Amerigo Resources Ltd. (TSX: ARG / OTC: ARREF) Raising Fair Value

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1 Siddharth Rajeev, B.Tech, MBA, CFA Analyst August 17, 2017 Amerigo Resources Ltd. (TSX: ARG / OTC: ARREF) Raising Fair Value Sector/Industry: Junior Mining Market Data (as of August 17, 2017) Current Price C$0.73 Fair Value C$1.00 Rating* BUY Risk* 3 (Average) 52 Week Range C$ C$0.83 Shares O/S 175,435,635 Market Cap C$ mm Current Yield N/A P/E (forward) N/A P/B 1.2x YoY Return 329.4% YoY TSX 2.1% *see back of report for rating and risk definitions - all the figures are in US$ unless otherwise specified Highlights Amerigo Resources Ltd. ( Amerigo ARG company ) reported net revenues of $29.86 million in Q2-2017, up 55% YoY. Revenues in the six-month period were up 55% YoY to $59.6 million. Production and sales were in line with our estimates. However, stronger copper prices resulted in stronger than expected revenues in the quarter. We are raising our 2017 revenue forecast from $111 million to $121 million (copper sales of 64 Mlbs) as we raised the average copper price for the year from $2.50 to $2.65/lb. Cash costs before royalties continued to decline, on a QoQ and YoY basis. The cash cost in Q2 was $1.53 per lb, down from $1.71 per lb in Q1. The company recently announced an amended power purchase agreement at a lower rate. Net loss in Q was $1.65 million (EPS: -$0.01) versus $3.61 million (EPS: -$0.02) in Q Excluding a significant non-cash expense, the company reported net profit of $0.82 million (EPS: $0.00) in Q On August 4, 2017, the company announced that it secured bank financing to draw up to $35.3 million to fund the Cauquenes expansion project. Production is expected to increase to approximately 90 Mlbs per year once the second phase of the Cauquenes expansion project is completed (expected in the second half of 2018). We are raising our fair value estimate from C$0.90 to C$1.00 per share.

2 Page 2 Copper sales increase 20% YoY The company produced 16.3 Mlbs of copper in the quarter, up 13% YoY. Q1-2017, production was 15.1 Mlbs, up 18% YoY. Production in the six-month period was 31.4 Mlbs, up 15% YoY. Approximately 63% of the copper production came from historic tailings (Cauquenes), 32% from fresh tailings, and the remaining 5% from toll processing (third-party ore). Data Source: Company The following chart shows historic copper production by source fresh tailings, historic tailings and toll processing. Cu Production by Source Data Source: Company Production from historic tailings increased significantly since 2016, as Cauquenes tailings

3 Page 3 are of much higher grade and have stronger recovery rates than fresh tailings. The following table shows the copper production from fresh and historic tailings. Production Guidance Management has maintained their 2017 production estimate at Mlbs of copper. We are maintaining our 2017 estimate at 64 Mlbs. The longer-term goal is to increase production to approximately 90 Mlbs per year, once the second phase of the Cauquenes expansion project is completed. According to the company, engineering work for the expansion project is 44% complete. Management expects to complete the expansion project in the second half of The CAPEX estimate for the expansion project is approximately $30 - $35 million. On August 4, 2017, the company announced that it secured bank financing to draw up to $35.3 million. Operating Performance ARG reported net revenues of $29.86 million in Q2-2017, up 55% YoY. Revenues in the six month period were up 55% YoY to $59.6 million. Revenue growth came from stronger copper prices (see chart below), as well as a YoY increase in copper and molybdenum production.

4 Page 4 Cash costs before royalties continued to decline on a QoQ and YoY basis, as shown in the table below: Cash Costs Power $0.98 $0.54 $0.59 $0.66 $0.52 Steel $0.25 $0.27 $0.25 $0.23 $0.15 Other $0.99 $1.03 $1.00 $0.90 $0.74 By-product ($0.22) ($0.25) ($0.30) ($0.20) ($0.16) Smelter & Refinery $0.32 $0.34 $0.37 $0.42 $0.36 Administration $0.11 $0.11 $0.13 $0.14 $0.09 Transportation $0.03 $0.04 $0.04 $0.04 $0.03 Cash Costs (net of Mo credits) before royalty $2.46 $2.08 $2.08 $2.18 $1.73 Cash Costs + Royalty $3.31 $2.84 $2.73 $2.63 $2.11 The cash cost in Q2 was $1.53 per lb, down from $1.71 per lb in Q1. The strong production growth was the reason for the drop in cash cost. Cost plus royalties increased YoY as a result of higher copper prices. The company recently announced an amended agreement on its long-term power supply, which will see a rate reduction from $91.1/MwH to $75.0/MwH. Management has maintained their 2017 cash cost estimate at $1.60 to $1.75/lb in 2017, with a long-term goal of $1.40 to $1.60/lb. The decline in costs resulted in stronger margins in Q The company reported $6.54 million in EBITDA in Q2-2017, versus -$0.43 million in Q In the six month period, EBITDA improved from -$0.40 million to $11.2 million. However, the company reported a net loss in the quarter because of a $2.47 million non-cash expense related to the change in the fair value of future royalties due to related parties. The net loss in Q was $1.65 million (EPS: -$0.01) versus $3.61 million (EPS: -$0.02) in Q In the six-month period, the net loss was $3.0 million (EPS: -$0.02) versus $8.0 million (EPS: -$0.05) the previous year same period. Excluding the non-cash expense, the company would have reported net profit of $0.82 million (EPS: $0.00) in Q and $0.60 million (EPS: $0.00) in the first six months of 2017.

5 Page 5 EPS Forecasts Data Source: Company We are raising our 2017 revenue forecast from $111 million to $121 million (copper sales of 64 Mlbs) as we raise the average copper price for the year from $2.5 to $2.65/lb. We are also raising our 2018 forecast from $121 million to $136 million (copper sales of 69 Mlbs). We are lowering our net loss estimate (primarily due to the non-cash expense) to $3.49 million (EPS: -$0.02) from $0.72 million (EPS: -$0.00) in Our estimate for 2018 is net profit of $5.28 million (EPS: $0.03) versus the previous estimate of $1.24 million (EPS: $0.01). The company generated positive free cash flows (FCF) of $11.40 million in the first half of Balance Sheet

6 Page 6 At the end of Q2-2017, the company had $20.14 million in cash and -$12.68 million in working capital. Debt to capital was 43%, with long-term debt to capital of 27%. Stock Options and Warrants: The company currently has 12 million options (weighted average exercise price of $0.38) and nil warrants outstanding. All the options are in the money. Valuation and Rating Our Discounted Cash Flow Valuation increased from C$0.82 to C$0.85 per share. ARG s shares are currently trading at a forward EV (enterprise value) to revenue ratio of 1.2x versus the Metals and Mining industry s 1.5x (trailing). ARG s forward EV to EBITDA ratio is 5.9x versus the Metals and Mining industry s 9x (trailing). Based on the industry average multiples, we estimate that ARG s shares should be trading at C$1.11 per share. We are raising our fair value estimate from C$0.90 to C$1.00 per share. Risks The following risks, though not exhaustive, will cause our estimates to differ from actual results: Growth of the company is highly dependent on the ability to ramp up production. The value of the company is dependent on copper and molybdenum prices. There is no guarantee that the company will resume dividend payments. Like most producers, the company holds debt. The company is subject to all the risks associated with a unionized workforce. We rate Amerigo shares a Risk of 3 (Average).

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10 Page 10 Fundamental Research Corp. Equity Rating Scale: Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold Annual expected rate of return is between 5% and 12% Sell Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. 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