Calidus Resources (CAI)

Transcription

1 Analyst Duncan Hughes Authorisation Peter Arden Speculative See key risks on Page 16. Speculative securities may not be suitable for retail clients Calidus Resources (CAI) Shiny new gold project hotting up 4th December 2017 Recommendation Buy (Initiation) Price $0.040 Valuation $0.055 (unchanged) Risk Speculative Expected Return Capital growth 37.5% Dividend yield 0.0% Total expected return 37.5% Company Data & Ratios Enterprise value Market cap Issued capital $31.3m $41.3m 1,031.7m Free float 65% Avg. daily val. (52wk) $170, month price range $0.019-$0.065 GICS sector Materials Disclosure: Bell Potter Securities acted as comanager to a $10m placement in September 2017 and received fees for that service. Price Performance (1m) (3m) (12m) Price (A$) Absolute (%) Rel market (%) Absolute Price $0.07 $0.06 $0.05 $0.04 $0.03 $0.02 $0.01 $0.00 Jun 17 Aug 17 Oct 17 SOURCE: IRESS CAI S&P 300 Rebased Consolidating an underexplored Pilbara gold project CAI only listed on the ASX in June 2017 with its flagship Warrawoona project in the Pilbara of Western Australia. CAI has hit the ground running with some encouraging drilling results from the Klondyke Project, a very visual shear zone with a generous distribution of historical workings. Recent results from drilling a 750m gap within a historic ~400koz resource are encouraging. All are from potentially open-pitable depths and show potential for resource growth. We have visited the project and believe this is an exciting exploration story to follow. Management is capable and the project is only 65km from MOY s Nullagine operation offering a fall back to the preferred standalone operation. The current resource (and gap) covers just 2.6km of a 12.5km shear zone that hosts a high proportion of historical workings that show, in many cases, considerable size potential. This is the first time the entire strike length of the deposit has been in the hands of just one owner and consequently represents a relatively unique opportunity to potentially grow near surface resources. Significant Resource upgrade expected this month Drilling has intersected high grade gold at several prospects. CAI has embarked on a 15,000m drilling campaign of RC and diamond drilling. This has already resulted in very encouraging results that include g/t Au, g/t Au, 3.4g/t Au, 9.7g/t Au, g/t Au, 9 4.6g/t Au, 1.1g/t Au, 4.8g/t Au and 1.1g/t Au. All are from open-pitable depths. With this program ongoing the encouraging news flow should continue. At the flagship Klondyke project, we estimate that the existing resource of 2.1g/t Au could grow to circa 1.75g/t Au based on infill and extensional drilling as well as improved wireframe assumptions and density measurements. Potential for a standalone project or toll treat We see potential for a >1moz project at Warrawoona which we believe could support a standalone operation. Metallurgy looks simple as does mining and access. However, the project is only 65km from the Nullagine Gold Project so a fall back toll treat option may also exist. In addition, the recent arrival of Novo Resources on the register as well as the JV arrangement add to the potential value creation options at Warrawoona. But beware the upcoming dilution CAI has 525m performance rights on issue to the vendor Keras Resources (LSE:KRS) that will be issued at achievable milestones (250m on a >500koz indicated resource and 275m on a successful PFS) and dilute the register to 1.5bn shares on issue. Investment thesis Buy (Speculative), Valuation $0.055/sh We believe CAI s Warrawoona Gold Project is showing evidence of hosting a significant gold discovery. Our sum of the parts valuation incorporates an insitu ounce valuation, exploration tenure valuation and cash. We value, and dilute for options and 250m performance rights in our valuation. We initiate with a Speculative Buy and see potential for upside on the current market valuation as well as favourable near term news flow. BELL POTTER SECURITIES LIMITED ACN AFSL DISCLAIMER AND DISCLOSURES THIS REPORT MUST BE READ WITH THE DISCLAIMER AND DISCLOSURES ON PAGE 17 THAT FORM PART OF IT. Page 1

2 Contents Investment case... 3 Valuation Discussion... 5 Company overview... 7 Warrawoona Project, W.A (100%)... 9 Board and management Calidus Resources (CAI) Resource sector risks Page 2

3 Investment case Near term and significant resource growth expected Considerable resource growth expected this month The project hosts a 410koz resource that is separated by a previously excised tenement. A considerable amount of upside exists when this gap position between the current resource is incorporated in the upcoming resource estimate (this month). In addition, the trend remains open east and west over 12.5km, of which only 2.6km is currently adequately tested with drilling. Drilling in the gap position has returned some impressive drilling results that include 3.4g/t Au, 3.8g/t Au, 1.45g/t Au and 4.6g/t Au. All are relatively shallow depth intersections within 150m of surface. We estimate that the existing resource will grow to circa 1.75g/t Au based on infill and extensional drilling as well as improved density measurements on the existing resource. First time this project has been consolidated as one Consolidation open up the belt to focussed exploration This is the first time the project has been consolidated as one 363km 2 project across a significant holding over an underexplored and clearly prospective greenstone belt. CAI is potentially opening up a new greenstone belt for focussed modern exploration for the first time. This is the first time the 12.5km strike of the Klondyke shear has been tested systematically by one owner and the first time any discoveries along the entire strike could be managed as one potential mining project. Potential for a standalone project or toll treat Signs are this is standalone options for toll treating or consolidation exist We see potential for a >1moz resource at Warrawoona which we believe could support a standalone operation. Metallurgy looks simple as does mining and access. However, the project is only 65km from the Nullagine Gold Project (operated by Millennium Minerals ASX:MOY) so a fall back toll treat option also exists. In addition, the recent arrival of Novo Resources on the register as well as the JV arrangement add to the potential value creation options at Warrawoona as Novo own the oz Beatons Creek deposit located only 55km away.. High grade and shallow intersections offer exploration upside Shallow high-grade intersections across several prospects Drilling has intersected high grade gold at several prospects. CAI has embarked on a 15,000m drilling campaign of RC and diamond drilling. This has already resulted in very encouraging results that include 6 63g/t Au, g/t Au, 3.4g/t Au, 9.7g/t Au, g/t Au, 9 4.6g/t Au, 1.1g/t Au, 4.8g/t Au and 1.1g/t Au. All are from open-pitable depths. With this program ongoing the encouraging news flow should continue. Favourable metallurgy and simple mining on granted mining lease Simple mining and processing likely Initial metallurgical testwork indicates favourable recoveries through a conventional gravity CIL operation. Mineralisation is near surface and looks to have potential to be mined through simple open pit mining. Higher grade plunging shoots also show potential for a future underground operation. Klondyke is on a granted mining lease. Page 3

4 Capable management and healthy cash balance Aggressive well managed exploration will continue We feel management has a track record of mining that is well suited to gold mining in Australia. Managing Director David Reeves is a mining engineer and the recently appointed Geology Manager Jane Allen a geologist, both have extensive experience to advance the project. The company is undertaking an aggressive exploration program with encouraging results. With an estimated cash balance of $10m (end qtr.) CAI is well placed to continue this exploration news flow. But dilution and liquidity issues Performance rights and options will dilute SOI CAI has 525m performance rights on issue to the vendor Keras Resources (LSE:KRS) that will be issued at achievable milestones (250m on a >500koz indicated resource and 275m on a successful PFS) and dilute the register to 1.5bn shares on issue. In addition, 192.5m in-the-money options are on issue that will likely dilute the register further. Dilution from the options and 250m performance rights (for a 500koz indicated resource) is incorporated in our valuation and we still see upside on the project despite the dilution. As a junior explorer the company is relatively illiquid, this is even more the case with just 65% free-float. On the plus side, the register hosts a number of likely supportive and in some cases synergistic shareholders. Considerable upside and favourable newsflow expected Our valuation shows considerable upside to current market valuations. Given the quality of the exploration tenure, management and continuing aggressive and well funded exploration we see considerable favourable exploration news flow to support share price appreciation. Figure 1 - SWOT Analysis Strengths Fully focussed on gold First time project consolidated and undergone systematic modern exploration Expect near term resource growth Favourable metallurgy expected Funded for/and undertaking aggressive exploration Part covered with pre-native title mining licence Capable management Workings indicate significant untested strike Threats Gold price volatility Ghost bats could inhibit some access Exploration risk Weaknesses Significant dilution expected from options and performance rights Relatively illiquid junior stock Resources currently only inferred Opportunities Exploration upside and $10m budget Grades could potentially support underground mining Conglomerate gold Toll treat and synergies with Novo and MOY SOURCE: BELL POTTER SECURITIES Upcoming Catalysts Resource upgrade 4QCY17; Drilling at the recently acquired Klondyke East prospect Ongoing; Follow-up drilling at Fieldings Gulley and Copenhagen Ongoing; and Pre-Feasibility Study on Klondyke 2HCY18. Page 4

5 Valuation Discussion Warrawoona Gold Project, Pilbara Region WA (100%) The project is at an early stage of exploration with a small resource at Klondyke and Copenhagen expected to grow substantially from the current resource of 410koz which was previously spread between separately owned tenements. A DCF valuation is not appropriate at this time. The stage of the project does lend itself to an exploration potential and resource ounce valuation though. We are comfortable that the project hosts circa 700koz based on current resources and anticipated additions from recent drilling. The median valuation for insitu resource ounces for ASX listed exploration companies is A$52/oz. We believe the quality of the resources would justify a premium to this, but at this stage we value these resources at the median pricing, and an insitu valuation of $36.4m. In terms of exploration upside, we see considerable potential along the 12.5km strike of the Klondyke trend, the encouraging intersections at Fieldings Gulley and Copenhagen as well as potential conglomerate gold. In addition, the large consolidated tenements and various options for value generation with neighbours or as a standalone prospect have value. Based on peer reviews of other gold exploration portfolio valuations, we value CAI s exploration portfolio at $30m. Cash, performance rights and options We assume cash at 31 December 2017 of $10m and value it at face value. We assume the $4.4m value of in-the-money share options are exercised and dilute our valuation by 192.5m shares accordingly. We also assume the 250m Class A performance rights, attributable to the vendor Keras Resources, on announcing a >500koz indicated resource are issued and dilute our valuation accordingly. A further 275m Class B performance rights will be issued on completion of a successful PFS. Whilst we see this event as likely in the future we believe it is not appropriate to dilute our valuation to reflect a potential PFS at this stage. Total valuation Valuation of $81m ($0.055/sh) Our total sum-of-the-parts (SOTP) valuation for CAI is $81m or $0.055/share after dilution for options and class A performance rights. Page 5

6 Table 1 - CAI: sum-of-the parts valuation Shares on issue (m) 1,031.7 ITM options (m) Performance rights (m) Diluted (m) 1,474.2 SOTP A$m A$/sh Resources (estimated end Qtr) Exploration Cash (estimated end Qtr) Total (undiluted) ITM Options Performance rights - - Total (fully diluted) SOURCE: BELL POTTER SECURITIES ESTIMATES. Page 6

7 Company overview Background CAI listed on the ASX at 2c per share through a reverse takeover of Pharmanet Group Ltd on 22 nd June The company listed with the Warrawoona Gold project, a combination of owned and farm in options on the Klondyke, Copenhagen and Coronation prospects. In September 2017 CAI announced further consolidation of the project through a joint venture with TSXv listed Novo Resources for the rights to primary (non-conglomerate gold) on ground to the east along strike of Klondyke as well as other prospective tenements. In September 2017, CAI also completed an oversubscribed institutional and retail placement to raise $10m at 4.1c per share. Corporate summary CAI has 1,031.7m shares on issue, of which 704.1m are fully paid ordinary freely traded shares and 327.6m are escrowed and not tradeable until 22 June 2019 (315m), 18 th August 2018 (12.5m) and 13 June 2018 (0.06m). The majority of these restricted shares (225m) are held by AIM listed Keras Resources PLC, and the remainder by Pharmacet proponents. CAI has 192.5m options on issue at an average strike price of 2.3c for a total potential exercise value of $4.42mm. The options may be exercised by various dates between June 2019 and April 2021 as outlined in the table below. 87.5m of these options are listed options and trade under the code CAIO on the ASX. At the current share price all options are in the money. Table 2 - CAI options on Issue Expiring Options (m) Strike Price (A$) Value (A$m) 13/06/ $0.022 $ /06/ $0.025 $ /04/ $0.020 $ /06/ $0.030 $0.72 Total/Average $0.023 $4.42 SOURCE: CAI, BELL POTTER Table 3 CAI performance rights on Issue Class SOURCE: CAI, BELL POTTER Rights (m) Class A 250 Class B 275 Total 525 Event >500koz indicated JORC resource Complete positive PFS As part of the purchase of the Warrawoona Gold Project the vendor, AIM listed Keras Resources hold 525m performance rights. This is a large number of rights that vest on some relatively near term and achievable events. We see some considerable dilution on the near term horizon. Major shareholders include Keras Resources PLC (21% - of which CAI management hold 18% interest), Novo Resources (5.5%) and Haoma Mining NL (3.5%). Management hold 7% of the company including the 18% indirect interest in Keras Resources PLC. CAI holds cash last reported at $11m (30 th September 2017) and no debt. Page 7

8 M&A and commercialisation options It is still early days at the project and for the company. However, the Pilbara Region is alive with interest and exploration activity, albeit predominately for conglomerate gold. The recently consolidated gold project is likely to attract attention. The project is only 65km from Millennium Minerals (MOY.ASX) Nullagine Gold project and consequently within trucking distance of their plant. In addition, Haoma s Bamboo Creek operation is located a similar distance away and some consolidation in the region is possible. The recent interest from North American gold producers and explorers, albeit predominately for conglomerate gold, shows another potential source of interest. The recent JV and appearance of Novo Resources (NVO.TSXV) on the CAI register opens up a number of potential synergies should Novo be successful in its conglomerate gold exploration and look to develop a project in the vicinity. In addition, as Novo owns the 589,000 oz Beatons Creek deposit located only 55km away. Novo has the market capitalisation to support a new gold project in the region. Page 8

9 Warrawoona Project, W.A (100%) Background The project has been mined at various times as small separate workings since The project was previously owned by Jupiter Mining who completed a number of studies including a metallurgical review and resource estimate. Jupiter became more focussed on iron ore at a time of lower gold prices and these assets received little attention. Prior to this the project was owned by Rio Tinto, Aztec Resources and Lynas Resources. An estimated 30g/t Au for 24,300oz has been mined historically. Most workings are small but there a number of deep and likely sizeable workings centred at Klondyke Queen. Previously multiple separate ownerships were not consolidated as one. The consolidation of the entire greenstone belt under one owner makes the project much more viable. The bulk of the project has been consolidated from three major sources as follows; A purchase of the old Jupiter project and resource from Arcadia Resources An option and purchase (now complete) at Klondyke and Copenhagen/Coronation from ASX listed Haoma Mining (HAO.ASX) A joint venture on the tenements surrounding Klondyke with TSX listed Novo Resources (NVO.TSXV). Novo retains the rights to any conglomerate gold discoveries on the JV tenements. The Klondyke Project is the main project and consequently main focus of this report. The other highly prospective prospects of Copenhagen and Fieldings Gulley are discussed in the exploration section on page 13. Location, Infrastructure and access Access from Marble Bar is via an unsealed gazetted road linking Marble Bar and Nullagine and a local exploration track. Topography is relatively flat, although quite rugged immediately at the project. This will not present significant issues for mining and may assist in lowering strip ratios. Figure 2 - Warrawoona project location Figure 3 - Warrawoona Gold Project SOURCE: CAI SOURCE: CAI The Klondyke Resource is on Mining Leases that are pre-native title. One environmental consideration is the presence of protected ghost bats within the Klondyke Queen Mine in the far west of the resource. This will likely require a management plan but is not considered a fatal flaw. Environmental and heritage surveys will need to be completed as Page 9

10 part of a feasibility study here. Klondyke East is on an exploration licence and will require a native title agreement. Klondyke geology, resources and reserves Geology The mineralisation at Klondyke is hosted in narrow banded quartz veins and surrounding altered selvedges of chert and schist. The mineralisation is hosted within a 12.5km E-W trending shear zone sandwiched between a footwall ultramafic and hangingwall sediment. Mineralisation is slightly remobilised and enriched when NE trending shears cross the main shear zone. Figure 4 Klondyke long section The mineralisation averages 20m width with individual high grade ore shoots from 2m 15m wide, and dips steeply to the south. It has been defined over 2.5km, the trend has been traced 7.5km and we feel there is prospectivity over 4km. The mineralisation holds together in an inferred resource but is often poddy, nuggetty and discontinuous on a local scale making grade control a likely priority should mining occur. Klondyke Exploration Exploration upside is considered very favourable at Klondyke. Drilling and old workings show that much of 12.5km of the Klondyke shear is prospective, only 4km of strike has received any sort of exploration with the remainder largely untested. However, outside this 4km the historical workings appear more isolated and smaller. In and around the Klondyke resource, historical workings at Klondyke Queen on the western edge of the resource and at Klondyke Boulder to the east of the resource show sizeable operations that go quite deep. Indications on site suggest localized high grade plunging shoots with greater down dip potential than strike potential. Delineation of these shoots may indicate future underground potential. The over 200 known historical workings produced at impressive average grades that include; Klondyke Queen 187g/t Au Klondyke Boulder 40g/t Au Golden Gauntlet 50g/t Au St George 167g/t Au British Exploration of Australia 184g/t Au Page 10

11 Figure 5 - Klondyke Cross section A Figure 6 - Klondyke Cross section B SOURCE: CAI SOURCE: CAI Resources The Klondyke project hosts a JORC compliant inferred resource of 2.08g/t Au for 374,000oz at a lower cut of 0.5g/t Au. The resource remains open with drilling and historical workings indicating considerably more upside along strike and down dip. When the small high-grade Copenhagen Resource of 6.1g/t for 36,000oz is added the global JORC compliant resource currently stands at 410koz at a 0.5g/t Au lower cut-off grade. Table 4 Warrawoona mineral resources (22 June 2017) Category Tonnes (Mt) Grade (g/t Au) Contained Gold (Koz) Inferred Total SOURCE: CAI, 100% OF PROJECT We believe that much of the current drilling density could support an indicated resource. The resource is currently classed inferred due to the historical nature of some of the drilling data and the fact that it was often assayed through aqua regia rather than screen fire assays. The former will likely under call the grade. A program of hole twinning and resampling using fire assay could improve the classification and possibly the grade quickly and easily. The SG estimate for this resource looks low at 2.4 and the lower cut used to form the previous resource wireframe was 0.8g/t Au. We see scope to lower the lower cut Page 11

12 on wireframing and improve density measurements which could improve the historical resource. A considerable amount of upside exists when the gap position between the current resource (Figure 4) is incorporated in the upcoming resource estimate. In addition, the trend remains open east and west over 12.5km, of which only 2.6km is currently adequately tested with drilling. Drilling in the gap position has returned some impressive drilling results that include 3.4g/t Au, 3.8g/t Au, 1.45g/t Au and 4.6g/t Au. All are relatively shallow depth intersections within 150m of surface. Potential mining discussion It is still early days but potential future mining would likely take the form of a simple open cut operation initially, with evidence that pods of higher grades could support future underground mining at depth. But much more work is required. Water in the Klondyke Queen shaft is estimated at >40m. Grade control will be important given the localized nuggetty nature of mineralisation. Geotechnical and groundwater studies are yet to be completed. Potential processing discussion Some preliminary test work indicates the ore would process well through a standard gravity- CIL plant on site or through toll treating at Millennium Minerals Nullagine plant (65km away) or Haoma s Bamboo Creek Plant (70km away, currently closed). The recent drilling results suggest the project has potential to support a standalone operation and we believe management is more likely to focus on this option than a toll treat operation. Preliminary metallurgical test work indicates metallurgical recoveries of >90%. Gravity recovery is indicated as favourably high at >60% which will be favourable for costs. Residence time for CIL processing looks favourable and grind size is a manageable 106microns with low reagent consumption expected. Processing water will need to be sourced in this arid part of the country. Power would likely be diesel power on site. More test work is required. Regional Exploration Outside the immediate vicinity of the Klondyke Resource, we see considerable exploration potential. The main targets include Klondyke East, Klondyke West, Copenhagen and Fieldings Gully. CAI is conducting systematic exploration which includes a 6 month program of study by CSIRO that includes mapping, geophysics and geological interpretation including detailed structural mapping. Drilling is ongoing. CAI has recently employed a well credentialed geology manager and exploration manager. Klondyke East The Klondyke East exploration licence was recently acquired through a joint venture with Novo Resources that doubled the size of the Warrawoona project for 20m shares and a $2m expenditure commitment over 3 years. The highlight of this transaction is a 5km extension of the Klondyke trend to the south east of the resource that is largely untested but has already returned a number of encouraging intercepts including 5.6g/t Au from 31m and 4.4g/t Au from 141m. CAI expects to commence drill testing this target imminently. In addition the tenement hosts a parallel 5km long soil rock Au anomaly (Horrigans) 800m to the north of Klondyke East and located on the Novo Tenements that has never been drill tested. This anomaly could represent mineralisation on a separate parallel shear. Page 12

13 Klondyke West The 5km of strike to the west of the Klondyke Resource hosts a number of substantial historical workings but has received little drilling. This prospect is likely to receive drilling attention after Klondyke East. Copenhagen, Coronation and Fieldings Gully These projects are located to the west of Klondyke on interpreted splays off the Klondyke shear or on a faulted offset to the main shear to the west (Figure 4). Geologically they show potential. A small open pit was completed at Copenhagen and a small, shallow (<100m deep), high grade resource of 36koz at 6.1g/t has been delineated. Mineralisation is hosted within a shear zone in highly deformed ultramafic rocks which are sandwiched between two chert horizons. Some encouraging shallow high grade results have been returned which include 7.7g/t Au, 7.5g/t Au and 4.4 g/t Au. Intersections to date host narrower (1mwide) zones at significantly higher grades. Coronation is located to the west. This prospect hosts some encouraging intersections that include 5.2g/t Au, 8.0g/t Au and 7.6g/t Au. Fieldings Gully is located to the south west of Coronation within sheared ultramafic. Initial drilling results are very encouraging and include 9.7g/t Au, 3.5g/t Au, 1.9g/t Au and 4g/t Au. Conglomerates Greenfields exploration CAI is focussed on very exciting high grade conventional gold mineralisation. However the Warrawoona Project is situated within the Pilbara Province and hosts several prospective horizons. The Pilbara region has seen significant excitement recently as many companies led by CAI s JV partner Novo resources have discovered large accumulations of gold nuggets hosted within an Archaean conglomerate. Analogies to the multi-billion ounce Witwatersrand province in South Africa have been made, although this is very early days and a long way from being proven or capable of supporting an economic outcome. The JV with Novo does not give CAI the rights to any conglomerate sourced gold. However, the tenements held outside this JV do. CAI is completing reconnaissance mapping on its 41km of strike or 36km2 of identified Mt Roe Basalt. Mt Roe Basalt is the unit that sits stratigraphically directly above the conglomerate horizon that is shown to host gold elsewhere in the Pilbara. Figure 7 - Klondyke Project Figure 8 - Copenhagen Pit SOURCE: BELL POTTER SECURITIES SOURCE: BELL POTTER SECURITIES Page 13

14 Board and management We feel management has a track record of mining that is well suited to gold mining in Australia. Managing Director David Reeves is a Mining Engineer and the recently appointed Geology Manager, Jane Allen a geologist, both appear to have the experience to advance the project. Non-Executive Chairman Keith Coughlan has almost 30 years experience in stockbroking and funds management. He has been largely involved in the funding and promoting of resource companies listed on ASX, AIM and TSX, has advised various companies on the identification and acquisition of resource projects and was previously employed by one of Australia s then largest funds. Mr Coughlan is currently the managing director of European Metals Holdings (AIM and ASX) and recently retired as chairman of ASX listed Talga Resources Limited. Managing Director David Reeves is a mining engineer with 30 years of experience in the mining industry, he is currently a director of Keras Resources Plc (AIM) and Nonexecutive Chairman of European Metals Holdings (ASX and AIM). Mr Reeves has extensive experience in international capital markets through his involvement with various listed London and Australian companies. Mr Reeves has a first class WA Mine Managers ticket and a Graduate Diploma in Finance and Investment. He was managing director of Keras Resources Plc when Keras consolidated the Calidus project area and has over 20 years experience in gold and precious metal development. Non-Executive Director Adam Miethke a geologist with over 16 years experience in the metals and mining industry, including funds management and more recently as a corporate advisor. Mr Miethke initially worked for Rio Tinto s iron ore division before joining Snowden Mining Consultants where he worked across all commodities in Australia, Africa, Eastern Europe and South America. After completing an MBA in 2008, he joined Regent Pacific Group in Hong Kong as technical director, overseeing the group s investment portfolio. Between 2011 and 2016, Mr Miethke was a director of the corporate finance team at Argonaut Capital Limited, and led Argonaut s metals and mining division. Non-Executive Director Peter Hepburn-Brown a mining engineer with over 35 years international mining experience. Mr Hepburn-Brown is a non-executive director of Keras Resources Plc (AIM) and Focus Minerals Ltd (ASX). He was most recently managing director of Philippines based Medusa Mining Ltd (ASX). Geology Manager Jane Allen has over 30 years experience in managing greenfields, brownfields and near mine exploration in gold and base metals. Jane has previously been employed by Anglogold Ashanti, Resolute Mining Limited, Avion Gold Corporation and Great Central Mines. She most recently headed up Brownfields Exploration for Anglogold Ashanti for all Continental African Operations. CFO & Company Secretary James Carter is a CPA and Chartered Company Secretary with 20 years international experience in the mining industry. Mr Carter is currently the Chief Financial Officer (CFO) of Keras Resources Plc (AIM). Prior to this he was CFO of Straits Resources Limited, an ASX200 diversified mining group, and CFO and company secretary of SGX listed Straits Asia Resources where he was integral to its development as a 10 million tonne per annum coal producer in Indonesia. Mr Carter has experience working in debt and capital equity markets, tax strategy, mergers and acquisitions and in corporate governance. Page 14

15 Calidus Resources (CAI) Company description CAI is a Perth-based company focused on gold exploration at its 100% owned Warrawoona project in the Pilbara region of Western Australia. CAI listed on the ASX in June The project hosts a 410koz Inferred Resource at open-pitable depths, recent drilling in the gap between the eastern and western portions of this resource have returned encouraging results. We expect the company to release a significant upgrade to this resource this month. In addition, we see significant exploration upside at the Warrawoona project with recent drilling intersections across several prospects including 6 63g/t Au, g/t Au, 3.4g/t Au, 9.7g/t Au, g/t Au, 9 4.6g/t Au, 1.1g/t Au, 4.8g/t Au and 1.1g/t Au showing real promise. Investment thesis Buy (Speculative), Valuation $0.055/sh We believe CAI s Warrawoona gold project is showing evidence of hosting a significant gold discovery. Our sum of the parts valuation incorporates an insitu ounce valuation, exploration tenure valuation and cash. We value, and dilute for options and performance rights in our valuation. We initiate with a Speculative Buy and see potential for upside on the current market valuation as well as favourable near term news flow. Valuation SOTP based on exploration potential and resources The project is at an early stage of exploration with a small resource at Klondyke and Copenhagen expected to grow substantially from the initial resource of 400koz which was previously spread over separately owned tenements. A DCF valuation is not appropriate at this time. The stage of the project does lend itself to an exploration potential and resource ounce valuation though. We are comfortable that the project hosts circa 700koz based on current resources and anticipated additions from recent drilling. The median valuation for insitu resource ounces for ASX listed exploration companies is A$52/oz. We believe the quality of the resources would justify a premium to this, but at this stage value these resources at the median value per ounce, resulting in an insitu valuation of $36.4m. In terms of exploration upside, we see huge potential along the 12.5km strike of the Klondyke trend, the encouraging intersections at Fieldings Gulley and Copenhagen as well as potential conglomerate gold. In addition, the large consolidated tenements and various options for value generation with neighbours or as a standalone prospect have value. Based on peer reviews of other gold exploration portfolio valuations we value CAI s exploration portfolio at $30m. We assume cash at 31 December 2017 of $10m and value it at face value. We assume the A$4.4m value of in-the-money share options are exercised and dilute our valuation by 192.5m shares accordingly. We also assume the 250m Class A performance rights, attributable to the vendor Keras Resources, on announcing a >500koz indicated resource are issued and dilute our valuation accordingly. Valuation of $81m ($0.055/sh) Our total sum-of-the-parts (SOTP) valuation for CAI is $81m or $0.055/share after dilution for options and class A performance rights. Page 15

16 Resource sector risks Risks to CAI include, but are not limited to: The key risks for resources investments include, but are not limited to: Gold price volatility: The relatively liquid nature of gold makes it subject to wide fluctuations in price, particularly during more difficult economic times or major world events. Associated with gold price volatility are potentially different gold price and foreign exchange rate outcomes to our forecasts. Lack of exploration success: Geology generally and gold mineralisation in particular can often have a locally complex nature. There may also be locally variable alteration and weathering and there may be areas which contain greater than expected geological complexities that may be difficult to resolve without extensive drilling programs and may inhibit the definition of adequate resources and reserves. Lack of funding: Exploration companies generally do not have a source of revenue and so they require access to funding to enable them to carry out adequate exploration and related development activities in order to continue to develop their operations. CAI is well funded for its near term exploration needs. Metallurgical issues: Based on the processing of material to date, generally high gold recoveries were obtained, indicating the mineralised Klondyke material is free milling but specific and extensive test work needs to be done on the gold mineralisation to establish its metallurgical characteristics. Subsequent identification of adverse metallurgical characteristics may arise from such test work that could lead to the need for more complicated and expensive processing requirements. Share capital dilution: CAI has 192.5m in-the-money options on issue as well as 525m performance rights. The risk to dilution of the m (of which 327.5m are escrowed and not always apparent at first viewing of the company) is considered high. Statutory and environmental approvals: Ghost bats are reported from the Klondyke Queen workings immediately west of the Klondyke resource. These will need due consideration should the company look to advance toward mining. Their presence is believed to be manageable as part of any future mining venture, but does offer potential for permitting complications and/or parts of the resource not being accessed. The Klondyke permit is a granted mining licence, but Klondyke East is an exploration licence. Inappropriate acquisitions or takeover: CAI is a junior explorer. All explorers are at risk of making inappropriate acquisitions. CAI could potentially be the recipient of takeover activity that undervalues the potential from longer term value. Page 16

17 Recommendation structure Buy: Expect >15% total return on a 12 month view. For stocks regarded as Speculative a return of >30% is expected. Research Team Staff Member TS Lim Industrials Sam Haddad Chris Savage Title/Sector Head of Research Industrials Industrials Phone tslim shaddad csavage Hold: Expect total return between -5% Jonathan Snape Industrials jsnape and 15% on a 12 month view Tim Piper Industrials tpiper Sell: Expect <-5% total return on a 12 month view John Hester Tanushree Jain Financials Healthcare Healthcare/Biotech jhester tnjain Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced operations or have been in operation for some time but have only forecast cash flows and/or a stressed balance sheet. Such investments may carry an TS Lim Lafitani Sotiriou Resources Peter Arden David Coates Duncan Hughes Associates James Filius Alexander McLean Banks/Regionals Diversified Resources Resources Resources Analyst Analyst tslim lsotiriou parden dcoates dhughes jfilius amclean exceptionally high level of capital risk and volatility of returns. Bell Potter Securities Limited ACN Level 38, Aurora Place 88 Phillip Street, Sydney 2000 Telephone The following may affect your legal rights. Important Disclaimer: This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. In Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of any specific client s financial situation, particular needs and investment objectives ( relevant personal circumstances ), a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document. While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued. Except insofar as liability under any statute cannot be excluded. Bell Potter Securities Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other person. Disclosure of interest: Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may from time to time hold interests in the securities referred to in this document. Disclosure: Bell Potter Securities acted as co-manager to a $10m placement in September 2017 and received fees for that service. Exploration Risk Warning: The stocks of resource companies without revenue streams from product sales should always be regarded as speculative in character. Since most exploration companies fit this description, the speculative designation applies to all exploration stocks. Stocks with Speculative designation are prone to high volatility in share price movements. Exploration and regulatory risks are inherent in exploration stocks. Exploration companies engage in exploration programs that usually have multiple phases to them where positive results at some stages are not indicative of ultimate exploration success and even after exploration success, there is often insufficient economic justification to warrant development of an extractive operation and there is still significant risk that even a development project with favourable economic parameters and forecast outcomes may fail to achieve those outcomes. Investors are advised to be cognisant of these risks before buying such a stock as CAI. ANALYST CERTIFICATION Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific Page 17