AIM CHAOS. Ferrum Crescent Ltd Valuation Analysis. tertiary listing on South Africa s JSE. The Company s two key projects are the:

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1 Ferrum Crescent Ltd Valuation Analysis The prices of both zinc and iron ore have hit multi-year highs in the past month, as global capacity cuts for both metals come in tandem with improving economic data worldwide and the promise of a vast infrastructure spending programme by the Trump regime. Despite this, zinc and iron ore explorer-developer Ferrum Crescent has endured a share price decline of almost 40% over the past three months. We now feel that the stock is presently substantially undervalued, especially with regard to the Company s new zinc assets. We present our valuation analysis in this note. Overview Ferrum Crescent Ltd FCR or the Company is a metals project developer with interests in South Africa (iron ore) and Spain (zinc and lead). The Company was founded in 2001; listed on the ASX in 2005; and attained an additional listing via its AIM IPO in December 2010, during which it raised 10m gross at a post-new money valuation of 29.9m. In 2011 FCR attained a tertiary listing on South Africa s JSE. The Company s two key projects are the: i) Moonlight Iron Ore Project A 308 Mt magnetite deposit located in Limpopo province in the North of South Africa ii) Toral and Lago Lead-Zinc Projects Two lead-zinc projects located circa 50 km apart from one another in northern Spain Last year, the Company underwent extensive restructuring both on a corporate and operational level. Corporate-wise, there were a number of Board reshuffles, the most notable being the appointment of a new executive chairman, Justin Tooth. The new management team catalysed a transformation in the Company s operations: after extensive due diligence and negotiations, FCR acquired 100% of the two lead-zinc projects in Spain. This move diversified the Company s asset base both commodity-wise and geography-wise. As 2016 drew to a close, the acquisition (which was completed in September but for which the acquisition option was signed in February) appeared all the more astute a move by management, with the price of zinc increasing by circa 50%, from around $1,750/t as at beginning 2016 to over $2,600/t by year end. From November to February this year, exploration work in Spain was carried out. Results to date have been highly encouraging, and two drilling programmes are planned for later this year. It is thus inexplicable that FCR s share price has declined by almost 40% over the past three months. In this note we carry out some basic valuation analysis on the Company s projects so as to arrive at a fair value for FCR in its present standing. Page 1 of 11

2 Toral and Lago In February last year, the Company signed an option agreement to acquire 100% of GoldQuest Iberica S.L. for 0.33m in cash and 100m new ordinary shares in FCR. GoldQuest owns 100% of two lead-zinc exploration projects in the adjacent provinces of Leόn and Galicia, Northern Spain. In September, the Company exercised the option to acquire the projects. The more advanced of the two, namely Toral in Leόn, comes with significant amounts of historical geological and exploration data, and it is this project that we focus on in our valuation analysis. Toral was drilled extensively by various previous owners over the past four decades circa 42 km of drilling has been carried out on site to date, which would usually be considered more than sufficient for a bankable feasibility study. Indeed, in 2011 a NI Report was published by a former owner of Toral (and reissued in 2012). [A NI Report, which is a national instrument for the Standards of Disclosure for Mineral Projects used by mining companies listed in Canada, is roughly the equivalent to Australia s JORC Code, although considered more stringent.] The NI Report delineated the following mineral resource at Toral: Exhibit 1: NI Report for Toral Indicated Mt Pb (%) Zn (%) Cu (%) Ag (g/t) (Pb + Zn) (%) Inferred Mt Pb (%) Zn (%) Cu (%) Ag (g/t) (Pb + Zn) (%) Indicated Pb (t) Zn (t) Cu (t) Ag (t) (Pb + Zn) (t) Inferred Pb (t) Zn t) Cu (t) Ag (t) (Pb + Zn) (t) 214, ,562 4, , , ,348 6, ,664 Source: Company data The total resource (indicate and inferred) amounts to 8.71 Mt. At today s metal prices, we calculate a zinc equivalent Zn Eq. grade for this total resource of.7%. FCR has developed a hypothesis concerning Toral: in short, management believes that previous exploration was not performed in the most efficient manner, and that resultantly formers owners failed to identify the likely near-surface substantial mineralisation. [The NI Report concerns a resource that is at depth of 300m to 600m.] The exploration programme that commenced in November last year with a small, highly targeted drilling programme to take place over the next three months (up to 1,800m) is for the purpose of delineating an initial resource in this potential nearer surface ore-body (to 300m depth). Although the proving of this hypothesis will be the key value driver for FCR over the next one to two years, we are utilising the existing NI Report for the deep resource in order to demonstrate the substantial discount that the Company is already valued at, relative to its peer group. In Exhibit 2 overleaf, we have compiled a list of primary zinc plays listed in Australia, Canada and the UK in order to understand how investors across the globe are generally valuing zinc pure plays. Page 2 of 11

3 Exhibit 2: primary lead-zinc public comparables Company Project Location Listing Stage Trevali Mining Corp Santander; Caribou Peru, Canada Zinc Equivalent Resource Zn Eq. (%) Tonnage (Mt) Zn Eq. 000t Company EV (US$m) Ownership of project EV/t Zn Eq. (US$/t) TSE In production % 4, % Griffin Mining Caijiaying China AIM In production % 2, % Heron Resources Woodlawn Australia ASX BFS complete % 1, % Ironbark Zinc Citronen Greenland ASX BFS complete % 4, % 8.66 Aldridge Minerals Yenipazar Turkey CVE BFS complete % 1, % Red River Resources Thalanga Australia ASX PFS complete % % Energia Minerals Gorno Italy ASX PFS complete % % Canadian Zinc Corp Prairie Creek Canada TSE PFS complete % 3, % Rathdowney Resources Olza Poland CVE PFS complete % 1, % Minco Lundberg Canada AIM SS complete % % 7.38 Xtierra Bilbao Mexico CVE SS complete % % 9.88 Anglesey Mining Parys Mountain Wales AIM SS underway % % Peer group mean 7.96% Peer group median 6.21% Ferrum Crescent Toral Spain AIM Source: AIM Chaos, using various company data and reports Resource delineation % % 4.38

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5 It is important to note that the in-situ resource valuation methodology is only a basic technique: its major flaw is of course that is does not take into account the cost of mining and refining the resource, and thus the economic viability of the deposit is not considered or validated. Nevertheless, given the limited information that we have to hand on Toral, it is necessary to employ the methodology for now. As Exhibit 2 highlights, FCR is trading at a substantial discount to the wider peer group: the market is valuing each Zn Eq. tonne of Toral s resource base at US$4.38/t, whilst the mean valuation of the per group is US$41.22/t. The Company should indeed be trading at a discounted valuation relative to the peer group, in light of all the constituents of the group being at more advanced stages of project development than FCR is with Toral. Nevertheless, we feel that the current discount of 89.4% to the peer group average is unjustified. We believe that for now, a 75% discount to the peer group average would be fair. This should be considered more than sufficient to account for both the higher exploration risk and the higher financing risk that FCR is subject to regarding Toral. Exhibit 3: fair value calculations for Toral Peer group mean (EV/t Zn Eq. (US$/t)) FCR, current valuation (EV/t Zn Eq. (US$/t)) 7.47 Current discount to peer group mean 89.4% Targeted discount to peer group mean 75.0% Targeted valuation (EV/t Zn Eq. (US$/t)) Targeted enterprise value ($m) 9.65 Targeted value per share (p) Source: AIM Chaos We attribute a value of 0.365p per share to the already-defined resource base at Toral. Page 5 of 11

6 Moonlight Moonlight has a resource base of 308 Mt (at 26.9% Fe) 52.6 Mt of which is in the Measured category (at 31.3% Fe). The resource is capable of yielding a premium quality product it beneficiates to 67-70% Fe, and contains low levels of impurities. The Company has been granted a 30-year mining right for Moonlight. It also has an offtake agreement in place with Swiss trader Duferco which stipulates that FCR will sell Duferco all of its production available for export (4.5 Mtpa) as well as granting Duferco a right of first refusal over an additional 1.5 Mtpa. Moonlight had been FCR s flagship project since the Company listed on AIM in late In that year, a scoping study on the asset was completed: it suggested pursuing the route of producing merchant pig iron at an operating capacity of 1 Mtpa. Its financial model indicated a NPV of $817m and an IRR of 20.8%, with an estimated capital cost of $770m. This intended route soon evolved into one of concentrate production: the concentrate wold subsequently be transported by a slurry concentrate pipeline to a pelletising plant. At this plant, 6 Mtpa of high grade iron ore pellets would be produced. However, from 2012 onwards, the plunge in the iron ore price created an extremely hostile environment for listed junior metals pre-producers. Despite the substantial rally in the price of iron ore over the past year, it still remains significantly below the price employed by the scoping study. Accordingly, the study remains largely obsolete. The intended development route for Moonlight for the past year or two has been to bring in a partner to finance a bankable feasibility study BFS ). The BFS would consider alternative (and crucially, cheaper) methods of extracting value from the project. But FCR has as yet been unable to find a reliable partner for Moonlight, with three financing arrangements having fallen through over the past three and a half years. All three of these deals were structured at the subsidiary level. The first two deals which offered total funds of $13.5m and $12.0m respectively to complete the BFS valued Moonlight at $38.6m and $30.8m respectively. An independent valuation of $33m completed in June 2014 supported these investment valuations. It is also worth noting that approximately $22m to $23m has been spent on developing the project over the years. Notwithstanding the failure to date of the Company to progress the development of the asset via the completion of the BFS, we believe that Moonlight still holds considerable inherent value. We have opted to negate the old scoping study (owing to outdated prices employed in the study), and instead utilise the most recent independent valuation. Given the uncertainty surrounding management s preferred route to value realisation, as well as the aforementioned multiple failures to convert on publicised plans, we have incorporated a steep discount of 80% into the independent valuation for our own valuation of Moonlight. Exhibit 4: fair value calculations for Moonlight Base case Preferred Bull case Independent valuation ($m) AIM Chaos discount 80% 80% 80% AIM Chaos valuation ($m) % attributable to FCR ($m) Shares in issue (m) 2,148 2,148 2,148 Value per share (p) Source: AIM Chaos Page 6 of 11

7 We attribute a value of 0.242p per share to the Company s 97% equity stake in the Moonlight Iron Ore Project. The cash situation As at end December 2016 (being the most recent report of cash balance), the Company had net cash of AU$1.29m ( 0.80m). We estimate that the Company s cash burn for general and administrative purposes is circa 100k pm. We assume a cost for exploratory drilling in Europe of circa US$100 per metre: therefore the upcoming Phase I drilling programme of up to 1,800m will cost FCR circa US$180k ( 146k). Accordingly, we believe that the Company will require further financing by June. Management s stated strategy for raising cash is via the conventional equity placing route. Since Tooth became Chairman of the Company in December 2015, FCR has raised cash by the issuance of new equity on four occasions. Each placing has been achieved at a higher price than the previous one, or in a less dilutive manner for existing shareholders (i.e. no warrants attached): - February 2016: 180k at 0.12p - April 2016: 650k at 0.13p, 1:1 warrants at 0.16p (a further 800k, were all exercised) - July 2016: 375k at 0.20p, 1:1 warrants at 0.30p (a further 562k, were all exercised) - December 2016: 550k at 0.20p Management appears to be protective of existing shareholders, and keen to maintain this record of raising fresh capital at increasingly higher valuations. Given Tooth s background in equity sales and corporate broking, we believe that he has the experience and nous to achieve this. Sum of the parts valuation We have calculated a valuation for Toral of $9.65m and for Moonlight of $6.40m. Based on the current number of shares in issue, these valuations equate to 0.365p per FCR share and 0.242p per FCR share respectively. The Company has no debt, and for the sake of this valuation exercise we assume that it has no surplus cash (with the current cash balance to be used on operations in the coming months). Accordingly, our present fair value for FCR is 13.0m, or 0.60p per share. This represents an upside of 287% to the current share price of 0.155p. Page 7 of 11

8 Future upside to our fair value We stress that this valuation is applicable to the Company s immediate standing, and not a target price that we believe the Company could achieve. Over the next 12 to 24 months, we see substantial upside to this valuation: - Toral We have attributed value to this asset only for its historic, delineated deep resource (approximately 300m to 600m depth). The Company s intention is to prove up a new resource base above this deep resource, from ground level to 300m depth. The exploration results to date at surface (detailed mapping, channelling sampling, soil geochemistry and resource remodelling) have proved highly encouraging, with Pb-Zn grades in line with those of the deep resource. After two planned drilling campaigns this year, the Company could be in a position to announce a maiden resource for the nearsurface deposit towards the end of Clearly, were a resource with respectable grades to be successfully delineated, any valuation for the Toral Project would be enhanced considerably. A scoping study (which would likely be carried out in 2018, provided that the drilling campaigns were successful) could add further value by pegging a professionally generated independent valuation on the new deposit. - Lago We have attributed nil value to this project in our current valuation, given that no resource has been delineated to date at Lago. However, it is important to note that between 1850 and 1990, a Spanish mining firm carried out exploration (including drilling) at the site. Relatively high grades were recorded, including 9.5m grading at 9.54% combined lead and zinc and 7.5m grading at 14.75% combined lead and zinc. The mineralised structure is estimated to be 1.3km in length and, to quote management: Mineralisation at the Lago Project may be similar to that encountered at the Toral Project with vertical, lenticular bodies (probably more than one) approximately 800m long by 300m wide. The Company s focus appears to be on proving up a resource at Toral first; but evidently management believes that there is significant potential to bulk up its resource base through exploration and delineation at Lago. Naturally these activities would further add value to the Company. - Moonlight We have found it difficult to arrive at a fair value for Moonlight, owing to the current lack of clarity regarding management s intended development path for the asset. We await definitive news on this before reviewing our valuation for the asset. Nevertheless, whilst there is clearly downside to our valuation (i.e. the plug being pulled on the asset), there is also material upside. The deposit is after all of a high quality: it has a substantial resource base; it is high grade; and it has received substantial investment over the years. Page 8 of 11

9 Rationale for current (under)valuation It is most often the case that analysts and brokers are more than happy to provide investors with valuations that suggest that a business is undervalued or overvalued. What they rarely provide is the rationale as to why the business is trading at its current valuation. We believe that this is an integral tool for the investor to better appreciate the potential upside or downside. Below, we highlight what we consider to be the key reasons as to why FCR is trading at its currently suppressed valuation, and in tandem provide what we feel are mitigating factors to each of these reasons. - Disillusioned long-term shareholders focussed on Moonlight as flagship asset Within only a few months of its IPO priced at p in December, FCR s share price hit a high of almost 19p. However, over the subsequent five years until end 2015, the share price endured a continuous decline, ending the year at 0.20p a decline of 98% since IPO. Throughout this period the Company was solely focussed on developing its flagship Moonlight Iron Ore Project. Shareholders who had been holding onto stock during the iron ore slump on promises of completions of various BFSs and development pathways thus are resentful of the management team owing to its failure to deliver. In December 2015, Justin Tooth was appointed Non-Executive Charmin, and by March last year had moved into the position of Executive Chairman. The old guard that had repeatedly failed to progress Moonlight has been replaced. Tooth is responsible for bringing about a fundamental change of direction for the Company, picking up highly promising assets on the cheap in a jurisdiction that is recognised to be a much easier place for doing business in than is South Africa. It is evident that the zinc assets will now be FCR s flagship projects going forward: yet long-term shareholders have continued to slowly sell out throughout Tooth s tenure and seemingly more aggressively in 7 so far) as a definitive plan for Moonlight has failed to materialise. We consider this unwarranted and indeed nonsensical: given that the Spanish assets are the future of the Company and moreover on a relative valuation basis already far exceed FCR s current market capitalisation, existing shareholders should no longer be basing their investment decisions primarily on Moonlight. - Failure of former JV partnerships: Moonlight being valued as a liability Although it is only a small amount, the South African office and the Moonlight project are continuously consuming the Company s cash. Following the failure of three joint venture agreements to complete a BFS for Moonlight over the past three and a half years, we get the impression from talks with both existing and former shareholders that the market does not think Moonlight will ever be developed under the FCR banner. As such, Moonlight could be considered not only significantly undervalued, but in fact negatively valued. This could validly be pointed to as the reason for the excellent developments on the Spanish front not having a positive impact on FCR s share price over the past year. Our mitigating factor here is that the previous management team entered into deals with partners for the BFS that were lacking credibility. The most recent partner that failed to comply with its side of the agreement (as announced on 16 January 2017), namely Ovation Capital, had been brought on board in October 2015 before Tooth had joined the Company. From the various interviews he has given over the past year, it seems Page 9 of 11

10 evident that Tooth has been working on something- and indeed with someone-else for the development of Moonlight. The RNSs of this year are also suggestive that Ovation s failure came as no surprise to management. The formal termination with Ovation, as announced on 15 February this year, should be taken as a positive indicator, as it paves the way for the signing of new arrangements with different (and hopefully more reliable!) partners. - Comparatively small lead-zinc peer group (esp. London-listed) The exercising of the option to acquire the Toral and Lago lead-zinc projects in Spain last year, and the subsequent exploration programme that commenced in November along with associated results, should in our view have been transformational to the Company s market capitalisation. In addition to the Moonlight drag factor referenced above, we believe that the market s uncertainty as to how to price the two projects is a factor in FCR s suppressed valuation, This uncertainty exists predominantly as a result of a lack of UK-listed direct peers that would otherwise enable investors to carry out relative valuation analysis. As Exhibit 2 demonstrates, there are only three primary lead-zinc companies listed in London. We have attempted to mitigate this by constructing Exhibit 2, in order to highlight how not only the UK market but also the Australian and Canadian markets value pure zinc plays. Although this global group is still comparatively small, it is large enough to at least give some sort of indication as to how the world s investment community is valuing leadzinc plays. As we have proffered in this note, FCR is markedly undervalued relative to its peers. - Declaration by management of intention to finance operations via equity placings Management s method of funding at present is via the issuance of new equity for cash the conventional method employed by junior natural resources companies for raising cash. Judging from our conversations with members of the investment community, it is apparent that the market is in a state of constant anxiety that the inevitable next cash call will either come sooner than expected, and/or will decimate the share price when it does. However, as we discussed on p.7, Tooth has successfully raised funds at increasingly higher share prices since his tenure began. He appears unwilling to dilute shareholders at what is evidently a suppressed valuation. As a veteran professional broker and salesman, Tooth has experience in knowing the optimal time for carrying out equity placings. In summary, for a number of reasons that have compounded one another, FCR s market capitalisation has been driven down to a level that we believe significantly undervalues the Company. Unfortunately, the suppressed valuation has prevailed for a prolonged period of time. When this situation occurs to a business listed on AIM, the market s predominantly shorttermist) investor base tends to forget what fair value for the business actually is. The business in many cases substantially suppressed valuation becomes the new norm, as traders sell out on what they consider to be spikes in the share price whereas in reality the spikes could simply be investors beginning to realise that the business has become inherently undervalued. FCR has experienced this situation. The Company s market capitalisation was suppressed for various reasons for a prolonged period. However, we have provided mitigating factors for each Page 10 of 11

11 of these reasons in order to demonstrate that the continued suppression of the market capitalisation is unjustified, and that there is no reason that the Company should not trade at our conservative fair value of 0.60p as demonstrated in this note. Associated risks It would be one-sided to only highlight the substantial upside to FCR s share price. The Company is a junior metals explorer and, valuation-wise at least resides in the lowest tier of the public markets. Accordingly it represents one of the highest risk classes of direct equity investing. Beyond this fact and specifically to FCR, we are mindful of: - The difficulty of doing business in South Africa (and in recent history, especially with regard to mining) - The lack of direct mining experience of the Executive Chairman - The lack of progress in the development of Moonlight in the past five years - The market having shied away from magnetite deposits in favour of hematite deposits - The early stage nature of the Toral and Lago projects - The ongoing requirement for cash, which will be raised via dilutive equity placings The Company faces plenty of risks. However, this risk comes hand-in-hand with investing in microcap natural resources plays on the public markets: on a comparative basis, it is our belief that FCR is woefully undervalued, with the potential for upside to its valuation in the immediate term far outweighing the potential for downside. Disclosure AIM Chaos is the research branch of a private investment vehicle named Sons of Ulster. It is responsible for generating investment ideas and subsequently monitoring held investments. The assembled information disseminated in this report is intended for internal use, and is neither a solicitation to buy nor an offer to sell securities to outside parties. All information collated and utilised in this report has been sourced from the public domain. AIM Chaos has no business relationship with Ferrum Crescent Ltd or with any other company referred to in this report, and has received no compensation from any party for writing this report. Sons of Ulster, which wholly owns AIM Chaos, does currently hold shares in Ferrum Crescent Ltd. Consequently this report should not be regarded as independent research. Page 11 of 11