Industry Gold and the UKlisted

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1 Deutsche Bank Markets Research Europe United Kingdom Metals & Mining Industry and the UKlisted gold miners Date 28 June 216 Forecast Change Paying up for safety Anna Research Analyst (+44) anna.mulholland@db.com Market is paying up for gold miners: Acacia and Nordgold still attractive at spot The market is willing to pay up for the operational gearing the gold miners provide in times of a strong gold price. is up 5% since the announcement of Brexit, to US$1,325/oz, but the UK-listed gold miners have risen more strongly still, up 1-3%. The shares are pricing in gold of US$1,65/oz, on our estimates, a 25% premium to spot, due to the heightened state of investor risk aversion. We find Acacia attractive, pricing in US$1,4 gold, trading at 1.3x NPV on spot and reflecting a spot 217e FCF yield of 7%. We reiterate our Sell on Fresnillo the shares are pricing in gold of US$2,2/oz or silver of US$25/oz, 66% and 41% above spot, respectively. Assessing earnings, free cash flow and valuation at spot gold and silver In this note we assess what the UK-listed gold miners we cover are pricing in and how they stack up on valuation metrics using spot. We find that one-yearforward EV/EBITDA multiples for Nordgold, Polymetal and Acacia are attractive at sub-1x, and FCF yields for those stocks are also strong between 7% (Acacia) and 23% (Nordgold). The macro conditions for gold remain supportive The surprise result of the UK EU referendum and potential global market implications have dented confidence and in our view will reset the bar for gold. Simply put, investors will now likely be more willing to pay a (higher) premium for an insurance policy. A coordinated central bank response cannot be ruled out, in our opinion, depending on the quantum of currency and equity market moves. All of this will make life more difficult for the Fed in raising interest rates further. Our economists think the Bank of England could cut base rates by 25bps at its August meeting and could reintroduce quantitative easing. This is all accommodative for gold and the UK-listed gold mining equities. likely to remain in contango given political risk events on horizon The gold forward curve is in contango and we think will remain so given the number of political risk events over the next 18 months, which are likely to maintain investor sensitivity to risk. Inflows into gold ETFs are already running at the fastest pace on record adding an annualized 29.7 million troy ounces year to date, above the previous high of 2.8 million troy ounces in 21. In the near term, gold has overshot two of its main relationships, the US 1-year TIPS yield and the US equity risk premium. We think this is warranted with Brexit raising the bar for gold. More cash in the coffers: likely for growth, not dividends If spot gold and silver hold, the average uplift to our free cash flow forecasts for 217 would be 45%, all else equal. The largest increase would be at Randgold, with an uplift of 1.2x times the current US$9m dividend. However, the gold miners have never really been bought for yield and the shares have been so strong that the 11% weakening in GBP/USD since Friday has been more than offset, so the 216e dividend yield actually declines from 1% to.9%. Instead, we expect excess FCF to be used for growth, not dividends, for all except Polymetal which may pay out special dividends as it has in the past. Risks: gold price & producer currency volatility. Stock specific risks from p.13 We use life of mine DCFs to value the gold miners and apply a 2% premium to the NPV to derive our 12-month TPs, using spot GBP/USD. Deutsche Bank AG/London Grant Sporre Franck Nganou Research Analyst Research Associate (+44) (+44) grant.sporre@db.com franck.nganou@db.com Key Changes Company Target Price Rating ACAA.L 34. to 47.(GBP) - NORDNq.L 3.9 to 4.6(USD) - POLYP.L 61. to 78.(GBP) 5,56. to 6,7.(GBP) 79. to 97.(GBP) Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 57/4/216. RRS.L FRES.L Source: Deutsche Bank Top picks Acacia Mining plc (ACAA.L),GBP44. Nordgold (NORDNq.L),USD3.35 Source: Deutsche Bank Buy Buy

2 28 June 216 and the UK-listed gold miners Table Of Contents A further 25% rise in gold priced in... 3 Operational gearing kicks in for gold miners... 3 Preferred UK gold exposures: Acacia, Nordgold, Polymetal... 3 Implied gold price and gold price sensitivities... 4 Forward curve: gold is in contango... 4 Growth, not dividends... 5 Our gold view: Looking for a golden parachute... 6 UK-listed miners: valuation metrics... 9 P/NPV: Nordgold and Acacia are cheapest... 9 P/E: Russian gold miners are cheapest... 9 EV/EBITDA: Russian gold miners and Acacia are cheapest... 1 FCF yield: Nordgold, Polymetal, Acacia most attractive... 1 Acacia: Investment Thesis Outlook Valuation Risks Fresnillo: Investment Thesis Outlook Valuation Risks Nordgold: Investment Thesis... 2 Outlook... 2 Valuation... 2 Risks... 2 Polymetal: Investment Thesis Outlook Valuation Risks Randgold: Investment Thesis Outlook Valuation Risks Page 2 Deutsche Bank AG/London

3 June 216 and the UK-listed gold miners A further 25% rise in gold priced in Operational gearing kicks in for gold miners The recent sharp move in gold highlights how complacent the global market was about the risk of a Leave vote in the UK referendum. The surprise result and potential global market implications have dented confidence and in our view will reset the bar for gold. Simply put, investors will now likely be more willing to pay a premium for an insurance policy. The US dollar gold price has lifted 5 per cent since Friday s referendum result and the silver price almost 3 per cent. The UK-listed gold mining stocks have strongly outperformed the underlying precious metals, the mining sector and the market: as shown in Figure 1: over the two trading sessions since the Brexit vote announcement, the gold miners are up between 1 and 3 per cent. Figure 1: Huge step up in gold miners in two post-brexit trading sessions Acacia Fresnillo Nordgold Polymetal Randgold Source: Deutsche Bank; DataStream Preferred UK gold exposures: Acacia, Nordgold In this note we assess what the UK-listed gold miners we cover are pricing in and how they stack up on valuation metrics using spot. We find that one-yearforward EV/EBITDA multiples for Nordgold, Polymetal and Acacia are attractive at sub-1x, and FCF yields for those stocks are also strong between 7% (Acacia) and 23% (Nordgold). Figure 2: Summary of P/NPV, P/E ratio, EV/EBITDA and FCF yield using spot US$ gold price Rank Company P/NPV Company P/E Company EV/EBITDA Company FCF yield 1 NORD.5 NORD 6.2 NORD 2.4 NORD ACAA 1.3 POLYP 1.5 POLYP 4.2 POLYP POLYP 1.5 ACAA 12.6 ACAA 4.5 ACAA 7. 4 RRS 1.5 RRS 29.7 FRES 12.5 FRES FRES 2.2 FRES 4.5 RRS 14.3 RRS 2.3 Group simple average Source: Deutsche Bank Deutsche Bank AG/London Page 3

4 Jun-216 Sep-216 Dec-216 Mar-217 Jun-217 Sep-217 Dec-217 Mar-218 Jun-218 Sep-218 Dec-218 Mar-219 Jun-219 Sep-219 Dec-219 Mar-22 Jun-22 Sep-22 Dec-22 Mar-221 Jun-221 Sep-221 Dec June 216 and the UK-listed gold miners Implied gold price and gold price sensitivities Across our coverage list, UK-listed gold equities are pricing in an average gold price of US$1,65/oz, a 25% premium to the current spot price. We believe the market is justifying the current premium due the heightened state of investor risk aversion and the US$ gold forward curve remaining in contango (see Figure 5). As shown in Figure 3, Nordgold has the lowest implied gold price at US$1,65/oz while Fresnillo appears the most expensive, pricing in US$2,2/oz gold price into perpetuity. If we flex 217e EPS and NPV by moving gold a further 1% up from spot levels, we find that Nordgold and Acacia have the greatest sensitivity (see Figure 4). Figure 3: Implied US$ gold price from last closing price Figure 4: NPV/EPS sensitivity to +1% move in US$ gold Current gold price: US$1,325/oz % 4% 3% 2% 1% 1.5%.8% 2.9% 1.1% 2.2% 2.3% 3.3% 3.3% 4.% 2.8% 5 % FRES RRS POLYP ACAA NORD NORD ACAA POLYP RRS FRES % chg in EPS for 1% change in gold % chg in NPV for 1% change in gold Source: Deutsche Bank, IRESS Source: Deutsche Bank Forward curve: gold is in contango The gold forward curve remains in contango, with expectations that gold will finish the year at US$1,337/oz and reach US$1,4/oz by 221. Figure 5: The gold forward curve has stepped up over the last month 1,4 1,35 1,3 1,25 1,2 forward curve (24 June 216) forward curve (1 week ago) Source: Bloomberg Finance LP forward curve (1 month ago) Page 4 Deutsche Bank AG/London

5 28 June 216 and the UK-listed gold miners Growth, not dividends As shown in Figure 6, despite an 11% weakening in the GBP/USD rate since the Brexit announcement, the performance of the UK-listed gold stocks has actually resulted in a reduction in this year s average dividend yield for the peer group from 1.% to.9%: Figure 6: Sector average yield has gone down despite GBP weakness as shares have ramped Pre-Brexit Post-Brexit 216e DPS Share price 216e 216e DPS Share price 216e GBP/USD USD GBP GBP Yield GBP/USD USD GBP GBP Yield ACAA % % FRES % % POLYP % % RRS % % Average 1.%.9% Source: Deutsche Bank If spot gold and silver hold, the average uplift to our free cash flow forecasts for 217 should be 45% all else equal: Figure 7: Significant uplift to FCF using spot compared with DBe Company FCF DBe FCF Spot US$m chg % chg 217 DBe Dividend Acacia % 17. Fresnillo % 95.2 Nordgold % 33.5 Polymetal % 11.2 Randgold % 9.5 Source: Deutsche Bank The largest increase would be at Randgold, with an uplift of 1.2x times the current US$9m dividend. However, the gold miners have never really been bought for yield. Instead, we expect excess FCF to be used for growth, not dividends, in the case of all the stocks except Polymetal, which may pay out special dividends as it has done in the past. Increasing our Target Prices to reflect our constructive view of gold and the move in GBP/USD We now apply a 2% premium our June-217 NPVs for each stock, up from 1%, to reflect our more constructive view of gold. We also apply the lower GBP/USD rate (spot at 1.32) when deriving our target prices for the GBPquoted stocks (all except Nordgold). On this basis our new target prices are as follows: Acacia Mining, Buy, TP 4.7 ( 3.4) Fresnillo, Sell, TP 9.7 ( 7.9) Nordgold, Buy, TP US$4.6 (US$3.9) Polymetal, Hold, TP 7.8 ( 6.1) Randgold, Hold, TP 67. ( 55.6) Deutsche Bank AG/London Page 5

6 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar June 216 and the UK-listed gold miners Our gold view: Looking for a golden parachute The ideal economic and financial conditions for gold are: i) negative or falling real interest rate expectations, ii) rising risks and heightened sensitivity to event risk, iii) falling growth expectations, and iv) a falling US dollar. Post the Brexit vote, we think three of the four drivers have intensified, which should provide a supportive environment for gold. Furthermore, the US dollar has the weakest historical correlation. At the time of writing, US 1-year real yields had fallen to.1% and gold had jumped c.5%. When viewed on a performance momentum basis (Figure 8), it seems that gold has led US real yields since the beginning of the year and may have overshot in the short term. Our economists think the BOE could cut base rates by 25bps at the August meeting, with a possibility of the quantitative easing programme being restarted. A coordinated central bank response cannot be ruled out, in our view, depending on the quantum of currency and equity market moves. All of this will make life more difficult for the Fed in raising interest rates further. Figure 8: price versus US real yields since % -.5%.5% 1.5% 2.5% US 1Y Inflation-indexed Yield (lhs, inverted) Spot (rhs, USD/oz) Dec-8 QE1 Nov-1 QE2 Sep-12 QE3 Sep-11 Operation Twist Current:.7% average:.82% 3.5% Figure 9: price move versus US real yields (6 month change) 15-4% 1-3% -2% 5-1% % -5 1% -1 2% -15 3% US 1-year TIPS yield, bps (USD/oz), %, inverse scale - RHS Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP The market implied probability of a Fed rate hike at the July meeting is already very low, and is likely to head lower, in our view. However, the probability for the September and November meetings is around 3%, and for December it is around 4%. The volatility around the June meeting was informative, in our opinion, as to the likely further behaviour in the run up to future meetings. The key takeaway for us was simply that a move in probability from 35% to zero led to a 5% upwards move in gold and silver. Page 6 Deutsche Bank AG/London

7 Jan-16 Jan-16 Jan-16 Jan-16 Jan-16 Feb-16 Feb-16 Feb-16 Feb-16 Mar-16 Mar-16 Mar-16 Mar-16 Apr-16 Apr-16 Apr-16 Apr-16 Apr-16 May-16 May-16 May-16 May-16 Jun-16 Jun-16 Jun June 216 and the UK-listed gold miners Figure 1: The probability of a Fed hike at each of the following meetings Figure 11: and silver performance in the run up to the June FOMC meeting July...September...November...December Probability of a Fed hike in June price rebased to 1 RHS (inverse scale) Silver price rebased to 1 RHS (inverse scale) Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP We think that we are entering a period where investor sensitivity to event risk will be heightened. The sharp move in gold indicates that investors were too complacent about the risk of a Brexit vote. This has dented confidence and in our view will reset the bar for gold. Simply put, investors will now likely be more willing to pay a premium for an insurance policy. We highlight the next potential catalysts for gold, including some of the political events into 217. Figure 12: Potential events that could affect gold through 216/17 Source: Deutsche Bank When we compare gold s performance versus the US equity risk premium, we see a similar divergence as with the US 1-year TIPS yield. seems to be leading the US equity risk premium, which currently implies a lower gold price. Deutsche Bank AG/London Page 7

8 28 June 216 and the UK-listed gold miners Figure 13: versus the US equity risk premium since 27 9.% Equity Risk Premium (lhs, %) 2 Spot (rhs, USD/oz) 8.% 18 Figure 14: versus the US equity risk premium since % Equity Risk Premium (lhs, %) 1,4 Spot (rhs, USD/oz) 1,35 7.% % 1,3 6.% 5.% % 1,25 1,2 1,15 4.% 3.% Current: 5.22% average: 5.33% % Current: 5.22% average: 5.33% 1,1 1,5 2.% % Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 1, Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP Page 8 Deutsche Bank AG/London

9 28 June 216 and the UK-listed gold miners UK-listed miners: valuation metrics P/NPV: Nordgold and Acacia are cheapest We present P/NPV using the spot US$ gold price of US$1,325/oz and spot US$ silver price of US$17.75/oz for our gold/silver sector coverage in Figure 15. The sector average is a 4% premium to NPV but skewed by Nordgold at a 5% discount and Fresnillo trading at 2.2x NPV: Figure 15: P/NPV using spot gold and silver NORD ACAA POLYP RRS FRES Source: Deutsche Bank P/E: Russian gold miners are cheapest On the same spot basis, Nordgold is the cheapest stock on 217e EPS multiples and Fresnillo the most expensive: Deutsche Bank AG/London Page 9

10 28 June 216 and the UK-listed gold miners Figure 16: 216e P/E using spot Figure 17: 217e P/E using spot NORD POLYP ACAA RRS FRES - NORD POLYP ACAA RRS FRES Source: Deutsche Bank Source: Deutsche Bank EV/EBITDA: Russian gold miners and Acacia are cheapest On an EV/EBITDA basis, again looking at 217e on spot, the Russians are the cheapest and Acacia Mining is also relatively attractive on 4.5x 217e EBITDA: Figure 18: 216e EV/EBITDA using spot Figure 19: 217e EV/EBITDA using spot NORD ACAA POLYP FRES RRS - NORD POLYP ACAA RRS FRES Source: Deutsche Bank Source: Deutsche Bank FCF yield: Nordgold, Polymetal, Acacia most attractive For FCF yields at spot, Nordgold and Polymetal are the clear leaders in 217e, as shown in the following figures. Acacia also stands out with a 7% yield. Both Fresnillo and Randgold are lagging. Page 1 Deutsche Bank AG/London

11 28 June 216 and the UK-listed gold miners Figure 2: 216e FCF yield using spot Figure 21: 217e FCF yield using spot POLYP ACAA RRS NORD FRES - NORD POLYP ACAA FRES RRS Source: Deutsche Bank Source: Deutsche Bank Deutsche Bank AG/London Page 11

12 28 June 216 and the UK-listed gold miners Model updated:27 June 216 Running the numbers Europe United Kingdom Acacia Mining plc Reuters: ACAA.L Buy Bloomberg: ACA LN Price (27 Jun 16) GBP 44. Target Price GBP Week range GBP Market Cap (m) GBPm 1,84 Company Profile USDm 2,373 Acacia Mining is a gold exploration and mining company with three operating mines in Tanzania, producing c.8 koz of gold p.a. The company was spun out of parent company Barrick, which is the world's largest gold producer. Acacia aims to grow production to over 1Moz of gold p.a. through a series of brownfield expansions at its existing mines, potential Greenfield projects in Burkina Faso and Kenya, plus potential M&A. Price Performance Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Margin Trends Acacia Mining plc FTSE 1 INDEX (Rebased) E 17E 18E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 17E 18E Sales growth (LHS) ROE (RHS) E 17E 18E Fiscal year end 31-Dec E 217E 218E Financial Summary DB EPS (USD) Reported EPS (USD) DPS (USD) BVPS (USD) Weighted average shares (m) Average market cap (USDm) 1,189 1,573 1,575 2,373 2,373 2,373 Enterprise value (USDm) 1,53 1,426 1,469 2,186 2,56 1,927 Valuation Metrics P/E (DB) (x) nm P/E (Reported) (x) nm 17.5 nm P/BV (x) FCF Yield (%) nm 2. nm Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) nm 11.5 nm Income Statement (USDm) Sales revenue Gross profit EBITDA Depreciation Amortisation 1, EBIT Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before tax Income tax expense Minorities -17 Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (USDm) Cash flow from operations Net Capex Free cash flow Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other investing/financing cash flows Net cash flow Change in working capital Balance Sheet (USDm) Cash and other liquid assets Tangible fixed assets 1,281 1,425 1,391 1,445 1,528 1,556 Goodwill/intangible assets Associates/investments Other assets Total assets 2,432 2,583 2,33 2,45 2,588 2,67 Interest bearing debt Other liabilities Total liabilities Shareholders' equity 1,922 1,997 1,787 1,993 2,199 2,342 Minorities 5 5 Total shareholders' equity 1,927 2,2 1,787 1,993 2,199 2,342 Net debt Key Company Metrics Sales growth (%) DB EPS growth (%) na na EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) nm 19.2 nm ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) nm 14.2 nm Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Anna anna.mulholland@db.com Page 12 Deutsche Bank AG/London

13 28 June 216 and the UK-listed gold miners Figure 22: Acacia Operational and Financial summary data ACACIA MINING OPERATIONAL AND FINANCIAL SUMMARY DATA FX/COMMODITY ASSUMPTIONS CY1 CY11 CY12 CY13 CY14 CY15 CY16F CY17F CY18F CY19F CY2F Total NPV US$m US$ps ps Silver Bulyanhulu Buzwagi Copper North Mara Zinc Nyanzaga Lead en Ridge Tanzanian Shilling Investments.. UK/USD Total Operational Corporate / unallocated KEY FINANCIAL METRICS Net (Debt)/Cash Underlying earnings (US$m) Total Cash Generated for Operations (US$m) Capex (incl. expl) and divestments (US$m) Derivation of TP US$m US$ps ps Dividend (US$m) Bulyanhulu Acquisitions (US$m) Buzwagi Net Cash Flow (US$m) North Mara Net Debt / (Cash ) - US$m Nyanzaga Gearing (ND/E - %) -16% -21% -14% -7% -8% -6% -9% -14% -19% -21% -25% Total NPV ROE (%) 9% 1% 3% -41% 4% -11% 6% 7% 6% 6% 8% Corporate / unallocated ROA (%) 8% 9% 2% -33% 3% -8% 5% 6% 5% 5% 7% Net (Debt)/Cash Underlying EPS (USc) Total equity value EPS Change (%) 26% -51% -21% -15% -18% -1663% 3% % 3% 31% NPV discount 1.2 EPS CAGR since FY12 (%) -21% -18% -138% -5% 1% 1% 2% 5% Target price 4.7 DPS (USc) Payout ratio (%) 1% 24% 5% 12% 19% -243% 15% 23% 39% 42% 47% Valuation (FY16) PRODUCTION Bulyanhulu North Mara Buzwagi Total gold (koz) Silver (koz) Copper (kt) Copper Equivalent production (kt) Equivalent production (koz) production CAGR (%) 2% 7% 5% 5% 3% 1% % % Nyanzaga 8% en Ridge 1% Bulyanhulu 25% Buzwagi -6% Revenue (US$m) Bulyanhulu North Mara North Mara % Buzwagi Tulawaka Byproducts Total Revenue split (FY15) EBITDA (US$m) Bulyanhulu North Mara Buzwagi Tulawaka Nyanzaga Group underlying total Buzwagi 39% Bulyanhulu 37% EBITDA margin (%) Bulyanhulu 57% 62% 49% 24% 24% 19% 39% 47% 52% 55% 56% North Mara 62% 49% 38% -38% 45% 4% 51% 54% 54% 52% 53% Buzwagi 45% 57% 3% -245% 27% 1% 14% 17% -24% Total 43% 45% 28% 27% 26% 2% 32% 39% 4% 42% 49% Cash costs (US$/oz) Bulyanhulu North Mara EBITDA split (FY15) Buzwagi Total North Mara 24% AISC (US$/oz) Bulyanhulu 1,245 1,348 1,266 1,251 1, North Mara 1,693 1, Buzwagi 1,798 1,461 1,55 1,187 1,93 1,142 1,928 Total 1,585 1,362 1,15 1, CAPEX Bulyanhulu North Mara Buzwagi Tulawaka Nyanzaga 5 1 Others Total Buzwagi 69% Bulyanhulu 3% North Mara 1% Source: Company data, DB estimates Source: Deutsche Bank, Company data Deutsche Bank AG/London Page 13

14 28 June 216 and the UK-listed gold miners Acacia: Investment Thesis Outlook Acacia's management has delivered a significant turnaround in productivity and cost control at its three gold mines in Tanzania over the past two years. The key to a sustained reduction in production costs and therefore improving cash margins is continued improvement at the flagship mine Bulyanhulu. Here Acacia aims to mine at reserve grade, driving down costs along with continued productivity gains. We are conservative in our Bulyanhulu forecasts and do not assume that the mine reaches its targeted steady state output of 35koz per year. Even on this more cautious basis, we expect Acacia's All-In Sustaining Costs to move steadily down towards US$9/oz in the medium term, offering positive operational leverage in the supportive gold price environment we expect. In addition, Acacia's robust balance sheet provides it with flexibility to manage periods of a more muted gold price performance. Buy. Valuation Our 12-month price target is based on 1.2x our 216e NAV. Our NAV is based on life of mine discounted cash flows, with a WACC of 5% and a long-run real gold price assumption of US$1,3/oz. Our WACC of 5% is based on a risk free rate of 4%, a market risk premium of 6%, a beta of.3x and a 3% target gearing. We apply the 2% premium to our NPV to derive our target price - this reflects the ranking we assign to Acacia within our coverage universe and our view that gold miners deserve a premium to non-precious metals mining stocks given our constructive view of gold on a 12 month view Risks Key downside risks include lower than expected gold prices, higher than expected costs and volatility in the Tanzanian Shilling. The failure to deliver cost and capex cuts as planned, plus the failure to improve grades especially at its Bulyanhulu mine, are two key downside risks. There is a risk of an overhang in the shares from any further sell-down by Barrick 's 64% majority stake in Acacia Mining. Page 14 Deutsche Bank AG/London

15 28 June 216 and the UK-listed gold miners Model updated:27 June 216 Running the numbers Europe United Kingdom Fresnillo Reuters: FRES.L Sell Bloomberg: FRES LN Price (27 Jun 16) GBP 1,483. Target Price GBP Week range GBP ,483. Market Cap (m) GBPm 1,928 Company Profile USDm 14,369 Fresnillo is the world's largest primary silver producer and a significant gold producer. All its operations are currently based in the highly prospective gold and silver belts of Mexico. The group currently has five operating mines, two advanced stage development and four medium-term growth projects, as well as significant land holdings in Mexico. Fresnillo's goal is to double production silver and gold by 218, equating to 65Moz of silver and over 4koz of gold. Price Performance Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Margin Trends Fresnillo FTSE 1 INDEX (Rebased) E 17E 18E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 17E 18E Sales growth (LHS) ROE (RHS) E 17E 18E Fiscal year end 31-Dec E 217E 218E Financial Summary DB EPS (USD) Reported EPS (USD) DPS (USD) BVPS (USD) Weighted average shares (m) Average market cap (USDm) 13,455 1,122 8,59 14,369 14,369 14,369 Enterprise value (USDm) 13,2 1,312 8,48 14,41 14,234 13,978 Valuation Metrics P/E (DB) (x) P/E (Reported) (x) P/BV (x) FCF Yield (%) nm nm Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (USDm) Sales revenue 1,615 1,413 1,444 1,594 1,741 1,865 Gross profit 1, ,95 1,179 EBITDA , Depreciation Amortisation EBIT Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before tax Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (USDm) Cash flow from operations Net Capex Free cash flow Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings 83 Other investing/financing cash flows Net cash flow 638-1, Change in working capital Balance Sheet (USDm) Cash and other liquid assets 1, Tangible fixed assets 1,838 1,969 2,139 2,323 2,34 2,24 Goodwill/intangible assets Associates/investments Other assets 558 1, Total assets 4,84 3,742 3,858 3,796 3,993 4,166 Interest bearing debt Other liabilities Total liabilities 1,412 1,44 1,483 1,479 1,474 1,477 Shareholders' equity 2,273 2,275 2,344 2,286 2,489 2,658 Minorities Total shareholders' equity 2,672 2,32 2,374 2,316 2,519 2,688 Net debt Key Company Metrics Sales growth (%) DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) nm Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Anna anna.mulholland@db.com Deutsche Bank AG/London Page 15

16 28 June 216 and the UK-listed gold miners Figure 23: Fresnillo Operational and Financial summary data FRESNILLO OPERATIONAL AND FINANCIAL SUMMARY DATA FX/COMMODITY ASSUMPTIONS CY12 CY13 CY14 CY15 CY16F CY17F CY18F CY19F CY2F NPV (FY16) US$m US$ps ps Silver Fresnillo Saucito Copper Ciénega Zinc Herradura Lead Soledad & Dipolos Mexican Pesos Nochebuena UK / US$ San Julian Silverstream KEY FINANCIAL METRICS Exploration & developm Profit After Tax (US$M) Investments Cash Generated for Operations (US$M) Total operational valu Capex (incl. expl) and divestments (US$M) Corporate / unallocated Dividend (US$M) Net (Debt)/Cash Other investment inflow / (outflow) Total Net Cash Flow (US$M) Net Debt / (Cash ) - US$M Valuation (FY16) Gearing (ND/E - %) -24% -16% 28% 18% 18% 9% -3% -13% -24% Investments ROE (%) 36% 1% 5% 3% 7% 11% 12% 1% 11% 1% ROA (%) 26% 6% 3% 2% 4% 7% 7% 7% 7% Exploration & EPS (USD) development Fresnillo 2% EPS Change (%) -17% -58% -81% -5% 22% 67% 16% -5% 13% portfolio 34% EPS CAGR since FY12 (%) -58% -71% -57% -31% -17% -12% -11% -9% DPS (USc) Saucito Payout ratio (%) 64% 89% 18% 78% 5% 5% 5% 5% 5% 24% Nochebuena Silverstream % San PRODUCTION 3% Julian 1% Attributable production Ciénega Silver 36,939 38,796 4,13 43,24 47,731 58,771 64,72 64,467 64,442 Soledad Dipolos & Herradura 5% Silverstream 4,35 3,946 4,65 3,955 4,121 3,931 3,931 3,931 3,931 1% 2% Total silver 4,974 42,742 44,753 46,979 51,852 62,73 68,652 68,398 68,374 Total gold Zinc Lead Consolidated production Silver 37,76 38,963 4,353 43,24 47,731 58,771 64,72 64,467 64, Zinc Lead Copper Equivalent production Equivalent production 1,259 1,29 1,228 1,474 1,568 1,684 1,784 1,56 1,53 Equivalent CAGR (%) -4% -1% 5% 6% 6% 6% 3% 2% Revenue 2,157 1,615 1,413 1,444 1,594 1,741 1,865 1,682 1,696 EBITDA split (FY15) EBITDA Nochebuena San Silverstream Fresnillo % Julian 4% Saucito % Ciénega Soledad & Dipolos Fresnillo 16% Herradura % Soledad & Dipolos Nochebuena San Julian Herradura 32% Silverstream Total 1,755 1, ,129 1,243 1,135 1,199 EBITDA margin 81.3% 68.% 64.5% 61.8% 58.5% 64.8% 66.7% 67.5% 7.7% Ciénega 7% Unit costs Fresnillo (per Ag oz) Saucito (per Ag oz) Ciénega (per Au oz) Herradura (per Au oz) Soledad & Dipolos (per Au oz) Nochebuena (per Au oz) San Julian (per Ag oz) Saucito 35% CAPEX Sustaining capex: Fresnillo Saucito Ciénega Herradura Soledad & Dipolos Nochebuena San Julian Total Project capex: Fresnillo optimisation/ Pyrites plant Saucito Ciénega Herradura Soledad & Dipolos San Julian Other unapproved projects Total Total group capex Guidance including unapproved projects Source: Company data, DB estimates Source: Deutsche Bank, Company data Page 16 Deutsche Bank AG/London

17 28 June 216 and the UK-listed gold miners Fresnillo: Investment Thesis Outlook We believe Fresnillo is in a good position to successively grow volumes through the addition of three new mines and a series of brownfield expansions over the next four to five years. Growth in the next two years is more muted, however, as grades decrease at four of its five mines. In addition, Fresnillo shares are up strongly year to date, boosted by a combination of the gold price rally, some silver price gains, and an oil and FX tailwind for costs and cash flow. We find the shares relatively expensive and believe there are better value opportunities elsewhere in our gold mining coverage. With 2% downside to our target price, our recommendation is Sell. Valuation Our price target is set at a 2% premium to our NPV valuation, in line with the other gold miners under our coverage. This reflects the ranking we assign to Fresnillo within our coverage universe and our view that gold miners deserve a premium to non-precious metals mining stocks given our constructive view of gold on a 12 month view. Our NPV is based on life-of-mine cash flows, using a long-term gold price of US$1,3/oz and a silver price of US$2/oz. The WACC of 6.4% is based on a risk-free rate of 4%, a market risk premium of 6%, a Beta of.4, and % gearing. Risks A key upside risk is higher than expected silver and gold prices. A sustained weakening of the Mexican Peso is also an upside risk. The company has an excellent exploration track record and could surprise on the upside by discovering significant resources of silver and gold, leading to an upgrade in future production expectations or improving grades at the large Fresnillo mine. The company has an extensive project pipeline over the medium term - there is an upside risk to our target price if this is brought to production quicker than we forecast. On a 12 month time frame, outperformance of silver versus gold is an upside risk. Deutsche Bank AG/London Page 17

18 28 June 216 and the UK-listed gold miners Model updated:27 June 216 Running the numbers Emerging Europe Russia Metals & Mining Nordgold Reuters: NORDNq.L Buy Bloomberg: NORD LI Price (27 Jun 16) USD 3.35 Target Price USD Week range USD Market Cap (m) EURm 1,148 Company Profile USDm 1,26 Nordgold is a gold mining and exploration company with eight operating mines in Russia, Kazakhstan, Burkina Faso and Guinea. The company is a former subsidiary of Severstal Group, spun off in January 212, when a portion of Nordgold's share capital was listed in the form of Global Depositary Receipts. Price Performance Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Nordgold Margin Trends Russian RTS Index (Rebased) E 17E 18E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 17E 18E Sales growth (LHS) ROE (RHS) E 17E 18E Fiscal year end 31-Dec E 217E 218E Financial Summary DB EPS (USD) Reported EPS (USD) DPS (USD) BVPS (USD) Weighted average shares (m) Average market cap (USDm) ,15 1,26 1,26 1,26 Enterprise value (USDm) 1,756 1,238 1,69 1,92 1,755 1,55 Valuation Metrics P/E (DB) (x) nm P/E (Reported) (x) nm P/BV (x) FCF Yield (%) nm Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (USDm) Sales revenue 1,271 1,216 1,129 1,149 1,32 1,389 Gross profit EBITDA Depreciation Amortisation EBIT Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before tax Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (USDm) Cash flow from operations Net Capex Free cash flow Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other investing/financing cash flows Net cash flow Change in working capital Balance Sheet (USDm) Cash and other liquid assets Tangible fixed assets Goodwill/intangible assets Associates/investments Other assets Total assets 2,632 2,242 2,126 2,261 2,518 2,756 Interest bearing debt ,5 1,5 Other liabilities Total liabilities 1,381 1,245 1,228 1,227 1,35 1,315 Shareholders' equity 1, ,98 1,293 Minorities Total shareholders' equity 1, ,34 1,213 1,441 Net debt Key Company Metrics Sales growth (%) nm DB EPS growth (%) na na EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) nm ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Anna anna.mulholland@db.com Page 18 Deutsche Bank AG/London

19 28 June 216 and the UK-listed gold miners Figure 24: Nordgold Operational and Financial summary data NORDGOLD N.V. OPERATIONAL AND FINANCIAL SUMMARY DATA FX/Commodities Assumptions FY12A FY13A FY14A FY15A FY16F FY17F FY18F FY19F FY2F NPV (End FY16) US$mn US$ps (US$/Oz) 1,671 1,413 1,267 1,161 1,195 1,231 1,275 1,317 1,359 Bissa Silver (US$/Oz) Taparko Lefa KEY FINANCIAL METRICS Buryatzoloto Underlying earnings (US$M) Berezitovy 21.6 Cash Flow from Operations(US$M) Neryungri Capex and divestments (US$M) Aprelkovo 7.2 Dividend (US$M) Suzdal Free Cash Flow (US$M) Bouly Net Debt (US$M) Operating asset value 3, Gearing (ND/E %) 4% 58% 63% 65% 63% 38% 15% -5% -18% EPS (USc) Development and Exploration EPS Change (%) -1176% -145% 81% -43% 45% 27% 36% -2% Total asset value 3, EPS CAGR (% from 212) -1176% 119% 16% 49% 48% 45% 43% 37% DPS (USc) Payout ratio (%) 225% -14% 4% 33% 33% 33% 33% 33% 33% Minority Interest Net (debt)/cash equivalent production (koz) Total equity value 2, Bissa na Taparko Target price 4.6 Lefa Current price, USD 3.35 Buryatzoloto % upside/downside 37.3% Berezitovy Neryungri (including Gross) Valuation split (end FY16) Aprelkovo Suzdal Bouly Total Development Suzdal and Aprelkovo8% Exploration % 5% Bissa 25% Revenue (US$m) Bissa Taparko Lefa Buryatzoloto Berezitovy Neryungri (including gross) Aprelkovo Suzdal Bouly Total 1,198 1,272 1,216 1,129 1,149 1,32 1,389 1,499 1,553 Cash costs (US$/oz) Bissa na Taparko Lefa 1,18 1, Buryatzoloto Berezitovy Neryungri Aprelkovo 863 1,2 1, Suzdal Bouly Total Group Cash cost (US$/oz) Neryungri 21% Berezitovy 1% Buryatzoloto -1% Production split (FY15) Suzdal Aprelkovo 8% 2% Neryungri (including Gross) 9% Berezitovy 13% Buryatzoloto 12% Taparko 4% Lefa 24% Bissa 25% Taparko 9% Lefa 22% Total Group AISC (US$/oz) 1,174 1, Capex (US$m) Bissa Taparko Lefa Buryatzoloto Berezitovy Neryungri (including Gross) Aprelkovo Suzdal Bouly Others Total o/w sustaining o/w growth Source: Deutsche Bank estimates, Company data Capex split (FY15) Others 2% Bissa 8% Taparko Bouly 13% 33% Lefa 19% Neryungri (including Suzdal Aprelkovo Gross) Berezitovy Buryatzoloto 5% 1% 3% 9% 7% Source: Deutsche Bank, Company data Deutsche Bank AG/London Page 19

20 28 June 216 and the UK-listed gold miners Nordgold: Investment Thesis Outlook Nordgold has a diversified portfolio of eight gold mines in West Africa, Russia and Kazakhstan, and two projects in execution. We think the company will grow production beyond 1moz per annum, with the new Bouly mine commencing production in the second half of 216. We believe Nordgold offers a resilient business model with a healthy growth pipeline. We expect the group to benefit from a stronger gold price, weaker operating currencies and cost efficiencies in the next 12 months. The shares are valued at.5x P/NPV on our estimates compared with an average of 1x for the peer group. Buy. Valuation We value Nordgold using a sum-of-the-parts of life of mine DCF models. We apply an NPV multiple of.7x to reflect the ranking we assign to Nordgold within our coverage universe. Our rankings are derived from debt reduction, P/E valuation, near-term earnings growth, and management action taken to control cash flow. We value the group's longer-dated growth options at US$134m or US$.36/GDR. We use a WACC of 8.36% and a long-term (real) gold price of US$1,3/oz. Risks Key downside risks include lower-than-expected gold prices, higher-thanexpected costs and a stronger-than-expected Rouble, Tenge, Guinean franc and West African franc. Operational risks are concentrated around management's ability to deliver on development projects and to sustain cost reduction programs. Further risks include changes in fiscal regime and/or mining legislations. The planned seeking of a premium listing in London requires a minimum freefloat of 25% - Nordgold has indicated it may issue some new shares to meet this requirement thus there is a risk of dilution to existing shareholders. Page 2 Deutsche Bank AG/London

21 28 June 216 and the UK-listed gold miners Model updated:27 June 216 Running the numbers Emerging Europe Russia Metals & Mining Polymetal Reuters: POLYP.L Hold Bloomberg: POLY LN Price (27 Jun 16) GBP 968. Target Price GBP Week range GBP Market Cap (m) GBPm 4,112 Company Profile USDm 5,47 Polymetal International is the holding company of Polymetal, a leading Russian gold and silver miner. In 21, Polymetal was the fourth largest gold producer in Russia by production volume and its largest silver producer, ranked eighth worldwide Polymetal produced 81koz of gold equivalent in 211 at six operating assets and targets a 73% organic growth in gold equivalent output by 214. Price Performance Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Margin Trends Polymetal Russian RTS Index (Rebased) E 17E 18E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 17E 18E Sales growth (LHS) ROE (RHS) E 17E 18E Fiscal year end 31-Dec E 217E 218E Financial Summary DB EPS (USD) Reported EPS (USD) DPS (USD) BVPS (USD) Weighted average shares (m) Average market cap (USDm) 4,42 3,645 3,512 5,47 5,47 5,47 Enterprise value (USDm) 5,427 4,796 4,795 6,698 5,958 5,749 Valuation Metrics P/E (DB) (x) 37.8 nm P/E (Reported) (x) nm nm P/BV (x) FCF Yield (%) Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (USDm) Sales revenue 1,77 1,69 1,441 1,585 1,736 1,941 Gross profit ,63 1,214 EBITDA Depreciation Amortisation 76 EBIT Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before tax Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (USDm) Cash flow from operations Net Capex Free cash flow Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other investing/financing cash flows Net cash flow Change in working capital Balance Sheet (USDm) Cash and other liquid assets Tangible fixed assets 2,95 2,21 1,36 1,42 1,451 1,372 Goodwill/intangible assets Associates/investments Other assets 1, Total assets 3,255 2,997 2,81 2,48 2,816 3,138 Interest bearing debt 1,111 1,323 1,35 1,38 1,38 1,35 Other liabilities Total liabilities 1,467 2,128 1,595 1,752 1,761 1,751 Shareholders' equity 1, ,47 1,379 Minorities 137 Total shareholders' equity 1, ,47 1,379 Net debt 1,46 1,165 1,298 1, Key Company Metrics Sales growth (%) DB EPS growth (%) na na EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) nm nm ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Anna anna.mulholland@db.com Deutsche Bank AG/London Page 21