CLARUS=Raising Target Price to $5.00 on Lower Than Expected

Operating Costs

Amazon Mining released the results of its PEA/scoping study on the

Company’s Cerrado verde project in Brazil. The study returned estimates

of much lower operating costs vs. our original forecast (as much as 48%

per mt lower) while the total capex was about 35% higher than our $145

million estimate. Net net, the result is positive.

1. Under Two Scenarios, Project is Compelling

The Company presented two scenarios. On a conservative basis, a 1.1

mm MT production rate was considered while a more aggressive

scenario called for a 2.2 mm MT operation. We have modeled a 1.5

mm MT operation. Both scenarios called for an IRR or 32.9-40.2%,

respectively and a payback period of just 2.38 years under the

conservative case. (See Appendix 1)

2. Cost Estimates Much Lower than Expected

In the PEA, all-in cost estimates ranged from $36.36-$41.80/mt which

is as much as 48% lower than our $70/mt long-term estimate. Given

our 1.5 mm MT scenario, this provides an additional $45 mm in annual

pre-tax CF vs. our original forecast. The Company plans to incorporate

a process used by cement producers and this study also supports costs

well below management’s original $53/mt cost estimate.

3. Capex is Very Reasonable Amongst Global Greenfield Projects

Capex outlined in the PEA suggests a total cost of about $197-$270

million based on the size of the operation (1.1 mm MT to 2.2 mm MT).

These amounts include contingencies and pre-construction costs and

compares to our $145 million total cost. While the study’s capex

estimate is higher than our original estimate, the overall amount is still

extremely favourable, especially within the context of the output’s

value-added properties and the costs associated with other multi-billion

dollar greenfield projects elsewhere.

4. Changes to our Estimates, Raising TP to $5.00 from $3.50

In accordance with the PEA, we are lowering our operating cost estimate to $40/mt (from $70/mt), which is at the top

end of the study’s range. We have also increased our capex estimate to $230 million from $145 million, which we

continue to forecast the Company will finance using a 40% equity/60% debt formula. We continue to believe the

Amazon story is as much a unique, specialty fertilizer story as it is a Brazilian special situation. Severe fertilizer

deficiencies in the Brazilian domestic market have put an emphasis on developing domestic fertilizer supplies and as

such, we expect a near-medium term catalyst to include some sort of financing incentive from a state or federal

governmental body. Based on the changes to our model, we are increasing our target price to $5.00 (was $3.50). We

maintain our BUY recommendation.


Reporting Currency £ (converted using average historical exchange rates)

Estimates (C$) 2009A … 2013E 2014E 2015E

Revenue (mm) - $120.0 $192.0 $240.0

Gross Profit (mm) - $90.0 $144.0 $180.0

Gross Margin (%) nmf 75.0% 75.0% 75.0%

EBITDA (mm) ($1.8) $88.8 $142.8 $178.8

EBITDA Margin (%) nmf 74.0% 74.3% 74.5%

Diluted EPS (
.04)
.92 $1.66 $2.17

Valuation

EV/Sales nmf 0.9x 0.5x 0.4x

EV/EBITDA nmf 1.2x 0.7x 0.6x

P/E nmf 4.1x 2.3x 1.8x



Stock Data

Previous Close $3.80

52-Week High-Low $4.19 - 0.90

Potential Return 32%

Volume 457,520

Shares Basic (mm) 28.4

Insider Ownership 15%

Shares FD OS (mm) 31.5

Market Cap. (mm) $108.0

Net Debt (Cash) (mm) ($5.4)

Enterprise Value (mm) $102.6

Fiscal Year End 31-Dec

Source: Capital IQ

Amazon Mining Holding plc, through its subsidiaries, engages in the acquisition,

exploration, and development of mineral properties, primarily gold properties in Brazil. It

primarily focuses on the Madeira Gold project located in Amazonas State of Western Brazil;

and Cerrado Verde Potash Project in the state of Minas Gerais in central Brazil. The

company is based in London, the United Kingdom.