UBS Investment Research Perseus Mining Limited

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1 UBS Investment Research Perseus Mining Limited Small output miss on crusher downtime Event: September quarterly production report Sept Q output of 53koz was marginally below guidance of 55-60koz and the UBSe of 60koz due to unplanned crusher downtime. However, cash costs of US$475/oz were below the guidance of $575/oz and UBS-e of $580/oz due to deferred mining and stockpile adjustments. Encouragingly, mining rates increased 13% q-o-q and mill throughput by 12%. Cash at the end of Sept increased to A$109m and debt reduced to US$54m. The Sissingué development is still awaiting final Board sign off (pending finalisation of the fiscal agreement), but early works are ongoing. Impact: Revised gold price forecasts lift FY13 & FY14 earnings Guidance for FY13 remains at koz at $575/oz (UBS-e 250koz at $600/oz). With guidance for the full year unchanged, reconciling the Sept Q production report resulted in minor changes to earnings. However, pushing through the recent commodity price revisions has lifted our FY13 and FY14 earnings by 6% and 27%. Action: Buy maintained Production (and resources) growing We maintain our Buy on Perseus based on valuation. We believe PRU offers a strong growth profile to +420kozpa with Edikan ramping up and the development of Sissingué, which is expected to commence once the fiscal terms, or more specifically the Super Tax is clarified. Exploration continues to demonstrate likely extensions to group resources and reserves, in our view. Valuation: $3.98/sh (DCF, 10% discount rate) Both our valuation and price target have been raised by 2%. Our price target of $4.40/sh is derived from a 1.1x P/NPV multiple, broadly in-line with our spot valuation of $4.50/sh. Highlights (A$m) 06/11 06/12 06/13E 06/14E 06/15E Revenues EBIT (UBS) (54) Net Income (UBS) (51) EPS (UBS, A$) (0.12) Net DPS (UBS, A$) Profitability & Valuation 5-yr hist av. 06/12 06/13E 06/14E 06/15E EBIT margin % ROIC (EBIT) % EV/EBITDA (core) x < PE (UBS) x NM Net dividend yield % Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of A$2.77 on 15 Oct :37 EST Global Equity Research Australia Precious Metals 12-month rating 12m price target Price RIC: PRU.AX BBG: PRU AU Trading data (local/us$) 52-wk range Market cap. Shares o/s Buy Unchanged A$4.40/US$4.50 Prior: A$4.30/US$4.40 A$2.77/US$ October 2012 A$ /US$ A$1.27bn/US$1.30bn 458m (ORD) Free float 95% Avg. daily volume ('000) 1,779 Avg. daily value (m) Balance sheet data 06/13E Shareholders' equity A$4.6 A$0.45bn P/BV (UBS) 2.8x Net Cash (debt) Forecast returns A$0.01bn Forecast price appreciation +58.8% Forecast dividend yield 0.0% Forecast stock return +58.8% Market return assumption 7.6% Forecast excess return +51.2% EPS (UBS, A$) 06/13E 06/12 From To Cons. Actual H1E H2E /13E /14E Performance (A$) /09 Stock Price (A$) 01/10 Source: UBS 04/10 07/10 10/10 01/11 Price Target (A$) (LHS) Rel. All Ordinaries (RHS) 04/11 07/11 10/11 01/12 04/12 Stock Price (A$) (LHS) Rel. All Ordinaries 07/12 10/ Jo Battershill Analyst jo.battershill@ubs.com James Brennan-Chong Analyst james.brennan-chong@ubs.com This report has been prepared by UBS Securities Australia Ltd UBS 68 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. BELL UBS POTTER does and SECURITIES seeks to do business LIMITEDwith companies INFO@BELLPOTTER.COM.AU covered in its research reports. As a result, investors should be aware ABN that the firm 390 may 772 have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only AFS a single LICENCE factor NO. in making their investment decision.

2 September quarterly production report Edikan Gold Mine Perseus has reported September quarter production at 52.6koz with cash costs of US$475/oz (Table 1). Output was marginally below previous guidance of 55-60koz and the UBS-e of 60koz due to unplanned crusher downtime. However, cash costs (after deferred mining and stockpile adjustments) were reported at US$475/oz, significantly below the guidance of $575/oz and UBS-e of $580/oz. Table 1: Quarterly production summary Q2 12a Q3 12a Q4 12a Q1 13a Q-o-Q UBS-e Var to UBS Ore Mined kt % % Grade g/t % 1.2-1% Ore Milled kt % % Grade g/t % 1.6-3% Recovery % 81% 84% 87% 88% 0% 87% 1% Gold Produced koz % % Gold Sales koz % % Cash costs US$/oz n/a % % Source: Company reports, UBS-e The production shortfall, relative to guidance, was primarily due to almost 11- days of crusher downtime during the period. The primary crusher head nut came loose on two separate occasions causing damage to the nut and shaft sleeve. Initially, the nut was replaced with the spare carried in the site stores but this replacement required some modification. It is suspected that the replacement nut, supplied by the vendor, was the incorrect size. The issue has now been fixed and the vendor is working with Perseus to ensure supply and support issues are addressed. Encouragingly, with fewer wet weather impacts post wet season the mining rates increased 13% and mill throughput rates by 12% q-o-q. With an 8.5Mtpa throughput target, we have always maintained that one of the key performance indicators for the Edikan operation was material movements. Currently, it appears as if the mining capacity is sufficient to meet the 8.5Mtpa throughput target. Ore stockpiles increased to 4.4Mt at the end of the period, containing over 100koz of gold. Approximately 62% of the stockpile is comprised of oxide ore and 38% as primary. The recent completion of the oxide circuit will enable the company to increase the oxide component of the mill blend from the current 17% to between 20-30%. Additionally, it will free up additional capacity (up to 150tph) in the primary circuit. On the cost front, the deferred mining and inventory adjustment of $18m was a result of changes in the value of the low grade stockpile. The increase in value was due to a significant lift in tonnes and contained gold, and due to the higher

3 gold price. It is worth noting that the low grade stockpile is valued on the basis of net realizable value, as opposed the high grade stockpile that is valued at cost of mining. Mining costs, on a unit basis, were 7% higher than the previous quarter due to longer haulage distances. Tengrela Gold Project (includes Sissingué) During the period, the company received the grant of the Exploitation Permit for the Sissingué Gold Project. As part of the original application, Perseus lodged a draft Mining Convention containing potential fiscal terms for the project. The Ivorian government has subsequently made a public statement concerning the introduction of a Super Profits Tax, which would potentially impact the company s economic evaluation of the project. The government is seeking feedback from mining companies active in the country before enabling legislation for the new tax and presenting to Parliament. The company has stated that clarification of the fiscal terms is required before the Board will grant final approval for the commencement of construction. The company has also recently conducted a review of capex and opex for the project. It has stated that changes are relatively modest compared to levels of industry inflation with the results to reported to the market once the Board has reviewed and approved the new estimates. Early site works commenced at Sissingué in September. These activities included limited earthworks and the landowner compensation programme for loss of crops and land. Corporate update During the period, the company renegotiated the terms of its debt facility. The previous US$85m project debt facility has been converted into a US$100m corporate revolving line of credit. The aim was to provide more flexibility with the pending development of the Sissingué project. The fees are LIBOR plus 4% for the drawn amount and LIBOR plus 1.75% for the undrawn amount. The restructure of the facility required the company to return the hedge position back to 230koz (previously reduced to 190koz at the end of June). While we would have preferred the company not to have to increase its hedging commitments, the additional hedging out to December 2015 has increased the realisable price of the hedged ounces to $1365/oz. Cash on hand at the end of September increased to A$109m, from A$105m at end of June. Debt reduced to US$54m at the end of September, from US$63m at the end of June. Guidance update Previous guidance for the December quarter of 65-70koz at US$575/oz has been maintained, but H2 guidance has been marginally increased to koz at $625/oz. Subsequently, after the lower Sept Q result, full year guidance remains unchanged at koz with cash costs of $575/oz. We are currently forecasting FY13 production of 250koz at $600/oz from Edikan.

4 Summary of changes With guidance for the full year unchanged, reconciling the Sept Q production report resulted in minor changes to earnings. However, pushing through the recent commodity price revisions has lifted our FY13 and FY14 earnings by 6% and 27% (Table 2). Table 2: Summary of changes June Y/E 2013E 2014E 2015E A$m New Old Var % New Old Var % New Old Var % Revenue A$m % % % EBITDA A$m % % % EBIT A$m % % % Net Profit A$m % % % EPS Acps A$m % % % DPS Acps A$m 0 0 na 0 0 na 0 0 na Edikan Ore processed kt 6,222 6,325-2% 8,000 8,000 0% 8,000 8,000 0% Grade g/t % % % Gold produced koz % % % C1 cash costs US$/oz % % % Tengrela Ore processed kt 0 0 na 1,197 1,197 0% 1,900 1,900 0% Grade g/t 0 0 na % % Gold produced koz 0 0 na % % C1 cash costs US$/oz 0 0 na % % Group Gold produced koz % % % Cash costs US$/oz % % % NPV A$/sh % NPV Multiple (x) % Price Target A$/sh % Source: UBS-e Both our valuation and price target have been raised by 2%. Our price target of $4.40/sh is derived from a 1.1x P/NPV multiple, which is broadly in-line with our spot valuation of $4.50/sh.

5 Investment thesis We maintain our Buy on Perseus based on valuation. Our NPV has been increased marginally to $3.98/sh indicating the stock is trading at a 30% discount to our valuation. We believe PRU offers a strong growth profile to +420kozpa with the Edikan expansion due to ramp up in CY13 and the development of the Sissingué project in Côte d Ivoire. We believe the Sissingué development will be approved by the Board once the fiscal terms, or more specifically the Super Tax is clarified by the Government. Additionally, in our view, the recent exploration results continue to demonstrate that extensions to both the Edikan and Sissingué resources and reserves are likely. The company expects to release a resource update at Sissingué in January 2013

6 Perseus Mining (PRU.AX) MARKET INFORMATION Rating: Buy Price (as of 16-Oct-12): 2.61 Price Target (12 months): 4.40 Issued Capital: Market Capitalisation: 1,268.6 Avg. daily turnover (US$m) 4.8 Year end: Jun 2013 Website: Major Shareholders: Dundee Corporation 11.3% COMPANY DESCRIPTION Analyst/s: Jo Battershill/Glyn Lawcock 16-Oct-12 Perseus Mining Limited (PRU) is a dual Australia- and Canada-listed gold exploration and development company with resources of 8Moz and reserves of 4Moz. Perseus is currently commissioning its 90%-owned Edikan Gold Mine (EGM) in Ghana. The current mine plan indicates the project could produce 265koz per annum at a cash cost of US$550/oz with a mine life of more than 10 years. Full-scale commercial production is anticipated late in CY11. The company has also completed a feasibility study for its Tengrela gold project in Cote d'ivoire, which could add 130koz per annum from FY INVESTMENT SUMMARY OPERATIONAL ASSUMPTIONS (A$m) 2012A 2013E 2014E 2015E 1H11A 2H11A 2012A 2013E 2014E 2015E Net profit [reported] ($m) Commodity Prices Net profit [adjusted] ($m) Gold EPS [reported] ($) Silver EPS [adjusted, diluted] ($) A$:US$ EPS Growth (%) NM PER [adjusted] (x) Dividend ($) Payout ratio (%) Dividend Yield (%) Attributable Gold Production (koz) FCF Yield (%) (2.2) (1.3) Edikan Franking (%) Tengrela Shares [period-average, diluted] (m) Total VALUATION Cash Costs (US$/oz) Valuation per share 6%] ($) 3.98 Edikan Share Price Target [12 months] ($) 4.40 Tengrela Price/NAV [6% disc rate] (x) 0.66 Total Operating Assets [JH12] A$m DIVISIONAL BREAKDOWN [EBIT] Edikan (A$m) 1H11A 2H11A 2012A 2013E 2014E 2015E Tengrela Exploration Edikan Tengrela Gross Assets Net cash Corporate (87) (19) PROFIT & LOSS Hedging (92) (20) (A$m) 1H11A 2H11A 2012A 2013E 2014E 2015E Sales Revenue Operating Cash Profit Net Asset 6% discount rate Depn & Amortisation (0) (0) (10) (39) (57) (68) Operating Profit ENTERPRISE VALUE Others (41) (3) (70) (A$m) 2012A 2013E 2014E 2015E SGA (3) (6) (11) (13) (13) (13) Enterprise Value 1,211 1,320 1, EBIT (44) (10) EV/EBITDA (x) Net interest 2 1 (1) EV/Operating Free Cash Flow (x) <0 < Profit before tax (42) (9) Tax expense 0 0 (8) (80) (93) (60) EPS SENSITIVITIES Equity Associated NPAT Commodity Base 2013E 2014E 2015E Minority Interests Change EPS Change Dividends [preferred] Net Profit [reported] (42) (9) Gold price 10% 10% 16% 16% Abnormal Gain/(Loss) after Tax Currency 5-7% -7% -6% Net Profit [adjusted] (42) (9) EBITDA margin (%) Net Interest Cover [EBIT] (x) (56.6) Tax Rate (%) 13% 48% 27% 17% CASH FLOW EBIT/Total Assets (%) (A$m) 2012A 2013E 2014E 2015E NPAT/Equity (%) Operating income [EBIT, UBS] Depreciation & Amortisation Net change in working capital BALANCE SHEET [Selected Items] Other (operating) (29) (A$m) 2012A 2013E 2014E 2015E Pre-tax op cash flow Net Working capital (14) (14) (14) (14) Interest (paid) / received (1) Fixed Assets Tax paid 0 (80) (93) (60) Net Other Other Capital Employed Operating cash flow Net Cash / (Debt) Capital expenditure (70) (140) (60) (20) Total Equity [incl. minorities] Free cash flow (27) (15) Minorities (1) (1) (1) (1) Net (acquisitions) / disposals Dividends paid (Common) Net Debt / Equity (%) (12.6) (2.9) (36.5) (59.0) Shares issued/(repurchased) Book Value per Share($) Source: Company accounts, UBS estimates. UBS valuations are stated before goodwill, exceptionals and other spcieal items. Note: The data represents an extract of the full company accounts. Source: UBS-e, company data UBS 73

7 Perseus Mining Limited Perseus Mining Limited (PRU) is a dual Australia- and Canada-listed gold exploration and development company with resources of 8Moz and reserves of 4Moz. Perseus is currently commissioning its 90%-owned Edikan Gold Mine (EGM) in Ghana. The current mine plan indicates the project could produce 265koz per annum at a cash cost of US$550/oz with a mine life of more than 10 years. Full-scale commercial production is anticipated late in CY11. The company has also completed a feasibility study for its Tengrela gold project in Cote d'ivoire, which could add 130koz per annum from FY Statement of Risk Investment risk inherent in the resource sector includes, but it is not limited to, movements in commodity price and currency which may differ materially from the assumption used in this report. Furthermore, the sector is subject to political, financial and operational risks, each of which has the potential to significantly impact company/industry performance.

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