EQUITY RESEARCH AXIOM MINING LIMITED INVESTMENT POINTS

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1 23 MARCH 215 SOLOMON ISLANDS, VIETNAM, AUSTRALIA (QLD) NICKEL-COBALT, GOLD, SILVER, BASE METALS ADVANCED EXPLORATION EXCHANGE: ASX:AVQ CAPITAL PROFILE Share price (A$) week range (A$/share).32 to.8 Number of shares (M) Options and warrants (M) Convertible notes (M) *. Fully diluted * (M) 443. Market capitalisation (undiluted) (A$M) 39.7 Debt (A$M) - Mar '15F Enterprise value (A$M) Major shareholders: Drake Private Investments (7.5%), Anitua Ltd (6.9%), Admark Investments P/L (3.6%) Avg monthly volume (M) Cash (A$M) - Mar '15F Price/Cash (x) Price/Book (x) Listed company options: Share Price ($/Share) Mar-14 Source: Commsec Apr-14 DIRECTORS AVQ Axiom Mining Limited Limited May-14 Stephen Williams (Non Exec Chairman) Ryan Mount (CEO and Managing Director) Mr Ryan Mount CEO and Managing Director Tel: +(61) Newstead, QLD, Australia Tel: Honiara, Solomon Islands Analyst: Dr Tony Parry tonyparry@rcresearch.com.au Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan No Feb-15 AXIOM MINING LIMITED Axiom is focused on low capex DSO production in 4Q15 at the Isabel Nickel Project (8% AVQ) potentially one of the Pacific s largest and most attractive laterite deposits. Share Price: A$.11 INVESTMENT POINTS Isabel is world scale. Previous work (INCO, Kaiser Engineers) at Isabel gave an estimate of mineralisation (non JORC compliant) of Ni and.6% Co (equivalent to 1.6Mt of contained nickel) to a depth of only ~6m. AVQ s initial drilling has indicated prevalence of higher grade saprolitic ore (>1.5% Ni) below 8m depth. This suggests potential for significantly higher tonnage and better grades than the INCO-Kaiser estimates. AVQ is aiming for first production in late 4Q15 with ~2Mtpa direct shipping ore (DSO) operation. Discussions with project partners/funders underway. A 2Mtpa DSO operation would give Axiom a low capex (~US$25-35M) fast track route to production. On our projections the project is robust generating strong cashflow (forecast ~A$5Mpa assuming US$6/t DSO price) and laying the foundations for a larger scale ore upgrading project. The nickel price (and DSO prices) are forecast to move into an uptrend in 2H15 due to looming supply deficits. Our base case valuation for AVQ of A$.5/share is based on riskdiscounted scenario of initial DSO production from Isabel at 1.5% Ni. Our medium term target (6 months) is A$.35/share assuming Sumitomo is unsuccessful in its appeal against the court ruling. Assuming 1.8%Ni DSO product raises our valuation to A$.76/share (due to increased DSO product value from US$6/t to US$8/t). Our valuation is underpinned by benchmarking listed DSO producer: Asia Nickel Corp US$2.4bn market cap = US$132M per Mtpa DSO production. Six month share price catalysts include likely dismissal of SMM appeal against the court ruling and near term cash injection (~A$4.8M) from court costs claim, further high grade Isabel drilling results, anticipated positive milestones in Isabel Project financing/partnering. EXPLORATION AND FINANCIAL FORECASTS Recommendation: Speculative Buy Excellent recent drilling results have indicated a strong likelihood of premium grades (>1.5% Ni) at Isabel, which will strongly enhance project economics and support project financing. The current share price is 78% below our base case valuation of A$.5/share (assuming 2Mtpa initial production), a massive discount amplified by investor concerns over a court appeal by Japanese giant Sumitomo over ownership of Isabel. Based on the September 214 resounding court judgement in favor of AVQ, we think that the appeal stands little chance of success. Year End September Dec-14a Mar-15F 214a 215F 216F Exploration and evaluation (A$M) Corporate & Litigation (A$M) Exploration/(Expl.+ Corporate) (%) Funding duration at current burn (years) Shares on issue (pr end) (m shares) ** Drilling - RAB (M) * Drilling - RC/Diamond (M) * Capital raisings (A$M) Funding from JV partners (A$M) Cash (A$M) Cash backing (Ac/share) Net asset backing (Ac/share) , , 1, , 4, , 14, * All drilling metres are RCR estimates. ** Assumes 1:15 share consolidation April 215 (subject to s/h approval). RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 1

2 KEY PROJECTS EQUITY RESEARCH Project Ownership JV Target Process /Option Metal Partner Type Route Isabel Nickel Project * 8% * Ni-Co Landowners laterite DSO West Guadalcanal 1% Au-Ag na epithermal na Quang Tri 72% Au SOE ^ porphyry na Quang Binh 63% Au SOE ^ porphyry na Cardross 1% Cu-Au-Ag-Zn na porphyry na * Isabel granted, subject to appeal by Sumitomo. ^ SOE - State-Ow ned Entity Project Status Adv Expl Early Expl Early Expl Early Expl Mid Expl Location Sol. Isl. Sol. Isl. Vietnam Vietnam Aus (Qld) COMPANY COMMENT Overview: AVQ listed on the ASX in Nov 6 with a Pacific Rim focus. Its initial focus was on gold and base metals exploration in North Queensland and the Sepon region in Vietnam. Since 21 its primary focus has shifted towards the Solomon Islands with the Isabel Nickel Project. It also holds other prospective gold exploration ground near the Gold Ridge deposit on the Island of West Guadalcanal, also in the Solomons. History of the Isabel Nickel Project: Isabel has been known about for over fifty years. International Nickel Company (INCO) discovered the deposit in INCO spent over US$15M on the digging of over 4, bulk sampling test pits, along with over 1,5 auger drill holes and feasibility studies. From 1991 to 1993, Kaiser Engineers undertook further exploration (including test pits and testing of bulk samples) and outlined a (non-jorc compliant) historical mineralised zone estimate of 159Mt averaging 1.45% Ni and.6% Co, over two separate deposits, to a depth of only about 6 metres. Since then the project has been relatively un-touched. Axiom s Court Battle for Ownership: The Japanese giant Sumitomo Metal Mining (SMM) spent millions challenging Axiom s 8% ownership of the project in a three year court battle, which is clear indication that the project is of great significance to such a major company. Axiom scored a resounding win over SMM with judgement in the court battle handed down on 24 September 214. SMM has appealed the ruling (to be heard from 26 May 215), but we consider it has little chance of success, given the initial ruling stating that SMM s actions were an abuse of the court process. Axiom s Strategy: AVQ has spent many years developing strong relationships with the customary landowners including forming a JV whereby the landowners have a 2% interest in the Isabel Nickel Project. AVQ has developed key relationships and demonstrated a strong commitment to social responsibility The CEO is based in the Solomon Islands. He has an "open door policy which has put him close to the people, and this has helped smooth the way for the government and community support of all AVQ's projects in the Solomon Islands. Size and Significance of Isabel Nickel Project: The original Ni non-jorc historical estimate of mineralisation established by Kaiser Engineers was based on a surface resource of shallow predominantly limonitic material to an average depth of only ~6m. We understand that very little drilling or test pitting extended below this depth. The initial drilling results from AVQ s resource confirmation program, drilling deeper into the saprolitic zone below the limonitic zone have confirmed that mineralisation continues into this deeper zone and as expected the grades are significantly higher greater than 1.5% Ni in most of the deeper holes drilled (see page 3). This grade increase is very significant for DSO pricing and project economics. In addition, there are further areas of the deposit that were not sampled by INCO or Kaiser in their resource definition work, due to land access issues. From the depth extensions indicated by recent drilling and further resource areas undrilled, we believe that Isabel has the potential to be a very large (>3Mt) high grade ore body similar to the premium deposits in New Caledonia and Indonesia. Little wonder that the Japanese giant Sumitomo put so much effort and investment to try and grasp ownership of this project. Getting Isabel into Production: AVQ will move as quickly as possible to establish an initial ~2Mtpa DSO operation. First production is targeted for late 215. Project logistics are straightforward with deep-water channel access close to the deposit for shipping/barging. The potential resource spans two separate islands (San Isabel and San Jorge) with a deep water channel in between. No relocation of human settlements will be required. AVQ is continuing drilling of selected higher grade mineralised zones to confirm a modest initial mineable reserve (e.g. 1-2Mt) on which a start-up DSO operation could be established. Environmental permitting, application for and granting of a mining lease, contractual negotiations with customers and completion of an updated feasibility study are now being addressed. Initial funding has come from an A$5M strategic partnership with the Anitua Group. Further project funding (probably loans from potential customers, World Bank etc rather than equity) will be sourced in 2H15. Larger Scale Development Options: An initial ~2Mtpa DSO operation is likely to be the first small step in AVQ s development of the potentially major Isabel resource. The next stages of development will be aimed at a major expansion of production and introducing metallurgical processing of the ore on site to increase the value-adding, probably with an existing nickel player as a partner. We think that this is a very sensible approach rather than trying to go it alone. It will de-risk both technical and capital raising risk by bringing in an established nickel producing partner as plant owner and operator. All too often we see junior companies trying to maintain full control and go it alone with large scale projects, with little success. Nickel and DSO Pricing: The nickel price and DSO prices have eased significantly since the Indonesian export ban caused a dramatic rise in mid-214. Our analysis (see page 6) indicates that a significant recovery, particularly in DSO prices, is likely in 2H15. The good news is that even assuming current prices, we forecast strong profitability and cashflow for AVQ s proposed initial 2Mtpa DSO operation. West Guadalcanal Project (WGP): An initial scout drilling program (2,5m) of selected epithermal gold-silver targets at the WGP started in 4Q14, as well as further trenching work. The location has the right credentials - it is on a similar structure to St Barbara s (ASX:SBM) Gold Ridge operation in the East part of Guadalcanal, which is based on a 2.6 Moz gold resource. AVQ has defined a 1.5km long mineralised zone in the East of the Taho prospect (see map page 7). Vietnam and North Queensland Projects: Gold-focused exploration in Vietnam (potential for Sepon style mineralisation) and North Queensland (possible intrusionrelated gold systems) continues with a minimal level of activity due to the priority given to the Solomons projects. Corporate: AVQ is funding the current intensive Isabel development program at Isabel through an A$5M cash injection from strategic partner (and driller) Anitua Limited. AVQ should receive a further A$4.8M in June from Sumitomo (court costs recovery) which should see it through to the project financing stage without a further equity raising. The company intends to undertake a 15:1 share consolidation on 15 April 215 (subject to shareholder approval). Investment Comment: There is no doubt in our mind that Isabel is a real company maker for AVQ a quality project that most mining juniors can only dream about. But we see the AVQ share price reflecting only a fraction of the potential value of Isabel largely due to Sumitomo s desperate bid to appeal the court judgement regarding ownership. We are mining analysts, not legal analysts, but if, as we expect, Sumitomo s appeal is rejected by the courts in early June 215, those who accumulate shares at current levels should see an immediate handsome reward generated on their investment in AVQ. RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 2

3 Map showing location of Axiom s Solomon Islands Projects Note: The Isabel Nickel Project (8% ownership by AVQ) consists of two extensive shallow mineralised nickel laterite zones on the islands of Santa Isabel and San Jorge. AVQ also has a 1% stake in the West Guadalcanal gold-silver-copper epithermal exploration project, approximately 3km west of St Barbara s Gold Ridge Mine (ASX:SBM). It is in a prolific goldcopper belt as indicated by other operating mines on the map. The first set of results from AVQ s confirmatory resource drilling of the Isabel Nickel Project have confirmed higher grade nickel laterite zones (>1.5% Ni) particularly in the (approx. 8-2m depth) saprolitic zone which was not fully drilled by previous explorers (INCO and Kaiser Engineers). This signals tonnage increases as well as higher grades for the eventual resource. Hole ID Intersection1 Easting* Northing* RL EOH ISD14-1 Ni from 1.2m m 12.6m ISD14-2 Ni from surface m 13.m ISD % Ni from surface, including 2.28%Ni from 8.25m m 3.6m ISD % Ni from 1.5m, including 2.67% Ni from 8.25m m 3.m ISD % Ni from 4.75m, including 1.83% Ni from 9.25m m 26.8m ISD % Ni from surface, including 1.37% Ni from 4.5m m 2.1m ISD % Ni from surface, including 1.34%Ni from 2m m 25.4m ISD15-3 Ni from surface m 3. ISD % from 1.5m m 2.m ISD % Ni from surface, including 1.85% Ni from 6.5m m 16.5m ISD % Ni from.5m, including 1.92%Ni from 5.1m m 18.5m ISD m at 1.73% Ni from 1.m, including 2.24% Ni from 9m m 29. ISD % Ni from 2.5m, including 1.16% Ni from 5.3m m 18.1m ISD % Ni from 1.m, including 1.62% Ni from 8.5m m 17.6m ISD % Ni from 3.5m, including 1.16% Ni from 7.5m m 12.m RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 3

4 The drilling map below shows drilling locations for the Kolorosi Ridge drilling. Of note are the large number of previous drill hole locations from the INCO-Kaiser exploration. AVQ s drilling to date has clearly just scratched the surface. It is encouraging that all five of the central holes recently drilled (from ISD15-1 to ISD15-2 on the map) intersected higher grade saprolites from 4.5m to 9.25m below surface. Drilling is continuing. The second series of shallow drill holes (five holes to date) have been focused on the Havihua Ridge. Three of the six reported intersections indicated grades of >1.5% Ni in the lower saprolite zone. RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 4

5 EQUITY RESEARCH Schematic showing typical wet tropical laterite profile and highlighting drilling results from AVQ s recent drilling. The project logistics at the Isabel Nickel Project are very favourable for a low capex initial operation producing approximately 2Mtpa of direct shipping ore. The initial Kolorosi Ridge orebody likely to be mined is shallow (surface outcropping) and close to the proposed ore loading facility for barge transfer to 5,t capacity vessels moored in the deep water channel. Similar logistics exist at the other orebodies. RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 5

6 Activities are now getting underway after the >3 year delay resulting from the court injunction. The first step will be to drill out the high grade target zone at Kolorosi Ridge to generate 1-2Mt of reserves to underpin the initial start-up 2Mtpa DSO operation. AVQ is targeting first shipments late in 4Q15 after the anticipated granting of a mining licence in mid-215. DIRECT SHIPPING ORE PRICES Nickel Ore DSO Price Chart (US$/t) Note that the price premium for 1.8% Ni ore relative to 1.5% Ni ore is at least US$2/tonne. This puts into perspective the significance of higher grade mineralisation indicated at >8m depth in the recent drilling. There is every chance that AVQ could be shipping 1.8% Ni DSO., Ferroalloy.net DSO prices have stabilised after the mid-year 214 DSO price spike flowing from high nickel prices and the Indonesian export ban. The price of direct shipping nickel ore into China is still about twice what it was in January 214. We expect prices for 1.5% Ni ore (blue line) to further strengthen to at least US$6/t in 2H15 for the following reasons: Chinese nickel pig iron producers have been destocking. Inventories of ore at Chinese ports are down about 2% since the end of November 214. The Indonesian Government recently confirmed that the export ban will not be lifted. We expect the nickel metal markets will move into deficit in 2H15 leading to stronger nickel prices. DSO prices have stabilised and resumed a slight upwards trend. RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 6

7 BENCHMARK VALUATION - A LISTED NICKEL DSO PRODUCER (PSE:NIKL) Nickel Asia Corp. is currently capitalised at ~US$2.4bn and shipped 17.9Mt of DSO in 214. The market cap ratio is US$132M per annual million tonnes shipped. Applying this ratio to AVQ s potential 2Mtpa initial production (1.6Mtpa AVQ equity), and applying a 5% risk discount suggests a potential A$124.4M market cap target for AVQ (i.e. A$.35/share). This does not include future value-added production expansion potential. NIKL had total laterite resources of 428Mt (Dec 13). The Market Cap:resources ratio is US$5.53/t. If AVQ proves up resources of just 1Mt (8% equity) then applying the same ratio implies a benchmark US$442M (A$574M) market capitalisation (A$.16/share). Nickel Asia Corporation PSE:NIKL Share Price (PHP): * 27.9 Share Price (US$).62 Share on Issue (M): 3796 Market Cap (US$M) 2367 Annual DSO Production (CY14) (Mt): ** 17.9 Market Cap per Mt DSO produced annually (US$M /Mtpa): * Share price as at 19 March 215, exchange rate US$/PHP = ** Production is stated in million w et metric tonnes per annum. Implied Value of AVQ 2Mtpa Initial DSO operation Implied value of 2Mtpa DSO Production (US$m): Implied value of 2Mtpa DSO Production (A$m)*: * A$/US$=.85 long term A$m cents/share Implied value 1.6 Mtpa (AVQ equity) - 3% risk discount Implied value 1.6 Mtpa (AVQ equity) - 5% risk discount Implied value 1.6 Mtpa (AVQ equity) - 7% risk discount West Guadalcanal Gold Project: Trenching at Taho has defined a 1.5km long gold mineralised zone. Trenches uncovered large high grade pods (e.g. trench HVTC67: 2.96 g/t, including g/t Au). RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 7

8 CORPORATE VALUATION AND DSO PROJECT SUMMARY AXIOM MINING LIMITED - CORPORATE VALUATION Risk-discounted project valuations. Shows base case and sensitivity to nickel laterite prices. NAV Risk Risk Adjusted Equity NAV Factor Value (%) (A$M) (%) (A$M) Adjusted Nickel Laterite Ore Sensitivity (A$M) Assumptions Nickel Laterite DSO Price (CIF China) : US$/wet tonne Long Term Exchange Rate : A$/US$ Development Projects Isabel Ni Project (Solomons) 2Mtpa DSO 1 : 1% 8% 16. 7% Isabel Ni Project - Long Term Expansion Potential 2 : Comp. with NIKL 8% % Exploration Projects West Guadalcanal Gold Project : RCR est. 1% 6. 5% Vietnam Exploration Properties : RCR est. 72%/63% 3. 5% Queensland Exploration Properties : RCR est. 1% 3. 5% Sub-total Isabel & Other Exploration Projects Assets + Cash (Mar '15F) Tax losses (Mar '15F) Liabilities - Corporate Overheads : 1% Interest Bearing Debt Corporate - convertible Debt AVQ Net Assets Ordinary Shares on Issue (M) Fully Diluted Shares (M) Cash on Option Conversion AVQ Net Asset Value per share : A$/share AVQ Net Asset Value Diluted : A$/share dil Valuation Notes 1 See DSO Project assumptions in the table below. Assumes initial 5 year operation at 2Mtpa. NPV risk-discounted by 3% due to early stage project status. 2 Future Production Base Case: Expanded 5Mtpa assumed, valued at US$138/Mtpa (current PSE:NIKL production valuation), discounted by 7%. 3 Assumes 3% tax rate Note: Our base case valuation of A$.5 per share assumes 1.5%Ni DSO product and US$6./tonne DSO pricing for the initial 2Mtpa operation. These valuation parameters are considered conservative since recent drilling has indicated a strong possibility that 1.8% Ni product could be shipped. In this case we would apply US$8/tonne pricing and the valuation increases to A$.76/share. ISABEL NICKEL PROJECT SUMMARY * INITIAL FAST TRACK DSO MINING AND SHIPPING - 5 YEAR MINE LIFE MINEABLE RESOURCE ESTIMATES Assumed Life of Mine Reserves DSO Ore Nickel Iron Contained Mt % % kt Ni Initial high grade DSO ore Note: This assumed reserve only relates to an initial small scale 5 year DSO operation. We expect an eventual resource >1Mt to be confirmed with further drilling. MINING METHOD PROCESS METHOD Shallow open pit - free digging Open pit strip ratio: Direct shipping of laterite ore zero pre-stripping required - ore is outcropping at surface. PRODUCTION RATE :Mtpa ore 2. Wet metric tonnes CAPITAL COSTS :US$M 3. Capex to establish shallow mining and ship loading % 5. Sustaining capital (% of initial capex) RECOVERY - NICKEL :% 1 Direct shipping ore - no recovery factor applied LOM AVERAGE OPERATING COSTS (C1) :US$/t 15. Mining and loading costs :US$/t 3. Overheads :US$/t 17. Shipping costs to N China (basis 5,t shipments) TAX (SOLOMON ISL) :% 3. Probable 3-5 year tax holiday for export projects ROYALTY (SOLOMON ISL) :% 3. Mines and Minerals Amendement Bill (214) MINE LIFE :Years 5 Based on initial fast track DSO operation only COMMISSION DATE :Quarter 4Q15 Rapid development timetable anticipated * These figures are preliminary in nature and are intended to provide only a general indication of project potential scale and economic robustness. The assumptions above have been inputted into our base case financial model for the proposed initial DSO operation at Isabel. RCR MARCH 215 Disclaimer & disclosure attached. Copyright 215 by RCR Pty Ltd. All rights reserved. 8

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