Hillgrove Resources (HGO) Mining higher grade ores means more copper produced.

Transcription

1 Hillgrove Resources Mining higher grade ores means more copper produced. 27 June 2013 Pieter Bruinstroop Three Key Points Our recent site visit confirmed to us that the operations at Kanmantoo have turned around. In this note we detail the changes, which include mined copper more than doubling, reduced operational costs, reduced capital costs, reduced corporate and exploration costs. In this analysis, we show that HGO was cashflow negative in each quarter, up to and including the April quarter. With improved site operations and exploration, corporate and capital expenditure, we project that HGO will generate significant cash despite lower copper prices. HGO has now worked through the commissioning issues and is now in a sweet spot in the mine. Kanmantoo ramping up; other costs down Commissioning and ramp-up issues Blasting (i) : the ore is fractured while the dominant nonmineralised ore is a biotite-schist, which can absorb energy, so blasting performance is irregular Blasting (ii) : due to the nearby townships, of Kanmantoo and Callington, the mine is operated with noise limits that mitigate against the energy that can be applied in a blast Mining : The original contract rewarded the mining contractor for tonnes shifted. This contract has been renegotiated to focus on amount of copper delivered in ore. Mine Plan (i) : the previous mining operation had taken the higher grade pods so HGO needed to work through lower grade ores during ramp up. The mine should produce at reserve grade from now. Mine Plan (ii) : now that the Kavanagh p[it has developed through the remnant low grade ore, it will be mining a higher volume of ore, at a higher grade. Crusher : the original crusher, from the Pillara mine, was not big enough nor powerful enough. The new crusher was brought fully into operations in April. Processing : the milling operations have performed much better than the mining operations. The spare capacity has been filled by ore from the low grade stockpiles Finance : HGO raised a net $17.9m in equity in July 2012, at 8.5c, compared with the share price of 21c on 31 May. HGO s cash balance bottomed out at $16.8m in April. All Issues now resolved copper up and costs down The previous MD was exited in July 2012, A new mine GM was appointed at end August We estimate that HGO mined at 400t of Cu in ore each week in May. We project that HGO will mine over 1,000t of Cu in ore each week from late this year, until mid Conclusions and Investment Recommendation The chart shows that the copper price in AUD terms, has been relatively stable. HGO is now generating cash and has a P/E of about 1.4x. We retain a Strong Buy recommendation. Recommendation Strong Buy Previous Recommendation Strong Buy Risk Rating Medium Current Share Price $ Month Price Target $0.22 (from $0.17) Price Target Methodology DCF Total Return (Capital + Yield) 319.7% NAV / Share $0.22 (from $0.17) Market capitalisation $53m Liquidity Daily Value $0.2m EPS Changes & PhillipCapital vs. Consensus Y/e Jan ($m) 2014F 2015F 2016F Previous EPS (cps) Change in EPS (%) Consensus EPS (cps) PhillipCapital vs Consensus (%) Financial Forecasts & Valuation Metrics Y/e Jan ($m) 2013A 2014F 2015F 2016F Revenue NPAT EPS (cps) EPS Growth -3% 137% 279% 2% DPS (c) EV / EBITDA (x) na na PER (x) Dividend Yield 0.0% 0.0% 0.0% 0.0% Gearing 10% 3% -24% -43% Interest Cover (x) na Source: PhillipCapital estimates HGO share price performance v copper in AUD/t terms 35 c HGO share price Copper price, in AUD terms 30 c 25 c 20 c 15 c 10 c 5 c 3-Oct-11 3-Jan-12 3-Apr-12 3-Jul-12 3-Oct-12 3-Jan-13 3-Apr-13 Source: PhillipCapital estimates $A9,000/t $A8,500/t $A8,000/t $A7,500/t $A7,000/t $A6,500/t $A6,000/t

2 HGO : The turn-around is here Our visit to site on 4 June showed that the mine has been working well on commissioning issues and they are now, finally, under control. The mine plan is now getting into higher grade areas, so more copper will be produced We have been saying that Kanmantoo was experiencing commissioning difficulties and it would turn around; that The April quarterly would not show this yet; We would see some improvement in the July quarterly; and The October quarterly, late in November, would give evidence of this turn-around. The turn-around is all factors coming together Getting into a better part of the ore-body, with a greater proportion of ore and getting into higher grade material Improvements in the rate of material movement Improvement in the crushing, due to the new crusher, so that the mill does not need to be topped up with material from the low grade stockpile; and Reduction in corporate costs and exploration expenses. Figure 1 shows the detail of the operational improvements and the significant increases in copper produced. Later in this report, we detail the reasons for this Figure 1 : HGO s Kanmantoo mine historical and projected operating performance Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul High grade ore mined '000 tones over-burden + low grade ore 2,868 2,937 2,931 2,865 3,748 2,591 1,750 2,205 2,573 2,940 2,940 copper grade 0.66 % 0.82 % 0.71 % 0.77 % 0.70 % 0.67 % 0.67 % 0.74 % 0.90 % 1.01 % 0.85 % Ore processed '000 tones copper grade 0.60 % 0.63 % 0.67 % 0.74 % 0.62 % 0.57 % 0.67 % 0.74 % 0.85 % 0.85 % 0.85 % recovery 74 % 87 % 91 % 91 % 90 % 89 % 90 % 91 % 92 % 92 % 92 % copper produced tonnes 1,381 2,681 3,473 3,994 3,595 3,590 4,372 4,956 5,741 5,741 5,741 Source : HGO quarterly reports, PhillipCapital Australia estimates Unit costs will be lower The production performance leads to improved financial performance as shown in Figure 2, which shows mine site costs relatively stable, but rises in off-site cost due to a greater volume of product. Figure 2 : Historical and projected operating costs Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Waste + low grade 2,937 kt 2,931 kt 2,865 kt 3,748 kt 2,591 kt 1,750 kt 2,205 kt 2,573 kt 2,940 kt 2,940 kt $A 5.7m $A 6.4m $A 5.2m $A 8.5m $A 6.5m $A 4.2m $A 5.1m $A 5.9m $A 6.8m $A 6.8m $ 2.0/t $ 2.2/t $ 1.8/t $ 2.3/t $ 2.5/t $ 2.4/t $ 2.3/t $ 2.3/t $ 2.3/t $ 2.3/t Ore mining 544 kt 486 kt 552 kt 639 kt 689 kt 700 kt 735 kt 735 kt 735 kt 735 kt $A 1.1m $A 1.2m $A 1.1m $A 1.8m $A 2.2m $A 2.0m $A 2.0m $A 2.0m $A 2.0m $A 2.0m $ 2.0/t $ 2.4/t $ 2.0/t $ 2.8/t $ 3.1/t $ 2.8/t $ 2.7/t $ 2.7/t $ 2.7/t $ 2.7/t extra costs, rock breakage $A 0.6m $A 1.2m $A 1.0m $A 1.4m $A 6.0m Procesing 488 kt 572 kt 595 kt 648 kt 708 kt 725 kt 735 kt 735 kt 735 kt 735 kt $A 6.2m $A 6.7m $A 8.2m $A 7.1m $A 7.4m $A 7.1m $A 7.1m $A 7.1m $A 7.1m $A 7.1m $ 12.8/t $ 11.7/t $ 13.8/t $ 11.0/t $ 10.5/t $ 9.8/t $ 9.7/t $ 9.7/t $ 9.7/t $ 9.7/t Site Admin $A 1.6m $A 1.7m $A 1.6m $A 1.4m $A 1.8m $A 1.9m $A 1.8m $A 1.8m $A 1.9m $A 1.9m $ 3.3/t $ 2.9/t $ 2.7/t $ 2.2/t $ 2.6/t $ 2.7/t $ 2.5/t $ 2.5/t $ 2.6/t $ 2.6/t Transport 10,316 t 13,280 t 17,007 t 15,287 t 15,510 t 18,215 t 20,650 t 23,923 t 23,923 t 23,923 t $A 1.0m $A 1.4m $A 1.4m $A 1.4m $A 1.4m $A 1.7m $A 2.0m $A 2.3m $A 2.3m $A 2.3m $ 98/t $ 103/t $ 85/t $ 89/t $ 89/t $ 93/t $ 97/t $ 97/t $ 96/t $ 96/t TC - RC 2,681 t 3,473 t 3,994 t 3,595 t 3,590 t 4,372 t 4,956 t 5,741 t 5,741 t 5,741 t $A 1.7m $A 2.7m $A 3.0m $A 2.8m $A 3.0m $A 3.1m $A 3.8m $A 4.4m $A 4.4m $A 4.4m $ 649/t $ 765/t $ 743/t $ 780/t $ 831/t $ 718/t $ 758/t $ 758/t $ 758/t $ 758/t TOTAL $A 18.0m $A 21.2m $A 21.5m $A 24.5m $A 28.2m $A 20.0m $A 21.8m $A 23.5m $A 24.4m $A 24.4m 305 c/lb 277 c/lb 244 c/lb 309 c/lb 357 c/lb 208 c/lb 199 c/lb 186 c/lb 193 c/lb 193 c/lb Source : HGO quarterly reports, PhillipCapital Australia estimates Page 1

3 The mine will generate more cash Figure 2 also shows a significant decline in product costs due to the improvements in mine operational performance. Figure 3 shows that despite the lower copper prices, Kanmantoo mine is expected to significantly increase the operational cashflow it generates. Figure 3 : Kanmantoo s historical financial performance and PhillipCapital s projections Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul AUD-USD Copper price USD /t 8,383 7,647 7,878 7,894 7,650 6,993 6,700 6,700 6,700 6,700 Copper produced tonnes 1,381 2,681 3,473 3,994 3,595 3,590 4,372 4,956 5,741 5,741 Gold produced ounces 1,275 1,216 1,852 2,226 2,237 1,399 1,418 1,418 2,330 2,330 Silver produced 000 oz Copper Revenue AUD m Cu TC / RC AUD m (1.6) (2.9) (2.8) (2.7) (2.7) (2.9) (3.5) (4.1) (4.4) (4.4) By-products, net AUD m Site Cash Costs AUD m (16.3) (18.5) (18.5) (21.7) (25.3) (16.9) (18.0) (19.2) (20.0) (20.0) Dep'cn & Amort'sn AUD m (7.6) (8.9) (9.5) (2.3) (9.3) (7.4) (7.4) (7.4) (7.4) (7.4) E B I T AUD m (5.8) (5.9) Cashflow before capital Source : various HGO quarterly reports, IRESS, PhillipCapital Australia estimates Lower exploration and corporate costs mean that HGO now changes from cash consuming to cash generating. However, there are also costs other than the mine. Figure 4 brings all of these costs together. Figure 4 shows significant falls in : Capital costs, as the mine is now commissioned; Exploration costs, as the pledge to spend $10m a year on exploration, focussed on the greenfields opportunities in Indonesia, has been replaced by a commitment to limit this to $0.5m, in the absence of being to seek a farm-down; and Corporate costs, which were excessive, at $10m a year, and are able to fall due to cut-back in exploration and hence the cost of the Perth office; Figure 4 : Historical cashflows for HGO and PhillipCapital s projected cashflows Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Kanmantoo operations (7.2) Exploration (2.7) (3.5) (3.5) (2.0) (0.5) (0.5) (1.0) (1.0) (1.0) (1.0) Hedge Book Corproate (1.6) (2.3) (2.5) (2.1) (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) Capital (4.0) (2.4) (1.3) (1.4) (4.0) (4.0) (0.5) (0.5) (0.5) (0.5) Interest (1.3) (0.6) (0.6) (0.7) (0.6) (0.6) (0.5) (0.5) (0.4) (0.4) Taxes paid Borrowings 12.2 (3.7) (2.0) (2.1) (1.9) (1.9) (2.0) (2.0) (2.0) (2.1) Net Cashflow (4.6) 0.2 (0.9) (2.9) (2.1) Source : HGO quarterly reports, HGO financial reports, PhillipCapital Australia In our view, HGO s share price reflects historical performance and does not reflect what we will see over the next 12 month. We affirm our Strong Buy recommendaiton Figure 4 shows that HGO s hedge book ameliorates the impact of copper prices. This is shown in more detail further in this report. Figure 4 also shows that HGO has not been generating cash, being cashflow negative in each quarter, after capital expenditure and debt repayments, but we project that it will now swing to significant cashflow generation, Conclusions HGO s current market cap is $52m, which is LESS than the cumulative free cashflow for the four quarter starting from the October quarter (ie. starting 5 weeks from now). We project that HGO is now trading on 1.4x prospective earnings (ie. year ending January 2015). Our risked base case valuation of HGO is now 21.8c/share. Our site visit showed to us the changes in HGO and re-confirm our Strong Buy recommendation. Page 2

4 HGO : 18 month ramp up now done In Brief Phillip Capital participated in the site visit to Kanmantoo on 4 June. That visit gave us confidence that the overly long ramp-up has been completed. 1. Copper mined to go up The Kanmantoo operations are now getting into the better parts of the Kavanagh pit, as shown in Figure 5. Figure 5 shows that immediately below the work-face as at the end of May are many blocks grading over 1.0% Cu, while near the work face it is dominantly 0.20% % Cu. HGO s Kanmantoo mine has been mining through lower grade areas and is now reaching higher grade areas. Figure 5 : Block model, Kavanagh pit, Kanmantoo copper mine As HGO gets lower in the Kavanagh pit, it will increase the total metal mined, due to higher grades and a greater volume of ore in the material moved. Source : HGO presentation, June 2013 Figure 6 shows the extent to the improvement in the amount of copper that will be mined. Figure 6 : Kavanagh pit more copper to be mined Source : HGO presentation, June 2013 Page 3

5 HGO has been working through operational issues at Kanmantoo, the biggest of which is the new crusher which was brought in line on 11 April HGO has consumed cash, due partly to capital expenditures, but also exploration and high corporate costs The 1096 level is about the roughly horizontal red line shown in Figure 1. The second last column in Figure 2 shows that the amount of copper in ore mined will be higher at this level and will increase again for the next 5 levels due to a higher volume of ore, as shown in the second column, and higher grades as shown in the 5 th column and also Figure Operations finally bedded down and working properly There have been many issues impacting on the ramp-up of Kanmantoo mining operations. Our site visit showed that these have been resolved and operating costs, on a $/t basis being reduced; as an example, site manning levels were 150 at the time of our visit, compared with 165 twelve months ago. An example is that the pumps have been changed there is garnet in the ore at Kanmantoo and this wears out the steel liners in the pumps, so 2 pumps were needed for tailings one to operate while the other was being repaired. The change from steel to rubber linings has significantly reduced the on-going repair cost. The change to the new crusher has eliminated significant down-time from blockages and repairs to the crusher, as well as the cost of secondary rock breaking as the new crusher can handle much bigger blocks of ore. 3. Financial performance improving Over the time of the 5 reported quarters since Kanmantoo has been in operation (from January 2012 to April 2013), HGO has consumed about $23m in net cash, though performance has been boosted by net proceeds of about $6.8m from the hedge book, and net borrowings around $5m, for total cash consumed of about $35m. Of this About $12m has been spent on exploration About $10m on capital; and $10m on corporate over-head. PhillipCapital projects that with increasing copper production and reducing site costs, overhead costs, capital costs and exploration, HGO is finally generating net cash. Figure 7 shows that the copper price, in AUD terms, has held up well through this year, through the HGO share price has weakened consistently, despite the improving performance. Figure 7 : Copper price, in AUD and USD terms v. HGP share price 16c $ 8,500/t 14c 12c $ 8,000/t 10c $ 7,500/t 8c 6c 4c 2c coper price copper price, in AUD/t terms HGO share price $ 7,000/t $ 6,500/t PhillipCapital has been saying that the April quarterly would be poor, July an improvement and October should be good. We believe this is happening as we said it would. 0c 1-Jan Jan Jan Feb-13 2-Mar Mar-13 1-Apr Apr-13 1-May May-1331-May Jun-13 Source : IRESS, PhillipCapital Australia Brief Conclusions HGO is playing out as have maintained it would : The April quarterly will not show improvement The July quarterly will see some improvement; and $ 6,000/t It will take until November, when the quarterly for the period ending in October is published, before we see the full improvement. Page 4

6 HGO : Kanmantoo operational improvements Mining HGO has encountered many commissioning issues, some of which are a result of previous mining, some a result of using pre-used plant, and some normal, expected commission issues. Kanmantoo was previously mined a joint venture of North Broken Hill, Broken Hill and the Electrolytic Zinc company, from 1971 to 1975, when it was shut due to low copper prices. HGO began mining in November As should be expected, the previous miners had extracted the higher grade ores and what remained in the pit were the lower grade ores, As a result, the early periods mines lower than reserve grade ores, with consequent lower recoveries and lower copper production. In addition, HGO encountered some of the early stage, expected commissioning issues : Grade control, needing to improve the delineation between high grade ore and low grade ore (0.2% - 0.4% Cu) the mineralised envelope does not have a geological cut-off, but has a significant halo Truck movement the trucks used have extended trays and the tendency was to fill them, so that 90t trucks were carrying up to 130t of material, and consequently breaking down frequently taking bumps out the haul road also helped Blasting has been problematical there are noise restrictions on the site, due to the location of Kanmantoo and Callington on either side of the mine, about 3km away as the mine has got deeper, the walls act as a sound barrier, reducing the impact of the noise restrictions also, waste material is being piled up as a sound barrier, to mitigate the impact when the next pit is started the waste material is energy absorbing, while the ore is brecciated, so the ore can be blasted into fines while the waste in not blasted A more powerful excavator (see Figure 4) uses the breaking force of he excavator to get rock breakage Figure 8 : Kanmantoo : Kavanagh pit, west side Figure 9 : Kanmantoo : Kavanagh pit, east side Source : PhillipCapital site visit, 4 June 2013 Source : PhillipCapital site visit, 4 June 2013 Processing The crusher, which was part of the processing circuit purchased from Pillara, has proven inadequate the site incurred added costs due to the need to secondary breakage and the cost of unblocking the crusher as well as the penalty of reduced throughput a more powerful crusher, as shown in Figure 10, was installed over March and April, lifting the milling capacity to 2.8Mt/yr Page 5

7 These issues have been progressively worked through,......as PhillipCapital has been expecting Figure 10 : The new crusher at Kanmantoo Source : PhillipCapital site visit, 4 June 2013 We had expected that these issues would be progressively worked through and resolved. However, sometimes fixing up one issue merely reveals other problems. Our site visit showed to us that the issues have been resolved and we can expect better performance from about May onwards. An important outcome of the poor mining performance was that the milling circuit has never had a test of its capacity as it was never fed sufficient material. It supplemented the throughput of mined ore with ore from low grade stockpiles. The outcome was that the processed grade was also below mined grade, as shown in Figure 11. Figure 11 : Kanmantoo operational outcomes Plan Jan April 2012 July 2012 Oct Jan Apr Total material moved has been fairly stable, but a greater proportion will be high grade ore Ore Mined, high grade 600 kt 288 kt 544 kt 486 kt 552 kt 639 kt 689 kt mined grade 0.84 % 0.66 % 0.82 % 0.71 % 0.77 % 0.70 % 0.67 % Low grade ore mined 382 kt 298 kt 248 kt 205 kt 98 kt (137kt) Waste moved 2,486 kt 2,639 kt 2,683 kt 2,660 kt 3,650 kt 2,728 kt TOTAL MATERIAL 3,156 kt 3,481 kt 3,417 kt 3,417 kt 4,387 kt 3,280 kt Ore Processed 600 kt 331 kt 488 kt 572 kt 595 kt 648 kt 708 kt processed grade 0.84 % 0.60 % 0.63 % 0.67 % 0.74 % 0.62 % 0.57 % Recovery : Cu 94 % 74 % 87 % 91 % 91 % 90 % 89 % Cu in conc 5,250 t 1,381 t 2,681 t 3,473 t 3,994 t 3,595 t 3,590 t Cash costs 161 c/lb 326 c/lb 281 c/lb 235 c/lb 207 c/lb 274 c/lb 315 c/lb Source : HGO quarterly reports, PhillipCapital Australia Looking forward at all the pieces In our view, the current share price of HGO capitalises the initial poor performance of the mine. However, we expect significant change to be seen in the near to medium term future. Copper mined Figure 6 showed that the mining operations at Kamantoo s Kavanagh pit, which is the current mining operation, as shown in Figures 8 & 9. Figure 11 shows our estimate of the amount of copper that we project will be mined form the Kavanagh pit each week from each of the benches shown in Figure 6. The weekly mining rate is estimated to be about 90k BCM each week (about 400k BCM a month); Figure 11 shows total material moved averages 3,500kt a quarter; assuming an SG of about 2.75, this is 98k BCM a week. Page 6

8 We project that the total copper in ore being mined will increase significantly, from 300t a week recently to over 1,000 tonnes a week in early 2014 In Figure 6, the penultimate column shows the amount of copper in each bench. PhillipCapital estimated the amount of material in each bench from the first column in Figure 6 and then divide this into the amount of copper in each bench and then divided this by the weekly mining rate to derive the results shown in Figure 12. Figure 12 also shows the expected grade of copper in each bench, which is rising over time (until May 2014), showing that much of the increase in copper is due to the rising grade, as indicated in both Figures 1 and 2. The bench being mined in June is 1105 which Figure 11 shows will mine just over 400t of copper in ore each week, compared with about 350t a week in the benches mined in April and May. Figure 12 : Kavanagh pit weekly copper mining rate 2,800t 2,400t 1.20 % 1.00 % Some of this is due to rising grades 2,000t 1,600t 1,200t 800t 0.80 % 0.60 % 0.40 % 400t 0.20 % 0t % Source : HGO presentation, June 2013, PhillipCapital Australia Figure 12 shows that the amount of copper to be mined will increase significantly to over 1,000t a week, from late this year. Mine Plan The current Reserve estimate for Kanmantoo is dated April It is in the process of being updated, and as part of this an updated Resource estimate, of 263kt of contained copper, was announced on 31 May The detail of the Resource estimate is shown in Figure 13. HGO released a revised Resources statement in May. An updated Reserves statement is expected late July. The current Reserves statement is both limited in size and quite dated Figure 13 : Kanmantoo Resource estimate Resources In Situ grade contained grade contained grade contained Measured 4.2 Mt 0.85 % 36 kt 0.13g/t 17.6 koz 2.36g/t 319 koz Indicated 20.5 Mt 0.87 % 178 kt 0.16g/t koz 2.34g/t 1,542 koz Inferred 6.5 Mt 0.66 % 43 kt 0.15g/t 31.4 koz 1.73g/t 362 koz Long Term stockpiles Copper Gold Silver Measured 1.1 Mt 0.46 % 5 kt 0.0 koz 0 koz Indicated 0.5 Mt 0.18 % 1 kt 0.0 koz 0 koz 32.8 Mt 0.80 % 263 kt 0.15g/t koz 2.22g/t 2,223 koz Source : HGO ASX announcement, 31 May 2013 This compares with the current Reserves statement, from April 2010, which had 14.8Mt of ore, of which 2.3Mt had been mined by the end of April 2013, at 0.85% Cu for 125kt of copper, as shown in Figure 14. Figure 14 : Kanmantoo Reserves Reserves Copper Gold Silver Proved 2.3 Mt 0.87 % 20 kt 0.13g/t 9.7 koz 3.2g/t 240 koz Probable 12.5 Mt 0.84 % 105 kt 0.18g/t 72.2 koz 3.1g/t 1,243 koz 14.8 Mt 0.85 % 125 kt 0.17g/t 81.9 koz 3.1g/t 1,483 koz Source : HGO AS announcement, 4 May 2013 Page 7

9 To offer a guide to investors, HGO announced the Life of Mine (LoM) plan on 20 February 2013, as shown in Figure 15, with 214kt of contained copper for 191kt of recoverable copper. Figure 15 shows that expected recovery is related to head grade. HGO has stated that the recoveries to date, as shown in Figure 7, have plotted directly to the recoveries expected given the feed grade. With their revised Resource estimate, HGO released a revised Mining Inventory, which was about 30Mt of material for a 10 year mine life The Kavanagh pit has about 12 months more life. There are many other deposits in the Mining Lease. Figure 15 : Life of Mine (LoM) plan, February 2013 contained recoverable recovery Proved and Probable Reserves 12.0 Mt 0.85 % 102 kt 94 kt 92 % Measured & Indicated Resources 5.0 Mt 0.70 % 35 kt 31 kt 88 % Inferred Resoruces 4.0 Mt 0.60 % 24 kt 20 kt 85 % Low grade stockpiles 1.6 Mt 0.40 % 6 kt 5 kt 75 % Exploration Target # Mt 0.6% - 0.8% 12 kt 11 kt 88 % Exploration Target # Mt 0.7% - 0.8% 35 kt 31 kt 88 % TOTAL 214 kt 191 kt Source : HGO announcement, 20 February 2013 The data shown in Figure 2 and Figure 8 covers about a 12 month period, to the middle of Figure 6 shows a declining strip ratio, with the waste to ore ratio for Kavanagh pit falling, as shown in Figure 2, below 2.0 from bench 1096 onwards. However, later in 2013, pre-stripping will begin on Spitfire and Emily Starr, which are the next pits to be mined and the reported waste to ore ratio will rise later in 2013 to about the LoM level of about 4.0. Spitfire and Emily Starr are shown in Figure 16, along with the other deposits included in the Life of Mine plan. Figure 16 also shows many other historically mined copper occurrences within the Mining Lease area. Figure 16 : Mining at Kanmantoo Financial Analysis Figure 17 shows cash cost data as reported by HGO in their various quarterly reports. Figure 18 uses this data to show costs in AUD m terms, based on copper produced as shown in Figure 11. Source : HGO presentation, June 2012 Figure 17 : Cash costs data reported by HGO Apr Jul Oct Jan Apr Mining 132 c/lb 116 c/lb 85 c/lb 155 c/lb 191 c/lb Processing 111 c/lb 88 c/lb 97 c/lb 94 c/lb 97 c/lb Admin 29 c/lb 22 c/lb 19 c/lb 19 c/lb 24 c/lb Transport 18 c/lb 18 c/lb 17 c/lb 18 c/lb 18 c/lb TC-RC 31 c/lb 35 c/lb 35 c/lb 37 c/lb 39 c/lb Precious Metal credits (40c/lb) (43c/lb) (46c/lb) (49c/lb) (54c/lb) Royalties 6 c/lb 3 c/lb 5 c/lb 6 c/lb 5 c/lb 287 c/lb 239 c/lb 212 c/lb 280 c/lb 320 c/lb Source : HGO quarterly reports Page 8

10 Figures 17 and 18 shows an increase in mining costs in the January 2013 quarter, and that mining costs were much higher again in the April 2013 quarter. The major reason for this was the change-over in the crusher, which is included in mining costs. There were on-off costs that were expensed, while the extra costs of keeping production going were also expensed rather than being capitalised. Figure 18 : historical cash costs, in terms of AUD We have used HGO s reported cash costs as the basis for our projections of cash costs The grade profile is still rising to the Reserve grade Projections Apr Jul Oct Jan Apr Mining $A 7.4m $A 8.8m $A 7.2m $A 11.7m $A 14.6m Processing $A 6.2m $A 6.7m $A 8.2m $A 7.1m $A 7.4m Admin $A 1.6m $A 1.7m $A 1.6m $A 1.4m $A 1.8m Transport $A 1.0m $A 1.4m $A 1.4m $A 1.4m $A 1.4m TC-RC $A 1.7m $A 2.7m $A 3.0m $A 2.8m $A 3.0m Sub-Total $A 18.0m $A 21.2m $A 21.4m $A 24.5m $A 28.2m Precious Metal credits ($A 2.2m) ($A 3.3m) ($A 3.9m) ($A 3.7m) ($A 4.1m) Royalties $A 0.3m $A 0.2m $A 0.4m $A 0.5m $A 0.4m TOTAL $A 34.1m $A 39.3m $A 39.4m $A 45.7m $A 52.7m Source : HGO quarterly reports Figure 19 shows historical production and PhillipCapital s projections based on the discussion above,. HGO have stated that the operational capacity at Kanmantoo was increased to 2.8Mt/yr with the commissioning of the new crusher. However, during the April quarter, when the new crusher was online for only about 3 of the 13 weeks in the quarter, 708kt, or an annual rate of 2.83Mt/yr, was processed. In our view, given that 708kt was processed while the new crusher was in line for only 3 of 13 weeks, so it should be able to process about 3.0Mt/yr of ore. We have used a more conservative projection as we expect the circuit may be slowed to allow longer residence time and hence higher recovery, when processing higher grade ore. Figure 19 : Historical and projected operational outcomes Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul High grade ore mined '000 tones over-burden + low grade ore 2,868 2,937 2,931 2,865 3,748 2,591 1,750 2,205 2,573 2,940 2,940 copper grade 0.66 % 0.82 % 0.71 % 0.77 % 0.70 % 0.67 % 0.67 % 0.74 % 0.90 % 1.01 % 0.85 % Ore processed '000 tones copper grade 0.60 % 0.63 % 0.67 % 0.74 % 0.62 % 0.57 % 0.67 % 0.74 % 0.85 % 0.85 % 0.85 % recovery 74 % 87 % 91 % 91 % 90 % 89 % 90 % 91 % 92 % 92 % 92 % copper produced tonnes 1,381 2,681 3,473 3,994 3,595 3,590 4,372 4,956 5,741 5,741 5,741 Source : HGO quarterly reports, PhillipCapital Australia estimates We project Kanmantoo will produce 18.7kt in this year, compared with guidance of 18kt 20kt Figure 19 shows that PhillipCapital Australia expects that the grade of the ore mined will be below reserve grade until CY 2014, as indicated by Figure 12; projects that the grade of the processed ore will match the mined grade as we expect enough high grade ore will be mined to keep the mill full enough; projects that recovery of the copper in the ore to concentrate varies with the feed grade, as indicated in Figrue15; does NOT expect the grade of ore processed to continue to increase; instead we expect that some of the low grade stockpiles will blended in and a high grade stockpile created to ensure a more even output, of both quality and quantity, over time, enhancing the marketability of the concentrate. Figure 19 shows that PhillipCapital expects Kanmantoo to produce t of copper in concentrate in the current year. This compares with HGO s guidance of 18-20kt. Page 9

11 Figure 20 shows the detail of the historical costs and our projections over the current and next 5 quarters. Included in historical mining costs are waste and the extra costs due to the deficient crusher and its replacement Figure 18 shows a significant jump in mining costs in the January and April quarters. Much of the rise in costs can be attributed to the extra costs of secondary rock breakage and the operating impact from the change-over to the new crusher. In Figure 16 we have isolated this cost; HGO advised, in their 11 April 2013 ASX announcement, that the cost of secondary rock breakage is about $0.4m a month. HGO do not break-up costs between mining of ore and waste removal, so there is a degree of error in the break-up we have used in Figure 20. Otherwise, we have matched directly our modelled costs against the data in Figure 18. Figure 20 : Historical and projected operating costs Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Waste + low grade 2,937 kt 2,931 kt 2,865 kt 3,748 kt 2,591 kt 1,750 kt 2,205 kt 2,573 kt 2,940 kt 2,940 kt $A 5.7m $A 6.4m $A 5.2m $A 8.5m $A 6.5m $A 4.2m $A 5.1m $A 5.9m $A 6.8m $A 6.8m $ 2.0/t $ 2.2/t $ 1.8/t $ 2.3/t $ 2.5/t $ 2.4/t $ 2.3/t $ 2.3/t $ 2.3/t $ 2.3/t Ore mining 544 kt 486 kt 552 kt 639 kt 689 kt 700 kt 735 kt 735 kt 735 kt 735 kt $A 1.1m $A 1.2m $A 1.1m $A 1.8m $A 2.2m $A 2.0m $A 2.0m $A 2.0m $A 2.0m $A 2.0m $ 2.0/t $ 2.4/t $ 2.0/t $ 2.8/t $ 3.1/t $ 2.8/t $ 2.7/t $ 2.7/t $ 2.7/t $ 2.7/t extra costs, rock breakage $A 0.6m $A 1.2m $A 1.0m $A 1.4m $A 6.0m Procesing 488 kt 572 kt 595 kt 648 kt 708 kt 725 kt 735 kt 735 kt 735 kt 735 kt $A 6.2m $A 6.7m $A 8.2m $A 7.1m $A 7.4m $A 7.1m $A 7.1m $A 7.1m $A 7.1m $A 7.1m $ 12.8/t $ 11.7/t $ 13.8/t $ 11.0/t $ 10.5/t $ 9.8/t $ 9.7/t $ 9.7/t $ 9.7/t $ 9.7/t Site Admin $A 1.6m $A 1.7m $A 1.6m $A 1.4m $A 1.8m $A 1.9m $A 1.8m $A 1.8m $A 1.9m $A 1.9m $ 3.3/t $ 2.9/t $ 2.7/t $ 2.2/t $ 2.6/t $ 2.7/t $ 2.5/t $ 2.5/t $ 2.6/t $ 2.6/t Transport 10,316 t 13,280 t 17,007 t 15,287 t 15,510 t 18,215 t 20,650 t 23,923 t 23,923 t 23,923 t $A 1.0m $A 1.4m $A 1.4m $A 1.4m $A 1.4m $A 1.7m $A 2.0m $A 2.3m $A 2.3m $A 2.3m $ 98/t $ 103/t $ 85/t $ 89/t $ 89/t $ 93/t $ 97/t $ 97/t $ 96/t $ 96/t TC - RC 2,681 t 3,473 t 3,994 t 3,595 t 3,590 t 4,372 t 4,956 t 5,741 t 5,741 t 5,741 t $A 1.7m $A 2.7m $A 3.0m $A 2.8m $A 3.0m $A 3.1m $A 3.8m $A 4.4m $A 4.4m $A 4.4m $ 649/t $ 765/t $ 743/t $ 780/t $ 831/t $ 718/t $ 758/t $ 758/t $ 758/t $ 758/t TOTAL $A 18.0m $A 21.2m $A 21.5m $A 24.5m $A 28.2m $A 20.0m $A 21.8m $A 23.5m $A 24.4m $A 24.4m Source : HGO quarterly reports, PhillipCapital Australia estimates Note that we project processing costs to be $9.8/t, which compares with the site target of $8.5/t. There is further cost down potential to our projections The rise in transport costs is due to the fall in the AUD-USD rate, as the largest component of transport costs, shipping, is USD denominated. The variability in the TC-RC charge is due to the cost of the free metal in the Treatment Charge. The Total given in Figure 16 can be matched directly to the Sub-Total in Figure 14. Hedge Book, Corporate, Other HGO has a valuable hedge book This section covers the other impacts on HGO s earnings. Hedge Book As part of its original debt covenants, HGO put in place forward sales of copper, and some puts, to protect its revenue against falls in copper price. This protection was taken out in AUD terms. Figure 21 shows recent copper prices, in AUD terms, and compares that with PhillipCapital s projections used in this analysis and also the weighed average of the AUD prices at which HGO has taken out hedges. Figure 22 shows the detail of the hedge book, It shows that The volume hedged is, in each quarter less than the net copper sold (ie. copper produced less the free metal in the Treatment Charges); There are puts, but none of these are triggered The financial contribution made is about $2m a quarter, and we expect this to rise as our projected copper price, in AUD terms, falls. Page 10

12 Figure 21 : recent and projected copper prices, in AUD terms, v. HGO hedge book $A 9,000/t $A 8,500/t Hedge book prices are well above spot prices $A 8,000/t $A 7,500/t $A 7,000/t Figure 22 : Detail of HGO s copper hedge book $A 6,500/t copper price, in AUD terms copper price in AUD terms, PhillipCapital projecitons average hedge price, AUD terms $A 6,000/t 1-Feb-12 1-Jun-12 1-Oct-12 1-Feb-13 1-Jun-13 1-Oct-13 1-Feb-14 1-Jun-14 1-Oct-14 1-Feb-15 1-Jun-15 1-Oct-15 Source : HGO quarterly reports, IRESS, PhillipCapital Australia Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct copper price, in AUD terms $A 7,955/t $A 7,580/t $A 7,585/t $A 7,550/t $A 7,602/t $A 7,245/t $A 6,956/t $A 6,990/t $A 7,165/t $A 7,165/t $A 7,165/t Copper prodcued and sold 2,138 t 3,874 t 3,647 t 3,627 t October kt 0 t 917 t 2,750 t 2,750 t 2,750 t 2,750 t 2,750 t 2,750 t 2,750 t 2,750 t 2,750 t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t $A 8,320/t Value $A 0.0m $A 0.7m $A 2.0m $A 2.1m $A 2.0m $A 3.0m $A 3.8m $A 3.7m $A 3.2m $A 3.2m $A 3.2m November kt 1,406 t 1,406 t 1,406 t $A 8,700/t $A 8,700/t $A 8,700/t $A 8,700/t Value $A 2.2m $A 2.2m $A 2.2m October kt 313 t 313 t 313 t $A 9,171/t $A 9,171/t $A 9,171/t $A 9,171/t Value $A 0.6m $A 0.6m $A 0.6m Puts 7.0 kt 0 t 1,400 t 2,100 t 2,100 t 1,400 t 0 t 0 t 0 t 0 t 0 t 0 t $A 7,500/t $A 0/t $A 7,500/t $A 7,500/t $A 7,500/t $A 7,500/t $A 0/t $A 0/t $A 0/t $A 0/t $A 0/t $A 0/t $A 0.0m $A 0.0m $A 0.0m $A 0.0m $A 0.0m $A 0.0m $A 0.0m $A 0.0m $A 0.0m $A 0.0m $A 0.0m TOTAL $A 0.0m $A 0.7m $A 2.0m $A 2.1m $A 2.0m $A 3.0m $A 3.8m $A 3.7m $A 3.2m $A 3.2m $A 3.2m Source : HGO quarterly reports, IRESS, PhillipCapital Australia Corporate costs have been excessive Corporate Figure 23 shows compares the quarterly administration expenses reported by HGO in their Appendix 5B (which is no longer filed as they are now a producer), with the corporate expense estimated by PhillipCapital based on HGO s half yearly and annual financial reports. In making this estimation, we have included in corporate expenses everything that is not directly related to producing saleable product; identified exploration expensed; or costs that appear to clearly one-off Figure 23 : HGO s reported corporate costs Apr Jul Oct Jan Total Apr Jul Oct Jan Total Appendix B, Quarterly ($A 1.4m) ($A 1.7m) ($A 1.4m) ($A 1.3m) ($A 5.8m) ($A 1.6m) ($A 2.3m) ($A 2.5m) ($A 2.1m) ($A 8.6m) Financial accounts ($A 4.6m) ($A 5.5m) ($A 10.1m) ($A 5.3m) ($A 5.3m) ($A 10.6m) Source : HGO quarterly reports, HGO financial reports, PhillipCapital Australia Page 11

13 Corporate costs are projected to be lower, due to closure of the Perth office; and reduced exploration in Indonesia; and down-sizing of the Sydney office Included in corporate cost are expenses associated with administration of exploration programmes, that are not field activities, including partner negotiations, as well as some one-off costs. Clearly, a level of $10m a year is excessive for a company the size of HGO. In our view, half of this level is still generous. We expect the level of corporate costs to fall as the Indonesian exploration is wound down and the Perth office is closed, while the size of the Sydney office is reduced. Exploration HGO has 2 exploration projects in Indonesia, Sumba and Bird s Head. These are now fully permitted and in effective structures. HGO has previously had announced an intention to spend $10m annually on exploration. Figure 24 shows that HGO been around this level for the last 2 years. Figure 24 : HGO s exploration expenditure Apr Jul Oct Jan Total Apr Jul Oct Jan Total Appendix B, Quarterly ($A 1.9m) ($A 1.9m) ($A 2.1m) ($A 2.8m) ($A 8.7m) ($A 2.7m) ($A 3.5m) ($A 3.5m) ($A 2.0m) ($A 11.7m) Source : HGO quarterly reports, HGO financial reports, PhillipCapital Australia HGO has recently stated that they will seek to farm down their interests; or otherwise restrict expenditure to about $0.5m a year for the 2 properties combined. However, we expect that HGO will spend money on exploration in the tenement area surrounding Kanmantoo. Looking forward bringing it all together We project that Kanmantoo mine will generate significant cash Kanmantoo Mine Figure 19 showed historical and our projected operating outcomes for the Kanmantoo mine. Figure 20 shows historical and PhillipCapital s projected operating costs. Figure 25 shows our projected financial outcomes, based on current AUD-USD rates and copper prices. It shows strong growth in cashflow generated by the mine. Figure 25 : Kanmantoo s historical financial performance and PhillipCapital s projections Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul AUD-USD Copper price USD /t 8,383 7,647 7,878 7,894 7,650 6,993 6,700 6,700 6,700 6,700 Copper produced tonnes 1,381 2,681 3,473 3,994 3,595 3,590 4,372 4,956 5,741 5,741 Gold produced ounces 1,275 1,216 1,852 2,226 2,237 1,399 1,418 1,418 2,330 2,330 Silver produced 000 oz Copper Revenue AUD m Cu TC / RC AUD m (1.6) (2.9) (2.8) (2.7) (2.7) (2.9) (3.5) (4.1) (4.4) (4.4) By-products, net AUD m Site Cash Costs AUD m (16.3) (18.5) (18.5) (21.7) (25.3) (16.9) (18.0) (19.2) (20.0) (20.0) Dep'cn & Amort'sn AUD m (7.6) (8.9) (9.5) (2.3) (9.3) (7.4) (7.4) (7.4) (7.4) (7.4) E B I T AUD m (5.8) (5.9) Cashflow before capital Source : various HGO quarterly reports, IRESS, PhillipCapital Australia estimates We project HGO will change, this quarter, from cash consumer to cash producer Hillgrove Resources Figure 25 shows our projected cashflows for the mining operation. Figure 26 shows our projected cashflows for HGO at the corporate level; some of the values in Figure 26 come from Figures 20, 22, 23, 24 and 25 above, others come Appendix 5B of the quarterly reports while others from April 2013 onward are PhillipCapital estimates and projections. Page 12

14 Figure 26 shows that HGO negative cashflows each quarter, due to capital expenditures and exploration, while PhillipCapital expects HGO to be generating net cash from the current quarter onwards. Figure 26 : Historical cashflows for HGO and PhillipCapital s projected cashflows Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Kanmantoo operations (7.2) Exploration (2.7) (3.5) (3.5) (2.0) (0.5) (0.5) (1.0) (1.0) (1.0) (1.0) Hedge Book Corproate (1.6) (2.3) (2.5) (2.1) (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) Capital (4.0) (2.4) (1.3) (1.4) (4.0) (4.0) (0.5) (0.5) (0.5) (0.5) Interest (1.3) (0.6) (0.6) (0.7) (0.6) (0.6) (0.5) (0.5) (0.4) (0.4) Taxes paid Borrowings 12.2 (3.7) (2.0) (2.1) (1.9) (1.9) (2.0) (2.0) (2.0) (2.1) Net Cashflow (4.6) 0.2 (0.9) (2.9) (2.1) Source : HGO quarterly reports, HGO financial reports, PhillipCapital Australia The change is due to a combination of reasons, not helped by commodity prices The turn-around in cashflow is due to a combination of improved copper production from Kanmantoo; improved cost performance at Kanmantoo if the metallurgical operations are able to achieve their target of $8.5/t, then this adds a further $3.8m to our projected annual cashflow reduced exploration expense; and reduced corporate expense. Note also that we project that HGO will not pay corporate taxes until Conclusions Despite the good operational story, the HGO share price has continued to weaken. Figure 27 : HGO share price still weakening, despite good new 16c $ 8,500/t HGO s market cap is LESS than the cash we project it will generate over the next 4 quarters 14c 12c 10c 8c $ 8,000/t $ 7,500/t 6c 4c 2c coper price copper price, in AUD/t terms HGO share price $ 7,000/t $ 6,500/t We project that HGO is trading at 1.4x prospective earnings 0c 1-Jan Jan Jan Feb-13 2-Mar Mar-13 1-Apr Apr-13 1-May May-1331-May Jun-13 Source : IRESS, PhillipCapital Australia $ 6,000/t HGO s current market cap is $52m, which is LESS than the cumulative free cashflow for the four quarter starting from the October quarter (ie. starting 5 weeks from now). We project that HGO is now trading on 1.4x prospective earnings (ie. year ending January 2015), as shown in Figure 28 below. Page 13

15 Figure 28 : PhillipCapital s financial projections for HGO AUD / USD Copper USD /t 7, , , , , , , , ,613.9 Gold USD /oz 1, , , , , , , , ,200.0 Silver USD /oz Treatment Charge USD /t Copper produced tonnes 13,743 18,659 22,978 22,990 23,143 18,111 17,331 14,994 6,171 Gold produced ounces 6,569 6,472 9,321 9,321 9,321 8,508 8,508 8,508 3,968 Silver produced 000 oz Copper Revenue AUD m Cu TC / RC AUD m (9.9) (13.2) (17.4) (17.8) (18.8) (15.8) (15.0) (12.7) (6.1) By-products, net AUD m Other Revenue AUD m Cash Costs AUD m (68.5) (76.5) (80.2) (81.1) (82.8) (84.2) (83.3) (80.5) (42.4) Royalties AUD m (1.6) (1.8) (2.4) (2.4) (4.0) (7.2) (6.8) (5.8) (3.2) Corporate AUD m (10.6) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0) (4.0) Exploraiton, Other AUD m (7.4) (1.0) (1.0) (1.0) (1.0) Dep'cn & Amort'sn AUD m (26.5) (29.4) (29.8) (29.8) (29.8) (29.8) (29.8) (7.4) 0.0 E B I T AUD m (14.1) Net Interest AUD m (6.5) (5.4) (2.4) (1.2) (0.1) Tax Expense AUD m 8.8 (5.6) (16.5) (17.0) (16.5) (7.7) (5.8) (7.7) (6.0) N P A T AUD m (11.8) e p s (1.3c) 1.3 c 3.8 c 3.8 c 3.7 c 1.7 c 1.3 c 1.7 c 1.3 c Source : PhillipCapital Australia estimates The fall in earnings after 2017 is due to the lower grades being mined. However, this gives no value to the exploration potential in the tenement area, which hosts 17 historic copper mines. Our risked base case valuation of HGO is now 21.8c/share, as shown in Figure 29. Figure 29 : Risked, base case valuation of HGO now 21.8c/share Our risked valuation is 21.8c/share, or over 3x the share price We retain our Strong Buy recommendation. discount rate = 12.0 % 30-Jan Jun-13 risked : 100% Product per share Kanmantoo Reserves 100 % $A 165m $A 165m 15.9 c 15.6 c fanking credits 60 % $A 20m $A 12m 1.1 c 1.2 c Kanmantoo M & I Resources 85 % $A 44m $A 37m 3.6 c 3.8 c fanking credits 51 % $A 6m $A 3m 0.3 c 0.3 c Kanmantoo Stockpiles + Inferred 70 % $A 28m $A 19m 1.9 c 2.0 c fanking credits 42 % $A 6m $A 3m 0.3 c 0.3 c Corporate 100 % ($A 26m) ($A 26m) (2.5c) (2.5c) Exploration - Sumba 100 % ($A 2m) $A 0m 0.0 c 0.0 c Exploration - Bird's Head 100 % ($A 2m) $A 0m 0.0 c 0.0 c Exploration - other 100 % $A 0m $A 0m 0.0 c 0.0 c Hedging 100 % $A 28m $A 28m 2.7 c 2.3 c Cash / debt 100 % ($A 23m) ($A 23m) (2.2c) (1.3c) Options 100 % $A 0m $A 0m 0.0 c 0.0 c TOTAL $A 244m $A 219m 21.1 c 21.8 c Shares on issue 1,024.8m FPO shares 88.5m options 0.0m Issued 10.7m exercised Source : PhillipCapital Australia estimates Our site visit showed to us the changes in HGO and re-confirm our Strong Buy recommendation. Page 14

16 PhillipCapital Australia Hillgrove Resources Limited (HGO) Year ended January Section 1 - P&L Commodity price assumptions Sales revenue $A m Year ended January Interest revenue $A m AUD-USD Other revenue $A m Copper US$ /t 7,951 7,011 6,700 6,614 6,614 6,614 Total Revenue $A m Gold US$ /oz 1,669 1,425 1,350 1,300 1,300 1,300 Silver US$ /oz Cost of Goods Sold $A m (8) (85) (90) (98) (99) (102) (100) Corporate Costs $A m (10.1) (10.6) (4.0) (4.0) (4.0) (4.0) (4.0) Mine Production Royalties $A m (0.1) (1.4) (1.8) (2.4) (2.4) (4.0) (7.2) Ore processed ' 000 t 2,303 2,903 2,940 2,940 2,940 2,940 Exploration Expense $A m (2.4) (7.3) (1.0) (1.0) (1.0) (1.0) 0.0 Copper grade 0.67 % 0.71 % 0.85 % 0.85 % 0.85 % 0.70 % Other Operating Expenses $A m (0.2) (0.1) copper recovery 90 % 90 % 92 % 92 % 93 % 88 % Total Operating Expenses $A m (21) (104) (97) (105) (106) (111) (111) Gold grade 0.16g/t 0.12g/t 0.16g/t 0.16g/t 0.16g/t 0.15g/t gold recovery 55 % 58 % 60 % 60 % 60 % 60 % EBITDA $A m (6.1) Silver grade 3.0g/t 2.7g/t 2.5g/t 2.5g/t 2.5g/t 1.7g/t Dep'cn & Amort'sn $A m (5.2) (26.5) (29.4) (29.8) (29.8) (29.8) (29.8) silver recovery 55 % 57 % 67 % 67 % 67 % 67 % EBIT $A m (11.3) (14.1) Interest Expense $A m (1.2) (6.5) (5.4) (2.4) (1.2) (0.1) 0.0 Attributable production Other $A m Copper '000 t 13,743 18,659 22,978 22,990 23,143 18,111 Pre-Tax Profit $A m (12.5) (20.6) Gold oz 6,569 6,472 9,321 9,321 9,321 8,508 Tax Expense $A m (5.6) (16.5) (17.0) (16.5) (7.7) Silver ' 000 oz NPAT $A m (8.6) (11.8) Reported NPAT $A m (8.5) (11.8) Resources and Resources Resources, March 2012 Copper Gold Silver Section 2 - Key Data In Situ Mt Ordinary shares - year end m , , , , , ,033.5 Measured % 36 kt 0.13g/t 18 koz 2.4g/t 319 koz Fully diluted shares on issue m , , , , , ,033.5 Indicated % 178 kt 0.16g/t 105 koz 2.3g/t 1,542 koz Weighted # shares m , , , , ,033.5 Inferred % 43 kt 0.15g/t 31 koz 1.7g/t 362 koz Earnings per Share (1.0c) (1.0c) 1.3 c 3.8 c 3.8 c 3.7 c 1.7 c Long Term stockpiles Dividends Per Share 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c Measured % 5 kt 0 koz 0 koz Indicated % 1 kt 0 koz 0 koz Section 3 - Balance Sheet TOTAL % 263 kt 0.15g/t 154 koz 2.2g/t 2,223 koz Cash $A m Receivables $A m Reserves, April 2010 Copper Gold Silver Other $A m Proved % 20 kt 0.13g/t 10 koz 3.2g/t 237 koz CURRENT ASSETS $A m Probable % 105 kt 0.18g/t 72 koz 3.1g/t 1,246 koz TOTAL % 125 kt 0.17g/t 82 koz 3.1g/t 1,483 koz Receivables $A m P, P & E $A m Asset based Valuation Mining Properties / Exploration $A m Other $A m discount rate = 12.0 % 30-Jan Jun-13 NON-CURRENT ASSETS $A m risking 100% Product per share TOTAL ASSETS $A m Kanmantoo Reserves 100 % $ 165m $ 165m 15.9 c 15.6 c fanking credits 60 % $ 20m $ 12m 1.1 c 1.2 c Payables $A m Kanmantoo M & I Resources 85 % $ 44m $ 37m 3.6 c 3.8 c Debt $A m fanking credits 51 % $ 6m $ 3m 0.3 c 0.3 c Other $A m Kanmantoo Stockpiles + Inferred 70 % $ 28m $ 19m 1.9 c 2.0 c CURRENT LIABILITIES $A m fanking credits 42 % $ 6m $ 3m 0.3 c 0.3 c Corporate 100 % ($26m) ($26m) (2.5c) (2.5c) Long Term Debt $A m Exploration - Sumba 100 % ($2m) $ 0m 0.0 c 0.0 c Deferred Tax Liability $A m Exploration - Bird's Head 100 % ($2m) $ 0m 0.0 c 0.0 c Other $A m Exploration - other 100 % $ 0m $ 0m 0.0 c 0.0 c Hedging 100 % $ 28m $ 28m 2.7 c 2.3 c Provisions $A m Cash / debt 100 % ($23m) ($23m) (2.2c) (1.3c) NON-CURRENT LIABILITIES $A m Options 100 % $ 0m $ 0m 0.0 c 0.0 c TOTAL LIABILTIES $A m TOTAL $ 244m $ 219m 21.1 c 21.8 c NET ASSETS $A m Shares on issue 1,024.8m FPO shares 88.5m options 0.0m Issued 10.7m exercised Accumulated Profit (Loss) $A m Reserves $A m (3) 1 (3) Assumed Cash Costs, US c/lb Contributed Equity $A m LoM $A m Waste Minority Interest $A m Mining Total Equity $A m Processing Site Admin Section 4 - Cashflow Transport Net Cashflow from operations $A m (67.7) TC/RC Hedging $A m net by-product credit (28) (40) (23) (28) (28) (29) Interest Paid $A m (1.9) (2.0) (3.9) (4.0) TOTAL 177 c/lb 226 c/lb 196 c/lb 162 c/lb 161 c/lb 156 c/lb Taxes Paid $A m (4.6) (15.8) (12.7) Royalties Change in Working Capital $A m (2.8) 24.0 (13.7) (4.4) Other $A m Financial Ratios OPERATING CASHFLOW $A m (72.4) Year ended January Revenue $A m Exploration Expenditures $A m (1.0) (1.0) (1.0) (1.0) (1.0) (1.0) 0.0 EBITDA $A m (6.1) Maintenace Capex $A m 0.0 (2.4) (3.2) (3.2) (3.2) (3.2) (3.2) EBIT $A m (11.3) (14.1) Expansion Capex $A m (63.3) (12.3) NPAT (reported) $A m (8.6) (11.8) PPE Acquisitions (Total Capex) $A m (64.3) (15.7) (4.2) (4.2) (4.2) (4.2) (3.2) Adjusted EPS (cps) (1.0c) (1.0c) 1.3 c 3.8 c 3.8 c 3.7 c PPE Divestments $A m EPS Growth (%) 0 % 228 % 194 % 2 % (3%) INVESTING CASHFLOW $A m (64.3) (15.7) (4.2) (4.2) (4.2) (4.2) (3.2) DPS (c) 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c 0.0 c Dividend Yield (%) 0 % 0 % 0 % 0 % 0 % 0 % Change in Equity $A m PE adj. (x) x (5.2) (5.2) Dividends Paid $A m EV / EBITDA (x) x (32.6) (0.2) (1.0) (1.8) Change in Debt $A m (22.4) (12.4) (12.1) (3.4) 0.0 EV / EBIT (x) x (17.7) (5.4) 2.5 (0.2) (1.5) (2.7) Other Gearing (%) 17 % 15 % 10 % 5 % 1 % 0 % FINANCING CASHFLOW $A m (22.4) (12.4) (12.1) (3.4) 0.0 Return on Assets (4%) (4%) 9 % 18 % 16 % 14 % Return on Equity (4%) (5%) 6 % 14 % 12 % 10 % Free Cashflow $A m (136.7) EBITDA Margin (%) (53%) 11 % 39 % 49 % 48 % 44 % Net Cashflow $A m (86.4) Interest Cover (x) x (9.4) (2.2) Page 15