,040 11,022 Div Yield 1.9% 2.5% 2.7% 2.7%EPS (CNY) 0.56 0.74 0.83 0.83 ND/E -20.7% -13.8% -8.2% -4.1%


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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 70,303 80,090 89,084 98,441EBITDA 14,499 18,309 21,234 22,403Depreciation & amortisation -3,437 -4,214 -5,338 -6,461Operating profit/EBIT 11,062 14,094 15,897 15,942Net interest 18 33 -9 -80PBT 10,999 14,174 15,934 15,908HSBC PBT 10,999 14,174 15,934 15,908Taxation -2,848 -3,402 -3,824 -3,818Net profit 7,466 9,821 11,040 11,022HSBC net profit 7,466 9,821 11,040 11,022


Cash flow from operations 9,901 17,907 20,926 22,082Capex -12,295 -18,943 -18,943 -18,943Cash flow from investment -16,073 -18,943 -18,943 -18,943Dividends -2,080 -2,073 -2,652 -2,917Change in net debt 7,141 4,641 4,723 3,897FCF equity -2,277 -4,404 -1,850 -759


Intangible fixed assets 2,648 5,636 4,834 4,033Tangible fixed assets 46,418 63,447 77,052 89,534Current assets 48,700 44,578 42,242 40,829Cash & others 30,041 23,321 18,598 14,702Total assets 101,761 113,661 124,128 134,397Operating liabilities -17,902 -20,165 -22,244 -24,407Gross debt -12,204 -10,126 -10,126 -10,126Net debt -17,836 -13,195 -8,473 -4,576Shareholders funds 74,049 83,200 91,589 99,694Invested capital 85,628 110,505 127,774 144,102


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 32.2 13.9 11.2 10.5EBITDA 19.7 26.3 16.0 5.5Operating profit 13.2 27.4 12.8 0.3PBT 6.6 28.9 12.4 -0.2HSBC EPS 0.8 31.5 12.4 -0.2

Ratios (%)

Revenue/IC (x) 0.9 0.8 0.7 0.7ROIC 10.6 10.9 10.1 8.9ROE 10.5 12.5 12.6 11.5ROA 8.7 10.3 10.4 9.5EBITDA margin 20.6 22.9 23.8 22.8Operating profit margin 15.7 17.6 17.8 16.2EBITDA/net interest (x) 2287.6 278.3Net debt/equity -20.7 -13.8 -8.2 -4.1Net debt/EBITDA (x) -1.2 -0.7 -0.4 -0.2CF from operations/net debt


EPS reported (fully diluted) 0.56 0.74 0.83 0.83HSBC EPS (fully diluted) 0.56 0.74 0.83 0.83DPS 0.16 0.20 0.22 0.22NAV 5.58 6.28 6.91 7.52


Year to 12/2010 12/2011e 12/2012e 12/2013e

Coal production (mt) 123 131 146 166ASP - coal segment (RMB/t) 476 529 551 557Unit op cost - coal segment (R 379 412 430 449China thermal coal spot (RMB/t 637 662 688 714with VAT (RMB/t) 746 775 805 835

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 1.4 1.4 1.3 1.2EV/EBITDA 6.9 6.0 5.4 5.3EV/IC 1.2 1.0 0.9 0.8PE* 14.5 11.0 9.8 9.8P/NAV 1.5 1.3 1.2 1.1FCF yield (%) -1.9 -3.6 -1.5 -0.6Dividend yield (%) 1.9 2.5 2.7 2.7


Price relative

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1012141618

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24681012141618

China Coal Energy Co Rel to HANG SENG INDEX


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China Zhongwang,1333 HK, N(V) Sarah Mak* Target price (HKD) 4.30 Index HANG SENG INDEXAnalyst Share price (HKD) 3.36 Bloomberg 1333 HKThe Hongkong and Shanghai Banking Corporation Limited Potential return (%) 28.0 +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 2,331 Absolute 1% 3% -29% Free float (%) 26

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description China Zhongwang (ZW) is the second largest industrial aluminium extrusion product manufacturer in the world and the

largest in Asia and China. It owns 75 of the world’s leading aluminium extrusion production lines, of which the 125MN

oil-driven dual action aluminium extrusion press is one of the largest and most advanced presses. ZW’s earnings have

suffered recently from the anti-dumping duty imposed by the US on Chinese extrusion products, which resulted in its high

margin exports sales declining considerably. The company is however planning to mitigate the impact by developing high

value-added products for the domestic market.

Key points 1H11 net profit fell 80% to RMB412m, 35% of 2011e consensus. There was some recovery in 2Q11 from 1Q but there

is still a lack of visibility on growth. ZW had net cash of HKD2/share as of June 2011.

ZW plans to spend RMB20bn by 2014 on capacity expansion: It plans to acquire 20 large-scale 75MN extrusion

presses by 2012, which would increase its capacity to 790kt from 640kt in 2010 (700kt in June 2011). This would enable

the company to focus on higher-margin, high-end, large-section industrial aluminium extrusion products. ZW also plans to

diversify into high-end aluminium flat rolled products to capitalise on synergies from its existing technological expertise

and customer base in the industrial aluminium extrusion segment. The project is expected to start in 2014 with an initial

capacity of 3mtpa, reaching full capacity by 2018.

Valuation and risks Our target price of HKD4.30 is based on 1.3x 2011e PB. We arrive at a PB of 1.3x through our residual income model, i.e.

PB = (ROE − g)/ (COE − g), using our sustainable ROE estimate of 13%.

Upside/downside risks include higher/ lower-than-expected demand for extrusion products.



Revenue 10,522 8,265 10,581 11,581 PE* (x) 5.8 13.7 9.5 8.3EBITDA 4,164 2,143 2,724 2,943 PB (x) 1.0 1.0 0.9 0.8EBIT 3,775 1,718 2,266 2,466 EV/EBITDA (x) 1.1 3.0 2.2 1.8Net income 2,596 1,086 1,572 1,787 Dividend yield 6.9% 2.9% 4.2% 4.8%EPS (CNY) 0.48 0.20 0.29 0.33 Net debt/equity -65.5% -54.9% -53.1% -54.1%


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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 10,522 8,265 10,581 11,581EBITDA 4,164 2,143 2,724 2,943Depreciation & amortisation -389 -425 -458 -477Operating profit/EBIT 3,775 1,718 2,266 2,466Net interest -298 -270 -170 -83PBT 3,477 1,448 2,096 2,383HSBC PBT 3,477 1,448 2,096 2,383Taxation -881 -362 -524 -596Net profit 2,596 1,086 1,572 1,787HSBC net profit 2,596 1,086 1,572 1,787


Cash flow from operations 4,955 676 1,636 2,210Capex -1,823 -1,000 -700 -700Cash flow from investment 777 -939 -650 -656Dividends -1,228 -1,038 -434 -629Change in net debt -4,145 1,633 -332 -798FCF equity 2,398 -594 767 1,427


Intangible fixed assets 0 0 0 0Tangible fixed assets 4,912 5,488 5,730 5,953Current assets 19,360 16,141 15,150 14,118Cash & others 17,263 13,631 11,963 10,761Total assets 24,640 21,996 21,247 20,438Operating liabilities 2,004 1,312 1,425 1,458Gross debt 7,062 5,062 3,062 1,062Net debt -10,201 -8,568 -8,901 -9,699Shareholders funds 15,574 15,621 16,759 17,917Invested capital 5,006 6,686 7,491 7,852


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue -24.0 -21.4 28.0 9.4EBITDA -21.8 -48.5 27.1 8.0Operating profit -24.4 -54.5 31.9 8.8PBT -26.3 -58.3 44.7 13.7HSBC EPS -33.0 -58.0 44.7 13.7

Ratios (%)

Revenue/IC (x) 1.6 1.4 1.5 1.5ROIC 43.4 22.0 24.0 24.1ROE 17.5 7.0 9.7 10.3ROA 11.7 5.7 8.0 9.0EBITDA margin 39.6 25.9 25.7 25.4Operating profit margin 35.9 20.8 21.4 21.3EBITDA/net interest (x) 14.0 7.9 16.1 35.5Net debt/equity -65.5 -54.9 -53.1 -54.1Net debt/EBITDA (x) -2.4 -4.0 -3.3 -3.3CF from operations/net debt




Year to 12/2010 12/2011e 12/2012e 12/2013e

SHFE Aluminium(RMB/t) 15,448 18,216 19,219 19,579Industrial volumes (kt) 319 293 370 400Construction volumes (kt) 28 7 0 0Total volumes (kt) 347 300 370 400Industrial processing fees (RM 17,630 11,331 11,331 11,331Construction Processing fee (R 4,708 4,618 4,618 4,618

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 0.4 0.8 0.6 0.5EV/EBITDA 1.1 3.0 2.2 1.8EV/IC 0.9 0.9 0.8 0.7PE* 5.8 13.7 9.5 8.3P/Book value 1.0 1.0 0.9 0.8FCF yield (%) 16.1 -4.0 5.1 9.6Dividend yield (%) 6.9 2.9 4.2 4.8


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China Zhongwang Holdings Rel to HANG SENG INDEX


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CST Mining, 985 HK, Not Rated Sarah Mak* Share price (HKD) 0.135 Index HANG SENG INDEXAnalyst Bloomberg 985 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 475 Absolute -23% -33% -21% Free float (%) 79 Relative -21% -21% -16%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description CST Mining (formerly known as China Sci-Tech Hldg) is a Hong Kong-based copper mining company with assets in

Australia and Peru. It has transitioned from its origins as an investment company following acquisitions of Lady Annie for

AUD130m in May 2010 and Chariot Resources for CAD245m in June 2010. In addition, the company holds a 9.9% stake

in G-Resources (1051 HK), whose primary asset is a 95% interest in the Martabe Gold and Silver Project in Indonesia.

Management has indicated its long-term strategy to grow the company into a world-class Asia-Pacific copper business

with a production target of 250ktpa by 2015 by developing its Mina Justa project and acquiring additional projects. The

basic acquisition criteria are an operation with greater than 50ktpa of copper production, a long mine life, low cash costs,

and significant resources and reserve upside potential.

Key points Lady Annie is an oxide heap leach SX-EW operation with capacity to produce 30ktpa of LME A grade copper cathode. It

first began production in November 2010 and is expected to produce 24-25kt in 2011 and 28-30kt thereafter. The mine has

ore reserves of 11.2mt at 1.10% grade (or 123kt contained copper) and resources of 65.2mt at 0.71% grade (463kt). The

operation is low cost with 2011 expected cash cost of USD1.50-1.60/lb.

CST’s other core asset is a 70% interest in the Mina Justa project in Peru, which was obtained through the Chariot

Resources acquisition. The project definitive feasibility study (DFS) was completed in August 2009 with EIA approving in

September 2010 and construction taking place in 2011. The DFS identified an inferred mineral resource of 401.4mt

(0.77% copper) and probable reserves of 163.4mt (0.80% copper) with an expected mine life of 11.5 years. The project has

110ktpa capacity (50ktpa cathodes and 60ktpa concentrates) with first production expected in 2013. The projected capital

cost is USD745m and life of mine cash operating costs is USD0.90/lb (net of silver credit).

Financial forecasts (HKDm)

Year to March 2010 2011 2012e 2013e Key ratios 2010 2011 2012e 2013e

Revenue 26 386 1,802 2,062 PE (x) -6.4 -13.5 6.8 4.5EBITDA -35 -141 992 1,197 PB (x) nm 0.5 0.5 0.5EBIT -37 -211 867 1,074 EV/EBITDA (x) nm -15.8 0.5 0.4Net income -56 -211 602 738 Dividend yield nm 0.0% 0.0% 0.0%EPS (HKD) -0.02 -0.01 0.02 0.03 Net debt/equity nm -20.5% -42.5% -40.0%


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Gold Fields, GFI US, OW Sabrina Grandchamps Target price (USD) 30.00 Index S&P 500 COMPOSITEAnalyst Share price (USD) 16.67 Bloomberg GFI USHSBC Securities (USA) Inc. Potential return (%) 80.0 +1 212 525 5150 [email protected]


Note: Price at close of 15 September 2011. Source: HSBC Business description Gold Fields is one of the world’s largest producers of gold with total gold production of c3.5m oz in 2010. While Gold

Fields is known for being a South African gold miner, the company’s operations are spread out across the globe, in South

America, West Africa and Australasia, in addition to South Africa.

Key points 5m oz of gold by 2015. We believe that global exploration and development programmes lay the path for resource

increases and medium- to long-term output growth. Before the end of this year, Gold Fields is expected to complete

metallurgical testing work at the Arctic Platinum Project in Finland and complete its scoping study on the Yanfolila

project in Mali. By mid-2012, the company expects to deliver its first resource model on its prospective Far South East

project in the Philippines and a feasibility study for the Chucapaca project in Peru. Furthermore, we believe continued

progress at the South Deep operation in South Africa should also be instrumental in achieving the 5m oz target.

“Instant” diversification into attractive operating regions. The decision taken in 1H11 to increase interests in its West

African operations, Tarkwa and Damang, and its Peruvian subsidiary, La Cima (Cerro Corona), should be beneficial as it

increases exposure to the company’s attractive operations and prospects outside of South Africa, providing further regional

diversification.

Valuation and risks We rate Gold Fields an Overweight with a 12-month target price of USD30, based on a sum of real mine-by-mine DCF models.

Downside risks include gold price weakness or volatility or both, and a difficult cost environment in South Africa,

especially with winter tariffs, but seeing some relief from recent rand weakness.



Revenue 4,705 6,213 8,233 7,512 PE (x) 79.2 8.4 4.1 5.1EBITDA 1,788 3,011 4,765 4,011 PB (x) 1.7 1.7 1.3 1.0EBIT 1,066 2,285 3,999 3,218 EV/EBITDA (x) 7.1 4.2 2.3 2.2Net income 153 1,463 2,984 2,394 Dividend yield 0.9% 2.2% 4.9% 4.1%EPS (USD) 0.21 2.00 4.08 3.28 Net debt/equity 8.5% 9.6% -12.7% -26.9%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 4,705 6,213 8,233 7,512EBITDA 1,788 3,011 4,765 4,011Depreciation & amortisation -723 -726 -766 -793Operating profit/EBIT 1,066 2,285 3,999 3,218Net interest -29 -20 -18 -9PBT 659 2,238 3,981 3,209HSBC PBT 659 2,238 3,981 3,209Taxation -398 -659 -912 -745Net profit 153 1,463 2,984 2,394HSBC net profit 153 1,463 2,984 2,394


Cash flow from operations 1,692 2,444 3,615 3,290Capex -1,186 -1,255 -1,109 -903Cash flow from investment -1,197 -2,300 -1,109 -903Dividends -156 -276 -594 -500Change in net debt -283 98 -1,912 -1,887FCF equity 374 1,140 2,506 2,387


Intangible fixed assets 661 647 647 647Tangible fixed assets 7,889 8,367 8,710 8,820Current assets 1,650 2,446 4,422 6,279Cash & others 810 1,426 3,338 5,225Total assets 10,528 11,778 14,096 16,063Operating liabilities 1,176 1,396 1,240 1,243Gross debt 1,398 2,112 2,112 2,112Net debt 589 687 -1,225 -3,112Shareholders funds 6,907 7,152 9,626 11,590Invested capital 8,214 8,639 9,202 9,278


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 24.0 32.1 32.5 -8.8EBITDA 22.2 68.4 58.3 -15.8Operating profit 15.9 114.4 75.1 -19.5PBT -23.4 239.5 77.9 -19.4HSBC EPS -65.3 841.8 103.9 -19.8

Ratios (%)

Revenue/IC (x) 0.6 0.7 0.9 0.8ROIC 5.5 19.1 34.6 26.7ROE 2.4 20.8 35.6 22.6ROA 2.8 14.3 23.8 16.4EBITDA margin 38.0 48.5 57.9 53.4Operating profit margin 22.6 36.8 48.6 42.8EBITDA/net interest (x) 61.4 152.8 259.0 436.0Net debt/equity 8.5 9.6 -12.7 -26.9Net debt/EBITDA (x) 0.3 0.2 -0.3 -0.8CF from operations/net debt 287.3 355.9




Year to 12/2010a 12/2011e 12/2012e 12/2013e

Gold price (USD/oz) 1,247 1,631 2,025 1,800Copper Price (USD/metric ton) 6,718 6,652 5,743 5,291ZAR/USD 7 7 7 7USD/AUD 1 1 1 1

Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e



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Gold Fields Rel to JSE ALL SHARE


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Goldcorp, GG US, OW Patrick Chidley, CFA Target price (USD) 79.00 Index S&P 500 COMPOSITEAnalyst Share price (USD) 55.14 Bloomberg GG USHSBC Securities (USA), Inc. Potential return (%) 43.3 +1 212 525 4915 [email protected]


Note: Price at close of 15 September 2011. Source: HSBC Business description Goldcorp is one of the world’s largest and lowest-cost producers of gold with 10 operating mines spanning the Americas.

With four new mines and six advanced projects currently in its development pipeline, Goldcorp continues its tradition of

growth and plans to grow production to 4m oz of gold in 2015 from 2.4m oz in 2010 while maintaining an industry-

leading cash cost profile.

Key points Goldcorp has grown rapidly over the past decade and is very much still a growth company. It plans significant growth

from the ramp-up at its huge Peñasquito mine in Mexico and new mines in Canada, Argentina, Chile and Guatemala.

With greater than 50% production growth expected by 2015 and the company’s strong leverage to gold and silver prices,

we believe Goldcorp is attractively priced at 0.69x our current valuation.

Valuation and risks Our SOTP-based valuation of GG is USD59bn, which we calculate assuming long-term gold and silver prices of

USD1,800/oz and USD30/oz, respectively. Our USD79 target price suggests a potential return of 43%; therefore, we have

an Overweight rating on Goldcorp shares.

Downside risks include weakness in metals prices, higher costs associated with mining, political and environmental risks

and start-up risks at development projects.



Revenue 3,800 5,765 7,378 8,415 PE (x) 27.2 16.9 13.3 12.2EBITDA 2,090 3,484 4,960 5,654 PB (x) 1.8 1.9 1.7 1.5EBIT 1,467 2,765 4,137 4,604 EV/EBITDA (x) 19.2 11.4 7.7 6.4Net income 1,374 2,449 3,142 3,414 Dividend yield 0.4% 0.8% 0.8% 0.8%EPS (USD) 1.86 2.99 3.82 4.15 Net debt/equity 0.8% -4.4% -9.5% -15.9%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 3,800 5,765 7,378 8,415EBITDA 2,090 3,484 4,960 5,654Depreciation & amortisation -623 -719 -823 -1,051Operating profit/EBIT 1,467 2,765 4,137 4,604Net interest -99 44 12 33PBT 1,720 3,156 4,148 4,637HSBC PBT 1,720 3,156 4,148 4,637Taxation -345 -707 -1,006 -1,223Net profit 1,374 2,449 3,142 3,414HSBC net profit 1,374 2,449 3,142 3,414


Cash flow from operations 1,773 2,602 3,965 4,465Capex -1,198 -1,936 -2,256 -2,059Cash flow from investment -2,260 -1,411 -2,256 -2,059Dividends -154 -320 -327 -327Change in net debt 332 -1,137 -1,383 -2,079FCF equity 519 621 1,710 2,406


Intangible fixed assets 762 762 762 762Tangible fixed assets 25,316 24,470 25,902 26,911Current assets 1,622 2,739 4,122 6,202Cash & others 596 1,684 3,067 5,147Total assets 28,809 28,445 31,261 34,348Operating liabilities 1,448 1,371 1,371 1,371Gross debt 764 715 715 715Net debt 168 -969 -2,352 -4,432Shareholders funds 20,194 21,690 24,506 27,593Invested capital 25,656 24,916 26,348 27,357


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change


Ratios (%)

Revenue/IC (x) 0.2 0.2 0.3 0.3ROIC 5.3 8.5 12.2 12.6ROE 7.7 11.7 13.6 13.1ROA 5.7 8.5 10.6 10.4EBITDA margin 55.0 60.4 67.2 67.2Operating profit margin 38.6 48.0 56.1 54.7EBITDA/net interest (x) 21.2 Net debt/equity 0.8 -4.4 -9.5 -15.9Net debt/EBITDA (x) 0.1 -0.3 -0.5 -0.8CF from operations/net debt 1057.5




Year to 12/2010a 12/2011e 12/2012e 12/2013e

Average Gold Price 1,225 1,630 1,800 1,800Average Silver Price 21 38 32 30Average Copper Price 3 4 4 4Average Zinc Price 2,157 2,177 2,311 2,764Average Lead Price 2,136 2,276 1,763 1,763

Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e



Price relative

202530354045505560

2009 2010 2011 2012

202530354045505560

Goldcorp Inc. Rel to S&P/TSX COMPOSITE INDEX


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G-Resources,1051 HK, Not Rated Sarah Mak* Share price (HKD) 0.57 Index HANG SENG INDEXAnalyst Bloomberg 1051 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 1,234 Absolute 2% -19% 36% Free float (%) 91 Relative 4% -7% 41%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description G-Resources is a gold mining company based in Hong Kong. Its main asset is the Martabe gold and silver project, located

in North Sumatra, Indonesia. Martabe was originally purchased by G-Resources for cUSD220m in mid-2009 from OZ

Minerals. The resource base of the Martabe project is currently 6.73moz of gold and 68.31moz of silver. In addition to

Martabe, G-Resources’ Contract of Work (valid for a period of up to 50 years) provides it with access to a large-scale

mineralised district around the existing Martabe site (1,639sq km) with potential for further gold and gold-copper deposits.

The company’s target is to reach 1moz pa of gold production within the next 5 years.

Key points G-Resources commenced the Martabe project in mid-2009, and expects to complete it in early 2012. The project benefits

from its proximity to key infrastructure and also has good access to reliable supply of water and electricity — two key

inputs for mining operations. In addition, the mine is expected to be in the lower quartile of the industry cash cost curve

with an expected life of mine cash cost of USD242/oz (net of byproducts). Its low cost structure is largely due to the size

of the project (4.5mtpa bulk style open-cut mining), high ore grade (2.1 g/t gold average), good recovery (77% for gold

and 60% for silver), very low strip ratio (1.3:1 waste:ore) and a straightforward mining process.

G-Resources is aiming for a production profile of 250koz gold and 2-3moz silver pa. It seems to be on track with respect

to the construction and development of the Martabe project. The company expects first bullion production in 1Q12, and a

total project cost of USD576m, of which USD314m has been spent as of July 2011.

G-Resources has been ramping up exploration near the mine site, which implies further resources potential. The company

aims to grow organically by further discovery in the Martabe licence area and inorganically by acquisition and

development of other quality projects or producing assets in Asia, Australasia and the Pacific region.



Revenue 6 3 1,236 3,768 PE (x) -28.5 -57.0 19.0 7.1EBITDA -351 -137 688 2,536 PB (x) 1.7 1.7 1.4 0.9EBIT -352 -137 534 2,050 EV/EBITDA (x) -21.2 -65.3 13.3 3.1Net income -352 -106 382 1,467 Dividend yield 0.0% 0.0% 0.0% 0.0%EPS (HKD) -0.02 -0.01 0.03 0.08 Net debt/equity -46.4% -18.2% -7.9% -24.4%


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Hunnu Coal, HUN AU, Not Rated Sarah Mak* Share price (AUD) 1.29 Index AS-30 INDEXAnalyst Bloomberg HUN AUThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 296 Absolute 10% -11% 47% Free float (%) 77 Relative 5% -3% 53%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Hunnu Coal was incorporated in Australia. It acquires and develops coal projects in Mongolia. Hunnu has built a diverse

portfolio of exploration tenements in Mongolia (thermal and coking coal) through a series of acquisitions and joint

ventures. It has an exploration target of 250-500m tonnes of coking coal at its Altai Nuurs project and an exploration target

of 800m to 1bn tonnes of coal at Tsant Uul and Unst Khudag projects. The company is planning initial coal production in

2011 and is undertaking a feasibility study on rail lines. Hunnu has a cash position of AUD43m.

Key points Hunnu Coal acquired 70% of the Altai Nuurs coking coal project from Rio Tinto. The project is located in the Gobi Altai

province of southwestern Mongolia, 250km by road to the Burgastai border crossing into China. The exploration target

based on drilling and coal tests is between 250mt and 500mt and mining licences have been granted.

The Tsant Uul coal project is located 40km south of Tavan Tolgoi. The project has JORC coal resource of 167m tonnes

(measured, indicated and inferred) with further updates expected this year. A mining licence is granted and mining is

expected to commence in 4Q11 with an initial production target of 1.5m tonnes of coal in 2012 and 3m tonnes in 2013.

The Unst Khudag thermal coal project consists of two explorations and one mining licence. It has a total 676m tonnes of

JORC resource (measured, indicated and inferred) with further upgrades expected. There is a clear transport route to China

via the Erlianhaote border crossing. The company has completed the rail loading spur at Choir depot rail head and secured

3mpta of capacity on the existing Trans Mongolian railway. The feasibility study on building a railway line from the mine

site to Trans Mongolia railway is under way.



Revenue 0 0 74 228 PE (x) -22.0 -18.4 -14.3 -129.0EBITDA -7 -20 -13 29 PB (x) nm nm nm nmEBIT -6 -20 -15 22 EV/EBITDA (x) nm -16.5 -35.2 17.6Net income -7 -18 -22 -2 Dividend yield nm 0.0% 0.0% 0.0%EPS (AUD) -0.06 -0.07 -0.09 -0.01 Net debt/equity nm 123.1% 875.4% 983.0%


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Iluka Resources, ILU AU, Not Rated Sarah Mak* Share price (AUD) 15.91 Index AS30 INDEXAnalyst Bloomberg ILU AUThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 7,060 Absolute 9% -5% 162% Free float (%) 81 Relative 4% 3% 169%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Iluka Resources is involved in the exploration, project development, operation and marketing of mineral sands products.

Iluka is the world’s largest producer of zircon, with c33% market share. It is the second largest producer of titanium

dioxide minerals such as rutile and synthetic rutile. Iluka has mining and processing operations in Murray Basin, Victoria;

mining operations in South Australia, as well as processing and ilmenite upgrading operations in Western Australia. The

company also has mining and processing operations in Virginia in the US.

Key points Iluka recorded a profit after tax for 1H11 of AUD145.9m, compared to a net loss after tax of AUD6.6m for the previous

corresponding period. This is due to higher sales volumes, higher product pricing and the completion and ramp-up of two

new and higher-margin operations in 2010.

The company has revised up its 2011 total production volume guidance for zircon, rutile and synthetic rutile (Z/R/SR) by

more than 110kt from its initial guidance given in February 2011. It now expects to produce 550kt of zircon in 2011

(413kt in 2010, initial guidance 500kt) and 275kt of rutile (250kt in 2010, initial guidance 250kt) due to favourable Murray

Basin grades.

Unit cash cost for Z/R/SR was AUD538 per tonne. The company is expecting higher unit cash cost in 2011 at cAUD560

per tonne. Capex is also expected to increase in 2011 to AUD170m from AUD117m in 2010 related to initiatives to

increase production.



Revenue 965 1,531 2,371 2,607 PE (x) 176.8 13.8 6.5 5.5EBITDA 292 883 1,641 1,878 PB (x) 5.9 4.4 3.1 2.3EBIT 73 687 1,459 1,697 EV/EBITDA (x) 24.0 7.4 3.5 2.7Net income 36 479 1,035 1,230 Dividend yield 0.5% 3.6% 8.0% 9.7%EPS (AUD) 0.09 1.15 2.45 2.91 Net debt/equity 27.8% -8.9% -40.3% -57.7%


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Industries Qatar, IQCD QD, N Sriharsha Pappu * Target price (QAR) 142.00 Index DSM20 Analyst Share price (QAR) 122.30 Bloomberg IQCD QDHSBC Bank Middle East Potential return (%) 16.1 +971 4423 6924 [email protected] Performance 1M 3M 12M Market cap (USDm) 18,471 Absolute -9% -9% 15% Free float (%) 30

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Industries Qatar (IQ) is an industrial conglomerate with varied business interests that include steel (38.3% of 2010

revenues), petrochemicals (29.7%), fertilisers (23.6%) and fuel additives (8.4%).

The company has a sustainable feedstock advantage due to the low cost of gas (USD1.91 per mmbtu in 2010), which is

provided by the majority shareholder, Qatar Petroleum (70% ownership).

Key points Steel expansion on hold: IQ recently announced that its steel expansion projects have been put on hold due to non-

availability of gas. The steel segment was expected to be the largest driver of volume growth for the company (accounting

for c55% of revenues in 2015, compared to c38% in 2010, as per the five-year company plan).

Three new projects to commence operations in 2011-12: Qafco-V (Ammonia: 1,500 ktpa, Urea: 1,300 ktpa, expected

to start in 2H11), Qafco-VI (Urea: 13,00 ktpa, expected to start in 3Q12) and LDPE-3 (LDPE: 300 ktpa, expected to start

in 1Q12).

Valuation and risks Our preferred methodology for valuing commodity chemical companies is DCF. We use a three-stage DCF model (explicit

forecast till 2015, semi-explicit forecast till 2018, before moving to a terminal valuation phase). We use a WACC of

11.1% for IQ (based on risk-free rate: 3.5%, market risk premium: 8%, beta: 1.11, cost of debt: 6%, debt weighting: 20%).

Upside/downside risks include: plant start-up timelines (faster- or slower-than-expected start-up of IQ’s capacity

expansion projects); energy price movements (prices of most IQ products are highly correlated with crude oil prices; any

sharp increase or decrease in global energy prices (particularly crude oil prices).

Financial forecasts (QARm)


Revenue 12,331 16,274 16,630 16,612 PE* 12.1 8.7 9.3 9.8EBITDA 5,806 8,473 8,299 7,937 PB 3.1 2.6 2.3 2.1EBIT 5,157 7,727 7,422 7,006 EV/EBITDA 11.6 7.8 7.6 7.4Net income 5,575 7,703 7,240 6,856 Div Yield 4.1% 5.7% 5.4% 5.1%EPS (QAR) 10.14 14.01 13.16 12.46 ND/E 10.3% 2.6% -8.3% -19.0%


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Year to 12/2010 12/2011e 12/2012e 12/2013e

Profit & loss summary (QARm)

Revenue 12,331 16,274 16,630 16,612EBITDA 5,806 8,473 8,299 7,937Depreciation & amortisation -649 -746 -876 -931Operating profit/EBIT 5,157 7,727 7,422 7,006Net interest -147 -176 -214 -214PBT 5,578 7,802 7,426 7,031HSBC PBT 5,578 7,802 7,426 7,031Taxation 0 -93 -186 -176Net profit 5,575 7,703 7,240 6,856HSBC net profit 5,575 7,703 7,240 6,856

Cash flow summary (QARm)

Cash flow from operations 4,987 8,705 8,069 7,789Capex -4,143 -3,260 -1,360 -560Cash flow from investment -3,271 -3,260 -1,360 -560Dividends -2,752 -3,850 -3,630 -3,438Change in net debt 2,087 -1,595 -3,079 -3,791FCF equity 697 5,402 6,492 6,989

Balance sheet summary (QARm)

Intangible fixed assets 257 257 257 257Tangible fixed assets 8,874 11,388 11,872 11,501Current assets 10,040 11,965 15,209 19,097Cash & others 5,290 6,886 9,965 13,756Total assets 31,908 36,347 40,075 43,592Operating liabilities 2,604 3,190 3,308 3,406Gross debt 7,542 7,542 7,542 7,542Net debt 2,252 656 -2,423 -6,214Shareholders funds 21,748 25,602 29,212 32,630Invested capital 11,277 13,535 14,066 13,693


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 25.1 32.0 2.2 -0.1EBITDA 49.1 46.0 -2.1 -4.4Operating profit 53.0 49.9 -3.9 -5.6PBT 12.4 39.9 -4.8 -5.3HSBC EPS 12.4 38.2 -6.0 -5.3

Ratios (%)


Per share data (QAR)


Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e



Price relative

49

69

89

109

129

149

169

2009 2010 2011 2012

49

69

89

109

129

149

169

Industries Qatar QSC Rel to DSM 20 INDEX


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IRC Ltd,1029 HK, Not Rated Sarah Mak* Share price (HKD) 1.45 Index HANG SENG INDEXAnalyst Bloomberg 1029 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 625 Absolute 4% -25% na Free float (%) 28 Relative 6% -13% na

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description IRC produces iron ore, titanium and ilmenite concentrate in the Far East of Russia and vanadium pentoxide in northeastern

China. The company’s current operational project is Kuranakh, located in Amur region in Russia, which produces

titanomagnetite and ilmenite concentrates. IRC is focused on key projects namely K&S and Garinskoye, both in Russia,

which are expected to come on-stream in 2013 and 2015, respectively. It also provides engineering services in Russia

through its subsidiary Giproruda (70% stake). In addition, IRC holds a 46% stake in a vanadium joint venture in China

with a production capacity of 6ktpa vanadium pentoxide. It also has several exploration projects including Garinskoye

(100% stake), Kostenginskoye (100%) and Bolshoi (49%). IRC is largely owned by Petropavlovsk of Russia, which has a

65.61% stake in the company.

Key points IRC has earmarked a significant growth profile for itself: It has a production capacity of 0.80mtpa of iron concentrate,

which is expected to reach 12.1mtpa by 2015 (CAGR 127%). K&S will account for c52% of capacity, while Garinskoye

will contribute 38% and Kuranakh 10%. It has total resources of 1,160mt of ore (33% Fe) and 644.7mt of reserves (33%

Fe) equivalent to a mine life of 68 years at full capacity.

Two new projects are relatively low cost compared to Kuranakh: While life of mine project cost of K&S project is

estimated to be USD34/t of concentrate, it is USD49/t for Garinskoye and USD55/t for Kuranakh. K&S derives its cost

advantage from low transportation cost due to proximity to the Trans-Siberian railway, which provides access to the

Chinese border.

IRC earned its maiden profit of USD3.6m in 1H11 on higher volume and prices: It produced 350kt and 22kt of iron ore

and ilmeninte concentrate, respectively, and is confident to achieve the 2011 target of 750kt and 52kt for these products.



Revenue 26 158 185 549 PE (x) -4.7 nm nm 2.7EBITDA -74 19 35 329 PB (x) 0.8 0.9 0.8 0.6EBIT -77 10 30 307 EV/EBITDA (x) -5.4 30.0 20.6 2.2Net income -82 11 20 235 Dividend yield 0.0% 0.0% 0.0% 0.0%EPS (USD) -0.04 0.00 0.00 0.07 Net debt/equity -27.8% -8.1% 10.2% 9.0%


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Ivanhoe Mines, IVN CN, Not Rated Jonathan Brandt, CFA Share price (CAD) 21.77 Index S&P/TSX COMP Analyst Bloomberg IVN CNHSBC Securities (USA) Inc. +1 212 525 4499 [email protected]

Performance 1M 3M 12M Market cap (USDm) 15,642 Absolute 12% 1% 22% Free float (%) 31 Relative 3% 5% 16%

Note: Price at close of 7 September 2011. Source: HSBC Business description Ivanhoe Mines is focused on the development of assets in the Asia-Pacific region. It is majorly owned by Rio Tinto

(48.5% stake) and founder and CEO, Robert Friedland (15.5%). The company’s key asset is Oyu Tolgoi (66% interest), a

copper and gold mine development project in Mongolia. It also holds a 57% interest in SouthGobi Resources, a Mongolian

coal miner; 62% interest in Ivanhoe Australia, which is developing the Osborne copper and Merlin molybdenum project in

Australia; and 50% interest in Altynalmas Gold Ltd, which is developing the Kyzyl Gold Project in Kazakhstan.

Key points The Oyu Tologoi project has M&I resource (contained metal) of 49,860m of copper equivalent pounds. According to the

company, the Oyu Tolgoi project will be one of the top-three copper gold mines in the world and is expected to complete

Phase 1 in 2013. The mine is expected to annually produce 1.2bn lbs of copper and 650koz of gold on average during the

first 10 years. Until 2010, USD1.4bn had been spent on the project and another USD4.5bn of investment is required during

2011-13 to complete phase 1 of the project. The remaining stake in the project is owned by the Government of Mongolia.

As of 24 August 2011, Ivanhoe Mines’ cash position was USD1.7bn. The company, along with Rio Tinto, is negotiating

financing of USD3.6bn with a group of international financial institutions, government credit agencies and commercial banks.

The company recently upgraded the existing resources and announced new resources at Kyzyl Project in Kazakhstan. The

Kyzyl project has indicated resource of 6.2koz of gold and 3.6koz of inferred resources.

Rio Tinto is the major shareholder with a 48.5% stake in the company. Rio Tinto’s ownership in Ivanhoe Mines is capped at 49%

until the current standstill limitation expires on 18 January 2012 and is attainable only through open-market purchases of

common shares.



Revenue 80 179 546 1,762 PE (x) -51.4 -31.6 -56.7 52.6EBITDA -321 -297 -90 702 PB (x) 6.9 3.4 3.6 3.2EBIT -323 -206 87 626 EV/EBITDA (x) -44.8 -54.0 -193.8 27.6Net income -212 -616 -234 238 Dividend yield 0.0% 0.0% 0.0% 0.0%EPS (USD) -0.43 -0.70 -0.39 0.42 Net debt/equity -69.6% 10.3% 39.6% 93.3%


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Ivanhoe Australia, IVA AU, Not Rated Sarah Mak* Share price (AUD) 1.53 Index AS30 INDEXAnalyst Bloomberg IVA AUThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]


Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Ivanhoe Australia (IVA) engages in the exploration and development of mineral resource properties in Queensland,

Australia. The company has an extensive mineral resource base and has the potential to develop four operating projects

within the next five years. Its main projects are Merlin (Molybdenum & Rhenium); Osborne, Mount Elliott (copper gold);

and Mount Dorre (SXEW copper). The company has aggregate metal resources of 3.6mt copper, 6.2moz gold, 90kt

molybdenum and 155t rhenium. IVA is a subsidiary of Ivanhoe Mines, which holds a 62% stake in the company.

Key points The projects are still in the development phase and the company is focused on bringing its Osborne project into the

production stage. Ivanhoe acquired the Osborne project in October 2010 for AUD17.4m and 2% royalty from Barrick Gold.

This has pushed forward its production schedule. It expects production to start in 1H12, with an output of 30-35ktpa copper

and 30kozpa gold. The company’s other projects are long dated with Merlin (5.3ktpa Molybdenum, 7.5tpa Rhenium) in

2013, Mount Dore (15-20ktpa copper cathode) in 2014 and Mount Elliott (40ktpa copper, 80kozpa gold) in 2016.

IVA also has strategic joint venture investments in EXCo Resources (22.8%) and Emmerson Resources (10%). Exco holds

extensive exploration tenements in Cloncurry adjacent to IVA tenements. IVA is expected to receive a dividend of

cUSD31m following the sale of EXCO’s Cloncurry Copper project to Xstrata for AUD175m. Emmerson holds tenements

in Tennant Creek Mineral Field in the Northern Territory.

Exploration is IVA’s key growth strategy. It has a long history of exploration success with its cloncurry tenements still

underexplored. It has until now identified 270 prospects along five main belts of Starra, Mount Dore, Elana, Answer and

Osborne. Its recent discoveries are located adjacent to earlier resources.



Revenue 4 0 129 318 PE (x) -7.0 -21.9 -76.5 13.9EBITDA -73 -40 4 109 PB (x) 3.6 4.3 4.5 3.7EBIT -74 -41 -5 87 EV/EBITDA (x) -7.0 -15.7 182.2 7.9Net income -79 -28 -8 63 Dividend yield 0.0% 0.0% 0.0% 0.0%EPS (AUD) -0.22 -0.07 -0.02 0.11 Net debt/equity -71.8% -6.1% 61.4% 84.9%


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Kinross Gold, KGC US, OW Patrick Chidley, CFA Target price (USD) 30.00 Index S&P 500 COMPOSITEAnalyst Share price (USD) 17.78 Bloomberg KGC USHSBC Securities (USA), Inc. Potential return (%) 76 (212) 525-4915 [email protected]


Note: Price at close of 15 September 2011. Source: HSBC Business description Kinross is a gold mining company with 10 mining operations located in Brazil, Chile, Russia, Ghana, Mauritania and the

US that produced a combined 2.3m oz of gold in 2010. Kinross is a growth company in a major push to lift production

above 4.5m oz by 2015. The company is expanding its flagship Tasiast deposit in Mauritania and planning new mines in

Ecuador, Chile and Russia.

Key points Kinross has grown primarily through acquisitions over the past decade and now has an ambitious but challenging path

ahead as it begins to build out its operational base.

We believe that most of the predicted growth will materialize and the company is trading at 0.62x our valuation. Despite

our currently conservative outlook for metals prices, we believe that Kinross shares offer further upside potential.

Valuation and risks Our SOTP-based valuation of KGC is USD31bn, which we calculate assuming long-term gold and silver prices of

USD1,800/oz and USD30/oz, respectively. Our 12-month target price of USD30 suggests a potential return of 76%;

therefore, we have an Overweight rating on Kinross shares.

Downside risks include weakness in precious and base metal prices, higher costs associated with mining, political and

environmental risks and development and start-up risks at Tasiast, FDN, Lobo-Marte, and Dvoinoye



Revenue 3,010 4,054 5,464 5,254 PE (x) 18.3 18.5 10.7 12.5EBITDA 1,385 2,201 3,585 3,240 PB (x) 1.0 1.2 1.1 1.0EBIT 867 1,582 2,887 2,499 EV/EBITDA (x) 12.9 8.3 5.2 6.0Net income 772 1,051 1,817 1,553 Dividend yield 0.0% 0.6% 0.7% 0.7%EPS (USD) 0.93 0.92 1.59 1.36 Net debt/equity -6.7% -3.9% -0.7% 2.3%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 3,010 4,054 5,464 5,254EBITDA 1,385 2,201 3,585 3,240Depreciation & amortisation -518 -619 -698 -741Operating profit/EBIT 867 1,582 2,887 2,499Net interest -23 -53 -45 -71PBT 1,156 1,633 2,842 2,428HSBC PBT 1,156 1,633 2,842 2,428Taxation -275 -516 -995 -850Net profit 772 1,051 1,817 1,553HSBC net profit 772 1,051 1,817 1,553


Cash flow from operations 926 361 2,368 2,305Capex -564 -416 -2,730 -2,716Cash flow from investment 232 -830 -2,730 -2,716Dividends -118 -125 -136 -136Change in net debt -1,030 383 498 547FCF equity 400 1,285 -361 -411


Intangible fixed assets 6,086 6,358 6,358 6,358Tangible fixed assets 8,223 8,684 10,715 12,690Current assets 2,669 2,530 2,313 2,539Cash & others 1,469 1,077 579 782Total assets 17,867 18,470 20,285 22,485Operating liabilities 1,701 1,620 1,724 1,732Gross debt 474 466 466 1,216Net debt -994 -611 -113 434Shareholders funds 14,544 15,491 17,172 18,588Invested capital 13,808 14,875 17,084 19,073


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 24.8 34.7 34.8 -3.8EBITDA 26.7 59.0 62.9 -9.6Operating profit 34.3 82.4 82.5 -13.5PBT 105.4 41.2 74.1 -14.6HSBC EPS 109.1 -1.0 72.8 -14.5

Ratios (%)

Revenue/IC (x) 0.3 0.3 0.3 0.3ROIC 6.7 7.5 11.7 9.0ROE 7.7 7.0 11.1 8.7ROA 7.0 6.4 9.7 7.7EBITDA margin 46.0 54.3 65.6 61.7Operating profit margin 28.8 39.0 52.8 47.6EBITDA/net interest (x) 60.7 41.2 80.1 45.9Net debt/equity -6.7 -3.9 -0.7 2.3Net debt/EBITDA (x) -0.7 -0.3 0.0 0.1CF from operations/net debt 531.1




Year to 12/2010a 12/2011e 12/2012e 12/2013e

Gold 1,337 1,734 2,025 1,800Silver 22 38 32 30Copper 3 4 4 4

Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e

EV/sales 6.0 4.5 3.4 3.7EV/EBITDA 12.9 8.3 5.2 6.0EV/IC 1.3 1.2 1.1 1.0PE* 18.3 18.5 10.7 12.5P/Book value 1.0 1.2 1.1 1.0FCF yield (%) 2.1 6.8 -1.9 -2.2Dividend yield (%) 0.0 0.6 0.7 0.7


Price relative

8101214161820222426

2009 2010 2011 2012

8101214161820222426

Kinross Gold Corporation Rel to S&P/TSX COMPOSITE INDEX


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Lonmin, LMI LN, Not Rated Lourina Pretorius* Share price (GBP) 12.6 Index FTSE 100 Analyst Bloomberg UKX IndexHSBC Bank plc +44 20 7992 3686 [email protected]

Performance 1M 3M 12M Market cap (USDm) 4,072 Absolute 14% -18% -22% Free float (%) 67 Relative 9% -9% -20%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Lonmin is the world’s third largest PGM producer and also produces gold, nickel and copper. The company has a

vertically integrated operational structure that includes both mining of raw ore and further processing into refined PGMs.

The group’s running operations are based in the Marikana region of the Bushveld complex, South Africa, where 85% of

the world’s PGMs are mined. The company has platinum reserves of c27Moz, implying a mine life of over 30 years based

on current production growth targets. Lonmin derived 2010 revenues from Europe (c33%), the Americas (c29%), Asia

(c24%) and South Africa (c15%) – however, historically, Asia has played a more dominant role (c30-35% during 2005-

08). Primary listed on the LSE, it also trades on the JSE, and is a constituent of the FTSE 100 Index. The share register is

quite tightly held, with around 71% of the group owned by the top-ten shareholders.

Key points Lonmin is tackling historically disappointing operational performance and has seen initial success, e.g. consistent

performance of its Number One smelter.

It has ambitious but achievable production growth objectives, targeting 850koz of platinum production by 2013 (in line

with 2003 levels), before moving up to 950koz by 2015 – a production increase of roughly 6% pa.

Lonmin has to contend with underlying factors that affect the entire South African platinum sector: the strong South

African rand, excessive pay demands from an aggressive workforce, the impact on production of a rising number of safety

stoppages and ongoing debate regarding asset nationalisation.


Year to September 2010 2011e 2012e 2013e Key ratios 2010 2011e 2012e 2013e

Revenue 1,585 1,986 2,312 2,505 PE (x) 28.8 20.8 13.3 9.8EBITDA 350 464 658 778 PB (x) 1.5 1.4 1.3 1.2EBIT 228 328 568 640 EV/EBITDA (x) 12.7 9.5 6.5 5.3Net income 138 203 307 402 Dividend yield 0.7% 0.9% 1.3% 1.5%EPS (USD) 0.70 0.97 1.52 2.05 Net debt/equity 13.8% 11.1% 6.9% 0.8%


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Medusa Mining, MLL AU, Not Rated Sarah Mak* Share price (AUD) 7.95 Index AS30 INDEXAnalyst Bloomberg MLL AUThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]


Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Medusa is an Australia-based gold producer solely focused on organic growth in the Philippines. It currently has two

mines, Co-O mine and Bananghilig mine and produced 101,474oz of gold in 2010. It has a five-year, two-phase growth

path to become a 400,000oz pa mid-tier low-cost gold producer. This growth plan will be self funded by cash flow from its

Co-O mine. Medusa has total gold resource (indicated and inferred) of c2.6m oz.

Key points For FY11, Medusa’s net profit was USD110.4m, up 68% y-o-y and it also achieved record gold production of 101,474oz

at cash costs of USD189 per oz. It also increased total Co-O resources by 459k oz to 1.96m oz.

The company is planning to increase its production output over the next three years with the following targets: FY12:

100,000oz at cash costs of cUSD200 per oz, FY13: 120,000oz at cash costs of cUSD210 per oz and FY14: 200,000oz at

cash costs of cUSD220 per oz.

The company approved the construction of a new Co-O mill in November 2010 with capacity to produce 200,000oz pa by

2014. In addition, the company already started resource confirmation and expansion drilling at its Bananghilig mine, with

a target production capacity of 200,000oz commencing 2016.

The organic growth path to produce 400,000oz pa by 2016 is self funded by cash flow generated from the Co-O mine. This

involves Co-O expansion at an indicative capital cost of USD70m and Bananghilig development at an estimated capital

cost of USD200m over the next five years.



Revenue 95 150 177 204 PE (x) 22.3 14.6 11.9 10.3EBITDA 73 120 144 165 PB (x) 9.1 5.8 4.0 2.9EBIT 65 110 146 173 EV/EBITDA (x) nm 12.7 10.3 8.4Net income 66 110 138 156 Dividend yield 0.0% 1.2% 1.4% 1.4%EPS (USD) 0.38 0.58 0.71 0.82 Net debt/equity nm -22.6% -26.4% -34.5%


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Mongolia Energy, 276 HK, Not Rated Sarah Mak* Share price (HKD) 0.78 Index HANG SENGAnalyst Bloomberg 276 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]


Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Mongolia Energy Corp (MEC) is an energy and resources developer, with operations and investment over Mongolia and

Xinjiang in Northwestern China. MEC engages in the acquisition, exploration and mining of coal, ferrous and non-ferrous

metals, and oil and gas resources and has a concession area of c330,000ha. The company's principal project is the

Khushuut Coking Coal Project located in Western Mongolia.

Key points The Khushuut mining project will deploy conventional open pit operations due its location and geology. The mine has

149.2mt of resources including both hard and semi-hard coking coal with a stripping ratio of 4.9. MEC awarded Leighton

Asia a six-year contract in 2010 to develop and operate the project. Trial production and shipments from the project

commenced in October 2010. The project has not yet commenced commercial production and plans to produce 3mtpa of

coking coal initially with a ramp up to 8mtpa within three years. MEC in 2009 estimated a mining cash cost over the life of

the mine at USD20.64/t.

Capex to date have been focused primarily on exploration work (USD56m as of March 2011), mining-related

infrastructure (USD42m) and Khushuut road construction (USD222m). MEC plans to spend a further USD203m in

building the infrastructure and USD208m on mining equipment.

MEC has entered into a long-term coal supply agreement with Baosteel Group, Baosteel Bayi and Xinjiang. Under this

agreement, Baosteel Bayi has agreed to purchase a minimum of 9.6-10mt coking coal from MEC through 2010-20.

MEC plans to explore potential resources such as iron ore deposits at Bayan-Uglii in Western Mongolia, coal resources

north of the existing Khushuut coking coal mine, copper prospects near Khushuut and copper and gold prospects in Gants

Mod and Govi-Altai areas.


Year to March 2010 2011 2012e 2013e Key ratios 2010 2011 2012e 2013e

Revenue 0 0 329 1,064 PE (x) -14.9 -15.6 -15.6 -19.5EBITDA -112 -107 -261 -117 PB (x) nm 0.4 0.4 0.4EBIT -136 -135 -255 -154 EV/EBITDA (x) nm -57.6 -30.8 -73.1Net income -317 -311 -347 -298 Dividend yield nm 0.0% 0.0% 0.0%EPS (HKD) -0.05 -0.05 -0.05 -0.04 Net debt/equity nm 20.6% 22.9% 27.4%


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Nanjing I&S, 600282CH, Not Rated Sarah Mak* Share price (CNY) 3.88 Index SHCOMPAnalyst Bloomberg 600282 CHThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 2,352 Absolute 1% -5% -6% Free float (%) 16 Relative 2% 4% 1%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Nanjing Iron and Steel listco was first listed on the A-share market in 2000. The company’s largest shareholder is one of

China’s biggest industrialists, Mr Guo Guangchang, whose business portfolio also includes gold (ZhaoJin Mining, 1818

HK). Located in Nanjing, the company specialises in steel plates and mainly serves costumers in the shipping and

automobile sectors in the Yangzi Delta region. As of December 2010, the company had crude steel capacity of 8mtpa, steel

product capacity of 7mtpa and iron capacity of 7mtpa.

Key points Nanjing Iron and Steel’s 1H11 net profit was RMB586m, up 14.8% y-o-y as a result of higher production volume (3.98mt,

up 17.4% y-o-y) while overall steel sector profit declined y-o-y. As of 31 August, total net profit for the 33 steel

companies listed in China was RMB15.5bn, down 24.5% y-o-y.

The company is expanding its production capacity and aims to become the best medium and thick plate producer in China.

It is adding a 4700mm plate production line, which could see its medium and thick plate production capacity reach

5.0mtpa from 3.6mtpa currently.

Nanjing Iron and Steel indicated that it aims to become 40%-50% iron ore self sufficient and more than 30% coking coal

self sufficient in 2-3 years. Currently, the company owns 100% of Jinan Mining, which has iron ore concentrates capacity

of 1mtpa. In May 2011, Nanjing Iron & Steel bought 10% of AWC, which owns 70% of Malaysia Iron Ore Project Co.

The company also owns 49% of Jinhuangzhuang Mining, which has coking coal reserves of 35.6mt and will go into

production in 2013 (450ktpa).



Revenue 30,048 35,421 37,522 42,693 PE (x) 16.2 14.4 9.9 6.5EBITDA 3,082 3,560 3,996 4,198 PB (x) 1.5 1.3 1.2 1.0EBIT na na na na EV/EBITDA (x) nm nm nm nmNet income 919 1,164 1,518 2,315 Dividend yield 0.0% 1.5% nm nmEPS (CNY) 0.24 0.27 0.39 0.60 Net debt/equity nm nm nm nm


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Newmont Mining, NEM US ,OW Patrick Chidley, CFA Target price (USD) 116.00 Index S&P 500 COMPOSITEAnalyst Share price (USD) 63.81 Bloomberg NEM USHSBC Securities (USA) Inc. Potential return (%) 80.8 (212) 525-4915 [email protected]


Note: Price at close of 15 September 2011. Source: HSBC Business description Newmont is the world’s second largest gold producer with 2010 equity production of 5.4m oz of gold. Currently, all of the

company’s gold production is unhedged, leaving it open to profits from increases in the gold price. The company also

produces a significant amount of copper that totalled 327m lbs in 2010. Newmont is the largest US-domiciled gold

producer and the only gold mining company in the S&P 500 index.

Key points Recent board of directors’ approval to construct the Conga project and expand the Tanami mine have Newmont well on its

way to realizing its plan of reaching annual equity gold production of 7.0m oz by 2017.

With 2011 gold production weighted toward the second half and the strong move in gold prices, we believe Newmont will

provide strong financial results, and the recent further increase in gold price should further boost results. The company is

attractively priced at 0.60x our current valuation, which is based on a long-term USD1,800/oz gold price.

Valuation and risks Our SOTP-based target price of USD116 suggests a potential return of 80%; therefore, we have an Overweight rating on

Newmont shares. It is based on our valuation assuming gold prices reach and sustain our target gold price of USD1,890/oz

within the next 12 months.

Downside risks include weaker-than expected precious and base-metals prices, poor performance at core assets, higher

costs associated with mining and project construction, environmental or political risk related issues, and development and

start-up risks associated with Hope Bay, Conga, and Akyem.



Revenue 9,540 11,431 14,147 12,890 PE (x) 14.8 11.6 7.2 9.3EBITDA 5,118 6,422 9,271 7,819 PB (x) 2.4 2.0 1.6 1.4EBIT 4,173 5,305 8,067 6,656 EV/EBITDA (x) 6.3 5.3 3.5 4.1Net income 2,174 2,773 4,491 3,475 Dividend yield 0.8% 1.7% 3.3% 2.8%EPS (USD) 4.35 5.54 8.96 6.94 Net debt/equity 1.7% 5.7% -4.7% -9.4%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 9,540 11,431 14,147 12,890EBITDA 5,118 6,422 9,271 7,819Depreciation & amortisation -945 -1,116 -1,203 -1,163Operating profit/EBIT 4,173 5,305 8,067 6,656Net interest -279 -239 -217 -196PBT 3,869 4,932 7,850 6,460HSBC PBT 3,869 4,932 7,850 6,460Taxation -856 -1,466 -2,355 -1,938Net profit 2,174 2,773 4,491 3,475HSBC net profit 2,174 2,773 4,491 3,475


Cash flow from operations 3,444 4,372 6,799 5,785Capex -1,402 -2,572 -3,554 -3,458Cash flow from investment -1,419 -4,693 -3,554 -3,458Dividends -247 -542 -1,060 -887Change in net debt -540 806 -2,185 -1,439FCF equity 1,827 1,605 3,145 2,226


Intangible fixed assets 0 0 0 0Tangible fixed assets 12,907 17,466 19,816 22,112Current assets 7,076 6,622 8,231 9,598Cash & others 4,169 3,089 4,698 6,065Total assets 25,663 30,472 34,431 38,094Operating liabilities 2,066 2,802 2,802 2,802Gross debt 4,441 4,167 3,591 3,519Net debt 272 1,078 -1,107 -2,546Shareholders funds 13,345 15,855 19,286 21,873Invested capital 13,748 18,197 20,547 22,843


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change


Ratios (%)





Year to 12/2010a 12/2011e 12/2012e 12/2013e

Average Gold Price 1,226 1,630 2,025 1,800Average Silver Price 20 38 32 30Average Copper Price 4 4 4 4Average Zinc Price 2,160 2,178 2,311 2,764Average Lead Price 2,234 2,138 1,763 1,763

Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e



Price relative

313641465156616671

2009 2010 2011 2012

313641465156616671

Newmont Mining Rel to S&P 500


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Nyrstar, NYR BB, OW Thorsten Zimmermann*, CFA Target price (EUR) 14.00 Index BEL 20Analyst Share price (EUR) 7.69 Bloomberg NYR BBHSBC Bank plc Potential return (%) 82.2 +44 207 991 6835 [email protected]

Performance 1M 3M 12M Market cap (USDm) 1,834 Absolute 14% -10% 1% Free float (%) 87

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Nyrstar is a zinc pure play and the world’s largest zinc smelter with c1mt pa refining capacity (c10% market share). It has

embarked on an aggressive backward integration strategy since 2009. Since then, Nyrstar has bought eight producing zinc

mines, and invested in two potential greenfield projects and one gold mine. On that basis, Nyrstar can cover 43% of zinc

smelter capacity from captive sources, which management expects to reach by the end of 2012.

Key points We like the backward integration strategy as we expect China’s smelting capacity growth to keep zinc treatment charges (TC)

under pressure. Management has been disciplined in its acquisition approach and is looking at additional potential acquisitions.

NYR is a zinc pure play and although we see the zinc market in surplus near term, which could keep pressure on the zinc

price, several large mines will likely go out of business from 2013.

The ramp-up has progressed somewhat slower than expected and 1H11 EPS was just 27% of consensus 2011e EPS.

At 8.2x 2011e consensus PE, dropping to 4.5x on 2012e on the back of the organic growth, the stock trades at the low end

of our mining universe.

Valuation and risks We have a one-year target price of EUR14 based on a 50:50 blended average of our economic residual income model

(EUR14 -3.5% risk-free rate , 5% risk premium, beta 1.3) and 2012e EV/EBITDA (multiple 5.3x).

Nyrstar’s earnings are highly sensitive to USD/EUR changes, EUR/AUD changes, zinc price, TC movements and precious

metal price movements. All of these factors could imply substantial risks to our estimates and influence both our target

price and rating. Potential integration and ramp up problems of the mining assets pose additional risks.

Financial forecasts (EURm)


Revenue 2,696 3,389 3,562 4,231 PE* (x) 8.9 7.5 4.7 3.2EBITDA 180 345 486 665 PB (x) 0.9 0.9 0.8 0.6EBIT 98 228 365 542 EV/EBITDA (x) 8.8 3.7 2.3 1.2Net income 99 173 298 441 Dividend yield 2.0% 3.4% 5.8% 9.9%EPS (EUR) 0.87 1.02 1.63 2.40 Net debt/equity 40.1% 2.4% -7.7% -20.8%


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Year to 12/2010 12/2011e 12/2012e 12/2013e

Profit & loss summary (EURm)

Revenue 2,696 3,389 3,562 4,231EBITDA 180 345 486 665Depreciation & amortisation -82 -117 -121 -124Operating profit/EBIT 98 228 365 542Net interest -13 -30 -3 4PBT 89 202 366 550HSBC PBT 113 211 375 559Taxation -17 -43 -81 -122Net profit 72 159 285 427HSBC net profit 99 173 298 441

Cash flow summary (EURm)

Cash flow from operations 211 204 298 458Capex -145 -90 -90 -90Cash flow from investment -426 -387 -87 -87Dividends -10 -15 -43 -75Change in net debt 256 -298 -168 -297FCF equity 59 116 210 370

Balance sheet summary (EURm)

Intangible fixed assets 266 348 334 316Tangible fixed assets 783 973 956 941Current assets 980 1,621 1,760 1,908Cash & others 161 686 686 686Total assets 2,103 3,017 3,125 3,239Operating liabilities 602 650 684 744Gross debt 494 721 553 256Net debt 333 36 -133 -430Shareholders funds 828 1,466 1,707 2,059Invested capital 1,267 1,608 1,681 1,736


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change


Ratios (%)

Revenue/IC (x) 2.4 2.4 2.2 2.5ROIC 7.2 12.5 17.3 24.7ROE 12.3 15.0 18.8 23.4ROA 5.7 6.2 9.3 13.4EBITDA margin 6.7 10.2 13.6 15.7Operating profit margin 3.6 6.7 10.2 12.8EBITDA/net interest (x) 14.4 11.5 188.8 Net debt/equity 40.1 2.4 -7.7 -20.8Net debt/EBITDA (x) 1.9 0.1 -0.3 -0.6CF from operations/net debt 63.1 571.4

Per share data (EUR)



Year to 12/2010 12/2011e 12/2012e 12/2013e

Zinc price 2,118 2,179 2,312 2,765Zinc in concentrate 83 215 300 342Refined zinc 1,077 1,082 1,094 1,094Effective TCs 256 216 263 250Zinc premium 118 125 125 125USD/EUR 1.33 1.42 1.39 1.30

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e



Price relative

0

2

4

6

8

10

12

2009 2010 2011 2012

0

2

4

6

8

10

12

Nyrstar Rel to BEL-20

Source: HSBC Note: price at close of 07 Sep 2011 Stated accounts as of 31 Dec 2007 are IFRS compliant

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Petropavlovsk, POG LN, OW(V) Sabrina Grandchamps Target price (GBP) 15.00 Index FTSE ALL-SHARE Analyst Share price (GBP) 8.65 Bloomberg POG LNHSBC Securities (USA) Inc. Potential return (%) 73.4 +1 212 525 5150 [email protected]

Performance 1M 3M 12M Market cap (USDm) 2,591 Absolute (%) 26% 18% -22% Free float (%) 79

Note: Price at close of 15 September 2011. Source: HSBC Business description Petropavlovsk plc is the third largest gold producer in Russia with total gold production of c507k oz in 2010, and expected

to increase to 600k oz in 2011, according to company guidance. The company’s gold assets comprise Pokrovskiy, Pioneer,

Malomir, Albyn and Tokur, all located in the Amur region in Russia. The company also has exposure to iron ore, via its

65.6% stake in Hong Kong-listed IRC Ltd.

Key points Recovering from a disappointing 2010: Many investors, still heartbroken from last year’s disappointing results, are

sceptical about the company’s ability to meet guidance. However, the company has already indicated that production will

be weighed towards the second half of the year with alluvials and heap leach production, higher grades at Pokrovskiy and

Pioneer expected to kick-in, and a second resin-in-pulp plant at Malomir expected to be commissioned in 2H11. The

company’s intention to process Malomir’s refractory is seen as a competitive opportunity by management, but an

operating risk by the market.

Exploration abundant in its own backyard: The company has significant exploration opportunity, thus potential for

more growth exists. The main exploration projects include potential mine-life extensions of Pokrovskiy and Pioneer,

Albyn, Tokur, Pokrovskiy Satellite Deposit, Osipkan deposits and the Novogodnee Monto and Petropavlovskoye deposits

(located in the Yamal region).

Valuation and risks We have an OW(V) rating and a 12- month target price of GBP15, based on a sum of real mine-by-mine DCF models.

Downside risks include gold price volatility and iron ore price weakness, continued disappointments with results,

implementation risk of key gold and iron ore projects, further cost pressures from local inflation and declining grades.



Revenue 612 1,184 1,372 1,324 PE (x) 123.1 7.1 6.5 9.4EBITDA 179 571 606 452 PB (x) 1.7 1.4 1.2 1.1EBIT 106 477 511 357 EV/EBITDA (x) 14.8 4.8 4.1 5.0Net income 20 350 381 263 Dividend yield 0.0% 1.4% 1.7% 1.7%EPS (USD) 0.11 1.88 2.05 1.41 Net debt/equity 10.1% 12.3% 0.4% -9.1%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 612 1,184 1,372 1,324EBITDA 179 571 606 452Depreciation & amortisation -73 -95 -95 -95Operating profit/EBIT 106 477 511 357Net interest -26 -30 -27 -22PBT 69 445 483 334HSBC PBT 69 445 483 334Taxation -46 -88 -97 -67Net profit 20 350 381 263HSBC net profit 20 350 381 263


Cash flow from operations 38 100 468 418Capex -507 -467 -188 -131Cash flow from investment -503 -469 -188 -131Dividends -28 -21 -42 -43Change in net debt 152 78 -239 -245FCF equity -521 -361 281 288


Intangible fixed assets 369 393 393 393Tangible fixed assets 1,320 1,636 1,729 1,764Current assets 740 1,060 1,284 1,422Cash & others 321 154 360 574Total assets 2,488 3,152 3,469 3,641Operating liabilities 152 262 268 246Gross debt 492 403 370 339Net debt 171 249 10 -235Shareholders funds 1,432 1,749 2,088 2,309Invested capital 1,955 2,673 2,779 2,760


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 29.6 93.4 15.9 -3.5EBITDA -15.2 218.3 6.1 -25.4Operating profit -38.0 349.6 7.2 -30.2PBT -64.9 543.4 8.5 -30.9HSBC EPS -88.2 1643.0 9.1 -31.0

Ratios (%)

Revenue/IC (x) 0.4 0.5 0.5 0.5ROIC 2.1 16.5 15.0 10.3ROE 1.5 22.0 19.9 12.0ROA 1.7 13.6 12.4 8.1EBITDA margin 29.3 48.3 44.2 34.1Operating profit margin 17.3 40.3 37.2 26.9EBITDA/net interest (x) 7.0 18.9 22.2 20.4Net debt/equity 10.1 12.3 0.4 -9.1Net debt/EBITDA (x) 1.0 0.4 0.0 -0.5CF from operations/net debt 22.4 40.3 4492.5




Year to 12/2010a 12/2011e 12/2012e 12/2013e

Gold price 1,225 1,634 2,025 1,800RUB:USD 30 30 32 36USD:GBP 2 2 2 2

Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e

EV/sales 4.3 2.3 1.8 1.7EV/EBITDA 14.8 4.8 4.1 5.0EV/IC 1.4 1.0 0.9 0.8PE* 123.1 7.1 6.5 9.4P/Book value 1.7 1.4 1.2 1.1FCF yield (%) -21.0 -14.5 11.3 11.6Dividend yield (%) 0.0 1.4 1.7 1.7


Price relative

246

446

646

846

1046

1246

1446

2009 2010 2011 2012

246

446

646

846

1046

1246

1446

Petropavlovsk Plc Rel to FTSE ALL-SHARE


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PT Adaro Energy Tbk, ADRO IJ,

Not Rated Sarah Mak* Share price (IDR) 2075 Index JAKARTA COMPAnalyst Bloomberg ADRO IJThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 7,751 Absolute -11% -15% 7% Free float (%) 50

Relative -15% -20% -17%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Adaro Energy is an integrated coal mining company and is the second largest coal producer in Indonesia. It produced

42.2mt of coal in 2010, accounting for 15% of the country’s production. Adaro operates the single largest coal mine in

Indonesia, and is the largest supplier in the domestic coal market (18.1% market share in 2010) and the fifth largest

supplier to the global seaborne thermal coal market. Adaro Energy, along with its subsidiaries, also engages in coal trade,

coal infrastructure and logistics, and mining contractor service.

Key points Adaro is leveraged to the strong thermal coal market and benefits from its exposure to growing Asian demand. It is a low

cost producer (2010 cash cost of USD35.3/t) and lies in the lower to middle quartile of the industry cost curve.

The company principally conducts its coal mining business through Adaro Indonesia from its coal concession area in

South Kalimantan which is valid until 2022. Its coal is trademarked as ‘Envirocoal’ which is sub bituminous, moderate

CV, high moisture, with ultra low sulphur, ash and nitrogen emissions.

Adaro mainly sells to power generation companies, which accounted for c80% of sales in 2010, followed by cement

manufacturers (6%) and pulp and paper plants and commodities traders (14%). The company’s main focus is Asia with

62% of its sales to Asia ex-Indonesia in 2010 and 25% to Indonesia, while Europe and the Americas accounted for only

8% and 5% of sales, respectively.

Adaro’s 1H11 net income rose 104% y-o-y due to higher prices (+23% y-o-y) and higher volume (+10.4% y-o-y). The

company is on track to achieve its 2011 production volume target of 46-48mt and EBITDA of USD1.1-1.3bn.

Adaro targets production of 80mt of coal by 2015. It has a thermal coal reserve of 938mt and resources of 4.4bt.

Financial forecasts (IDRbn)


Revenue 24,689 31,740 38,799 44,222 PE (x) 30.1 13.4 10.2 8.7EBITDA 8,034 11,555 15,308 17,357 PB (x) 3.6 3.0 2.5 2.2EBIT 6,056 10,059 13,677 15,451 EV/EBITDA (x) 9.4 6.3 4.6 3.8Net income 2,207 4,707 6,646 7,629 Dividend yield 1.5% 2.2% 3.2% 3.8%EPS (IDR) 69.00 155.20 202.51 238.48 Net debt/equity 47.7% 31.0% 13.2% -1.5%


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PT Aneka Tambang Tbk, ANTM IJ, Not Rated Sarah Mak* Share price (IDR) 1950 Index JAKARTA COMPOSITEAnalyst Bloomberg ANTM IJThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 2,172 Absolute 4% -8% -8% Free float (%) 35 Relative 0% -13% -32%

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Aneka Tambang (Antam) is a vertically integrated, export-oriented (81% of sales in 2010 were from exports), diversified

metals and mining company in Indonesia. It is 65% owned by the Government of Indonesia with 35% free float and is

listed in Indonesia and Australia. Antam’s main products are high grade nickel ore (saprolite), low grade nickel ore

(limonite), ferronickel, gold, silver and bauxite and it also provides precious metal refining services. The company’s main

objective is to enhance shareholder value by lowering costs while profitably expanding operations in a sustainable manner.

Antam aims to add value by moving away from selling raw materials and increasing processing activities.

Key points Antam produced c6.99mwmt of nickel ore, 18.7kt of ferronickel, 2.77t of gold and 104kt of bauxite in 2010. It plans to

produce 7.65mwmt of nickel ore (+9.4% y-o-y), 18.0kt of ferronickel (-3.7%) and 3.80t of gold (+37.2%) in 2011.

Nickel ore accounted for c27% and ferronickel c42% of Antam’s sales in 2010. It has c371.4mwmt of saprolite and

400.3mwmt of limonite reserves and resources, which can last for c110years at current extraction rates. Antam is

developing a ferronickel (27ktpa) and a nickel pig iron project (c120ktpa) scheduled for commercial operation in 2014.

Gold, silver and refinery services accounted for c30% of Antam’s sales in 2010. It has current gold reserves and resources

of 2.04m oz, which can support a mine for 15 years under current production rates. It also has a precious metals refinery

with a capacity of 60tpa of gold and 275tpa of silver, which refines both owned and purchased concentrates.

Antam’s current bauxite operation is very small but it has vast reserves and resources of 369.5mwmt. It is developing two

alumina projects with a combined capacity of 1.5mtpa (300ktpa chemical grade and 1,200ktpa smelter grade) to further

add value to its reserves and expects the projects to come on-stream in 2014.

Financial forecasts (IDRbn)


Revenue 8,745 9,560 9,551 9,699 PE (x) 11.2 9.5 10.2 10.3EBITDA 2,838 2,917 2,816 2,974 PB (x) 1.9 1.7 1.6 1.5EBIT 2,307 2,437 2,150 2,547 EV/EBITDA (x) 5.3 5.1 5.4 4.7Net income 1,683 1,968 1,843 1,916 Dividend yield 2.0% 3.8% 4.1% 4.2%EPS (IDR) 174.58 204.50 191.84 190.05 Net debt/equity -37.1% -33.7% -29.6% -34.9%


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Royal Gold, RGLD US, N Patrick Chidley, CFA Target price (USD) 89.00 Index S&P 500 COMPOSITEAnalyst Share price (USD) 79.15 Bloomberg RGLD USHSBC Securities (USA) Inc. Potential return (%) 12.4 +1 212 525 4915 [email protected]


Note: Price at close of 15 September 2011. Source: HSBC Business description Royal Gold is a leading precious metal royalty company that acquires and manages a large portfolio of mining royalty

interests. Royalties are generally small non-participating interests in the revenue or profits from a mine. Most of Royal

Gold’s royalty income is derived as a percentage of revenue on each of a large portfolio of mines.

Key points Royal Gold has a strong track record of growth and has also developed a significant growth pipeline derived from new

projects coming into production in future.

One of the key differentiating factors vs. other gold companies is that Royal Gold has very little exposure to industry costs,

giving investors exposure to unhedged gold revenues without exposure to higher cost inflation. In addition, differentiating

the investment vs. gold bullion holdings, Royal Gold also benefits from any new discoveries on its royalty properties and

can thereby experience organic growth in value over time.

Valuation and risks Our SOTP-based target price of USD89 suggests a potential return of 12%; therefore, we have a Neutral rating on Royal

Gold shares. It is based on our valuation assuming that gold prices reach and sustain our target gold price of USD1,890/oz

within the next 12 months.

Upside risks include higher metal prices, new reserve additions, and undertaking additional value-adding growth initiatives.

Downside risks include weak precious and base metals prices, poor performance at core royalty properties, environmental or

political risk-related issues, and delivery risks associated with construction of new royalty-generating mines.


Year to June 2010 2011e 2012e 2013e Key ratios 2010 2011e 2012e 2013e

Revenue 137 216 325 392 PE* (x) 164.2 62.1 34.1 27.0EBITDA 95 186 282 339 PB (x) 2.5 3.0 2.8 2.6EBIT 41 119 216 266 EV/EBITDA (x) 45.3 24.1 15.3 12.2Net income 21 71 130 165 Dividend yield 0.4 0.5 0.6 0.6EPS (USD) 0.49 1.29 2.35 2.98 Net debt/equity -5.3% 7.5% -2.9% -13.3%


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Year to 06/2010a 06/2011e 06/2012e 06/2013e


Revenue 137 216 325 392EBITDA 95 186 282 339Depreciation & amortisation -54 -67 -66 -73Operating profit/EBIT 41 119 216 266Net interest 3 -3 -3 -1PBT 44 116 213 266HSBC PBT 44 116 213 266Taxation -14 -39 -74 -93Net profit 21 71 130 165HSBC net profit 21 71 130 165


Cash flow from operations 48 147 214 256Capex 0 -280 -32 -43Cash flow from investment -481 -306 -32 -43Dividends -15 -22 -24 -24Change in net debt 199 188 -158 -189FCF equity 56 -130 173 203


Intangible fixed assets 0 0 0 0Tangible fixed assets 1,468 1,690 1,656 1,626Current assets 371 169 301 464Cash & others 325 114 246 409Total assets 1,861 1,903 2,001 2,133Operating liabilities 22 30 30 30Gross debt 249 226 200 174Net debt -76 112 -46 -235Shareholders funds 1,404 1,460 1,576 1,726Invested capital 1,493 1,715 1,681 1,651


Year to 06/2010a 06/2011e 06/2012e 06/2013e

Y-o-y % change

Revenue 85.1 58.5 50.0 20.8EBITDA 58.4 96.5 51.4 20.2Operating profit 50.4 189.8 81.5 23.3PBT -31.1 166.8 82.8 25.0HSBC EPS -54.4 164.2 82.2 26.5

Ratios (%)

Revenue/IC (x) 0.1 0.1 0.2 0.2ROIC 2.8 4.9 8.3 10.4ROE 2.0 5.0 8.6 10.0ROA 2.4 4.4 7.3 8.6EBITDA margin 69.4 86.1 86.9 86.4Operating profit margin 30.0 54.9 66.5 67.8EBITDA/net interest (x) 70.3 84.4 654.1Net debt/equity -5.3 7.5 -2.9 -13.3Net debt/EBITDA (x) -0.8 0.6 -0.2 -0.7CF from operations/net debt 131.3




Year to 06/2010a 06/2011e 06/2012e 06/2013e

Gold Price (USD/oz) 1,092 1,470 1,890 1,941Silver Price (USD/oz) 18 29 37 30Copper Price (USD/lb) 3 4 4 4Zinc Price (USD/lb) 1 1 1 1Lead Price (USD/lb) 1 1 1 1

Valuation data

Year to 06/2010a 06/2011e 06/2012e 06/2013e

EV/sales 31.5 20.7 13.3 10.6EV/EBITDA 45.3 24.1 15.3 12.2EV/IC 2.9 2.6 2.6 2.5PE* 164.2 62.1 34.1 27.0P/Book value 2.5 3.0 2.8 2.6FCF yield (%) 1.3 -3.0 3.9 4.6Dividend yield (%) 0.4 0.5 0.6 0.6


Price relative

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Royal Gold Inc Rel to S&P 500


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Shougang Fushan Resources Group, 639 HK, OW(V) Sarah Mak* Target price (HKD) 4.40 Index HANG SENG INDEXAnalyst Share price (HKD) 3.66 Bloomberg 639 HKThe Hongkong and Shanghai Banking Corporation Limited Potential return 20.2% +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 2,527

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Shougang Fushan acquired three coking coal mines in Liulin County, Shanxi Province for HKD9.53bn in July 2008.

Following the acquisition, Fushan became the second-largest hard coking coal miner by output in China. Fushan has a

market cap of USD2.5bn and is 27% owned by Shougang Group. Since 2008, the company has been working on its

expansion plans, which include its 4mpty Luanshan Greenfield project and other acquisitions. Its strong operating cash

flow and liquidity (net cash RMB2.22bn end-June) should support its expansion.

Key points Solid 1H11 results: Shougang Fushan reported 1H net profit of HKD1,131m (EPS HKD0.21), an increase of 35%, driven

by higher coal prices and volume. Raw coal output rose 20% y-o-y to 3.56mt, and its clean coal output increased 74% y-o-

y to 1.18mt in 1H. Raw coal price rose 26% y-o-y to RMB1,012/t (w/VAT) and its clean coal price saw a smaller increase

of 6% to RMB1,815/t (w/VAT) given Fushan increased its semi-hard coal sales which has a lower ASP than hard-coking

coal. The proportion of its semi-hard coking increased to 55% of sales in 1H11 from 12% in 1H10.

Coking coal prices to stay high in 2H: Shougang Fushan expects its coking coal price to stay at a high level in 2H11, as

domestic demand remains strong. The international spot coking coal price will likely stay at a high level on higher taxes in

Australia and Indonesia. Shanxi hard coking coal spot price increased by an average of 12% to RMB1,662/t in 1H from

2010, with prices increasing RMB50/t to RMB1,700/t in August.

Valuation and risks Our target price is HKD4.4, using Yanzhou Coal’s historical PE of 11x to reflect the volatility of coking coal prices and

given that there is no firm timetable on its expansion plan. This target PE is in line with its H-share coal peers’ 11x and

below global coal peers’ 16x.

Downside risks include slower-than-expected economic and industrial production growth in China that could impact steel

demand and an increase in coal resource tax.



Revenue 5,776 6,979 7,148 7,148 PE* (x) 11.0 9.0 8.3 8.4EBITDA 3,206 4,302 4,302 4,223 PB (x0 1.0 0.9 0.8 0.8EBIT 2,742 3,822 3,808 3,715 EV/EBITDA (x) 5.5 2.9 3.0 2.5Net income 1,803 2,178 2,363 2,340 Dividend yield 4.1% 4.9% 5.5% 5.5%EPS (HKD) 0.33 0.40 0.44 0.43 Net debt/equity -8.3% -31.2% -27.1% -35.4%


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Year to 12/2010 12/2011e 12/2012e 12/2013e

Profit & loss summary (HKDm)

Revenue 5,776 6,979 7,148 7,148EBITDA 3,206 4,302 4,302 4,223Depreciation & amortisation -464 -481 -494 -508Operating profit/EBIT 2,742 3,822 3,808 3,715Net interest 2 2 64 120PBT 2,744 3,823 3,871 3,834HSBC PBT 2,744 3,823 3,871 3,834Taxation -529 -1,147 -968 -959Net profit 1,803 2,178 2,363 2,340HSBC net profit 1,803 2,178 2,363 2,340

Cash flow summary (HKDm)

Cash flow from operations 1,694 4,934 2,830 4,223Capex -759 -300 -300 -300Cash flow from investment -798 -300 -300 -300Dividends -1,130 -862 -969 -1,077Change in net debt -336 -5,157 470 -2,457FCF equity 935 3,489 1,626 3,084

Balance sheet summary (HKDm)

Intangible fixed assets 12,868 12,385 11,483 10,435Tangible fixed assets 5,893 5,976 6,039 6,082Current assets 6,895 9,413 9,812 12,270Cash & others 2,766 5,859 6,189 8,646Total assets 26,120 28,238 27,798 29,249Operating liabilities -3,084 -3,293 -2,072 -2,072Gross debt -1,132 -932 -132 -132Net debt -1,634 -6,791 -6,321 -8,778Shareholders funds 19,623 21,732 23,314 24,765Invested capital 25,974 25,208 23,217 22,212


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 29.2 20.8 2.4 0.0EBITDA 32.5 34.2 0.0 -1.8Operating profit 38.1 39.4 -0.4 -2.4PBT 46.7 39.3 1.2 -0.9HSBC EPS 44.7 21.3 8.5 -0.9

Ratios (%)

Revenue/IC (x) 0.2 0.3 0.3 0.3ROIC 9.1 10.5 11.8 12.3ROE 9.8 10.5 10.5 9.7ROA 9.2 10.0 10.4 10.1EBITDA margin 55.5 61.6 60.2 59.1Operating profit margin 47.5 54.8 53.3 52.0EBITDA/net interest (x) Net debt/equity -8.3 -31.2 -27.1 -35.4Net debt/EBITDA (x) -0.5 -1.6 -1.5 -2.1CF from operations/net debt

Per share data (HKD)



Year to 12/2010 12/2011e 12/2012e 12/2013e

Raw coal output (mt) 6 7 7 7Clean coal output (mt) 2 2 4 4Raw coal ASP (HKD/t) 820 1,029 1,029 1,029Clean coal ASP (HKD/t) 1,674 1,846 1,846 1,846Raw coal unit cost (HKD/t) 256 257 270 284

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 3.0 1.8 1.8 1.5EV/EBITDA 5.5 2.9 3.0 2.5EV/IC 0.7 0.5 0.6 0.5PE* 11.0 9.0 8.3 8.4P/NAV 1.0 0.9 0.8 0.8FCF yield (%) 4.9 18.1 8.5 16.0Dividend yield (%) 4.1 4.9 5.5 5.5


Price relative

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Silver Wheaton, SLW CN, Not Rated Sabrina Grandchamps Share price (CAD) 40.11 Index S&P/TSX COMP Analyst Bloomberg SLW CNHSBC Securities (USA) Inc. +1 212 525 5150 [email protected]

Performance 1M 3M 12M Market cap (USDm) 14,390 Absolute 21% 26% 61% Free float (%) 100 Relative 12% 30% 56%

Note: Price at close of 7 September 2011. Source: HSBC Business description Silver Wheaton is the largest silver streaming company with 14 silver purchase agreements and two precious metals

agreements. Through these agreements, the company has provided an upfront payment and received the right to purchase

an agreed portion of silver production at a fixed cost. The mines are located in stable mining countries such as Mexico,

Peru, Argentina and the US. The portfolio of assets includes silver streams from Goldcorp’s Penasquito mine in Mexico

and Barrick’s Pascua-Lama project.

Key points Different type of silver exposure: Silver Wheaton’s business structure differs from that of silver miners in that its

operating costs are largely fixed, it does have exposure to capex and exploration costs, it does not bear operational or

environmental risks, and it can provide a greater diversity of assets.

Growth in ounces sold: Silver Wheaton has increased sales of silver equivalent ounces by 51% over the last five years,

achieving sales of 20.48m oz of silver equivalent in 2010. Forecast 2011 production is 25-26m equivalent ounces,

including 15,000oz of gold. The company plans to increase production to c43m oz of silver equivalent by 2015.

Stable cost profile: The company’s contracts create stability in cash costs. From 2006-10, cash costs per ounce increased

3.6%, totalling USD4.04/oz of silver equivalent. This compares to a 76% increase in realized silver prices. Net income

margins have expanded from c54% to 68.5% over the same period.

Silver Wheaton held 942m oz of silver reserves as of December 2010: Additionally, as of 30 June 2011, the company

had cUSD701m in cash and additional credit available to pursue the acquisition of additional silver interests.



Revenue 423 858 999 1,011 PE (x) 51.6 21.7 17.9 18.5EBITDA 341 736 825 769 PB (x) nm 5.2 4.4 3.9EBIT 283 626 640 546 EV/EBITDA (x) 41.3 18.7 16.4 17.1Net income 277 662 726 671 Dividend yield 0.0% 0.0% 0.1% 0.1%EPS (USD) 0.79 1.88 2.27 2.20 Net debt/equity -14.2% -23.7% -25.5% -31.6%


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SouthGobi Resources, 1878 HK,

Not Rated Sarah Mak* Share price (HKD) 75.7 Index HANG SENG INDEXAnalyst Bloomberg 1878 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]

Performance 1M 3M 12M Market cap (USDm) 1,793 Absolute -3% -8% -6% Free float (%) 29

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description SouthGobi is a premium coal producer and developer, with strategically located coal assets (nearest coal production base

to China) focused on the exploration and development of its Permian-age metallurgical and thermal coal deposits in South

Gobi Region. Its flagship coal mine Ovoot Tolgoi is located c40 km north of the Mongolia/China border. SouthGobi also

owns two development projects, the Soumber Deposit and the Ovoot Tolgoi Underground Deposit and holds 12 mineral

exploration licences in Mongolia. SouthGobi has total coal resources of 536mt and reserves of 107mt. Ivanhoe Mines is

the largest shareholder with a 57.2% stake followed by China Investment Corp (13.7%).

Key points SouthGobi has seen a strong ramp-up in coal production from 0.88mt in 1H10 to 1.66mt in 2H10 and 1.50mt in 1H11. The

next leg of growth will come from completion of Ovoot Tologoi open-pit, which will increase capacity to 9mtpa ROM

from 2013. Further, SouthGobi has obtained a licence for Soumber open-pit with pre-development to begin in 2013. It is

also preparing for an engineering study for Ovoot Tolgoi underground deposit, which will be completed in early 2012.

SouthGobi is constructing a dry coal handling facility (6mtpa), which will add value to its coal by removing ash, or waste

rock, and enable the blending of coal from different seams to create higher-value products. The project capex is estimated

to be USD45m with start-up in early 2012. The company has also entered into a five-year agreement with Ejin Jinda to toll

wet wash coal with an initial capacity of 3.5mtpa. The facility is located 50km away from the mine site and will wash

medium and high-ash coals coming out of Ovoot Tolgoi mine.

The company plans to produce 6.5-7.0 ROM coal in 2012 and further process it to produce 2.4-2.8mt saleable Ovoot

Tolgoi coal and 2.4-2.7mt saleable Ceke coal. The company plans to spend USD445m over 2H11-2014 to further develop

its mines, processing facilities and transportation infrastructure.



Revenue 80 187 364 510 PE (x) -14.7 485.6 27.7 14.7EBITDA -34 33 150 239 PB (x) 2.6 2.7 2.5 2.2EBIT -47 12 94 182 EV/EBITDA (x) -46.0 53.2 12.3 7.7Net income -116 1 64 121 Dividend yield 0.0% 0.0% 0.2% 0.8%EPS (USD) -0.66 0.02 0.35 0.66 Net debt/equity -35.4% -8.4% 7.7% 4.6%


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United Company Rusal, 486 HK, OW Vladimir Zhukov* Target price (HKD) 13.9 Index HANG SENG INDEXAnalyst Share price (HKD) 8.17 Bloomberg 486 HKOOO HSBC Bank (RR) Ltd Potential return (%) 70.1 +7 495 783 8316 [email protected]

Performance 1M 3M 12M Market cap (USDm) 15,925 Absolute -8% -23% 0% Free float (%) 11

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description UC RUSAL is the world’s largest producer of aluminium (accounting for c10% of the global output), the fourth largest

producer of alumina and a top-six miner of bauxite. The company runs 16 aluminium smelters – including two of the

world’s largest (Krasnoyarsk and Bratsk smelters with 1mtpa each) in Russia, Europe and Africa. It also operates 8 bauxite

mines and 12 alumina refineries in Russia, Africa, America and Europe. The major part of UC RUSAL’s value consists of

a 25% stake in Norilsk Nickel, the world’s largest producer of nickel and palladium.

Key points Aluminium is among HSBC’s preferred commodities and one of the very few that we expect to appreciate by 2015. UC

RUSAL additionally offers strong production growth of aluminium, which we estimate at 5% CAGR for 2010-16e. UC

RUSAL enjoys a relatively low cost of production, sourcing the bulk of its electricity (80%) from low-cost Siberian hydro

power plants in Russia.

We consider a UC RUSAL investment as an option on the exit from Norilsk Nickel. UC RUSAL has received four offers

to sell either the entire, or a part of its, 25% stake in Norilsk Nickel, all of which were made at a significant premium to the

market. At the spot market, the 25% stake in Norilsk Nickel covers the entire gross debt of UC RUSAL (USD11.8bn).

Valuation and risks We value UC RUSAL using a blended DCF-based valuation (3.5% RFR, 9.1% WACC) and target EV/EBITDA multiple

valuation (5.0x EV/EBITDA, 2012e) with a 50:50 weight allocation between the two methods.

Downside risks include a broad market downturn, cost inflation in Russia, changes in government regulations regarding

energy tariffs and the taxation of tolling arrangements in Russia, and sale of Norilsk Nickel shares at a low price.



Revenue 10,979 13,112 14,607 15,729 PE* (x) 5.5 6.0 5.8 5.6EBITDA 2,567 2,852 3,199 3,400 PB (x) 1.4 1.1 0.9 0.8EBIT 2,006 2,226 2,676 2,853 EV/EBITDA (x) 5.9 4.6 3.4 2.7Net income 2,867 2,647 2,759 2,842 Dividend yield 0.0% 0.0% 0.0% 4.5%EPS (USD) 0.19 0.17 0.18 0.19 Net debt/equity 100.1% 66.3% 42.5% 28.7%


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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 10,979 13,112 14,607 15,729EBITDA 2,567 2,852 3,199 3,400Depreciation & amortisation -561 -627 -523 -547Operating profit/EBIT 2,006 2,226 2,676 2,853Net interest -1,430 -555 -762 -642PBT 3,011 3,343 3,484 3,590HSBC PBT 3,011 3,343 3,484 3,590Taxation -144 -696 -725 -747Net profit 2,867 2,647 2,759 2,842HSBC net profit 2,867 2,647 2,759 2,842


Cash flow from operations 1,738 2,821 3,047 3,219Capex -351 -703 -868 -793Cash flow from investment -442 -703 -868 -793Dividends 0 0 0 -711Change in net debt -2,161 -2,118 -2,179 -1,715FCF equity -67 555 586 1,023


Intangible fixed assets 4,085 4,085 4,085 4,085Tangible fixed assets 5,875 6,060 6,382 6,604Current assets 3,978 4,868 6,322 7,193Cash & others 491 703 1,682 2,197Total assets 26,525 27,600 29,375 30,469Operating liabilities 2,691 3,025 3,241 3,404Gross debt 11,963 10,057 8,857 7,657Net debt 11,472 9,354 7,175 5,460Shareholders funds 11,456 14,103 16,862 18,994Invested capital 10,756 11,284 11,864 12,281


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 34.5 19.4 11.4 7.7EBITDA 334.3 11.1 12.2 6.3Operating profit 2179.5 10.9 20.2 6.6PBT 258.9 11.0 4.2 3.0HSBC EPS 249.2 -7.7 4.2 3.0

Ratios (%)





Year to 12/2010 12/2011e 12/2012e 12/2013e

Aluminium Price ($/t) 2,254 2,673 2,731 2,786Alumina Price ($/t) 324 375 384 390

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 1.4 1.0 0.7 0.6EV/EBITDA 5.9 4.6 3.4 2.7EV/IC 1.4 1.2 0.9 0.7PE* 5.5 6.0 5.8 5.6P/Book value 1.4 1.1 0.9 0.8FCF yield (%) -1.8 15.3 16.1 28.1Dividend yield (%) 0.0 0.0 0.0 4.5


Price relative

56789

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Vale, VALE.N, OW(V) Jonathan Brandt, CFA Target price (USD) 35.50 Index S&P 500 COMPOSITEAnalyst Share price (USD) 28.02 Bloomberg VALE.NHSBC Securities (USA), Inc. Potential return (%) 26.7 +1 212 525 4499 [email protected]

Performance 1M 3M 12M Market cap (USDm) 145,212 Absolute 12% -10% 2% Free float (%) 95

Note: Price at close of 7 September 2011. Source: HSBC Business description Vale is the world’s largest producer of iron ore and pellets and the second largest producer of nickel. It is also one of the

largest producers of manganese ore and ferroalloys. The company had a market share of 24.7% and 24.9% in 2010 and

2009, respectively, of the total iron ore volume traded in the seaborne market.

In 2010, the company produced 297mt of iron ore, 36mt of pellets, 179kt of nickel, 207kt of copper, 3,057kt of

metallurgical coal and 3,832kt of thermal coal.

Key points Vale has spent over USD29bn in the last two years in capex and acquisitions, in addition to a planned USD24bn capex

program in 2011, though we estimate it to be USD18bn. Because of its ambitious capex program, we estimate iron ore

production to grow by 108mt at a CAGR of 6.4% between 2010 and 2015.

Despite the huge capex budget, the company continues to return a record amount of capital through dividends and share

buybacks. We estimate “total return of capital” should be USD11bn in 2011, implying a yield of 7.6% at current prices.

We estimate EBITDA margin to be 57.7%, 53.5% and 53.2% for 2011, 2012 and 2013, respectively, above the long-run average

of 45%. Even if we consider a downturn scenario, we believe the company is well positioned to withstand the downturn.

Valuation and risks We have an OW(V) rating and a 12-month target price of USD35.50, based on blended methodologies, using 50:50 NPV

and EV/EBITDA multiples. We have an NPV value of USD31 per share and an EV/EBITDA multiples valuation of

USD40.

Downside risks include lower-than-expected demand for iron ore products, increased taxes and royalties, fluctuations in

the BRL/USD FX rate, and continued global economic concerns.



Revenue 45,293 63,329 65,092 67,888 PE* (x) 8.6 5.4 6.5 6.3EBITDA 24,955 36,561 34,818 36,110 PB (x) 2.1 1.6 1.3 1.1EBIT 21,695 32,605 30,274 31,077 EV/EBITDA (x) 6.2 4.2 4.3 3.9Net income 17,264 27,297 22,931 23,423 Dividend yield 2.1% 5.4% 3.9% 4.0%EPS (USD) 3.25 5.17 4.34 4.43 Net debt/equity 20.9% 16.8% 10.7% 3.4%


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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 45,293 63,329 65,092 67,888EBITDA 24,955 36,561 34,818 36,110Depreciation & amortisation -3,260 -3,956 -4,544 -5,033Operating profit/EBIT 21,695 32,605 30,274 31,077Net interest -2,356 -1,963 -2,129 -1,647PBT 21,158 34,942 29,360 30,743HSBC PBT 21,158 34,942 29,360 30,743Taxation -3,705 -7,755 -6,429 -7,320Net profit 17,264 27,297 22,931 23,423HSBC net profit 17,264 27,297 22,931 23,423


Cash flow from operations 19,669 23,405 26,472 26,082Capex -12,705 -17,779 -17,700 -13,600Cash flow from investment -17,184 -14,925 -17,700 -13,600Dividends -3,140 -8,000 -5,733 -5,856Change in net debt 3,355 1,173 -4,094 -7,724FCF equity 2,086 7,980 8,964 12,631




Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 94.3 39.8 2.8 4.3EBITDA 184.3 46.5 -4.8 3.7Operating profit 258.2 50.3 -7.1 2.7PBT 180.0 65.1 -16.0 4.7HSBC EPS 226.0 58.9 -16.0 2.1

Ratios (%)




Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e



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Western Areas, WSA AU, Not Rated Sarah Mak* Share price (AUD) 5.46 Index AS30Analyst Bloomberg WSA AUThe Hongkong and Shanghai Banking Corporation Limited +852 2822 4551 [email protected]


Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Western Areas is Australia’s third largest nickel miner with ore resources of 16.62mt @ 2.0% Nickel (333.8kt contained)

and ore reserves of 5.04mt @ 3.3% Nickel (167.3kt contained). The company’s core asset is the 100% owned Forrestania

Nickel project in Western Australia. In addition, it has a 19.9% stake in Mustang Minerals, 77.2% stake in FinnAust

Mining and has entered into several exploration joint ventures for mineral exploration in Australia.

Key points Western Areas’ primary nickel mines are Flying Fox and Spotted Quoll, which are two of the highest grade and lowest

cost mines in the world with a cash cost of less than USD2.50/lb of nickel. The project also has a concentrator with a

capacity of c550ktpa of ore and more than 25ktpa nickel in concentrate. Western Areas produced 33.2kt nickel in ore and

27.5kt nickel in concentrate at a cash cost of USD2.11/lb in FY11. The company has offtake agreements in place with

BHP Billiton (10ktpa for a total 75kt) and Jinchuan Group (total 25kt). The agreement with Jinchuan Group is expected to

be fulfilled by February 2012, which will leave Western Areas with significant uncommitted concentrates.

Western Areas has significant exploration potential for new, high grade nickel sulphide discoveries. It is undertaking

active exploration programs at Forrestania with the objective to extend the existing mine lives of Flying Fox and Spotted

Quoll, in addition to discovering new deposits. The company targets production of 30ktpa from these two mines and

another 5ktpa from its Diggers mine in the next 2-5 years. It has a long-term base case production target of 40ktpa.

FinnAust Mining and Mustang Minerals are expected to provide medium- to long-term growth. FinnAust is a Finland-

based exploration company that is being prepared for a listing in early 2012. Initial mineral resource of 65kt nickel has

already been identified and a major drilling ramp-up will start in early 2012. Mustang Minerals is a Canada-listed nickel

and PGM company with feasibility nearing completion for its key Makwa mine – targeting 5ktpa nickel.



Revenue 170 469 412 412 PE (x) 68.3 7.3 9.4 9.1EBITDA 96 312 240 234 PB (x) 5.7 3.4 2.8 2.4EBIT 54 232 172 164 EV/EBITDA (x) 13.1 3.5 4.3 4.0Net income 14 135 107 107 Dividend yield 1.1% 2.4% 4.2% 4.0%EPS (AUD) 0.08 0.75 0.58 0.60 Net debt/equity 133.7% 33.2% 16.7% -9.7%


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Energy

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BW Group, Not Listed David Phillips* Analyst HSBC Bank plc +44 20 7991 2344 [email protected]

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description BW Group is one of the world’s leading maritime groups, with presence in the tanker, liquefied natural gas (LNG) carrier,

liquefied petroleum gas (LPG) carrier and offshore floating production vessel (FPSO) markets. The assets are managed

through various group companies.

Tanker assets are managed by the Singapore-based BW Maritime. The gas transportation business is managed through

BW Gas, which operates from Norway. The FPSO business is managed through BW Offshore, which is listed on the Oslo

Stock Exchange and in which BW Group holds c47%.

Overall, BW Group owns 48 gas carriers, 29 tankers and 21 FPSOs. It employs more than 4,500 people, including sea staff,

with 150 in the Singapore office, 110 in the BW Gas shore office in Oslo and 95 in the BW Offshore shore office in Oslo.

Key points One of the leading maritime companies with leading positions in the tanker, FPSO and LNG/LPG carrier markets.

Being a private company, BW Group’s financial numbers are not in the public domain. BW Offshore is the only listed

entity of the group, whose financials are covered separately.

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BW Offshore, BWO NO, OW(V) David Phillips* Target price (NOK) 20.00 Index OBX INDEXAnalyst Share price (NOK) 13.10 Bloomberg BWO NOHSBC Bank plc Potential return (%) 52.7 +44 20 7991 2344 [email protected]

Performance 1M 3M 12M Market cap (USDm) 1,559 Absolute (%) -11.5 -14.9 34.8 Free float (%) 100

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description BW Offshore is the world’s second-largest (post acquisition of Prosafe Production) provider of floating production

services with a fleet of 15 FPSOs and 3 FSOs. It has presence in all major oil regions, with a noticeable presence in the

Gulf of Mexico and offshore Brazil. The company has grown to its current position through acquisitions and mergers, with

the latest being the acquisition of Prosafe Production in 2010.

Key points Post Prosafe Production merger, BW Offshore has moved to the next phase of development, with USD8bn of backlog and

USD500m in (run-rate) EBITDA, resulting in a visible 30% EBITDA growth over 2011-14e.

BW Offshore is a play on dividend yield – it has started dividend payments (aiming for a payout of 20-25% of EBITDA

and a run-rate EBITDA guidance of USD500m); current guidance results in a dividend yield of c7%.

Possibility of growth from additional contracts – The market is experiencing strong demand, with more than 200 potential

FPSO projects being evaluated by oil companies worldwide. BW Offshore is likely to benefit from its successful track record, a

strong financial position with the backing of parent BW Group, and limited number of active FPSO companies worldwide.

Valuation and risks HSBC has an OW(V) rating on the stock with a target price of NOK20 driven by the weighted average of fair values from

the peak-cycle valuation, average of the 2011e and 2012e DCF valuations, and the average of the backlog and book value

multiple-based valuations.

Downside risks include lower oil prices that could affect further development project work from oil companies driving

lower spend on offshore projects, higher-than-expected capital cost inflation that could disfavour the FPSO technology,

further delays in offshore development work that could delay the awarding of new FPSO contracts, and higher competitive

pressure from new industry entrants that could prove disruptive to the market.

Financial forecasts [USDm]


Revenue 549 897 845 914 PE (x) 10.3 10.7 9.6EBITDA 189 426 493 530 EV/EBITDA (x) 14.9 7.6 6.8 6.1EBIT 102 211 220 246 EV/sales (x) 5.7 3.7 4.1 3.7Net income -19 131 125 141 PB (x) 0.7 0.9 0.9 0.9EPS (USD) -0.04 0.19 0.18 0.20


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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 549 897 845 914EBITDA 189 426 493 530Depreciation & amortisation -87 -216 -273 -284Operating profit/EBIT 102 211 220 246Net interest -26 -69 -84 -94PBT 130 142 136 152HSBC PBT 39 142 136 152Taxation 15 -10 -10 -11Net profit 145 131 125 141HSBC net profit -19 131 125 141


Cash flow from operations 325 156 400 423Capex -270 -500 -450 -228Cash flow from investment 182 -494 -444 -222Dividends -32 -65 -102 -106Change in net debt 488 400 142 -100FCF equity 123 -344 -50 194


Intangible fixed assets 163 163 163 163Tangible fixed assets 2,777 3,061 3,239 3,183Current assets 383 169 8 134Cash & others 228 -172 -314 -213Total assets 3,362 3,443 3,469 3,549Operating liabilities 560 519 517 573Gross debt 1,729 1,729 1,729 1,729Net debt 1,501 1,900 2,042 1,942Shareholders funds 1,376 1,507 1,545 1,579Invested capital 2,536 3,046 3,206 3,120


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 34.4 63.3 -5.8 8.1EBITDA 111.8 125.4 15.6 7.6Operating profit 301.2 106.7 4.4 11.8PBT 2618.8 8.5 -4.2 12.1HSBC EPS -4.3 12.1

Ratios (%)

Revenue/IC (x) 0.3 0.3 0.3 0.3ROIC 5.8 7.0 6.5 7.2ROE -1.7 9.1 8.2 9.0ROA 6.8 5.9 5.7 6.3EBITDA margin 34.4 47.5 58.3 58.0Operating profit margin 18.5 23.5 26.0 26.9EBITDA/net interest (x) 7.2 6.2 5.8 5.6Net debt/equity 109.1 126.1 132.2 123.0Net debt/EBITDA (x) 7.9 4.5 4.1 3.7CF from operations/net debt 21.7 8.2 19.6 21.8


EPS reported (fully diluted) 0.28 0.19 0.18 0.20HSBC EPS (fully diluted) -0.04 0.19 0.18 0.20DPS 0.00 0.13 0.15 0.15Book value 2.68 2.19 2.25 2.29

DCF analysis

HSBC assumptions DCF, comprising

Beta 1.10 Risk premium 5.0%LT growth 5.0% WACC 8.7%Total EV (USDm) 3533.6 2010e net debt and

assoc (mkt value) 1401.5

Mkt value (USDm) 2132.1 Value per shr (NOK) 17.8

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 5.1 3.7 4.1 3.7EV/EBITDA 14.9 7.6 6.8 6.1EV/IC 1.1 1.1 1.0 1.0PE* 10.3 10.7 9.6P/Book value 0.7 0.9 0.9 0.9FCF yield (%) 9.4 -26.1 -3.8 14.8Dividend yield (%) 0.0 6.5 7.9 7.8


Price relative

13579

1113151719

2009 2010 2011 2012

135791113151719

BW Offshore Rel to OBX INDEX


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CGGVeritas, GA FP, OW(V) David Phillips* Target price (EUR) 29.00 Index SBF-120Analyst Share price (EUR) 15.62 Bloomberg GA FPHSBC Bank plc Potential return (%) 85.7 +44 20 7991 2344 [email protected]

Performance 1M 3M 12M Market cap (USDm) 3420 Absolute (%) -38.0 -37.4 14.7 Free float (%) 100

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description CGGVeritas is the world’s leading seismic company with a presence in both the manufacturing of seismic equipments as well

as the seismic surveys segment. It has a worldwide presence through 70 offices and field locations. It has two business

divisions – Geophysical Products (named Sercel) and Geophysical Services (seismic surveys, both onshore and offshore).

Key points Despite current macro concerns, we do not expect a repeat of 2H08. We believe the offshore cycle will be robust, unless

oil (Brent) falls meaningfully below USD70-80/bbl. Importantly, we see this exploration cycle as having more structural

elements to its growth (e.g. driven more by major IOCs, the ramp-up of activity in Brazil, Angola, the US Gulf and

Southeast Asia). We also expect more appraisal phase seismic work (e.g. in Brazil).

We believe CGG is well positioned to benefit from what we see as a 2012 margin recovery in marine seismic, continued

growth in high-end land equipment, and upside (to be realised by end-2012) from its own USD150m restructuring plan.

Valuations are firmly at the low end – on our estimates, CGG is trading at 2012 multiples of 10x PE and 3.5x EBITDA,

and if we take our DCF value of Sercel (EUR2.1bn) away from CGG’s current EV, the ‘Services’ side is trading at less

than 2x EBITDA for 2012e and 1.5x for 2013e. The last time CGG was at these multiples, oil was less than USD60/bbl.

Valuation and risks HSBC has an OW(V) rating with a target price of EUR29, obtained from the weighted average of fair values from the peak-

cycle valuation, average of the 2011e and 2012e DCFs, and an average of 2011e and 2012e sum-of-the-parts analyses.

Downside risks include further development project emphasis from oil companies, driving less spend on exploration work,

lower oil prices that could drive down E&P investment, higher competitive pressure from new entrants, overly highly

priced acquisitions, and unfavourable moves in the USD/EUR.

Financial forecasts [EURm]


Revenue 2,186 2,293 2,588 3,035 PE (x) na 71.6 9.7 5.4EBITDA 605 598 913 1,223 EV/EBITDA (x) 5.5 5.5 3.4 2.3EBIT 166 182 439 692 EV/sales (x) 1.5 1.4 1.2 0.9Net income -55 32 238 429 EPS (EUR) 0.03 0.21 1.57 2.83


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Year to 12/2010 12/2011e 12/2012e 12/2013e

Profit & loss summary (EURm)

Revenue 2,186 2,293 2,588 3,035EBITDA 605 598 913 1,223Depreciation & amortisation -439 -415 -475 -531Operating profit/EBIT 166 182 439 692Net interest -108 -139 -115 -107PBT -31 58 351 625HSBC PBT 60 58 351 625Taxation -14 -14 -101 -182Net profit -55 32 238 429HSBC net profit 5 32 238 429

Cash flow summary (EURm)

Cash flow from operations 605 504 644 839Capex -430 -420 -455 -584Cash flow from investment -430 -420 -455 -584Dividends 0 0 0 0Change in net debt 231 -84 -202 -255FCF equity 54 81 177 234

Balance sheet summary (EURm)

Intangible fixed assets 2,733 2,778 2,802 2,869Tangible fixed assets 782 741 698 684Current assets 1,574 1,525 1,809 2,225Cash & others 336 378 567 822Total assets 5,324 5,280 5,544 6,013Operating liabilities 613 551 577 617Gross debt 1,486 1,443 1,431 1,431Net debt 1,150 1,065 864 609Shareholders funds 2,812 2,873 3,123 3,551Invested capital 4,140 4,116 4,164 4,338


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue -2.1 4.9 12.9 17.3EBITDA -40.8 -1.3 52.8 33.9Operating profit -68.0 9.8 140.7 57.8PBT -208.2 509.7 77.8HSBC EPS -98.4 587.9 641.7 80.4

Ratios (%)


Per share data (EUR)

EPS reported (fully diluted) -0.36 0.21 1.57 2.83HSBC EPS (fully diluted) 0.03 0.21 1.57 2.83DPS 0.00 0.00 0.00 0.00Book value 18.50 18.89 20.53 23.35

DCF analysis

HSBC assumptions DCF, comprising

Beta 1.20 Risk premium 5.0%Long term growth 5.0% WACC 8.0%Total EV (EURm) 4976.0 2011e net debt (cash) 1138.8Market value (EURm) 3837.2 Value per shr (EUR) 25.2

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e



Price relative

5

10

15

20

25

30

2009 2010 2011 2012

5

10

15

20

25

30

CGGVeritas Rel to SBF-120


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Enviro Energy International, 1102 HK, Not Rated Sonia Song*, CFA Share price (HKD) 0.25 Index HANG SENG INDEXAnalyst Bloomberg 1102 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 89.4 Absolute (%) -51.0 -47.9 -53.7 Free float (%) 56.8 Relative (%) -49.5 -41.4 -53.2

Note: Price at close of 7 September 2011. Source: HSBC, Bloomberg, DataStream *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Enviro Energy (EE) is an upstream company with operations mainly in China’s conventional oil and unconventional

natural gas. Its conventional oil operations are conducted in a 50-50 JV with PetroChina in the Qian-An oilfields, which

have 21.7mmbbl original oil in place and yield oil at 295bbl/d. As for unconventional gas, the company’s 81%-owned

subsidiary TWE (fully diluted basis) is developing 653sq km of coalbed methane (CBM) properties in West China along

the prolific Southern Junggar Basin. EE also has a 20% stake in a CBM block in the Qinshui Basin, a prolific CBM region.

Key points High potential Junggar and Qinshui projects: EE has 6-7tcf of in-place gas in its block in the Southern Junggar Basin

and could benefit from the Chinese government’s target to boost gas usage from 3.7% to 10% of primary energy mix by

2020. In addition to CBM, this block has been tested to contain extensive thickness of shale gas zones, thus giving the

company shale gas potential. In the CBM block in the Qinshui Basin, the operator CUCBM is currently conducting pilot

production testing, which will be a vital step towards commercial production.

Conventional oil production could be boosted as the company, along with PetroChina, plans to use enhanced oil

recovery methods in Qian-An oilfields in Jilin Province.

Financial forecasts [HKDm]


Revenue 0.38 na na na EV/sales (x) 1416 na na NaEBITDA -77.31 na na na EV/EBITDA (x) nm na na NaEBIT -78.89 na na na PE (x) nm na na NaNet income -97.14 na na na PB (x) 1.00 na na NaEPS (HKD) -0.04 na na na

Note: Consensus forecast data is not provided. Source: Company data

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Grizzly Oil Sands, Not Listed Sonia Song*, CFA Analyst The Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Incorporated in 2006, Canada-based Grizzly Oil Sands is a private company involved in the acquisition, exploration and

development of bitumen production using thermal technologies. Grizzly owns over 700,000 net acres of oil sand leases

and permits in the Athabasca and Peace River regions. In most of the area, it has 100% working interest. It has 114mmbbl

of 2P reserves and 2bn bbl of best-estimate contingent resources.

Key points Key Algar Lake Steam Assisted Gravity Drainage (SAGD) project to commence production in mid-2013: The Algar

Lake area covers 56,300 acres, in which Grizzly has 100% interest. The block has 2P reserves of 114mmbbl. Grizzly

finished front-end engineering and submitted an application for an 11.3mbbl/d project in 1Q10 for regulatory approvals,

which it expects in 3Q11. It plans to commence plant construction in 4Q11 with the first phase development (5-6mbbl/d)

scheduled to complete by mid-2013. Second phase production will start in 2014.

Long queue of future SAGD projects that boost gross capacity to 60mbbl/d: In addition to Algar Lake, Grizzly’s

development schedule includes five other SAGD projects – Thickwood Hills Phases 1 & 2 (10mbbl/d, due in 2016), Algar

Phase 3, Silvertip Phases 1 & 2 (10mbbl/d, due in 2017), Ells North Phases 1 & 2 (10mbbl/d, due in 2018), Kodiak Phases

1 & 2 (10mbbl/d, due in 2019), and Silvertip Phases 3 & 4 (10mbbl/d, due in 2020). The company’s long-term plan is to

increase capacity to 200mbbl/d by 2030.

Advanced, Relocatable, Modular, Standard (ARMS) development model to help accelerate expansion: This model

adopted by Grizzly helps to reduce cost as it uses 50% less area than a typical SAGD facility. It also allows Grizzly to exploit

smaller bitumen pools, and to fully exploit larger pools in 10-15 years, compared to 20-30 years in traditional SAGD.

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GS Holdings, 078930 KS, N(V) Sonia Song*, CFA Target price (KRW) 73,500 Index KOSPI Analyst Share price (KRW) 65,100 Bloomberg 078930 KSThe Hongkong and Shanghai Banking Corporation Limited Potential return (%) 14.4 +852 2996 6557 [email protected]


Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description GS Holdings is a holding company, with stakes in businesses ranging from refining/chemicals to retail. Its key affiliate is the

50%-owned GS Caltex, which is Korea’s second-largest refining/marketing company with a crude capacity of 760mbbl/d. In

2010, GS Caltex accounted for 76% of GS Holdings’ core operating profit under K-GAAP accounting standards.

Key points GS Caltex is well positioned to benefit from resilient regional refining margins and China’s thirst for diesel, as it has

continuously pursued upgrading projects, shifting its production slate towards more valuable distillates. It increased its

heavy oil upgrading capacity by 60mbbl/d in 2010 and is building another upgrading unit of 53mbbl/d for a 1Q13 start-up.

Assuming a 14% ROIC, the latter project could add a significant KRW150bn to EBITDA pa.

GS Caltex’s 1.2mmtpa PX capacity could benefit from resilient PX margins. Although most chemical products are facing

weak margins from soft demand, PX margins remain relatively defensive at USD737/t versus USD374/t in 2010 and

USD674/t in 2011 y-t-d. We believe PX margins will remain resilient until at least 2012, supported by additional demand

from new PTA capacity start-ups in 2H11.

In June 2011, the 66%-owned affiliate GS Retail received approval for a future initial public offering, which could boost

GS Holdings’ asset value by KRW180bn.

Valuation and risks Our target price of KRW73,500 is derived from our residual income model, from which we obtain a target PB of 1.1x using a

normalised ROE of 11.5%, COE of 10.2% and long-term growth of 3% (sector average). We have a Neutral (V) rating.

Upside/downside risks include: 1) materially different refining and petrochemical margins than assumed, 2) significant

change in crude oil price and FX rate, 3) regulatory fines and price controls; and 4) project delays/unexpected plant outage.

Financial forecasts [KRWbn]


Revenue 534 907 709 773 EV/sales (x) 12.5 7.5 9.6 8.9EBITDA 499 870 676 741 EV/EBITDA (x) 13.4 7.8 10.1 9.2

EBIT 499 870 676 741 PE (x) 12.2 7.5 9.7 8.9Net income 494 811 623 683 PB (x) 1.5 1.2 1.1 1.0EPS (KRW) 5320.14 8728.00 6709.56 7345.73 Dividend yield (%) 1.5 1.5 1.5 1.5


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Year to 12/2009a 12/2010e 12/2011e 12/2012e

Profit & loss summary (KRWb)

Revenue 534 907 709 773EBITDA 499 870 676 741Depreciation & amortisation 0 0 0 0Operating profit/EBIT 499 870 676 741Net interest -32 -34 -42 -44PBT 506 875 673 737HSBC PBT 506 875 673 737Taxation -10 -62 -48 -53Net profit 494 811 623 683HSBC net profit 494 811 623 683

Cash flow summary (KRWb)

Cash flow from operations 477 313 350 407Capex -1 0 0 0Cash flow from investment -99 340 15 15Dividends -47 -95 -95 -95Change in net debt 115 109 42 33FCF equity 455 773 585 645

Balance sheet summary (KRWb)

Intangible fixed assets -122 -82 -42 -1Tangible fixed assets 5,227 6,022 6,600 7,240Current assets 59 177 66 72Cash & others 50 69 54 59Total assets 5,163 6,117 6,625 7,311Operating liabilities 71 179 75 76Gross debt 667 795 822 859Net debt 617 726 768 800Shareholders funds 4,165 4,883 5,468 6,114Invested capital 5,043 5,869 6,496 7,175


Year to 12/2009a 12/2010e 12/2011e 12/2012e

Y-o-y % change

Revenue 283.2 69.9 -21.8 9.0EBITDA 74.4 -22.3 9.6Operating profit 74.4 -22.3 9.6PBT 72.8 -23.1 9.4HSBC EPS 3271.1 64.1 -23.1 9.5

Ratios (%)


Per share data (KRW)



Year to 12/2009a 12/2010e 12/2011e 12/2012e

Gross Refining Margin ($/bbl) 4 5 6 7WTI Crude ($/bbl) 62 79 83 85PX (KRW/t) 1,206,572 1,163,085 1,167,663 1,127,532PP (KRW/t) 1,263,600 1,429,419 1,332,365 1,372,015Benzene (KRW/t) 841,841 1,029,780 957,399 988,931Toluene (KRW/t) 839,267 948,242 898,075 867,321

Valuation data

Year to 12/2009a 12/2010e 12/2011e 12/2012e



Price relative

10230

30230

50230

70230

90230

110230

2009 2010 2011 2012

10230

30230

50230

70230

90230

110230

GS Holdings Corp Rel to KOSPI INDEX


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Husky Energy, HSE CN, Not Rated Sonia Song*, CFA Share price (CAD) 23.88 Index TSE 60Analyst Bloomberg HSE CNThe Hongkong and Shanghai Banking Corporation +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 23,043.4 Absolute (%) -4.4 -17.3 -7.7 Free float (%) 33.3 Relative (%) -9.0 -13.5 -10.4

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Husky Energy (HSE) is one of Canada’s top-five integrated energy companies with major operations in Canada, Asia and

the US. Its upstream segment registered oil and gas production of 287mboe/d in 2010, most of which was in Canada.

HSE’s downstream has 280mbbl/d of refining capacity (net basis) from four refineries – two each in Canada and the US.

HSE also owns pipelines, logistics and marketing/retail operations for gas and petroleum products.

Key points Large reserves support long-term growth: At end-2010, HSE had about 4.0bn boe of 3P reserves and another 3.2bn boe

of contingent resources, implying almost 70 years of production at the 2010 production rate. The majority (c60%) of the

3P reserves come from oil sands, which the company has identified as a pillar of growth for the medium and long term.

Major projects planned over next 3-5 years: In the medium term, HSE appears well positioned for growth from several

major projects. 1) The Liwan 3-1 deepwater gas project in South China Sea: This partnership with CNOOC will

produce first gas in 2013, with peak production of 250mmcf/d. The project boasts contingent reserves of 4-6tcf. 2) The

Sunrise oil sands project in Canada: This partnership with BP will produce first oil in 2013 at 60mbbl/d in Phase 1,

ramping up to 200mbbl/d in Phases 2-3. This project has large 3P reserves of 3.7bn bbl.

Acquisitions to drive near-term growth: The company’s strategy to grow production in the next 1-2 years is via

acquisitions, which it has executed well so far. For example, in 2010, HSE added 33mboe/d production via acquisitions,

including the purchase of ExxonMobil’s assets that added 21mboe/d. The company expects these acquisitions will help it

meet its five-year production target of 3-5% CAGR and reserve replacement of >140%.

Financial forecasts [CADm]


Revenue 18178.0 20949.0 21990.0 20977.0 EV/sales (x) 1.4 1.2 1.1 1.2EBITDA 3860.0 5821.0 5830.0 5599.0 EV/EBITDA (x) 6.4 4.2 4.2 4.4EBIT 1787.0 3288.0 3153.0 3131.0 PE (x) 17.3 9.7 10.2 11.3Net income 1173.0 2325.0 2365.0 2102.0 PB (x) 1.4 1.3 1.3 1.2EPS (CAD) 1.38 2.46 2.34 2.11 Dividend yield (%) 5.0 5.0 5.0 5.1

Source: Company data, Bloomberg Consensus estimates

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Ivanhoe Energy, IE CN, Not Rated Sonia Song*, CFA Share price (CAD) 1.51 Index TSE 60Analyst Bloomberg IE CNThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 511.0 Absolute (%) 1.3 -24.5 -16.6 Free float (%) 83.1 Relative (%) -3.5 -21.0 -19.0

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Ivanhoe Energy (Ivanhoe) is mainly engaged in the business of heavy oil development and production. Its key operations

are in Canada, China, Mongolia and Ecuador. At the end of 2010, the company had gross 2P reserves of c178mmbbl.

Ivanhoe also has a patented “Heavy-to-Light” (HTL) upgrading process, which is efficient; thus it results in smaller, less

costly facilities and eliminates the need for hydrogen addition, according to the company. The HTL process can be

operated in facilities as small as 10-30mbbl/d against conventional upgraders that usually operate at c100mbbl/d. This

should be advantageous for the development of its heavy oil projects in Canada and Ecuador.

Key points Canadian project under way: In Canada, Ivanhoe is working on the wholly-owned Tamarack in-situ project, which is

slated to produce 20mbbl/d in Phase 1, ramping up to 40mbbl/d potentially in Phase 2. The 6,880 acre Tamarack block

was acquired in 2008 and contains 176mmbbl of 2P reserves of bitumen (end-2010 data). Phase 1 of the integrated project

involves capex of CAD1.37bn. Construction could commence in mid-2012, subject to regulatory approvals, and

production is expected to start in 4Q13.

High-potential Pungarayacu Project: According to an independent review, Ivanhoe’s Block 20 in Ecuador (Pungarayacu

Project) could hold 4-12bn bbl of original oil-in-place. Ivanhoe is conducting an evaluation/appraisal programme on this

426sq mile block, with a 2D seismic study planned for 2011.

Small but important Asian operations: In Asia, Ivanhoe holds a 49% net working interest in the Kongnan oilfield in

Dagang, Hebei Province. In 2010, the company received 788bbl/d net production (gross 1,400bbl/d) from the field, which

it expects will increase to 1,600-1,800bbl/d gross production from 2011-15. In addition, the company holds a 90%

contractor interest in a production sharing contract (PSC) with PetroChina in the Zitong gas exploration block.



Revenue 21.7 36.0 43.5 47.1 EV/sales (x) 22.4 13.5 11.2 10.3EBITDA -24.7 -28.9 -29.6 -11.5 EV/EBITDA (x) nm nm nm nmEBIT -33.6 -39.4 -52.4 -39.7 PE (x) nm nm nm nmNet income -29.1 -36.6 -44.6 -35.6 PB (x) 1.60 1.33 1.07 0.90EPS (USD) -0.09 -0.11 -0.13 -0.11 Dividend yield (%) nm nm nm nm


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Karoon Gas Australia, KAR AU,

Not Rated Sonia Song*, CFA Share price (AUD) 3.07 Index ASXAnalyst Bloomberg KAR AUThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 681.2 Absolute (%) -16.8 -50.7 -55.0 Free float (%) 92.1 Relative (%) -18.6 -21.0 -19.0

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Karoon Gas Australia’s (KAR) core strategy is to identify, explore and develop highly prospective oil/gas acreage. Its

exploration and appraisal assets are located in three countries – Australia, Brazil and Peru – in which the company has five

focus areas: Browse and Bonaparte Basins (Australia), Tumbes and Maranon Basins (Peru), and Santos Basin (Brazil).

These areas have a large resource potential.

Key points Australia a high growth potential area: KAR assets in the Browse Basin comprise a 90% stake in the WA-314-P permit

and a 40% stake in each of the WA-315-P and WA-398-P permits. Balance interest in all permits is with ConocoPhillips.

These permits cover two gas discoveries, Poseidon-1 and Kronos-1. The company targets contingent resource of 7tcf (2P)

in the Poseidon discovery. In the Bonaparte Basin, KAR has a 66.67% interest in the AC/P8 permit (balance is with

Talisman Energy). The permit has a potential prospective resource of up to 20mmbbl in Jania, with additional five leads of

similar size.

Brazil assets comprise interest in the most prolific Santos Basin: KAR’s Brazil assets include a 100% interest in six

blocks in the Santos Basin’s shallow waters (300-400 meters). These blocks have prospective resources in the range of 50-

400mmbl, with total gross mean recoverable resources over 2bn bbl. Drilling activities are planned for 2011.

High-quality prospects in Peru: In Peru, KAR has a 75% interest in Block Z38 (Tumbes Basin) and a 100% interest in

Block 144 (Maranon Basin). Block Z38 has two main leads with potential resources of 100-200mmbbl oil and multi tcf of

gas, with drilling work due in early-2012. Onshore Block 144 has a prospective resource potential of 50-250mmbbl.

Financial forecasts [AUDm]


Revenue - - - - EV/sales (x) nm nm nm nmEBITDA - -23.3 -48.1 -37.4 EV/EBITDA (x) nm nm nm nmEBIT -12.4 -49.7 -54.7 -44.9 PE (x) nm nm nm nmNet income -14.9 -31.3 -41.1 -39.9 PB (x) 1.50 1.15 1.18 0.93EPS (AUD) -0.08 -0.14 -0.26 -0.21 Dividend yield (%) nm nm nm nm

Source: Company data, Bloomberg consensus estimates

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KazMunaiGas, KMG LI, Not Rated Ildar Khaziev* Share price (USD) 16.24 Index LSEAnalyst Bloomberg KMG LIOOO HSBC Bank (RR) +7 495 6454549 [email protected]

Performance 1M 3M 12M Market cap (USDm) 6,843 Absolute (%) -10 -24 -9 Free float (%) 23 Relative to RTS (%) -3 -12 -24

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description KazMunaiGas EP is the third-largest oil producer in Kazakhstan. Its proved and probable crude oil reserves were

2,149MMbbl as of end-2010 and its output averaged 271kbpd last year. National Company KazMunaiGas owns about

58% of KazMunaiGas EP’s total capital.

Key points A special relationship with its parent company provides KazMunaiGas EP with the pre-emptive right for onshore subsoil

assets. The company has been a consolidator of a number of mid-sized upstream assets since its initial public offering in

2006 and it plans to close the acquisition of stakes in three more companies in late-2011 and 2012.

KazMunaiGas EP recently changed its strategy to focus on exploration activities. These are gaining momentum via active

acquisition of licenses and aggressive drilling plans, which may lead to first results this year. In addition, it is in a very

strong financial position (about USD5bn gross cash pile as of 2Q11).

The stock has been out of favour recently on the back of labour issues, which resulted in the company cutting production

targets by about 6%, but the issues appear to have largely been resolved and the company reversed its production decline

in August.



Revenue 4,135 5,373 5,321 5,455 EV/sales (x) 0.7 0.4 0.2 (0.1)EBITDA 1,508 1,997 1,933 1,850 EV/EBITDA (x) 1.9 1.0 0.5 (0.4)EBIT 1,449 1,847 1,618 1,588 PE (x) 4.3 3.7 3.8 3.8Net income 1,591 1,819 1,782 1,783 EPS (USD) 3.36 4.22 4.06 3.95


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Lukoil, LKOH RU, OW(V) Anisa Redman Target price (USD) 85.0 Index RTSAnalyst Share price (USD) 59.4 Bloomberg LKOH RUHSBC Securities (USA) Potential return (%) 43.1 +1 212 525 4917 [email protected]


Note: Price at close of 7 September 2011 Source: HSBC Business description Lukoil is a major international vertically-integrated oil & gas company, accounting for 2.2% of global output of crude oil.

It is the second-largest oil & gas producer in Russia, with an 18% share, and the largest privately owned oil & gas

company in the world by proved oil reserves (17.3MMbbl). It is Russia’s most internationally diversified energy company,

with upstream projects in 12 countries. In its downstream business, Lukoil produces a wide range of high-quality

petroleum and gas products and petrochemicals, selling them via wholesale and retail channels in over 30 countries.

Key points Accelerating decline rates have been a challenge for Lukoil in the last few quarters. Oil output dropped 5.2% y-o-y in

1H11, but Lukoil plans to shrink the decline to 3.5-4.0% for 2011, stabilise output in 2012 and achieve growth from 2013

through the use of enhanced oil recovery techniques. 2Q11 results have been encouraging in terms of lower lifting costs

and higher free cash flows.

The company expects to save USD460-500m (or 2-3% of annual EBITDA) from the application of the new “60/66” tax

regime at USD95/bbl oil. Lukoil will benefit from the changes in export duties, to be implemented from 1 October, thanks

to its efforts in upgrading refineries with a view to produce a higher share of high-octane gasoline and middle distillates.

Valuation and risks Our DCF-based target price for Lukoil is USD85, arrived at by using volume assumptions in line with company guidance,

lifting costs rising 3-5% ahead of inflation, and a WACC of 13.1% in 2011e. Our target price implies a potential return of

43%; hence, we retain our OW(V) rating.

Key downside risks include 1) acceleration in Western Siberian oil production decline rates; 2) value-destructive

acquisitions, especially in European downstream; and 3) delays in the launch of Caspian oil and gas production.



Revenue 104,956 143,575 125,906 127,574 Revenue/IC (x) 1.7 2.1 1.8 1.7EBITDA 15,687 24,272 20,802 20,274 ROIC (%) 14.5 23.5 18.0 16.2EBIT 11,533 20,264 16,415 15,556 Oper profit margin (%) 11.0 14.1 13.0 12.2Net income 9,006 15,793 13,084 12,731 Net debt/equity (%) 14.3 1.4 -6.6 -11.6EPS (USD) 10.64 18.65 15.45 15.04

Note: Based on HSBC EPS (diluted). Source: Company data, HSBC estimates

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Year to 12/2010 12/2011e 12/2012e 01/2013e


Revenue 104,956 143,575 125,906 127,574EBITDA 15,687 24,272 20,802 20,274Depreciation & amortisation -4,154 -4,008 -4,387 -4,718Operating profit/EBIT 11,533 20,264 16,415 15,556Net interest -538 -496 -44 356PBT 11,357 20,280 16,806 16,354HSBC PBT 11,357 20,280 16,806 16,354Taxation -2,351 -4,486 -3,722 -3,623Net profit 9,006 15,793 13,084 12,731HSBC net profit 9,006 15,793 13,084 12,731


Cash flow from operations 12,098 16,751 15,242 14,291Capex -6,596 -8,960 -8,712 -8,960Cash flow from investment -7,296 -8,960 -8,712 -8,960Dividends -1,556 -3,948 -3,271 -3,183Change in net debt -316 -7,679 -6,417 -5,219FCF equity 5,376 11,206 9,341 8,050


Intangible fixed assets 1,446 1,446 1,446 1,446Tangible fixed assets 56,317 61,359 65,772 70,104Current assets 20,617 33,791 39,290 46,444Cash & others 2,536 11,558 19,707 26,611Total assets 84,017 102,233 112,145 123,630Operating liabilities 10,798 15,826 14,193 14,446Gross debt 11,194 12,537 14,269 15,954Net debt 8,658 979 -5,438 -10,657Shareholders funds 60,177 72,022 81,835 91,383Invested capital 65,046 69,212 72,608 76,937


Year to 12/2010 12/2011e 12/2012e 01/2013e

Y-o-y % change

Revenue 29.4 36.8 -12.3 1.3EBITDA 14.4 54.7 -14.3 -2.5Operating profit 17.9 75.7 -19.0 -5.2PBT 26.1 78.6 -17.1 -2.7HSBC EPS 28.5 75.4 -17.2 -2.7

Ratios (%)

Revenue/IC (x) 1.7 2.1 1.8 1.7ROIC 14.5 23.5 18.0 16.2ROE 15.5 23.9 17.0 14.7ROA 11.7 17.5 12.7 11.3EBITDA margin 14.9 16.9 16.5 15.9Operating profit margin 11.0 14.1 13.0 12.2EBITDA/net interest (x) 29.2 48.9 474.8 Net debt/equity 14.3 1.4 -6.6 -11.6Net debt/EBITDA (x) 0.6 0.0 -0.3 -0.5CF from operations/net debt 139.7 1710.6



Valuation data

Year to 12/2010 12/2011e 12/2012e 01/2013e



Price relative

12

22

32

42

52

62

72

82

2009 2010 2011 2012

12

22

32

42

52

62

72

82

Lukoil Rel to RTS INDEX


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MIE Holdings, 1555 HK, Not Rated Sonia Song*, CFA Share price (HKD) 2.23 Index HANG SENG INDEXAnalyst Bloomberg 1555 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 757.0 Absolute (%) -15.8 -38.2 NA Free float (%) 28.1 Relative (%) -13.3 -30.5 NA

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description MIE Holdings (MIEH) is an independent upstream oil company with three key oil/gas production sharing contracts (PSC)

with CNPC in China, namely Daan, Miao 3 and the Moliqing oilfields. With a net interest of 43.2% in the three PSCs,

MIEH had average production of 9.3mbbl/d in 2010 and 2P reserves of 52.5mmboe at end-2010. In February 2011, the

company announced the acquisition of Emir Oil, a subsidiary of BMB Emir, with oil and gas assets in Kazakhstan.

Key points Emir Oil acquisition to boost production and reserves: In February 2011, MIEH announced the acquisition of a 100%

interest in Emir Oil for an aggregate consideration of USD170m. When completed, the acquisition will add four existing

oilfields (Azkaz, Dolinnoe, Emir, and Kariman oilfields) and six identified prospects with hydrocarbon potential to the

company’s asset portfolio. It will increase MIEH’s 2P oil reserves by c83mmbbl and gas reserves by c59bcf. The

acquisition should boost the company’s production by 2,321bbl/d, based on Emir Oil’s average production during the nine

months ended December 2010. As of the interim report on 23 August 2011, certain governmental approvals are pending

for the completion of this deal.

High oil price to boost cash flow: In 1H11, the company’s gross production sequentially increased 7.2% to 18,250bbl/d

due to the drilling of 263 wells during the period, against 21 wells in 2H10. MIEH plans to drill 204 wells in 2H11 to

further increase production, which coupled with high oil prices, could increase cash flow.

Adequate capital for M&A and organic growth: In May 2011, MIEH issued USD400m of high-yield bonds to 1) pay

off cUSD200m credit from Citic, 2) fund the acquisition of Emir Oil (USD170m), and 3) use for corporate and working

capital purposes. The bond, coupled with higher operational cash flow, should provide adequate capital for M&A and

organic growth opportunities.

Financial forecasts [CNYm]


Revenue 1805 2615 3354 4097 EV/sales (x) 3.0 2.1 1.6 1.3EBITDA 1207 1628 2106 2586 EV/EBITDA (x) 4.5 3.4 2.6 2.1EBIT 679 1090 1336 1588 PE (x) 6.5 5.8 5.5 4.6Net income 421 843 881 1087 PB (x) 2.5 1.7 1.3 1.0EPS (CNY) 0.28 0.32 0.33 0.40 Dividend yield (%) 1.3 1.7 2.0 2.6


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Penn West Petroleum, PWT CN,

Not Rated Sonia Song*, CFA Share price (CAD) 17.87 Index S&P/TSXAnalyst Bloomberg PWT CNThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 8,531.7 Absolute (%) -6.8 -24.6 -7.3 Free float (%) 99.7 Relative (%) -11.3 -21.0 -10.0

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Penn West Petroleum (PWT) is one of the largest onshore oil and gas producers in Canada, with 161mboe/d production

and 661mmboe reserves (2P basis). Its operations are mainly focused on Western Canada, where it believes the rock

formations are best suited to its technology know-how. The company operated as a trust (known as Penn West Energy

Trust) until January 2011.

Key points Strong land position and large asset base: The company appears positioned for long-term growth, having accumulated a

large asset base (>6m acres, >10,000 drilling targets). At the 2011 planned drilling rate of 400 wells, PWT’s drilling

inventory could exceed 20 years. This inventory does not include energy shale and source rock plays that PWT expects to

become accessible with new drilling and completion methods.

Leveraged to valuable light oil: In the near term, PWT hopes to benefit from its leverage to light oil, which is priced at a

premium over heavy oil. Its 1H11 production consisted of a high proportion (52%) of light oil/natural gas liquids, helping

to make PWT the top producer of light oil in Western Canada. Furthermore, PWT plans to bolster its light oil position by

increasing the pace of developing its large-scale light-oil properties in 2011, with 1H11 capex up 57% y-o-y to CAD777m.

Restructured assets and portfolio: To meet funding needs internally both for dividend payment (CAD686m in 2010) and

targeted 5% production growth, PWT has actively managed its project portfolio by keeping currently cash-generating

assets within the company while restructuring long-term capital intensive projects into two joint ventures.

Financial forecasts [CADm]


Revenue 2509.0 3377.0 3790.0 3983.0 EV/sales (x) 4.5 3.3 3.0 2.8EBITDA 1336.0 1740.0 1967.0 1923.0 EV/EBITDA (x) 8.4 6.4 5.7 5.8EBIT -2.0 517.0 629.0 530.0 PE (x) 35.0 12.8 19.8 36.5Net income 226.0 674.0 359.0 231.0 PB (x) 1.0 1.2 1.3 1.1EPS (CAD) 0.51 1.39 0.90 0.49 Dividend yield (%) 8.7 6.0 6.0 6.0


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Petrobras, PETR3 BZ, OW Anisa Redman Target price (BRL) 41.0 Index BOVESPA INDEXAnalyst Share price (BRL) 22.5 Bloomberg PETR3 BZHSBC Securities (USA) Inc Potential return (%) 82.1 +1 212 525 4917 [email protected]

Performance 1M 3M 12M Market cap (USDm) 170,487 Absolute (%) -0.1 -11.1 -31.1 Free float (%) 42

Note: Price at close of 7 September 2011. Source: HSBC Business description Petrobras is a major international integrated oil & gas company, with a presence in 28 countries. It is controlled by the

Brazilian government and is listed on the Sao Paulo and New York stock exchanges.

Petrobras is a global leader in terms of deepwater exploration and production, and is the fastest growing oil producer. The

company aims to be among the top-five integrated energy companies in the world by 2020.

Key points Petrobras’ progress on pre-salt development is commendable. Not only do the resource volumes surprise on the upside, but

the economics also continue to improve. The 15% return on investment at USD35-40/bbl oil is highly attractive in global

terms, and that threshold could be reduced further judging by continued news flow on well flow rates.

We do not take Petrobras’ growth plans at face value, keeping in mind its track record of disappointments – our model

makes certain concessions. However, Petrobras’ actually achieved and realistically-achievable-in-the-future growth rates

undeniably place the company in a strong position vis-à-vis its peers globally.

The market is already pricing in the dilution effects of the September 2010 capitalisation, Petrobras’ reluctance to expand

its downstream business to meet the rising domestic needs for refined products, and the risks surrounding local content

rules and the tightness of the global deepwater drilling rig and FPSO market, in our view.

Valuation and risks Our 12-month target prices (USD51 for PBR US, BRL41 for PETR3) are derived from DCF analysis based on a Brent

price assumption of USD90/bbl in 2011-15e, a 5% cut to Petrobras’ production volume targets (to reflect target misses in

the past), capex in line with the 2010-14e business plan, and a WACC of 9% in 2011e.

Downside risks include inability to contract enough rigs and other E&P equipment resulting in project delays and

unattractive production sharing contract (PSC) terms for pre-salt developments that Petrobras will be obliged to accept.



Revenue 120,052 136,997 138,492 137,487 RoIC (%) 9.81 9.79 9.74 9.07EBITDA 32,665 47,953 53,374 56,869 RoE (%) 13.96 12.62 12.47 11.81EBIT 24,158 37,938 41,490 42,718 Net debt / equity (%) 19.84 26.07 29.08 31.46Net income 19,184 24,049 26,110 27,076 EPS (USD) 1.47 1.84 2.00 2.08

*Based on HSBC EPS (diluted) Source: HSBC estimates, Company data

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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 120,052 136,997 138,492 137,487EBITDA 32,665 47,953 53,374 56,869Depreciation & amortisation -8,507 -10,016 -11,884 -14,152Operating profit/EBIT 24,158 37,938 41,490 42,718Net interest 987 1,232 0 0PBT 25,831 38,538 40,410 41,420HSBC PBT 25,831 38,538 40,410 41,420Taxation -6,356 -14,003 -13,808 -13,971Net profit 19,184 24,049 26,110 27,076HSBC net profit 19,184 24,049 26,110 0


Cash flow from operations 32,580 42,388 45,068 47,320Capex -45,078 -45,000 -44,641 -44,641Cash flow from investment -105,520 -45,252 -44,934 -44,814Dividends -6,780 -6,012 -6,528 -6,769Change in net debt -4,483 16,118 11,750 11,645FCF equity -21,083 -6,241 -3,650 -3,206


Intangible fixed assets 192 0 0 0Tangible fixed assets 238,316 274,364 306,824 337,316Current assets 63,863 63,282 85,113 84,410Cash & others 33,245 31,426 53,914 53,205Total assets 308,683 343,895 398,187 427,977Operating liabilities 40,771 41,342 41,813 40,360Gross debt 69,653 83,952 118,190 129,126Net debt 36,408 52,526 64,276 75,921Shareholders funds 181,580 199,617 219,199 239,506Invested capital 228,355 264,877 296,209 328,161


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 30.7 14.1 1.1 -0.7EBITDA 12.4 46.8 11.3 6.5Operating profit 10.5 57.0 9.4 3.0PBT 17.1 49.2 4.9 2.5HSBC EPS 23.7 25.4 8.6 -100.0

Ratios (%)

Revenue/IC (x) 0.6 0.6 0.5 0.4ROIC 9.8 9.8 9.7 9.1ROE 14.0 12.6 12.5 0.0ROA 7.7 7.5 7.2 6.6EBITDA margin 27.2 35.0 38.5 41.4Operating profit margin 20.1 27.7 30.0 31.1EBITDA/net interest (x) Net debt/equity 19.8 26.1 29.1 31.5Net debt/EBITDA (x) 1.1 1.1 1.2 1.3CF from operations/net debt 89.5 80.7 70.1 62.3



Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 1.7 1.6 1.7 1.8EV/EBITDA 6.3 4.7 4.4 4.3EV/IC 0.9 0.8 0.8 0.8PE* 5.5 4.4 4.0P/Book value 1.0 0.9 0.8 0.8FCF yield (%) -12.4 -3.7 -2.1 -1.9Dividend yield (%) 3.7 3.3 3.6 3.7


Price relative

12172227323742475257

2009 2010 2011 2012

12172227323742475257

Petroleo Brasileiro ADR Rel to BOVESPA INDEX


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PetroVietnam Group, Not Listed Sonia Song*, CFA Analyst The Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Established in 1977, PetroVietnam is wholly owned by the Vietnamese central government and manages all the oil and gas

resources in the country. It is Vietnam’s largest oil producer and second-largest power producer. It covers all operations

from domestic oil and gas exploration and production to processing and logistics. PetroVietnam also carries out

exploration activities in Malaysia, Indonesia, Mongolia and Algeria, and produces oil in Iraq and Malaysia. In addition to

oil, gas and petrochemical businesses, PetroVietnam operates through subsidiaries in various sectors, such as construction,

real estate, finance and travel.

Key points Government-owned controller of Vietnam’s vast upstream assets: As of 2010, Vietnam had 4.4bn bbl proven oil

reserves and 617bcm of proven gas reserves, most of which is offshore. The country has seen a rapid growth in reserves

with a 33% increase in proven oil reserves and an almost three-fold increase in proven gas reserves in the past five years.

Vietnam is not only an emerging source of energy resources in the region, it also offers increasing investment

opportunities for international companies through PetroVietnam. For example, in 2H11 PetroVietnam will offer nine

offshore blocks licences covering about 50,000sq km in South China Sea via an open tendering process.

Massive downstream capacity expansion plans: Before the 2009 start-up of PetroVietnam’s 140mbbl/d Dung Quat

refinery, Vietnam had relied entirely on imports to meet its 338mbbl/d demand for oil products as of 2010. In order to cope

up with the rapidly rising demand (officially forecast to grow 6.7% pa to 2025), PetroVietnam has planned to expand the

Dung Quat refinery’s capacity to 215mbbl/d by 2014 and to add two more refineries – Nghi Son Refinery (200mbbl/d) and

Long Son Refinery (140mbbl/d) – for 2014 and 2020 start-ups, respectively.

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PT AKR Corporindo, AKRA IJ,

Not Rated Sonia Song*, CFA Share price (IDR) 2,750 Index JAKARTA SE COMPAnalyst Bloomberg AKRA IJThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 1,228.1 Absolute (%) -0.9 54.5 108.3 Free float (%) 40.2 Relative (%) -2.9 48.4 68.2

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Established in 1960, PT AKR Corporindo is Indonesia’s leading infrastructure and logistics company with investments

across Indonesia and China; it specialises in petroleum, basic chemicals and coal. As Indonesia’s largest private petroleum

and basic chemicals distributors, PT AKR operates storage tank terminals and related infrastructure across 15 sea and river

ports in Indonesia and five major river ports in China. Through its subsidiary, PT Khalista Lizhou Chemical Industries, PT

AKR also manufactures chemical products.

Key points Beneficiary of Indonesia’s economic growth and strong demand for fuel: Indonesia is one of the largest downstream

petroleum markets in the region, as a commodity boom and strong economic growth drive energy demand, while domestic

refinery capacity is limited. PT AKR has enjoyed the first-mover advantage of importing and distributing petroleum

products. Since 2006, PT AKR’s petroleum sales volume has grown at a 51% CAGR, to 1.4mmcm in 2010.

Potential growth from coal mining on the back of infrastructure advantage: Capitalising on its strong logistics and

supply chain capabilities, PT AKR has invested in coal mines with 12m tonne reserves and is developing a coal logistics

business in central Kalimantan, where the ability to control coal infrastructure is key to a successful coal business. In

addition to the cost advantage of its own mines, PT AKR will also buy coal from surrounding mine sites.

End-to-end solutions: PT AKR provides end-to-end solutions not only between China and Indonesia but also as a coal

and fuel supplier on the back of increasing international trade.

Financial forecasts [IDRbn]


Revenue 12195.0 16952.0 20286.0 24796.0 EV/sales (x) 0.8 0.6 0.5 0.4EBITDA 695.8 781.0 1035.0 1183.0 EV/EBITDA (x) 14.2 12.7 9.6 8.4EBIT 465.9 486.0 760.0 753.0 PE (x) 33.0 23.0 16.1 13.0Net income 310.9 481.0 652.0 810.0 PB (x) 4.4 2.8 2.6 2.6EPS (IDR) 83.3 119.8 171.3 212.1 Dividend yield (%) 1.2 12.2 1.8 2.4


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Salamander Energy, SMDR LN,

OW(V) Peter Hitchens* Target price (p) 390 Index LSEAnalyst Share price (p) 213 Bloomberg SMDR LNHSBC Bank plc Potential return (%) 83 +44 20 7991 6822 [email protected]

Performance 1M 3M 12M Market cap (USDm) 545 Absolute (%) 11.8% 18.1% 14.4% Free float (%) 100

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Salamander Energy is a UK listed E&P company with operations in Southeast Asia (Indonesia, Thailand, Vietnam, Laos).

The company expects to achieve 2011 production of 18,000-19,000 boe/day from its 2P reserve base of 66.3mmboe and

will increase this production further with its 2C resource base of 155mmboe.

Key assets are the Bualuang offshore oil field in Thailand and its oil and gas fields in East Kalimantan in Indonesia.

Key points The group has started a major drilling programme that will focus on building up its reserve base and production and initial

results are encouraging. Activity will accelerate in 4Q11 and beyond.

We believe the company is well positioned to take advantage of increasing Asian gas demand, which is allowing a real

increase in prices and the ability to monetise previously stranded gas.

The company has a strong balance sheet with net debt of USD115m and a cash balance of USD158m.

Valuation and risks Our target price is 390 pence. The shares are well supported by its oil and gas assets, trading at a 31% discount to our net

asset estimate of 309 pence per share. This asset value should increase further on the back of exploration success. This

asset value is derived from the discounted cash flow generated from the group’s oil and gas discoveries. The discount rate

applied is 10%.

As with all oil and gas companies, valuations are very reliant on oil and gas prices, which have historically proved to be volatile.

Exploration is high risk given the technical risk involved and most exploration wells prove to be failures. However, by

focusing on its core areas, we believe the company will be able to achieve better-than-average success rates.



Revenue 323.4 450.6 318.0 503.5 Production (boe/day) 20,300 18,500 17,000 24,000EBITDAX 176.7 150.9 40.0 154.2 Oil price (USD/bbl) 110 90 90 91EBIT (106.0) 79.6 (35.0) 79.2 Cash flow USDm) 106.5 224.3 178.0 267.3Net income (169.5) 23.4 (15.0) 24.5 Capex (USDm) 159.0 195.0 200.0 200.0EPS (USD cents) (110.0) 15.2 (9.7) 15.9 Free cash (USDm) (52.5) 29.3 (22.0) 67.3


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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 323 680 576 671EBITDA 81 423 331 403Depreciation & amortisation -187 -140 -159 -196Operating profit/EBIT -106 284 172 208Net interest -16 0 0 0PBT -114 284 172 208HSBC PBT -114 284 172 208Taxation -56 -170 -77 -94Net profit -170 114 95 114HSBC net profit -170 114 95 114


Cash flow from operations 107 327 331 387Capex -166 -195 -200 -200Cash flow from investment -159 -195 -200 -200Dividends 0 0 0 0Change in net debt -33 -354 -131 -187FCF equity -205 58 54 110


Intangible fixed assets 239 275 300 325Tangible fixed assets 520 464 405 309Current assets 225 396 526 713Cash & others 90 260 391 578Total assets 995 1,145 1,242 1,358Operating liabilities 261 173 173 173Gross debt 184 0 0 0Net debt 94 -260 -391 -578Shareholders funds 419 841 937 1,054Invested capital 634 701 667 596


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 105.8 110.2 -15.3 16.6EBITDA 7.1 423.3 -21.9 21.9Operating profit -904.0 -39.4 20.9PBT -39.4 20.9HSBC EPS -16.7 20.9

Ratios (%)

Revenue/IC (x) 0.4 1.0 0.8 1.1ROIC -21.7 17.0 13.8 18.1ROE -34.2 18.0 10.6 11.5ROA -15.0 10.6 7.9 8.8EBITDA margin 25.0 62.3 57.5 60.1Operating profit margin -32.8 41.8 29.9 31.0EBITDA/net interest (x) 5.2 Net debt/equity 22.4 -30.9 -41.7 -54.8Net debt/EBITDA (x) 1.2 -0.6 -1.2 -1.4CF from operations/net debt 113.4


EPS reported (fully diluted) -1.07 0.72 0.60 0.72HSBC EPS (fully diluted) -1.07 0.72 0.60 0.72DPS 0.00 0.00 0.00 0.00Book value 2.73 5.48 6.11 6.87


Year to 12/2010 12/2011e 12/2012e 12/2013e

Brent, $/bbl 78 110 90 90UK Gas, $/mcf 6 7 8 8

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 1.9 0.4 0.2 -0.1EV/EBITDA 7.6 0.6 0.4 -0.1EV/IC 1.0 0.4 0.2 -0.1PE* 4.8 5.7 4.7P/Book value 1.3 0.6 0.6 0.5FCF yield (%) -39.6 11.2 10.3 21.2Dividend yield (%) 0.0 0.0 0.0 0.0


Price relative

72

122

172

222

272

322

2009 2010 2011 2012

72

122

172

222

272

322

SALAMANDER ENERGY Rel to FTSE ALL-SHARE


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Sino Oil and Gas, 702 HK, Not Rated Sonia Song*, CFA Share price (HKD) 0.345 Index HANG SENG INDEXAnalyst Bloomberg 702 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 497.2 Absolute (%) -1.4 -28.1 -28.1 Free float (%) 83.1 Relative (%) 1.5 -19.2 -27.4

Note: Price at close of 7 September 2011. Source: HSBC, Bloomberg, DataStream *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Sino Oil and Gas (SOG) is a Shaanxi Province-focused oil and gas company with operations in both conventional oil/gas

and coal bed methane (CBM). After selling its US operations last year, SOG’s major operations are now mainly based in

Shaanxi’s coal and gas-rich Erdos Basin, with a crude oil production of around 10,600tpa from its Liuluoyu, Yanjiawan

and Jinzhuang fields. Also, SOG entered into CBM operations by way of its Orion Energy acquisition in July 2010 –

Orion owns 70% of the Sanjiao CBM project with proved reserves of 43.5bcm and started production in August 2011.

Key points High potential projects: 1) Sanjiao Project – Sales commenced in August 2011 and are expected to reach 1bcm/year by

2015. CNG distribution channels jointly owned with partner PetroChina, distribution projects including LNG and the

Shanxi government’s pipeline will likely support sales of CBM from the Sanjiao Project. 2) Jinzhuang oil field – SOG is

looking to gain additional natural gas extraction rights and cooperative agreements at the Jinzhuang oil field. The recent

discovery of a tight gas reserve is expected to bring additional income for the group.

Government support set to improve profitability: SOG has strong government support in the form of subsidies and tax

incentives. The company is expected to have an IRR of over 20% in the CBM projects as the Chinese government

promotes the use of clean energy over the next 10 years.

Key beneficiary of patented technology: SOG has patented technology for multi-lateral drilling, which is more efficient

and productive than traditional drilling. This should enhance the profitability in the Sanjiao CBM project.



Revenue 29.22 78.4 588 1194 EV/sales (x) 100.5 37.5 5.0 2.5EBITDA -52.21 72 359 725 EV/EBITDA (x) nm 40.8 8.2 4.1EBIT -62.89 34.3 288 622 PE (x) nm 9.1 3.8 7.4Net income 6.11 15.2 176 410 PB (x) 1.01 na na naEPS (HKD) 0.001 0.031 0.074 0.038 Dividend yield 0.0% 0.0% 0.0% 0.0%


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SK Innovation, 096770 KS, OW(V) Sonia Song* Target price (KRW) 280,000 Index KOSPI Analyst Share price (KRW) 156500 Bloomberg 096770 KSThe Hongkong and Shanghai Banking Corporation Limited Potential return (%) 80.3 +852 2996 6557 [email protected]


Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description SK Innovation (SKI) and its subsidiaries operate Korea’s largest and Asia’s fourth-largest refinery with a combined

nameplate capacity of 1.15mmbbl/d. The company also has an 860,000tpa ethylene cracker facility and a 4mmtpa

aromatics complex. Additionally, SKI is engaged in the exploration and development of oil and gas assets in 16 countries.

Key points SKI is poised to benefit from a resilient oil price, as its E&P earnings are likely to make up a significant 19-22% of total

EBIT in the next three years. Furthermore, SKI will benefit from booming LNG demand, with its net stake of 1.1mmtpa of

LNG in Peru and Yemen. It is one of the few Asian companies to have exposure to LNG production.

As Korea’s largest refiner, we believe SKI will benefit from an elevated regional refining margin. Boosted by strong Asian

demand, the current 2011 YTD Singapore complex margin of USD8.3/bbl is far above the 2006-10 average of

USD5.5/bbl, and strong Chinese demand for diesel is expected to continue supporting regional refining margins.

After its de-merger into a holding company and four operating subsidiaries in January 2011, SKI’s strategic focus on aggressive

restructuring and investments in value-accretive projects will likely improve operating efficiency and growth potential.

Valuation and risks We have a target price of KRW280,000 based on a sum-of-the-parts valuation. For E&P, we have derived the asset value

based on USD14/boe for its proved reserve of 477m boe, reflecting its 30:70 oil:gas ratio. For the rest of the business, we

have used EV/EBITDA multiples – refining (6x), petrochemicals (6x) and lubricant (8x).

Downside risks include 1) a sharp economic downturn impacting oil and gas prices, and refining and chemicals margins;

2) significant regulatory fines or controls; 3) disappointing China diesel demand; and 4) unexpected plant outages.

Financial forecasts [KRWbn]


Revenue 43,864 68,269 61,218 65,187 EV/sales (x) 0.5 0.3 0.3 0.2EBITDA 2,115 3,981 3,893 4,494 EV/EBITDA (x) 9.8 5.0 4.6 3.6EBIT 1,714 3,465 3,339 3,914 PE (x) 12.1 5.5 5.6 4.7Net income 1,199 2,629 2,606 3,083 PB (x) 1.3 1.1 0.9 0.8EPS (KRW) 12985.29 28436.95 28185.50 33342.64 Dividend yield (%) 1.3 1.3 1.3 1.3


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Year to 12/2010 12/2011e 12/2012e 12/2013e

Profit & loss summary (KRWb)


Cash flow summary (KRWb)

Cash flow from operations 72 2,051 3,039 3,021Capex -299 -800 -1,000 -1,000Cash flow from investment -682 -1,170 -1,440 -1,440Dividends -195 -204 -197 -197Change in net debt 709 -1,001 -1,773 -1,812FCF equity -225 1,638 2,309 2,308

Balance sheet summary (KRWb)

Intangible fixed assets -306 -296 -286 -276Tangible fixed assets 14,891 16,044 17,030 17,990Current assets 11,561 16,612 14,835 15,747Cash & others 2,283 3,553 3,186 3,392Total assets 26,331 32,649 31,838 33,736Operating liabilities 6,985 10,605 9,522 10,139Gross debt 8,550 8,819 6,679 5,073Net debt 6,267 5,266 3,493 1,681Shareholders funds 10,797 13,225 15,636 18,525Invested capital 16,878 18,203 18,871 19,930


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 22.4 55.6 -10.3 6.5EBITDA 42.7 88.2 -2.2 15.4Operating profit 88.8 102.1 -3.6 17.2PBT 80.7 126.2 -0.9 18.3HSBC EPS 77.6 119.0 -0.9 18.3

Ratios (%)


Per share data (KRW)



Year to 12/2010 12/2011e 12/2012e 12/2013e

Gross Refining Margin ($/bbl) 5 8 7 8Gross Petrochemical Margin ($/ 346 257 505 589WTI Crude ($/bbl) 78 105 86 88Refining Sales Volume (MMbbl) 298 392 385 394PetroChemical Sales Volume (MM

10,344 12,450 11,606 12,364

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e



Price relative

43890

93890

143890

193890

243890

293890

2009 2010 2011 2012

43890

93890

143890

193890

243890

293890

SK Innovation Rel to KOSPI INDEX


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TNK-BP Holding, TNBP RX,

Not Rated Ildar Khaziev* Share price (RUB) 81.4 Index RTSAnalyst Bloomberg TNBP RXOOO HSBC Bank (RR) +7 495 6454549 [email protected]

Performance 1M 3M 12M Market cap (USDm) 41,150 Absolute (%) -6 -10 39 Free float (%) 5 Relative (%) 1 2 24

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description TNK-BP Holding is the third-largest Russian integrated oil company when measured by crude oil reserves and output. Its

proved and probable crude oil reserves stood at 16,581MMbbl as of end-2010. Most of its oilfields are located in West

Siberia. The company currently produces 1,492kbpd of crude oil and operates two refineries with a total throughput

capacity of about 450kbpd.

Key points TNK-BP is one of the very few Russian companies that have been able to consistently grow crude oil output over the past

three years. The company’s production increased 2.1% and 2.5% in 2009 and 2010, respectively, and is currently up 2.5%

y-o-y, on the back of a ramp-up of production at the Uvat fields in West Siberia (+35% y-o-y in August) and at the

Verkhnechonsk field in East Siberia (+102% y-o-y in August).

The company has plenty of other development and exploration opportunities at fields such as Messooyakha, Russkoye,

Suzunskoye and Tagulskoye, which are planned to be launched in 2015-16 after the construction of the regional

transportation infrastructure is completed.

TNK-BP appears well positioned to benefit from the upcoming Russian oil tax reform, which should benefit crude oil

exports at the expense of refining margins. The company’s refining cover stands at 30%, one of the lowest among Russian

integrated oil companies.



Revenue 41,113 54,973 54,754 56,437 EV/sales (x) 1.1 0.8 0.8 0.7EBITDA 9,944 13,051 11,861 11,222 EV/EBITDA (x) 4.5 3.4 3.6 3.7EBIT 8,298 11,179 9,632 8,781 PE (x) 6.5 5.0 5.6 6.0Net income 6,540 8,498 7,540 7,055 EPS (USD) 0.42 0.56 0.49 0.45


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United Energy Group, 467 HK,

Not Rated Sonia Song*, CFA Share price (HKD) 0.80 Index HANG SENG INDEXAnalyst Bloomberg 467 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 1,311.4 Absolute (%) -23.8 -42.0 23.1 Free float (%) 29.3 Relative (%) -21.5 -34.8 24.3

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description United Energy Group (UEG) is an investment holding company principally engaged in the upstream oil and natural gas

business. UEG’s major assets are the Liaohe Oilfields in Bohai Bay, China, which hold 2P reserves of c61mmboe. UEG is

also in the final stages of acquiring BP’s fields in Pakistan, which contain 79mmboe 2P reserves. Finally, UEG provides

oilfield production-supporting services, utilising its patented fire flood technology.

Key points Proprietary enhanced oil recovery (EOR) technology in China: UEG has been developing a fire flood EOR technology

in Liaohe in conjunction with CNPC. The development proved successful and in February 2011, UEG filed an application

to confirm the commencement of commercial production. This proprietary technology and the company’s development

track record could lead to more brownfield development projects in China.

Acquisition of BP’s Pakistan asset to boost production and reserves: In December 2010, UEG entered into an

agreement with BP to acquire its oil and gas business in Pakistan for USD775m. These assets will contribute around

35mbbl/d average daily production and 79mmboe 2P reserves, bolstering UEG’s core business foundation. UEG plans to

retain BP’s experienced management and workforce for a smooth transition of the business.

Strong growth potential on the back of funding: UEG has augmented its potential to fund organic growth and M&A after

signing a five-year development financing agreement with the China Development Bank for up to USD5bn for E&P

projects. This should help UEG to pursue its strategy of international expansion through M&A of quality assets.



Revenue 22 na na na EV/sales (x) 432.7 na na naEBITDA -211 na na na EV/EBITDA (x) na na na naEBIT -434 na na na PE (x) 80.0 na na naNet income 112 na na na PB (x) 20.0 na na naEPS (CNY) 0.01 na na na Dividend yield (%) 0.0 na na na

Note: Consensus forecast data is not provided. Source: Company data

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Agriculture

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Agrium, AGU US, Not Rated Yonah Weisz* Share price (USD) 86.8 Index S&P 500Analyst Bloomberg AGU USHSBC Bank plc +972 3 710 1198 [email protected]

Performance 1M 3M 12M Market cap (USDm) 13,692 Absolute (%) 7.5 2.9 -10.2 Free float (%) 100 Relative (%) 9.8 13.9 1.0

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Agrium is the largest agriculture input retailer in the US and Canada. The company has c1,300 retail branches worldwide

with c70% of them in North and South America. In addition, Agrium has capacity to produce 5.4mt of nitrogen, 1.1mt of

phosphate and 2.1mt of potash.

Agrium’s retail branches operate under the brand names of Western Farm Service, Crop Production Services and

Agroservicios Pampeanos. The stores offer one-stop shopping to customers by supplying pesticides, herbicides,

fungicides, fertilisers, seeds, services and other products for increasing crop yields and returns.

Agrium will expand production capacity at its Vanscoy, Saskatchewan potash mine from the current 2.1mt to 2.8mt by

2014. In addition, Agrium has a 26% stake in the Egyptian Misr Fertilizers Production Co, which is tripling its nitrogen

plant capacity to 1.95mt of urea and 150kt of trade ammonia. The new capacity would be operational by mid-2012.

Agrium's share will be 507kt of urea and 39kt of ammonia.

Key points Expanding by M&A: Agrium has grown its presence across the agriculture value chain through various acquisitions and

expansion projects. In 2010, Agrium acquired AWB Ltd, a large Australian farm services company with more than 340

stores and outlets. This gave Agrium access to the attractive Australian market and an opportunity to serve the growing

Southeast Asian markets.

The company has a target to reach USD1bn EBITDA from its retail segment and USD100m from the advanced

technologies segment by 2015 compared to 2010 levels of USD525m and USD31m, respectively.

Strong agricultural commodities prices are the key driver of Agrium’s profitability.



Revenue 10,520 14,922 14,830 15,798 EV/EBITDA (x) 10.5 6.2 6.2 6.4EBITDA 1,582 2,508 2,522 2,434 PE (x) 19.9 9.7 9.5 9.8EBIT 1,248 2,199 2,218 2,165 EBITDA margin 15.0% 16.8% 17.0% 15.4%Net income 714 1,472 1,492 1,348 Net margin 11.9% 14.7% 15.0% 13.7%EPS (USD) 4.63 9.09 9.29 9.02 Dividend yield 0.1% 0.1% 0.1% 0.1%


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BrasilAgro SA, AGRO3 BZ, OW Pedro Herrera Target price (BRL) 16.00 Index BOVESPA INDEXAnalyst Share price (BRL) 9.85 Bloomberg AGRO3 BZHSBC Securities (USA) Inc. Potential return (%) 62.4 +1 212 525 5126 [email protected]

Performance 1M 3M 12M Market cap (USDm) 348 Absolute (%) -0.9 -4.4 3.7 Free float (%) 59

Note: Price at close of 7 September 2011 Source: HSBC Business description BrasilAgro acquires and develops rural properties for agricultural production. It is primarily involved in the production of

grains (soybean and corn) and is expanding into sugarcane, cotton, cattle breeding and forestry.

Key points BrasilAgro is a play on strong fundamentals for grain commodities as well as on conversion of raw or underutilised

agricultural land into land for valuable productive agricultural uses.

We expect a planted area of c72k ha in FY12, of which c90% will likely be dedicated to soybeans and corn. We remain

bullish on grain commodity prices due to a tight global supply demand scenario. Thus, we expect strong results from the

company on the back of increases in production volumes and high commodity prices.

The value of BrasilAgro farms continues to increase. The company’s properties have appreciated c104% over their

acquisition cost. On average, farm values have grown at a c41% CAGR since acquisition. We are particularly bullish on

land prices and expect the strong land asset dynamics to continue, driven by strong global agribusiness fundamentals.

Valuation and risks We value BrasilAgro using a sum-of-the-parts methodology: cash flows from agricultural operations and appraisal of the

farmland portfolio. We value grain operations using a DCF analysis. Our 10.9% WACC is derived from a 12.3% cost of

equity, 8.2% pre-tax cost of debt, and a 20:80 debt-to-equity ratio. We then apply a 15% liquidity discount to arrive at our

12-month target price of BRL16 for the AGRO3 shares.

Downside risks include potential extreme climatic variations affecting grain production, volatility of grain prices and the

BRL, international trade issues, potential disruptions in land acquisition processes, and potential restrictions on farmland

ownership by foreign investors.

Financial forecasts (BRLm)


Revenue 37 67 140 198 Revenue/IC (x) 0.1 0.2 0.3 0.4EBITDA -25 8 22 34 ROIC -6.8 -1.5 0.5 1.0EBIT -37 -6 4 9 ROE (%) -2.8 -1.1 1.6 1.0Net income -16 -6 9 6 EBITDA margin (%) -68.7 11.8 15.7 17.2EPS (BRL) -0.27 -0.10 0.15 0.10 Net debt/EBITDA (x) 5.1 -7.0 0.5 2.4

Note: Based on HSBC EPS (diluted) Source: HSBC estimates, Company data

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Year to June 06/2010 06/2011e 06/2012e 06/2013e

Profit & loss summary (BRLm)

Revenue 37 67 140 198EBITDA -25 8 22 34Depreciation & amortisation -12 -14 -18 -25Operating profit/EBIT -37 -6 4 9Net interest 16 6 9 0PBT -28 -6 13 9HSBC PBT -28 0 0 0Taxation 11 0 -4 -3Net profit -16 -6 9 6HSBC net profit -16 -6 9 6

Cash flow summary (BRLm)

Cash flow from operations -45 -8 42 48Capex -58 -58 -106 -116Cash flow from investment -55 -53 -106 -116Dividends 0 0 -2 -1Change in net debt 126 73 67 69FCF equity -103 -75 -83 -93

Balance sheet summary (BRLm)

Intangible fixed assets 0 3 2 2Tangible fixed assets 403 433 485 517Current assets 270 240 206 173Cash & others 206 155 109 59Total assets 734 753 771 770Operating liabilities 89 93 84 58Gross debt 78 100 120 140Net debt -128 -55 11 80Shareholders funds 561 554 561 565Invested capital 378 428 501 574


Year to June 06/2010 06/2011e 06/2012e 06/2013e

Y-o-y % change

Revenue 4.1 81.3 110.1 41.2EBITDA 179.3 54.6Operating profit 125.1PBT -774.1 -33.3HSBC EPS -1688.2 -33.3

Ratios (%)

Revenue/IC (x) 0.1 0.2 0.3 0.4ROIC -6.8 -1.5 0.5 1.0ROE -2.8 -1.1 1.6 1.0ROA -2.4 -0.8 1.1 0.7EBITDA margin -68.7 11.8 15.7 17.2Operating profit margin -101.3 -9.6 2.7 4.3EBITDA/net interest (x) 1.6 Net debt/equity -22.6 -9.9 2.0 14.0Net debt/EBITDA (x) 5.1 -7.0 0.5 2.4CF from operations/net debt 375.6 59.7

Per share data (BRL)

EPS reported (fully diluted) -0.27 -0.10 0.15 0.10HSBC EPS (fully diluted) -0.27 -0.10 0.15 0.10DPS 0.00 0.00 0.00 0.00Book value 9.60 9.49 9.60 9.68

Valuation data

Year to June 06/2010 06/2011e 06/2012e 06/2013e

EV/sales 12.3 7.9 4.2 3.3EV/EBITDA 66.8 26.9 19.4EV/IC 1.2 1.2 1.2 1.2PE* 66.3 99.3P/Book value 1.0 1.0 1.0 1.0FCF yield (%) -17.8 -13.0 -14.2 -16.0Dividend yield (%) 0.0 0.0 0.0 0.0


Price relative

3456789

10111213

2009 2010 2011 2012

345678910111213

BrasilAgro Rel to BOVESPA INDEX


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China XLX Fertilizer, 1866 HK,

Not Rated Sonia Song*, CFA Share price (HKD) 2.15 Index HANG SENG INDEXAnalyst Bloomberg 1866 HKThe Hongkong and Shanghai Banking Corporation Limited +852 2996 6557 [email protected]

Performance 1M 3M 12M Market cap (USDm) 275.8 Absolute (%) 7.5 -18.6 -28.6 Free float (%) 35.8 Relative (%) 10.7 -8.4 -27.9

Note: Price at close of 7 September 2011. Source: DataStream, Bloomberg, HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Headquartered in Henan, China XLX is one of the largest and most cost-efficient coal-based urea producers in China.

Apart from urea, the company is also involved in the production and sale of compound fertilisers, methanol, liquefied

ammonia and ammonia solution. However, urea is its core business with a contribution of c65% of total revenue in 2010.

The company has a urea production capacity of 1.25mmtpa, compound fertiliser capacity of 600mtpa and methanol

capacity of 200mtpa. It is dually listed in Singapore and Hong Kong.

Key points Capacity expansion to boost long-term production: In September 2010, China XLX announced the proposed

construction of a fourth urea production plant. The new plant will boost total urea production capacity by 800mtpa by end-

2013, and will involve capex of around RMB3bn.

Low-cost advantage: China XLX’s power consumption per ton of urea produced is c20% lower than peers’, according to

the company. It also holds the leading position in the industry in terms of coal consumption per ton of urea produced,

consuming c630kg of coal for each ton of urea, which is c26% lower than the industry average.

Key beneficiary of urea margin increase: In 4Q10, the company’s urea gross profit margin dipped to 11% due to high

coal prices. In 1H11, coal prices moderated from the highest level of RMB1,650/t to RMB1,450-1,500/t. During the

period, urea prices also improved to an average of RMB1,971/t (vs RMB1,699/t in 2010). These two factors increased the

gross profit margin to 14.9% in 2Q11.

Financial forecasts [CNYm]


Revenue 2,851 3,487 3,737 4,637 EV/sales (x) 1.0 0.8 0.8 0.6EBITDA 403 458 576 793 EV/EBITDA (x) 7.3 6.4 5.1 3.7EBIT 236 292 379 469 PE (x) 12.6 10.4 8.0 6.3Net income 145 173 222 274 PB (x) 1.1 1.0 0.9 0.8EPS (RMB) 0.14 0.17 0.22 0.28 Dividend yield (%) 1.4 1.8 2.4 2.7


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Cresud SA, CRESY US, OW(V) Pedro Herrera Target price (USD) 20.00 Index MERVAL INDEXAnalyst Share price (USD) 14.35 Bloomberg CRESY USHSBC Securities (USA) Inc. Potential return (%) 39.4 +1 212 525 5126 [email protected]

Performance 1M 3M 12M Market cap (USDm) 720 Absolute (%) -4.0 -12.2 -0.7 Free float (%) 62

Note: Price at close of 7 September 2011. Source: HSBC Business description Cresud is one of the leading Latin American agribusiness entities controlling about 1m ha in Argentina, Brazil, Bolivia and

Paraguay. Its operations include crop production, cattle breeding, milk production and forestry. In addition, IRSA, its real

estate subsidiary, owns significant commercial and residential assets in and around Buenos Aires.

Key points We view favourably the increases in Cresud’s planted area and continuation of its international expansion. Increased grain

production volumes ensure that the company benefits from high prices for its key commodities (soybeans, corn and

wheat). The company’s beef cattle and dairy operations are generating solid cash flows from higher prices, driven by tight

Argentinean domestic supplies.

IRSA has performed well in FY11 driven by strong shopping centre and hotel segments, resulting in a 9M11 EBITDA

margin of 53%. We expect strong dynamics to continue in FY12. The offices and shopping centre segments should

maintain solid occupancy rates of c90% and c98%, respectively. With strong consumer sales and improving economic

conditions, IRSA should continue its strong cash flow generation.

Valuation and risks We value Cresud using a sum-of-the-parts methodology; we value its agribusiness cash flows, farmland properties, IRSA

(real estate cash flows, land bank and associates), BrasilAgro and cash from conversion of warrants (cARS450m). Cresud

has a 57.5% stake in IRSA and a 35.8% stake in BrasilAgro. IRSA holds a 29.8% stake in Banco Hipotecario and a 9.4%

stake in Hersha Hospitality Trust. We use DCF to value agribusiness cash flows. We value Cresud’s farms and agricultural

real estate assets. We also value Cresud’s stake in BrasilAgro and IRSA. To arrive at our target price for the Cresud ADRs,

we use the HSBC’s end-2012 forecast of ARS4.53/USD1. Our target price for CRESY ADRs is USD20.

Downside risks include unfavourable gov’t intervention in the sector, volatile commodity prices and weather-related issues.

Financial forecasts (ARSm)


Revenue 1,665 1,896 1,664 1,763 Revenue/IC (x) 0.6 0.7 0.6 0.6EBITDA 682 778 732 773 ROIC 14.0 16.9 17.0 17.0EBIT 544 651 604 643 ROE (%) 9.8 10.7 5.8 5.5Net income 185 216 120 118 EBITDA margin (%) 41.0 41.0 44.0 43.8EPS (ARS) 3.32 3.86 2.15 2.11 Net debt/EBITDA (x) 2.3 3.0 3.1 3.0

Note: Based on HSBC EPS (diluted) Source: HSBC estimates, Company data

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Year to June 06/2010 06/2011e 06/2012e 06/2013e

Profit & loss summary (ARSm)

Revenue 1,665 1,896 1,664 1,763EBITDA 682 778 732 773Depreciation & amortisation -138 -126 -128 -130Operating profit/EBIT 544 651 604 643Net interest -201 -313 -528 -521PBT 516 517 216 229HSBC PBT 516 517 216 229Taxation -146 -123 -34 -46Net profit 185 216 120 118HSBC net profit 185 216 120 118

Cash flow summary (ARSm)

Cash flow from operations -108 286 279 196Capex -200 -230 -221 -205Cash flow from investment -343 -211 -203 -186Dividends -97 -125 -69 -35Change in net debt 577 781 -37 5FCF equity -209 92 68 2

Balance sheet summary (ARSm)

Intangible fixed assets -300 -263 -225 -186Tangible fixed assets 3,290 3,338 3,374 3,391Current assets 1,453 1,765 1,797 2,017Cash & others 360 498 735 937Total assets 6,838 8,262 8,406 8,800Operating liabilities 1,322 1,558 1,388 1,428Gross debt 1,913 2,832 3,032 3,239Net debt 1,553 2,334 2,297 2,302Shareholders funds 1,968 2,059 2,110 2,193Invested capital 2,761 2,784 2,822 2,857


Year to June 06/2010 06/2011e 06/2012e 06/2013e

Y-o-y % change

Revenue 32.7 13.9 -12.3 6.0EBITDA 108.0 14.0 -5.9 5.6Operating profit 119.3 19.7 -7.3 6.4PBT 65.7 0.1 -58.2 5.9HSBC EPS 48.8 16.4 -44.2 -1.8

Ratios (%)

Revenue/IC (x) 0.6 0.7 0.6 0.6ROIC 14.0 16.9 17.0 17.0ROE 9.8 10.7 5.8 5.5ROA 8.0 8.4 7.5 7.0EBITDA margin 41.0 41.0 44.0 43.8Operating profit margin 32.7 34.4 36.3 36.4EBITDA/net interest (x) 3.4 2.5 1.4 1.5Net debt/equity 43.2 60.4 57.8 55.8Net debt/EBITDA (x) 2.3 3.0 3.1 3.0CF from operations/net debt 12.3 12.2 8.5

Per share data (ARS)


Valuation data

Year to June 06/2010 06/2011e 06/2012e 06/2013e



Price relative

3579

111315171921

2009 2010 2011 2012

3579111315171921

Cresud SA Rel to MERVAL INDEX


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First Pacific, 142 HK, Not Rated Yonah Weisz* Share price (HKD) 7.36 Index HANG SENG INDEXAnalyst Bloomberg 142 HKHSBC Bank plc +972 3 710 1198 [email protected]

Performance 1M 3M 12M Market cap (USDm) 3,647 Absolute (%) 5.9 7.7 14.8 Free float (%) 53.8 Relative (%) 8.2 21.4 22.3

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description First Pacific (FP) is a Hong Kong-based investment management and holding company with business interests in

telecommunications, infrastructure, consumer food products and natural resources. These assets are located primarily in

the Philippines and Indonesia. Since 2003, FP’s asset base has grown at a CAGR of 29% to USD8.2bn as of 30 June 2011,

with a dividend payout ratio of 12-20%.

Its investments include Philippine Long Distance Telephone Co (PLDT, 26.5%), Metro Pacific Investments Corp (MPIC,

58.6%), PT Indofood Sukses Makmur Tbk (50.1%) and Philex Mining Corp (31.3%). During 2010, profit contribution from

these units grew 41% to USD474m, with PLDT and Indofood contributing 47% and 36%, respectively.

PLDT enjoys the leading market position in the Philippines, with a fixed line subscriber base of 1.9m and a broadband subscriber

base of 2.2m (June 2011). MPIC raised USD202m in July 2011 to finance infrastructure projects across the Philippines.

Key points PLDT targets net income of PHP40.5bn for 2011 compared to 1H11 net income of PHP21bn. It is upgrading the fixed and

wireless networks with a capex of PHP34.4bn, which would be invested mainly to increase capacity and coverage.

The holding company structure enables FP to raise debt at the subsidiary level as well as at the holding company level to

finance its subsidiaries’ expansion plans.


Year to Oct 2010 2011e 2012e 2013e Key ratios 2010 2011e 2012e 2013e

Revenue 4,640 5,807 6,598 7,627 EV/EBITDA 7.92 6.94 5.74 5.12EBITDA 1,059 1,209 1,463 1,639 PE 8.66 7.78 7.01 6.28EBIT 868 1,215 1,410 1,853 EBITDA margin 22.8% 20.8% 22.2% 21.5%Net income 402 456 501 611 Net margin 8.7% 7.9% 7.6% 8.0%EPS (USD) 0.104 0.117 0.130 0.145 Dividend yield 2.7% 3.1% 3.1% 3.5%


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Golden Agri, GGR SP, OW Thilan Wickramasinghe* Target price (SGD) 0.82 Index STRAITS TIMESAnalyst Share price (SGD) 0.67 Bloomberg GGR SPThe Hongkong and Shanghai Banking Corp Ltd, Singapore Branch

Potential return (%) 33

+65 6239 0653 [email protected]

Performance 1M 3M 12M Market cap (USDm) 6,491 Absolute (%) 3.9 -0.7 11.8 Free float (%) 51

Note: Price at close of 7 September 2011. Source: HSBC; MICA (P) 208/04/2011; MICA (P) 040/04/2011 *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Golden Agri Resources (GGR) is among the top vertically integrated oil palm companies globally. The group’s primary

business is the cultivation and harvesting of oil palm and producing crude palm oil (CPO) and palm kernel (PK). It also

sells branded and wholesale cooking oil in the Indonesian domestic market. It has a minor presence in China where it

operates soybean crushing and refining facilities integrated with a deep sea port.

Key points With a maturity profile averaging a prime 13 years, GGR has support for near-term volumes, especially in a backdrop of

weaker palm oil prices.

Importantly, 20% of GGR’s plantations are classified as young (under 6 years old) or immature, which should support

yield growth in the medium term.

The group’s ability to pass on feedstock price rises in its downstream cooking oil business will help preserve margins.

Conversely, during weaker palm oil prices, GGR’s integrated business model will provide cyclical protection.

While the Chinese cooking oil and noodle business is small, new crushing capacity coming online should support material

contribution in the medium term.

Valuation and risks We value GGR using a DCF methodology. We use a cost of equity of 11.4% (RFR: 4% and ERP: 7.4%) and beta of 1.0.

We use a pre-tax cost of debt of 6% to get a WACC of 8.72% along with a terminal growth rate of 3%.

Downside risks include volatile CPO prices, falling yields and a weak USD.



Revenue 3,505 4,816 4,367 3,758 EBITDA margin 19% 21% 26% 32%EBITDA 661 1,003 1,127 1,203 Net income margin 11% 13% 17% 21%EBIT 544 903 1,010 1,069 Net debt/equity 11% 3% -3% -10%Net income 399 641 736 787 ROE 7% 9% 9% 9%

EPS (USD) 0.03 0.05 0.06 0.06 ROA 16% 6% 7% 7%


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Year to 12/2010 12/2011e 12/2012e 12/2013e


Revenue 3,505 4,816 4,367 3,758EBITDA 661 1,003 1,127 1,203Depreciation & amortisation -117 -99 -117 -133Operating profit/EBIT 544 903 1,010 1,069Net interest -41 -51 -32 -26PBT 1,929 887 1,013 1,081HSBC PBT 564 887 1,013 1,081Taxation -482 -221 -253 -270Net profit 1,423 641 736 787HSBC net profit 399 641 736 787


Cash flow from operations 167 1,018 922 1,019Capex -324 -450 -450 -400Cash flow from investment -470 -450 -450 -400Dividends -45 -13 -15 -16Change in net debt 379 -555 -458 -603FCF equity -539 534 437 582


Intangible fixed assets 117 117 117 117Tangible fixed assets 8,268 8,619 8,951 9,218Current assets 1,492 1,652 2,028 2,458Cash & others 276 540 1,012 1,631Total assets 10,114 10,625 11,333 12,030Operating liabilities 553 703 651 537Gross debt 984 693 707 723Net debt 708 153 -305 -908Shareholders funds 6,826 7,454 8,176 8,947Invested capital 9,048 9,145 9,433 9,625


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 52.8 37.4 -9.3 -13.9EBITDA 64.8 51.7 12.4 6.7Operating profit 72.7 66.1 11.8 5.9PBT 225.2 -54.0 14.3 6.6HSBC EPS 72.4 60.6 14.8 6.9

Ratios (%)




Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e

EV/sales 2.1 1.4 1.4 1.5EV/EBITDA 11.0 6.7 5.6 4.8EV/IC 0.8 0.7 0.7 0.6PE* 16.3 10.1 8.8 8.3P/NAV 1.0 0.9 0.8 0.7FCF yield (%) -8.2 8.1 6.6 8.8Dividend yield (%) 1.4 2.0 2.3 2.4


Price relative

0

0.2

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Golden Agri-Resources Rel to STRAITS TIMES INDEX


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Israel Chemicals, ICL IT, OW Yonah Weisz* Target price (ILS) 67.5 Index TA-100Analyst Share price (ILS) 43.5 Bloomberg ICL ITHSBC Bank plc Potential return (%) 55.1 +972 3 710 1198 [email protected]

Performance 1M 3M 12M Market cap (USDm) 15,004 Absolute (%) -16.5 -20.0 -11.2 Free float (%) 38 Relative (%) -8.6 -7.0 0.3

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Israel Chemicals (ICL) is the fifth largest potash producer (5.75mt capacity), the largest bromine producer and the largest

specialty phosphate maker in the world. Approximately 64% of EBIT comes from potash, 8% from phosphate, and the rest

from bromine and phosphate food acids. It is a low-cost producer, with potash and bromine coming from the evaporation

of water from the Dead Sea, a large salt lake rich in minerals.

Key points Investors may be overreacting to news about ICL’s royalty and salt liabilities to the Israeli government, which we estimate

could reduce the share’s value by ILS3.8. In addition, the government may raise corporate taxes to fund domestic social

spending programmes. At this stage, we don’t quantify where rates will head, but accounting for an extreme move (a hike

to 35%) and adding other liabilities conservatively grossed up by 25% to ILS4.8, would bring our target price to ILS52.1.

The outlook for volume growth is hazy as the potash inventory built in 2008-10 is sold off and concrete details on capacity

expansion are lacking. We predict a utilization rate of 76% in 2011, down from the highs of 90% to 92% in 2006-08. We

forecast sales volume will peak at 5.4mt in 2012, then fall to 5.2mt in 2013 and remain steady afterwards.

ICL has underperformed its peer group ytd due to overreaction to disputes with the government, or more legitimate concerns

over long-term growth. Nonetheless, we see it as undervalued. Investors with a taste for unloved stocks are encouraged to

buy. Catalysts include clarity on government issues and earnings boost from potash sales to China and India.

Valuation and risks We value ICL at ILS67.5 using DCF with a WACC of 8.2% (RFR 5%, ERP 4.5%, beta 1.1, pre-tax cost of debt 4%,

terminal growth rate 3%).

Downside risks include a decline in agricultural commodities prices, cost inflation, and the outcome of negotiations on

royalties with the government of Israel.



Revenue 5,692 7,213 7,623 7,247 EV/EBITDA (x) 10.0 7.8 7.3 9.1EBITDA 1,564 2,091 2,199 1,733 PE* (x) 14.7 10.3 9.8 13.8EBIT 1,346 1,872 1,961 1,471 Gross margin (%) 42.7 43.4 43.1 38.9Net income 1,025 1,464 1,542 1,094 EBITDA margin (%) 27.5 29.0 28.8 23.9EPS (USD) 0.81 1.15 1.21 0.86 Dividend yield (%) 7.9 5.8 7.2 5.1


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Year to 12/2010 12/2011e 12/2012e 12/2013e




Cash flow from operations 1,537 806 1,844 1,460Capex -343 -416 -466 -497Cash flow from investment -658 -416 -466 -497Dividends -1,002 -1,048 -1,079 -766Change in net debt -190 654 -299 -197FCF equity 1,119 902 1,327 912


Tangible fixed assets 2,191 2,388 2,615 2,850Current assets 4,169 5,158 5,428 5,494Cash & others 894 587 786 983Total assets 6,388 7,574 8,071 8,372Operating liabilities 1,795 2,209 2,343 2,316Gross debt 1,587 1,934 1,834 1,834Net debt 693 1,347 1,048 851Shareholders funds 2,620 3,206 3,668 3,997Invested capital 3,671 4,750 4,914 5,044


Year to 12/2010 12/2011e 12/2012e 12/2013e

Y-o-y % change


Ratios (%)





Year to 12/2010 12/2011e 12/2012e 12/2013e

Avg. Potash price (USD/tn) 372 478 540 520Potash produced (m tn) 4.3 4.4 5.5 5.5Potash capacity utilisation % 73.3 75.8 92.6 92.7Gross margin % 42.7 43.4 43.1 38.9EBITDA margin % 27.5 29.0 28.8 23.9Net margin % 18.0 20.3 20.2 15.1

Valuation data

Year to 12/2010 12/2011e 12/2012e 12/2013e



Price relative

18

28

38

48

58

68

2009 2010 2011 2012

18

28

38

48

58

68

Israel Chemicals Rel to TA-100 INDEX


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Mewah International, MII SP, N Thilan Wickramasinghe* Target price (IDR) 0.50 Index STRAITS TIMES Analyst Share price (IDR) 0.47 Bloomberg MII SPThe Hongkong and Shanghai Banking Corp Ltd, Singapore Branch

Potential return (%) 7.53


Performance 1M 3M 12M Market cap (USDm) 584 Absolute -31 -53 NA Free float (%) 15

Note: Price at close of 15 September 2011. Source: HSBC; MICA (P) 208/04/2011; MICA (P) 040/04/2011 *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Mewah is an integrated agribusiness company focussed on edible oils and fats. It is present throughout the value chain,

from sourcing of raw materials, packing and branding to marketing and distribution to end-customers.

Its mid-stream operations include production of refined vegetable oils from palm oil as well as lauric and soft oils. It has

three refineries in Malaysia, with a capacity of 2.8m tons pa, as well as two packing plants in Malaysia and one in

Singapore. The downstream operations include packing of oils and fats under its own brands or under private labels.

Key points Strong market share position in West Africa (40-50%) and the Middle East for consumer pack oil links Mewah into the

structural emerging market demand growth, underpinned by rising affluence and urbanisation.

Diversified distribution network in both bulk and consumer pack cooking oil and speciality fats enables the group to

leverage on economies of scale and manage counterparty risks.

Flexibility from the group’s state-of-the-art production facilities and port integration has enabled shorter cash-to-cash

conversion cycles vs. peers.

Low gearing and robust cash position on balance sheet will allow effective capital deployment into a strong pipeline

comprising of projects in cocoa, dairy and palm refining sectors.

Valuation and risks We value Mewah using DCF (COE 12.5%, RFR 3.5%, ERP 7.5%, beta 1.2). We use 6.6% pre-tax cost of debt to get a

WACC of 9.5% along with a terminal growth rate of 3%.

Upside risks include rising CPO prices. Downside risks include continued weakness in prices and increasing competition

in destination markets.



Revenue 3,533 4,921 5,237 4,925 EBITDA margin 4% 2% 3% 2%EBITDA 131 98 149 107 Net income margin 3% 1% 2% 1%EBIT 118 81 129 82 Net debt/equity 22% 53% 45% 44%

Net income 96 66 90 51 ROE 26% 12% 15% 8%EPS (IDR) 0.07 0.05 0.07 0.04 ROA 10% 6% 7% 4%


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Year to 12/2010a 12/2011e 12/2012e 12/2013e


Revenue 3,533 4,921 5,237 4,925EBITDA 131 98 149 107Depreciation & amortisation -13 -16 -20 -24Operating profit/EBIT 118 81 129 82Net interest -9 -9 -19 -20PBT 109 80 109 63HSBC PBT 113 80 109 63Taxation -16 -14 -20 -11Net profit 92 66 90 51HSBC net profit 96 66 90 51


Cash flow from operations -31 -67 137 101Capex -41 -100 -100 -100Cash flow from investment -38 -100 -100 -100Dividends -24 -16 -22 -13Change in net debt -72 183 -14 12FCF equity -75 -175 37 1


Intangible fixed assets 5 5 5 5Tangible fixed assets 218 301 381 457Current assets 1,006 1,200 1,231 1,149Cash & others 215 152 188 153Total assets 1,234 1,511 1,621 1,615Operating liabilities 383 492 512 491Gross debt 326 445 467 445Net debt 111 294 280 291Shareholders funds 508 557 624 663Invested capital 631 863 916 967


Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 23.2 39.3 6.4 -5.9EBITDA 0.9 -25.7 52.9 -28.4Operating profit -1.0 -31.3 58.7 -36.1PBT -7.2 -26.1 36.3 -42.8HSBC EPS 6.1 -31.7 36.3 -42.8

Ratios (%)

Revenue/IC (x) 6.6 6.6 5.9 5.2ROIC 18.6 8.9 11.9 7.2ROE 25.8 12.4 15.2 8.0ROA 10.4 5.6 6.9 4.4EBITDA margin 3.7 2.0 2.8 2.2Operating profit margin 3.3 1.6 2.5 1.7EBITDA/net interest (x) 13.9 11.2 7.8 5.4Net debt/equity 21.8 52.6 44.7 43.9Net debt/EBITDA (x) 0.8 3.0 1.9 2.7CF from operations/net debt 48.9 34.7



Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e

EV/sales 0.2 0.2 0.2 0.2EV/EBITDA 5.1 8.7 5.6 8.0EV/IC 1.1 1.0 0.9 0.9PE* 5.0 7.3 5.4 9.4P/NAV 1.0 0.9 0.8 0.7FCF yield (%) -13.4 -31.2 6.5 0.2Dividend yield (%) 4.6 3.4 4.6 2.7


Price relative

0

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Mewah International Inc Rel to STRAITS TIMES INDEX


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Olam International, OLAM SP, OW Thilan Wickramasinghe* Target price (SGD) 2.99 Index STRAITS TIMESAnalyst Share price (SGD) 2.46 Bloomberg OLAM SPThe Hongkong and Shanghai Banking Corp Ltd, Singapore Branch

Potential return (%) 22



Note: Price at close of 7 September 2011. Source: HSBC; MICA (P) 208/04/2011; MICA (P) 040/04/2011 *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Olam International is a global leader in supply chain management of agricultural products and food ingredients. It has an

integrated supply chain for 20 products in 64 countries catering to 10,000 customers spread across the Middle East, North

and South America, Eastern Europe and Russia.

Key points With 81% of volumes derived from staple foods and over 60% of sales going into emerging markets, we believe Olam is

well positioned to face global demand volatility and deliver on its secular growth story.

Execution of its asset medium strategy well ahead of plan will support margins and volumes, while reducing balance sheet

gearing pressure.

Cashed up balance sheet following recent equity raising as well as syndicated debt facilities add to balance sheet strength,

whilst enabling the flexible deployment of capital into new opportunities as the group executes its six-year strategic plan.

Ambitious management guidance of SGD1.2bn net earnings by FY16 will require a 32% core-earnings CAGR over FY11-

16 vs. 30% earnings CAGR since listing.

Valuation and risks We base our target price on an average of peer valuations and DCF. We apply a market-cap-weighted-average of FY12e

peer PE. We average this with a DCF valuation based on 9.9% WACC and 3% terminal growth. Our methodology

ascribes only a 50% probability to management delivering on its earnings targets while at the same time assigning a

similar probability to Olam reaching its trough valuation in the current cycle. Effective execution of its strategy is a near-

term risk while rising interest rates, FX and adverse environmental impacts to its upstream business are ongoing risks.

Financial forecasts [SGDm]

Year to June 2011 2012e 2013e 2014e Key ratios 2011 2012e 2013e 2014e

Revenue 15,928 16,709 22,261 28,286 EBITDA margin 5% 7% 7% 7%EBITDA 790 1,122 1,473 1,950 Net income margin 2% 2% 3% 3%EBIT 699 900 1,182 1,597 Net debt/equity 224% 182% 220% 242%Net income 302 408 591 841 ROE 15% 15% 17% 22%EPS (SGD) 0.14 0.18 0.26 0.37 ROA 3% 3% 3% 4%


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Year to 06/2011a 06/2012e 06/2013e 06/2014e

Profit & loss summary (SGDm)

Revenue 15,928 16,709 22,261 28,286EBITDA 790 1,122 1,473 1,950Depreciation & amortisation -91 -222 -291 -352Operating profit/EBIT 699 900 1,182 1,597Net interest -344 -437 -510 -639PBT 510 497 713 1,007HSBC PBT 382 497 713 1,007Taxation -66 -75 -107 -151Net profit 430 408 591 841HSBC net profit 302 408 591 841

Cash flow summary (SGDm)

Cash flow from operations 275 620 783 1,173Capex -855 -800 -800 -700Cash flow from investment -855 -800 -800 -700Dividends -67 -106 -143 -207Change in net debt 2,067 836 2,070 2,154FCF equity -686 -375 -334 2

Balance sheet summary (SGDm)

Intangible fixed assets 486 486 486 486Tangible fixed assets 2,040 2,891 3,400 3,747Current assets 9,599 12,364 14,319 16,716Cash & others 872 2,791 2,477 2,171Total assets 12,580 16,195 18,659 21,404Operating liabilities 4,237 4,108 4,432 4,782Gross debt 6,041 8,795 10,551 12,399Net debt 5,168 6,004 8,074 10,228Shareholders funds 2,245 3,236 3,620 4,166Invested capital 7,016 8,842 11,296 13,997


Year to 06/2011a 06/2012e 06/2013e 06/2014e

Y-o-y % change

Revenue 48.9 4.9 33.2 27.1EBITDA 40.7 42.1 31.3 32.3Operating profit 41.7 28.9 31.3 35.1PBT 21.4 -2.5 43.4 41.2HSBC EPS 38.6 23.6 44.9 42.2

Ratios (%)


Per share data (SGD)



Year to 06/2011a 06/2012e 06/2013e 06/2014e

Volumes YoY (%) 21 22 25 21Net contribution margin (%) 8 10 10 10Staff cost growth YoY (%) 43 25 25 20Other opex growth YoY (%) 26 30 40 20Average interest cost (%) 7 7 7 7Taxation (%) 17 15 15 15

Valuation data

Year to 06/2011a 06/2012e 06/2013e 06/2014e

EV/sales 0.7 0.7 0.6 0.6EV/EBITDA 13.6 10.3 9.3 8.1EV/IC 1.5 1.3 1.2 1.1PE* 17.1 13.8 9.5 6.7P/Book value 2.3 1.7 1.6 1.4FCF yield (%) -12.3 -6.7 -6.0 0.0Dividend yield (%) 2.1 2.5 3.7 5.2


Price relative

00.5

11.5

22.5

33.5

44.5

2009 2010 2011 2012

00.511.522.533.544.5

Olam International Ltd Rel to STRAITS TIMES INDEX


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Orascom Construction Ind, OCIC EY, OW Alia El Mehelmy* Target price (EGP) 335.0 Index Egypt Hermes IndexAnalyst Share price (EGP) 242.5 Bloomberg OCIC EYHSBC Bank Egypt S.A.E. (Cairo) Potential return (%) 38.2 +202 2529 8438 [email protected]

Performance 1M 3M 12M Market cap (USDm) 8417 Absolute -6.7% -9.9% -3.0% Free float (%) 44

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Orascom Construction Industries (OCI) is an Egypt-based construction company whose operations are mainly in the

Middle East, North Africa and Europe. The company ended 2Q11 with a project backlog of USD5.23bn, which mainly

consists of infrastructure projects. OCI also has an interest in nitrogen fertiliser production, which contributed c69% of 2Q11 consolidated EBITDA. OCI is among the top-10 nitrogen fertiliser producers in the world in terms of capacity.

OCI’s fertiliser group has a total production capacity of c4m tpa (urea: 1.3m tpa; ammonia: 1.15m tpa; UAN: 0.2m tpa;

CAN: 1.15m tpa and melamine: 0.25m tpa). The group operates plants in Egypt, the Netherlands and Algeria. By 2012, its production capacity will have increased to 7.5m tpa based on current expansion plans.

Key points On 5 September 2011, OCI announced that it plans to restructure the company into a holding structure, which in our view

presents a key catalyst. Separation of the construction and fertiliser businesses will allow for greater transparency, helping

to unlock value from a stock that has long been assigned a conglomerate discount by the market.

Valuation and risks We value OCI on a sum-of-the-parts basis, using DCF methodology to value each subsidiary. Our forecasts lead us to a

SOTP-based 12-month equity valuation of EGP335 per share. On our 2012 EPS estimate, OCI trades at 8.5x, 27% below global fertiliser industry peers. Note that close to 80% of our 2012 EPS growth is contingent on the successful start of Sorfert, the company's 2m tpa fertiliser complex in Algeria. Our EGP335 target implies 38% potential return.

Downside risks include political risks in Algeria, as well as a slower military-to-civilian power transition in Egypt. Otherwise, we have already incorporated the potential risk of higher natural gas feedstock prices into our OCI model by assuming USD3/mmBtu effective January 2012.

Financial forecasts (EGPm)


Revenue 27,552 30,547 35,932 33,146 EBITDA margin 22.0% 26.4% 28.8% 31.3%EBITDA 6,051 8,062 10,353 10,382 Operating margin 16.9% 21.1% 24.2% 26.1%EBIT 4,666 6,446 8,687 8,662 Net debt/EBITDA (x) 2.0 1.2 0.6 0.2Net income 3,344 4,001 5,967 6,003 PE* (x) 14.8 12.5 8.4 8.4EPS (EGP) 16.16 19.34 28.84 29.01 EV/EBITDA (x) 10.4 7.5 5.5 5.0


mailto:[email protected]

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Year to 12/2010a 12/2011e 12/2012e 12/2013e

Profit & loss summary (EGPm)

Revenue 27,552 30,547 35,932 33,146EBITDA 6,051 8,062 10,353 10,382Depreciation & amortisation -1,385 -1,616 -1,666 -1,720Operating profit/EBIT 4,666 6,446 8,687 8,662Net interest -571 -789 -593 -486PBT 4,489 5,813 8,267 8,361HSBC PBT 4,531 5,813 8,267 8,361Taxation -840 -1,323 -1,407 -1,394Net profit 3,344 4,001 5,967 6,003HSBC net profit 3,386 4,001 5,967 6,003

Cash flow summary (EGPm)

Cash flow from operations 2,353 1,358 8,163 9,185Capex -3,146 -2,447 -815 -709Cash flow from investment -4,184 -2,447 -815 -709Dividends -2,317 -2,516 -2,516 -3,026Change in net debt 3,927 -2,059 -3,702 -4,170FCF equity -1,724 1,759 7,627 8,717

Balance sheet summary (EGPm)



Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 29.3 10.9 17.6 -7.8EBITDA 36.9 33.2 28.4 0.3Operating profit 37.1 38.1 34.8 -0.3PBT 47.6 29.5 42.2 1.1HSBC EPS 42.2 18.2 49.1 0.6

Ratios (%)


Per share data (EGP)


Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e



Price relative

73

123

173

223

273

323

2009 2010 2011 2012

73

123

173

223

273

323

Orascom Construction Ind Rel to EGYPT HERMES INDEX


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Sampoerna Agro, SGRO IJ, Not Rated Thilan Wickramasinghe* Share price (IDR) 3,500 Index JAKARTA SE Analyst Bloomberg SGRO IJThe Hongkong and Shanghai Banking Corp Ltd, Singapore Branch


Performance 1M 3M 12M Market cap (USDm) 748 Absolute (%) 1 0 25 Free float (%) 31 Relative (%) 2 0 8

Note: Price at close of 7 September 2011. Source: HSBC; MICA (P) 208/04/2011; MICA (P) 040/04/2011 *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Sampoerna Agro is an Indonesian company engaged in the production of palm oil, rubber and sago.

It has more than 100,000ha of palm under cultivation as well as 21,000ha of sago and 183ha of rubber.

In addition, the group owns palm oil mills that convert fresh fruit bunches to crude palm oil.

Key points Strong maturity profile – where the group’s Sumatra estates average a prime 11 years – should support near- to medium-

term volumes, especially in a backdrop of lower palm oil prices.

The group’s investments in integrating its estates and driving economies of scale should underpin rising plantation yields

and palm oil extraction rates going forward.

Development of higher-yielding seeds in-house will also support long-term output, while the sale of seeds to third parties

underpins revenue diversification in the group’s palm oil business.

Longer term, management’s strategy of expanding into non-palm crops such as rubber and sago should allow Sampoerna

Agro to face cyclical volatility.

It has an experienced management team with a strong industry track record.

Financial forecasts [IDRbn]


Revenue 2,312 3,043 3,110 3,287 EBITDA margin 33.0% 31.2% 31.2% 32.9%EBITDA 764 949 969 1,082 Net income margin 19.6% 19.2% 19.1% 19.4%EBIT 656 786 795 899 Net debt/equity -8% NA NA NANet income 452 585 593 639 ROE 21% 24% 22% 20%EPS (IDR) 239 310 314 338 ROA 16% 19% 17% 16%


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Tereos Internacional, TERI3 BZ, OW Pedro Herrera Target price (BRL) 4.50 Index BOVESPA INDEXAnalyst Share price (BRL) 2.53 Bloomberg TERI3 BZHSBC Securities (USA) Inc. Potential return (%) 77.9 +1 212 525 5126 [email protected]


Note: Price at close of 7 September 2011. Source: HSBC Business description Tereos Internacional produces sugar, ethanol and starch-based products in 19 facilities in Europe, Africa and Latin

America. It is the third-largest Brazilian sugar and ethanol producer in terms of crushing capacity, the second-largest

European producer of starch-based sweeteners and a leading producer of grain-based, potable alcohol in Europe.

Key points We expect strong sugar and ethanol prices to continue in the medium term mainly as a result of a weak Brazilian harvest.

Crop conditions in Brazil have deteriorated significantly due to weather issues and limited investments in crop renewal and

greenfield projects. We expect this to result in a considerable decline in sugarcane crushing this year.

The Syral starch unit was affected by volatile wheat prices, but margins should improve in 2H12 as it usually takes six months

for starch prices to adjust fully to higher cereal costs (key contracts are renegotiated twice a year, in June and December).

Tereos suspended its BRL600m follow-on offering due to market volatility. It has obtained a one-year extension and has

until 1 August 2012 to address the minimum 25% free float mandated by Bovespa Novo Mercado rules. However, the

company has access to BRL734m from Petrobras and BRL764m in financing from BNDES to continue growing.

Valuation and risks We value Tereos using use a DCF analysis. Our metrics include a weighted average cost of equity of 10.8%, pre-tax cost

of debt of 8.5% and a 40:60 target debt-to-equity ratio leading to an 8.7% WACC. We use a 3% terminal growth rate and

adjust for the BRL734m in cash to be invested by Petrobras over the next five years to increase its stake at Guarani to

45.7%. Our target price for TERI3 shares is BRL4.50.

Downside risks include lower sugar and ethanol prices, weaker demand for flex-fuel vehicles, grain price volatility,

government and environmental regulations, FX volatility and weak European economic conditions.

Financial forecasts (BRLm)

Year to March 2011 2012e 2013e 2014e Key ratios 2011 2012e 2013e 2014e

Revenue 5,688 6,331 6,663 6,944 Revenue/IC (x) 1.2 1.2 1.2 1.2EBITDA 854 984 1,163 1,062 ROIC 6.5 5.0 5.3 3.6EBIT 345 367 460 328 ROE (%) 7.8 4.8 5.7 2.6Net income 188 154 120 41 EBITDA margin (%) 15.0 15.5 17.5 15.3EPS (BRL) 0.28 0.23 0.18 0.06 Net debt/EBITDA (x) 2.5 2.3 2.0 2.2

Note: Based on HSBC EPS (diluted). Source: HSBC estimates, Company data

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Year to March 03/2011a 03/2012e 03/2013e 03/2014e

Profit & loss summary (BRLm)

Revenue 5,688 6,331 6,663 6,944EBITDA 854 984 1,163 1,062Depreciation & amortisation -509 -617 -703 -734Operating profit/EBIT 345 367 460 328Net interest -158 -155 -168 -202PBT 226 248 219 73HSBC PBT 226 248 219 73Taxation -30 -65 -75 -25Net profit 188 154 120 41HSBC net profit 188 137 168 76

Cash flow summary (BRLm)

Cash flow from operations -109 1,088 730 851Capex -887 -1,119 -999 -799Cash flow from investment -884 -1,132 -816 -615Dividends -45 -45 -39 -30Change in net debt 394 53 109 3FCF equity -384 -14 -315 47

Balance sheet summary (BRLm)

Intangible fixed assets 1,305 1,281 1,281 1,281Tangible fixed assets 4,323 4,765 5,084 5,165Current assets 2,246 1,853 1,967 2,238Cash & others 633 567 442 648Total assets 8,366 8,364 8,796 9,149Operating liabilities 1,959 1,821 1,883 1,978Gross debt 2,802 2,789 2,773 2,982Net debt 2,169 2,222 2,331 2,333Shareholders funds 2,742 2,889 3,059 2,915Invested capital 5,282 5,511 6,006 6,058



Y-o-y % change

Revenue 13.5 11.3 5.2 4.2EBITDA 8.5 15.2 18.3 -8.7Operating profit -10.1 6.4 25.4 -28.8PBT -25.2 9.9 -11.7 -66.6HSBC EPS -56.4 -27.4 23.2 -54.7

Ratios (%)

Revenue/IC (x) 1.2 1.2 1.2 1.2ROIC 6.5 5.0 5.3 3.6ROE 7.8 4.8 5.7 2.6ROA 10.5 6.0 3.3 2.3EBITDA margin 15.0 15.5 17.5 15.3Operating profit margin 6.1 5.8 6.9 4.7EBITDA/net interest (x) 5.4 6.3 6.9 5.3Net debt/equity 62.6 61.3 58.2 57.6Net debt/EBITDA (x) 2.5 2.3 2.0 2.2CF from operations/net debt 49.0 31.3 36.5

Per share data (BRL)


Valuation data


EV/sales 0.8 0.7 0.7 0.7EV/EBITDA 5.4 4.7 4.3 4.9EV/IC 0.9 0.8 0.8 0.9PE* 9.2 12.6 10.3 22.6P/Book value 0.6 0.6 0.6 0.6FCF yield (%) -15.9 -0.6 -12.0 1.7Dividend yield (%) 2.6 2.2 1.7 0.6


Price relative

2

2.5

3

3.5

4

4.5

5

5.5

2009 2010 2011 2012

2

2.5

3

3.5

4

4.5

5

5.5

Tereos Internacional Rel to BOVESPA INDEX


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Viterra,VT CN, Not Rated Yonah Weisz* Share price (CAD) 10.74 Index S&P TSX IndexAnalyst Bloomberg VT CNHSBC Bank plc +972 3 710 1198 [email protected]

Performance 1M 3M 12M Market cap (USDm) 3,955 Absolute (%) 12.1 -3.1 4.3 Free float (%) 84.6 Relative (%) 2.9 1.0 20.2

Note: Price at close of 7 September 2011. Source: HSBC *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Business description Viterra is an agri-business company involved in grain handling, marketing and processing of agriculture products. It is the

largest agribusiness company in Canada and amongst the largest players in Australia. The North American operations

accounted for 49% of revenue in 2010, with Australasia and New Zealand accounting for the rest. Viterra has a 34% stake in

CFL, a nitrogen manufacturing plant in Alberta with a production capacity of 1.4m tonnes of nitrogen products.

Viterra’s agriculture products segment sells proprietary and non-proprietary seeds, herbicides, insecticides, storage

equipments and fertilisers to farmers through its retail outlets. Its strong R&D facility gives it a leading position in seed

breeding and varietal development. It runs 11 speciality crop facilities and 277 agriculture products facilities. It has a 35%

market share in the Western Canada agriculture products market.

Viterra’s grain handling and marketing segment provides grain storage, handling and other processing facilities. Its

processing operations include pasta processing in North America, oat and specialty grain milling, malt and canola

processing, and manufacturing feed products. Its global assets include 191 grain terminals, 15 export terminals and 3

processing facilities. Viterra is Canada’s largest grain handler and marketer.

Key points Key drivers for agriculture products are seeded acreage, crop mix and sales volume, while margins are impacted by

movements in fertiliser and natural gas prices. Export demand is the key driver for grain handling and marketing

operations, while margins of the processing segment are impacted by livestock demand, dairy and meat pricing.

Viterra is focusing on improvements in operational efficiency to reduce costs and boost profitability. Further, it targets a

2-3% improvement in cash return on assets over the next years, from the current 8-9%.


Year to October 2010 2011e 2012e 2013e Key ratios 2010 2011e 2012e 2013e

Revenue 8,256 11183 10904 11015 EV/EBITDA (x) 8.6 6.82 6.93 6.71EBITDA 518 702 691 713 PE (x) 22.7 13.6 13.4 11.7EBIT 325 510 521 512 EBITDA margin 6.3% 6.3% 6.3% 6.5%Net income 145 286 296 304 Net margin 1.8% 2.6% 2.7% 2.8%EPS (USD) 0.39 0.76 0.77 0.89 Dividend yield 1.0% 1.0% 1.0% 1.0%


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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Andrew Keen, Sonia Song, Sarah Mak, David Phillips, Ildar Khaziev, Anisa Redman, Peter Hitchens, Sabrina Grandchamps, Patrick Chidley, Sriharsha Pappu, Jonathan Brandt, Lourina Pretorius, Thorsten Zimmermann, Vladimir Zhukov, Yonah Weisz, Pedro Herrera, Thilan Wickramasinghe and Alia El Mehelmy

Important disclosures

Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the implied return must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities

As of 19 September 2011, the distribution of all ratings published is as follows: Overweight (Buy) 54% (26% of these provided with Investment Banking Services)

Neutral (Hold) 35% (21% of these provided with Investment Banking Services)

Underweight (Sell) 11% (20% of these provided with Investment Banking Services)

Information regarding company share price performance and history of HSBC ratings and price targets in respect of its long-term investment opportunities for the companies the subject of this report,is available from www.hsbcnet.com/research.

HSBC & Analyst disclosures Disclosure checklist

Company Ticker Recent price Price Date Disclosure

AGRIUM AGU.TO 85.09 17-Sep-2011 7, 11ALUMINUM CORP OF CHINA 2600.HK 4.46 16-Sep-2011 2, 4, 7, 11ANGLO AMERICAN - - - 2, 6, 7, 11ANGLOGOLD AU.N 47.62 17-Sep-2011 7, 11BW GROUP LIMITED - - - 2, 7, 11BW OFFSHORE BWO.OL 10.60 16-Sep-2011 5CENTERRA GOLD CG.TO 21.17 17-Sep-2011 7CGGVERITAS GEPH.PA 15.48 16-Sep-2011 4, 7CHINA COAL ENERGY CO 1898.HK 9.93 16-Sep-2011 4, 11FUSHAN INTL ENERGY GROUP 0639.HK 3.28 16-Sep-2011 4, 11GOLD FIELDS GFI.N 17.09 17-Sep-2011 6, 7, 11GOLDCORP GG.N 51.49 17-Sep-2011 6, 7HUSKY ENERGY LTD. HSE.TO 24.09 17-Sep-2011 1, 2, 5, 7, 11INDUSTRIES QATAR QSC IQCD.QA 122.60 16-Sep-2011 2, 5ISRAEL CHEMICALS ICL.TA 44.35 16-Sep-2011 6IVANHOE MINES IVN.N 21.25 17-Sep-2011 7KAZMUNAIGAZ - - - 7KINROSS GOLD CORP. KGC.N 17.43 17-Sep-2011 1, 5, 6, 7LONMIN LMI.L 11.98 16-Sep-2011 6, 7LUKOIL LKOH.RTS 56.90 16-Sep-2011 6, 7, 11NEWMONT MINING NEM.N 65.72 17-Sep-2011 7, 11OLAM INTERNATIONAL LTD OLAM.SI 2.51 16-Sep-2011 1, 5, 11ORASCOM CONSTRUCTION INDU OCIC.CA 231.89 16-Sep-2011 7PENN WEST PETROLEUM LTD. PWT.TO 86.00 16-Sep-2011 2, 7PETROLEO BRASILEIRO SA PETR3.SA 22.61 17-Sep-2011 1, 2, 5, 6, 7PETROPAVLOVSK PLC POG.L 8.36 16-Sep-2011 4, 6ROYAL GOLD INC RGLD.O 80.35 17-Sep-2011 1, 5, 7RUSAL 0486.HK 8.14 16-Sep-2011 1, 2, 5, 7SALAMANDER ENERGY SMDR.L 2.15 16-Sep-2011 2, 5, 6SILVER WHEATON CORP - - - 1, 5, 7SK INNOVATION 096770.KS 168500.00 16-Sep-2011 11TEREOS INTERNACIONAL TERI3.SA 2.84 17-Sep-2011 11TNK-BP HOLDING TNBP.RTS 2.76 16-Sep-2011 7, 11VALE VALE.N 27.14 17-Sep-2011 2, 4, 5, 6, 7, 11

Source: HSBC

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1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next

3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this

company. 4 As of 31 August 2011 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 July 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 July 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of non-investment banking-securities related services. 7 As of 31 July 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as

detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this

company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in

securities in respect of this company Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures 1 This report is dated as at 21 September 2011. 2 All market data included in this report are dated as at close 07 September 2011, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4 As of 31 August 2011, HSBC beneficially owned 5% or more of a class of common equity securities of the following company(ies) : SK INNOVATION

5 As of 31 August 2011, HSBC and/or its affiliates (including the funds, portfolios and investment clubs in securities managed by such entities) either, directly or indirectly, own or are involved in the acquisition, sale or intermediation of, 1% or more of the total capital of the subject companies securities in the market for the following Company(ies) : VALE , CGGVERITAS , ALUMINUM CORP OF CHINA , CHINA COAL ENERGY CO , PETROPAVLOVSK PLC , FUSHAN INTL ENERGY GROUP

6 As of 02 September 2011, HSBC owned a significant interest in the debt securities of the following company(ies) : OLAM INTERNATIONAL LTD

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Disclaimer * Legal entities as at 04 March 2011 ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; ‘CA’ HSBC Securities (Canada) Inc, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; ‘GR’ HSBC Securities SA, Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch

Issuer of report HSBC Bank plc 8 Canada Square

London, E14 5HQ, United Kingdom

Telephone: +44 20 7991 8888 Fax: +44 20 7992 4880

Website: www.research.hsbc.com

In the UK this document has been issued and approved by HSBC Bank plc (“HSBC”) for the information of its Clients (as defined in the Rules of FSA) and those of its affiliates only. It is not intended for Retail Clients in the UK. If this research is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This publication has been distributed in Japan by HSBC Securities (Japan) Limited. It may not be further distributed, in whole or in part, for any purpose. In Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to persons in Hong Kong or are necessarily suitable for any particular person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation Limited. In Korea, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. HBAP SLS is regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. Nothing herein excludes or restricts any duty or liability to a customer which HSBC has under the Financial Services and Markets Act 2000 or under the Rules of FSA. A recipient who chooses to deal with any person who is not a representative of HSBC in the UK will not enjoy the protections afforded by the UK regulatory regime. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. HSBC Bank plc is registered in England No 14259, is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. © Copyright. HSBC Bank plc 2011, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank plc. MICA (P) 208/04/2011 and MICA (P) 040/04/2011

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Metals and Mining

EMEA Andrew Keen Global Sector Head, Metals and Mining +44 20 7991 6764 [email protected]

Lourina Pretorius +44 20 7992 3686 [email protected]

Thorsten Zimmermann, CFA +44 20 7991 6835 [email protected]

Vladimir Zhukov +7 495 783 8316 [email protected]

North America & Latin America Jonathan Brandt +1 212 525 4499 [email protected]

Lucia Marquez +1 212 525 7669 [email protected]

James Steel +1 212 525 3117 [email protected]

Sabrina M Grandchamps +1 212 525 5150 [email protected]

Patrick Chidley, CFA +1 212 525 4915 [email protected]

Richard Trotman +1 212 525 4914 [email protected]

Asia Sarah Mak +852 2822 4551 [email protected]

Jigar Mistry, CFA +91 22 2268 1079 [email protected]

Energy

Europe Paul Spedding Global Sector Co-head, Oil and Gas +44 20 7991 6787 [email protected]

David Phillips Global Sector Co-head, Oil and Gas +44 20 7991 2344 [email protected]

Peter Hitchens +44 20 7991 6822 [email protected]

Kirtan Mehta, CFA +91 80 3001 3779 [email protected]

CEEMEA, Latam Anisa Redman +1 212 525 4917 [email protected]

Bülent Yurdagül +90 212 376 46 12 [email protected]

Ildar Khaziev, CFA +7 495 645 4549 [email protected]

Asia Sonia Song, CFA +852 2996 6557 [email protected]

Dennis Yoo +852 2996 6917 [email protected]

Kumar Manish +91 22 2268 1238 [email protected]

Puneet Gulati +91 22 681235 [email protected]

Alternative Energy

Robert Clover Global Sector Head, Alternative Energy +44 20 7991 6741 [email protected]

Charanjit Singh +91 80 3001 3776 [email protected]

Chemicals

Europe Dr Geoff Haire +44 20 7991 6892 [email protected]

Sebastian Satz, CFA +44 20 7991 6894 [email protected]

Jesko Mayer-Wegelin, CFA +49 211 910 3719 [email protected]

CEEMEA Yonah Weisz +972 3 710 1198 [email protected]

Sriharsha Pappu, CFA +971 4 423 6924 [email protected]

Omprakash Vaswani +91 80 3001 3786 [email protected]

Asia Sonia Song, CFA +852 2996 6557 [email protected]

Dennis Yoo +852 2996 6917 [email protected]

Utilities

Europe Adam Dickens +44 20 7991 6798 [email protected]

José A López +44 20 7991 6710 [email protected]

Verity Mitchell +44 20 7991 6840 [email protected]

Asia Suman Guliani +91 80 3001 3747 [email protected]

Latin America Reginaldo Pereira +55 11 3371 8203 [email protected]

Eduardo J Gomide +55 11 3371 9502 [email protected]

CEEMEA Levent Bayar Analyst +90 212 376 46 17 [email protected]

Dmytro Konovalov +7 495 258 3152 [email protected]

Credit

Europe Philippe Landroit +44 207 991 6864 [email protected]

Rodolphe Ranouil, CFA +44 20 7991 5918 [email protected] Specialist Sales

Mark van Lonkhuyzen +44 20 7991 1329 [email protected]

Billal Ismail +44 20 7991 5362 [email protected]

Annabelle O'Connor +44 20 7991 5040 [email protected]

James Lesser +44 207 991 1382 [email protected]

Global Natural Resources & Energy Research Team
















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