Resource Capital Research Company Update Note KEY POINTS

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1 Resource Capital Research Company Update Note Australia (Qld), Vietnam, Solomon Islands. Gold, Silver, Copper, Nickel, Cobalt. Scoping Study (Au, Qld), Adv. Expl. Exchange: ASX:AVQ March 1, 2011 Capital Profile Share price (A$) week range (A$/share) to 0.05 Number of shares (m) Options and warrants (m) 30.0 Convertible notes 0.00 Fully diluted ^ (m) Market capitalisation (undiluted) (A$m) 30.1 Debt (A$m) - Mar '11F Enterprise value (A$m) Major shareholders: Bellevue Cust. (10%), Metohes P/L (10%), UBS Nominees (6%), VOF Investment Ltd (4%) Avg monthly volume (m) Cash (A$m) - Mar '11F * Price/Cash (x) Price/Book (x) Listed company options: No Share Price ($/Share) AVQ - Axiom Mining Limited Mar-10 Apr-10 Source: Bloomberg May-10 Jun-10 Aug-10 Sep-10 Nov-10 Dec-10 Directors S Williams (Non Exec Chairman) R Mount (CEO) J McCarthy (Exec Dir) N Stuart (Non Exec Dir) Axiom Mining Limited Tel: +(61) Sydney, NSW, Australia Analyst: Dr Tony Parry tonyparry@rcresearch.com.au Jan-11 Feb-11 AXIOM MINING LIMITED March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 1 Price: A$0.031 Having established crucial agreements with the local landowners, Axiom Mining looks like it now has secured an 80% interest in the Isabel nickel-cobalt laterite deposit, in the Solomon Islands. Past exploration and development work by INCO and Kaiser Engineers suggests Isabel is a world scale tropical laterite deposit, which we think could be Axiom s company maker. The statement of mineralised material (non-jorc compliant), (Kaiser, 1995) indicates that this deposit has the potential to hold at least 1.6mt of contained nickel. KEY POINTS Axiom is capitalised at only ~A$30m, but now appears to have secured majority ownership of a potentially large nickel-cobalt laterite deposit in the Solomon Islands. Axiom has now formalised a 50 year lease over registered title land held by the company Axiom KB Limited in which Axiom owns an 80% interest with the customary landowners holding the balance. The lease area is sq km on which approximately 60% of the laterite deposits are located. The balance of the Isabel deposit not yet on the leased registered land, but owned by the customary landowners, is secured by Axiom and forms part of the project area under terms of a binding agreement with the customary owners. In 1993 Kaiser, (after confirmation of INCO s work) reported mineralised material of 159mt averaging 1.045% Ni and 0.06% Co. This does not currently qualify as a JORC compliant resource. The contained nickel content of this quantum of mineralised material would be 1.66mt. The indicated grade of the Isabel deposits is comparable to other major tropical nickel laterite deposits currently in production or being developed. Subject to further work, this deposit may give Axiom the option of an initial fast track, low capex, direct ore shipping operation. Average grades are likely to increase with drilling (below current mineralised material defined to depths averaging ~6m) into untested parts of higher grade saprolitic ore. Isabel has not been developed in the past due to a combination of low nickel prices (at various times) and political blockages mainly resistance from landowners to multinational majors - preventing development at other times. The landowners have an absolute project tenement ownership veto right..

2 History of the Isabel Laterite Nickel Project INCO spent over 15 years and US$15m (in dollars of the day) on exploring and evaluating Isabel up to Kaiser Engineers established the initial 159mt non- JORC historic resource in a 1993 feasibility study but low nickel prices meant no follow through. The project remained untouched until a recent tender. Isabel has been known about for over fifty years. International Nickel Company (INCO) discovered the Isabel nickel-cobalt deposits in In the period 1957 to 1975 INCO undertook extensive exploration predominantly the digging of over 4,000 bulk sampling test pits, along with over 1,500 auger drill holes. INCO s expenditure in dollars of the day is estimated to be over US$15m. INCO s work coincided with the development of high pressure acid leach ( HPAL ) technology in the 1950 s to treat lateritic nickel ores, and the first plant to treat nickel laterites at Moa Bay in Cuba INCO s work, which included feasibility studies on project development was validated sixteen years later, starting in 1991 and continuing through to 1993, by Kaiser Engineers, and led to the outlining of mineralised material (not JORC compliant) amounting to 159mt averaging 1.045% Ni and 0.06% Co, over two separate deposits. It appears that INCO s departure in 1975 resulted from a shift in their priorities to other nickel-cobalt development projects and the 1975 arrival of self rule in the Solomon s and adoption of a Constitution which granted land access control to the traditional landowners. Kaiser Engineers, acting on behalf of a client, picked up on the prior INCO work, and conducted further confirmatory exploration (including further test pits) and economic studies, which culminated in the Isabel Nickel project Feasibility Study in March At that time, weak investment markets and low nickel prices (around US$2.50/lb), probably were the main reasons why Kaiser s client did not proceed with any further commercial development initiatives. Since then the project has been relatively un-touched. Recently the Solomon Islands Government conducted an international tender to find a company that could take over ownership and proceed to development. Indicated Isabel grades and tonnage (mineralised material) compared with other Asia-Pacific tropical nickel laterite deposits 2.5 Tropical Nickel laterite Deposits - Asia Pacific Cerro Matoso The non-jorc Isabel mineralised material appears to compare favourably with other world class nickel-cobalt tropical laterites. Nickel Grade (%) Romblon Soroako Taganito Goro Cagdianao Marti Levisa Moa Bay Ambatovy Wowo Nonoc Me Aiu Agata Isabel Ramu Gag Mindoro Reserve/Resource (mt of ore) Source: RCR, Axiom Mining, company reports March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 2

3 Note: The Isabel reference on the chart above relates to the non-jorc compliant mineralised material established by Kaiser Engineers in The indicated nickel grade is similar to the Ramu project (PNG), but is likely to increase with further drilling. Isabel is potentially a large tonnage world class nickel laterite deposit, based on the non-jorc historical mineralised material estimate established by Kaiser Engineers. The indicated nickel grade (cobalt credits are not included in this chart) is similar to the US$1.4 billion Ramu Project in PNG (currently undergoing post-commissioning rampup), although the indicated cobalt content (0.06%) is below that of Ramu (~0.1% Co). However, as we have discussed elsewhere, we think that there is excellent potential to increase the overall nickel content of Isabel through further resource drilling to include higher grade saprolitic material. The importance of nickel laterite deposits as a source of nickel globally Nickel laterite deposits currently constitute the majority of global nickel resources and about 40% of global nickel production. Approximately 70% of the world s total nickel resources are currently in the form of shallow oxide laterite deposits, the balance being predominantly hard rock sulphide resources. The proportion of the world s primary nickel metal sourced from laterites deposits has increased steadily since the development of the HPAL hydrometallurgical treatment process in the 1950 s, to the extent that approximately 40% of nickel supply is now sourced from laterites, and this proportion is growing steadily with new project development. As a result, we expect that over 50% of global primary nickel will be sourced from laterites within five years. Why the Isabel resource size and grade may be understated The current non- JORC mineralised material is shallow defined to an average depth of ~6m. We expect that deeper drilling to 10-15m will confirm a higher grade saprolitic zone and higher overall resource grades. The original 159mt of mineralised material that Kaiser Engineers defined was based on a surface resource of shallow limonitic-saprolitic material to an average depth of only ~6m. It is known, as is the case with most tropical laterite deposits, that in the Isabel deposits, the saprolitic zone below the limonitic zone typically exhibits higher grades than the limonitic zone, more likely to average around 1.5% Ni 2.0% Ni (based on limited sampling at Isabel), plus cobalt credits. The higher grade saprolitic zone is likely to be at a depth of only a few metres deeper that the depth to which the current non JORC mineralised material was defined. In addition, there are significant further areas of the deposit that were not sampled by INCO or Kaiser in their (Non JORC) resource definition work, due to land access issues. Once Axiom can get on the ground and commence exploration, we expect that a resource confirmation drilling program (to bring at least a component of the mineralised material up to JORC compliant status) combined with deeper drilling (to ~10 to 15m) to test the potential for higher grade saprolitic laterite, will be Axiom s exploration priority. Concurrently, Axiom is likely to commence scoping studies and feasibility studies to establish the viability of direct ore shipping or toll treatment. Kaiser Engineering s 1993 feasibility study The following data is taken from Kaiser s 1993 Feasibility Study. Note that all data is in 1993 dollars: March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 3

4 The Kaiser Engineering 1993 feasibility study focused on high pressure acid leaching ( HPAL ) treatment and indicated favourable economics at that time, with no major technical barriers. Axiom will have the option to investigate other lower capex alternatives to HPAL. Fifteen year mine life at ~2.8mtpa ore treatment rate. Treatment of a total reserves of 42mt. Mining to ~6m depth. High pressure acid leach ( HPAL ) process with SX/EW to produce Ni metal and Co concentrate. Mine life ~15 years. Capex ~US$125m. Opex ~US$1.44/lb Ni eq. Kaiser concluded that the project would give satisfactory returns at nickel process around US$3.00/lb, and would thrive at higher prices. Clearly, cost escalation means that the unit costs in US$/lb will have escalated significantly since the Kaiser study. However, the nickel price is now nearly US$13.00/lb, over four times the US$3.00/lb indicated by Kaiser as the price at which the project showed attractive returns in Any further analysis of project viability will require a scoping study review by Axiom, utilising updated cost and capex data. HPAL plants are relatively complex processing plants utilising large quantities of high cost stainless steel, and as such present a relatively high capital expenditure challenge to the project exponent. However, it should be noted that Axiom has already identified that there are likely to be three lower capex options available to bring this type of project into production direct shipping-sale of ore, shipment for toll treatment at existing treatment plants, and possibly direct shipping of higher iron (>40%) component of the ore body to ferronickel smelters. If it s so good, why hasn t Isabel been developed before? Suspicion is often aroused when a supposedly good major project lies undeveloped for decades but in this case the reasons are probably more political than technical. It s a good question and one of the first questions one asks when a supposedly quality deposit which has been around for many decades remains undeveloped, and then falls into the hands of a junior. The answer seems to be politics rather than any technical issues with the quality or type of deposit, or fundamental fatal flaws in relation to project location or project logistics. The politics are associated with the landowner s Constitutional right of veto over granting of development rights to the project, and their use of this veto to reject other majors who have been interested in acquiring Isabel. Axiom has now completed an ownership structure and legal agreements with the landowners which give it direct ownership of 80% of the majority of the deposit and an exclusive agreement to acquire through Prospecting Licence and registered title the balance of the deposit. A number of major companies were interested in acquiring an interest in Isabel in a recent Government sponsored tender process. Reconciling Axiom s position with the recent tender process for Isabel The Government of the Solomon Islands has recently undertaken an international tender for the development of the Isabel Project. We understand that there was something like six bids for the project from major minerals development companies. This indicated there was interest in acquiring this resource from major companies in the nickel business, and the tender did not fall over with no real interest in the project. This is a positive in as much as it implies that these major companies saw potential in the project. March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 4

5 It has been reported that Sumitomo was the preferred tenderer however it appears that the landowners have exercised their right to veto the issue of licences to Sumitomo, and stick with Axiom. Clearly the government wants the project advanced; it will now need to work with Axiom, the landowners preferred party. It has been reported in the press that a major international minerals processing company (Japan s Sumitomo Metals) was the winner of the tender process. Obtaining Government approval to acquire and develop a resource is only part of the equation in the Solomons. The customary landowners must be in agreement as well, since they have the Constitutional right of veto if they do not wish to get into bed with any particular party. It now appears that the customary landowners will not enter into access agreements with Sumitomo thus preventing the issue of a Prospecting Licence over the deposit to Sumitomo, despite Sumitomo s apparent success in the Government tender process. In the meantime, after many years of relationship building, the landowners are now backing Axiom as their preferred development partner. In effect, the landowners have a stronger position than the Government in deciding who will be the eventual project protagonist, and this appears to have worked in Axiom s favour. We consider that the Government s over-riding interest (as evidenced by the tender process) is to see this project proceed to development. However, the Government, under the Country s Constitution, is required to respect the landowner s position, meaning that a landowner veto of the successful tenderer will leave the Government no option but to support the party selected by the landowners as their development partner. The Government may well have preferred a major such as Sumitomo, with interests and demonstrated capability in large scale laterite nickel projects such as Goro. But in this case, the landowner s interests are most likely to determine the Government s path. How Axiom got into the picture Axiom established initial relationships with the landowners in 2007, and has recently entered into binding agreements, initially for ~60% of the total deposit but including subsequent agreements on the remaining 40%. This is not a recent development for Axiom. Axiom has seen the opportunity to gain an interest in this deposit and has been negotiating with the customary landowners since However, following last year s board and management changes the Company, at the request of the customary landowners, accelerated negotiations. In October 2010 Axiom announced that a binding agreement had been signed with the customary landowners over their land on which the laterite deposits are located. On February , Axiom announced that, further to the earlier agreements, Axiom now owned an 80% interest in Axiom KB Limited, a Solomon Island company that holds a 50 year lease on the Santa Isabel land, which represents approximately 60% of the deposits. Ownership of the land will allow this Company to move immediately to acquisition of the requisite permits to define reserves and undertake scoping and feasibility studies in preparation for mine development. The customary owners of the remaining parts of the deposit are completing formalities to register their title and this land also will be included in the project. Sovereign risk in the Solomon Islands The Solomon Islands has a turbulent recent political history, with the civil unrest during the period 2000 to 2005 (during which time Australian-led peace keepers were sent to the islands) meaning that it was effectively a no-go zone for foreign investment. However, political March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 5

6 After a recent turbulent political history, the Solomon Islands are now seen as stable low risk country, and we are seeing the return of major mining investment. Axiom s binding lease arrangements appear to give it a secure legal position to develop the deposits. stability has returned to the Solomons in the last few years, and we are seeing a resumption of significant mining investment as evidenced by the imminent (March 2011) re-start of the 120,000oz p.a. Gold Ridge Gold project after a capital expenditure of approximately A$150m by the new project owner, Allied Gold Limited (ASX:ALD). The Government seems keen to attract further foreign investment into the country to benefit from the country s mineral wealth. How secure is Axiom s Title? The 50 year lease over the mineralised land on Isabel Island announced yesterday by Axiom appears to be very strong. Solomon Island land laws and rights are taken very seriously and this flows through to the leaseholder, who in effect becomes the landholder. All duties and the first payment of rent have been paid along with the lease registered with the Ministry of Lands (SI). The terms of the lease allow Axiom to develop the deposit in any way it sees fit, as well as giving it discretion to mortgage the land. The lease period of 50 years implies sufficient time for the life of the mine. How Could Axiom Develop Isabel? On first glance, Axiom could have a credibility problem with such a potentially large project the so called small company-big project syndrome however, this will be ameliorated by the fact that it is likely that Axiom will have a number of low-capex, fast track options to develop this type of deposit, including direct ore shipping. The challenges for a junior company, such as Axiom, gaining a controlling interest in a potentially large scale project like Isabel, often leads to the company being saddled with small company big project syndrome. This syndrome usually results in the market significantly discounting the value of the project, and upgrading the potential development risk of the project, because the project is in the hands of a junior company with limited capital raising ability and without a project development history. This becomes effectively a credibility issue for the junior company. In this case, Axiom will probably have several development options, some of which may involve only modest capital expenditure and reduced development risk: 1. Axiom would probably have to bring in a big brother development partner if on-site stand-alone processing using HPAL was its preferred development option. This would require a major capital expenditure (typically >A$1bn) in the HPAL plant. 2. The low-capex direct shipping and sale of the laterite ore, or toll treatment at an existing processing facility, is an option that offers an interesting alternative for a junior, which is a trade-off between lower returns from direct shipping ore, and lower capex in not having to build a large scale hydrometallurgical plant. 3. Another option may be heap leaching, subject to determining ore suitability. Capex for heap leaching is higher than that for direct shipping of ore, but significantly less than HPAL treatment. 4. A fourth option is shipment of high iron component of the ore body to ferro-nickel smelters in China. The second low-capex direct shipping option may well provide Axiom, as a junior, with a more realistic potential route to initial commercialisation in its own right. There is no requirement to build a processing plant, March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 6

7 and mining can be contracted out. As such this could serve to reduce the credibility discount usually applied to such a junior company. Direct ore shipping is currently undertaken by a number of nickel-cobalt laterite operators in the Pacific. Due to the high capital cost of a stand-alone project, direct shipping of nickel laterite ores to existing HPAL plants, or for direct smelting, is already undertaken by a number of resource owners in the South Pacific. There is a well established international trade in direct shipping ore from laterite deposits in Indonesia, New Caledonia and the Philippines. Despite the grades of the laterites, it is clearly economically viable in many cases to adopt the direct shipment route. Is Isabel another Ravensthorpe or Murrin Murrin what are the differences between tropical and sub-tropical laterites? The recent Australian experience with Murrin Murrin and Ravensthorpe has probably sullied the reputation of nickel laterite projects in Australia but it is important to note that Isabel is a tropical laterite deposit, unlike the metallurgically more challenging Western Australian subtropical laterites. Recent experience with Australian-based laterite deposits at Murrin Murrin and Ravensthorpe in Western Australia has probably given rise to increased caution for Australian investors in laterite deposits. Tropical or wet laterites such as the Isabel deposit, and deposits in New Caledonia, the Philippines and Cuba have been a source of nickel and cobalt for over 100 years. The discovery of higher grade and easier to treat nickel sulphide deposits temporarily halted the development of laterites, but as demand for nickel grew and its value increased, the economic viability of tropical laterites became established and recovery processes refined. Increasing nickel demand and prices led to an expansion of laterite exploitation to sub-tropical dry land laterites of Western Australia, but it was quickly determined that these laterites had significantly different metallurgical characteristics in comparison to tropical laterites, which presented additional processing challenges. It is only in recent years that these challenges have been successfully overcome. The recent major growth of the Chinese stainless steel industry has opened new markets for laterite ores. Direct shipment to smelters or low capital cost atmospheric leaching of tropical laterite is a rapidly expanding source of nickel and cobalt. How Isabel fits with Axiom s other projects We think Isabel will become Axiom s flagship project, meaning that lower priority, or joint venturing, may be applied to Axiom s current Queensland and Vietnam goldfocused exploration. Axiom is currently engaged in exploration in the North Chillagoe region of Queensland, and in Vietnam. In both regions initial gold-focused exploration appears to be delineating potentially large tonnages of relatively low grade gold mineralisation which could possibly be amenable to heap leaching. The results to date have been encouraging, if not spectacular. In our view, Axiom has not yet found its company maker, but Isabel could be just that. In terms of scale, development status, and potential to progress to commercial production, it stands head and shoulders above Axiom s other projects. With the large scale development potential of Isabel, we would expect to see the majority of Axiom s focus switch to this project, since it will require a major input of resources to further evaluate the deposit, engage in scoping and feasibility studies, and eventually bring it to development. We are likely to see a reduced emphasis (and possibly a strategic corporate restructuring, or joint ventures) in regard to Axiom s current Queensland and Vietnam exploration assets. March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 7

8 Disclosure and Disclaimer Disclosure and Disclaimer Important Information Pty Limited (referred to as we, our, or RCR herein) ACN holds an Australian Financial Services Licence (AFS Licence number ). General advice is provided by RCR s Authorised Representatives Dr Tony Parry (Authorised Representative number ) and Dr Trent Allen (Authorised Representative number ). The FSG is available at All references to currency are in Australian dollars unless otherwise noted. This report and its contents are intended to be used or viewed only by persons resident and located in the United States and Australia and therein only where RCR s services and products may lawfully be offered. 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At the date of this report, neither RCR, nor any of its associates, hold any interests or entitlements in shares mentioned in this report with the exception that either or both of John Wilson (either directly or through Resource Capital Investments Pty Limited (RCI)), or RCI, as trustee of the Resource Capital Investments Fund owns shares in BHP Billiton Ltd and Rio Tinto Plc. Analyst Certification: All observations, conclusions and opinions expressed in this report reflect the personal views of RCR analysts and no part of the analyst s or RCR s compensation was, is, or will be, directly or indirectly related to specific recommendations or views expressed in the report. Officers, directors, consultants, employees and independent contractors of RCR are prohibited from trading in the securities of U.S. companies that are, or are expected to be, the subject of research reports or other investment advice transmitted to RCR clients for a blackout window of 14 days extending before and after the date such report is transmitted to clients or released to the market. Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated and Inferred Resources: RCR publishes mineral resources based on standards recognized and required under securities legislation where listed mining and exploration companies make their exchange filings and uses the terms measured", "indicated" and "inferred" mineral resources. U.S. investors are advised that while such terms are recognized and required under foreign securities legislation, the SEC allows disclosure only of mineral deposits that can be economically and legally extracted. United States investors are cautioned not to assume that all or any part of measured, indicated or inferred resources can be converted into reserves or economically or legally mined. We recommend that US investors consult Securities and Exchange Commission Industry Guide 7 Description of Property by Issuers Engaged or to Be Engaged in Significant Mining Operations for further information about the use of defined terms and the presentation of information included in this report. ACN Suite Kent Street Sydney, NSW 2000 Tel: Fax: johnwilson@rcresearch.com.au March 2011 Disclaimer and disclosure attached. Copyright 2011 by Pty Ltd. All rights reserved. 8

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