SAMPLE ONLY. Avanco Resources Limited. I m big in Brazil October Recommendation: BUY. Copper producer with strong organic growth towards 50ktpa

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1 Avanco Resources Limited I m big in Brazil October 2016 Recommendation: BUY Copper producer with strong organic growth towards 50ktpa Dedicated & experienced in-country management team Significant upside to base case valuation ASX: AVB Share Price: $0.06 Target Price: $0.15 M/Cap.: $147.4M Valuation: $450M Shares: 2,457M Monthly T/over: $2.4M Petra Capital Pty Ltd

2 Contents Executive Summary... 4 Successful transition from explorer/developer to producer... 4 Antas output to lift from 12ktpa to 15ktpa at US$1/lb cash costs... 4 Staged development at Pedra Branca to deliver 25ktpa by ktpa Cu target within 4-5 years looks achievable... 4 Quality gold exposure via a low cost earn-in... 4 Dedicated in-country management team... 4 Material upside to our A$0.15/sh price target (1xP/NPV)... 4 Key risks... 4 Investment thesis... 5 Introduction... 6 Antas Copper-Gold Project (100%)... 7 Modelled assumptions for Antas Key production assumptions for Antas open pit operations Pedra Branca Copper Project Pedra Branca East the target of initial development Staged development approach has been given green light Modelled assumptions for Pedra Branca East Targeting 50ktpa Cu within 4-5 years Exploration strategy and potential in Carajás CentroGold (Gurupi) Gold Project Cash flow analysis Valuation Valuation sensitivity Risks Analysis Directors and Senior Management Appendix Resources and Reserves

3 Avanco Resources (AVB) BUY Share Price: A$0.06 I m big in Brazil Target Price: A$0.15 Avanco Resources Limited (ASX: AVB) is a mining, development and exploration company focused on copper and gold in Brazil. After recently building, commissioning and successfully ramping-up the Antas open pit copper mine, it is now targeting the rapid development of the nearby Pedra Branca underground copper deposit. Further, it has recently agreed to an undemanding earn-in for up to 100% of the undeveloped 3.1Moz CentroGold (Gurupi) Gold Project from TSXlisted Jaguar Mining Inc. With a growing copper production profile from 12ktpa toward 50ktpa over the next few years, exposure to an advanced gold project and good upside to valuation, we initiate coverage with a BUY and A$0.15/share price target (1xP/NPV). Antas to be the first of many successes in Brazil Antas copper mine successfully delivered on time/budget & quickly up to the 12ktpa Cu targeted run rate; permitting underway to increase output to 18ktpa The larger, high grade Pedra Branca copper project being rapidly advanced toward production via a staged development approach; first copper by end 2017 Aiming to be a 50ktpa Cu producer within 4-5 years CentroGold Gold Project could be AVB s third mine In-country management team actively supervising operating & development projects & permitting activities Antas producing 12ktpa Cu & 7kozpa Au at US$1/lb Antas fully ramped-up and operating at permitted 12ktpa rate; step up to 15ktpa expected during 2017 C1 cash costs US$1/lb, AISC around US$1.60/lb 7 year initial mine life, good potential to increase Recent commitment to build Pedra Branca East (PBE) Staged approached with low start-up capex, ore trucked to Antas for processing in 2017 & Mtpa project producing up to 25ktpa Cu & 17koz Au by 2020, US$150m capex; 11 year mine life Group Cu output of 40ktpa, options to achieve 50ktpa 3.1Moz CentroGold Gold Project looks exciting Extensive dataset including 130,000m drilling (80% DD) Blanket Zone presents immediate potential for a low capex, fast start-up open pit development Material upside to our A$0.15/sh price target Price target set at 1xP/NPV based on Antas & PBE only A$40m (A$0.01/sh) nominal exploration value includes CentroGold & near-mine and regional opportunities Company Data Shares ordinary (M) 2,457 Market cap. ($M) month low/high ($) A$0.048 / A$0.084 Average monthly turnover / volume A$2.4m / 44.1M GICS Industry Materials / Diversified Metals & Mining Financial Summary (fully diluted/normalised) US$ Year end Dec 2016F 2017F 2018F 2019F 2020F Revenue (US$M) Costs (US$M) EBITDA (US$M) NPAT (US$M) EPS (US ps) PER (x) na na Cashflow (US$M) CFPS (US ps) PCFPS (x) EV (US$M) EV / EBITDA (x) Dividends (US ps) Yield (%) The Board Director Position Executive Colin Jones Chairman Non-Executive Anthony Polglase Managing Director Executive Simon Mottram Director Exploration Executive Wayne Phillips Director Operations Executive Luis Azevedo Director Legal/Reg. Executive Vern Tidy Director Non-Executive Luiz Ferraz Director Non-Executive Scott Funston Director & Co. Secretary Executive AVB performance over one year 3

4 Executive Summary Successful transition from explorer/developer to producer Following the recent completion and rapid ramp-up of the Antas Copper Project, AVB has made the successful transition from exploration and development company to an established copper miner with an enviable position in a prolific mineral belt. Antas was built within the US$50m budget and achieved targeted 12ktpa copper run rate within 3 months. This experience places AVB in a strong position to leverage off this success and embark upon further mid-sized developments with confidence. This is the approach being pursued at PBE which will lift copper output to 40ktpa by Antas output to lift from 12ktpa to 15ktpa at US$1/lb cash costs Antas is a high grade copper mine currently operating at 12ktpa annualised rate, with Sept Q production guidance of 3kt Cu and 1,750oz Au. With further permitting, the operation will achieve 15ktpa for at least 7 years at C1 costs of US$1/lb and AISC around US$1.60/lb. The orebody remains open at depth with mine life extension to come from either a larger open pit or an underground option. Staged development at Pedra Branca to deliver 25ktpa by 2020 AVB has recently committed to building the Pedra Branca East (PBE) copper project located 50km south of Antas. The PBE orebody will initially be developed at a smaller scale, with c.200ktpa of ore trucked to Antas for processing at the same time as the larger 1.2Mtpa project is constructed. 50ktpa Cu target within 4-5 years looks achievable With Antas at 15ktpa Cu and PBE at 25ktpa, AVB could deliver 40ktpa Cu by With spare mill capacity at Antas and significant potential to expand the Pedra Branca operation to include the adjacent Pedra Branca West deposit, we believe 10ktpa of incremental copper output is achievable. Quality gold exposure via a low cost earn-in AVB recently completed an undemanding deal to earn up to 100% of the CentroGold (Gurupi) Gold Project located 600km northeast of Antas/Pedra Branca. Extensive previous work defined a 3.1Moz resource including 2.4Moz in optimised open pits at 1.14g/t Au and 3.14: strip ratio. An initial work plan has been defined, with permitting the first key milestone; AVB are confident it has the right in-country expertise to complete this task in 4-6 months. A technical program aims to updated resource estimates and scoping studies over the next 3 months with the aim to establish a more appropriately sized and economically attractive project better suited to AVB s capacity. The near-surface, higher grade Blanket Zone has been identified as the main target for a low capex, fast start-up open pit development. There is also significant exploration potential within the 1,370km 2 tenement package which covers 75km strike of the prospective Gurupi greenstone belt. Dedicated in-country management team The majority of AVB directors either live or spend the majority of their time in Brazil. This strategy ensures careful management of operating, development and exploration assets, particularly in relation to permitting, regulatory and social aspects. It ensures most decisions are quick and well informed. Material upside to our A$0.15/sh price target (1xP/NPV) Our A$0.15/sh price target is set in-line with our NPV of the base case production plan at both Antas and PPB East at 10% discount rate. We are yet to incorporate CentroGold into our forecasts, instead including it in our nominal A$40m exploration value, which also accounts for both near-mine and regional exploration opportunities at Antas and Pedra Branca. Key risks Whilst a number of upside considerations can be identified, key risks relate to (i) gold price and currency exposure (ii) permitting (iii) funding (iv) weather-related disruptions and (v) geopolitical and country-specific risks in Brazil such as inflation. 4

5 Figure 1: Antas open pit Investment thesis AVB is focussed on discovering, building and operating copper and gold projects in Brazil. It has developed a unique model involving a targeted approach to mid-sized assets where it can leverage off extensive in-country management and expertise to advance projects quickly and cheaply. Its first success has been the recently completed Antas open pit copper-gold project, with the $50m project being built in under 12 months (Figure 1). Antas ramped up to the targeted 12ktpa Cu rate quickly, with plans to produce 15ktpa Cu over a 7 year mine life at US$1/lb C1 costs. Whilst Antas is a modest mine, it has given AVB confidence to commit to the development of the larger Pedra Branca coppergold mine located 50km to the south west. This project will be staged, with imminent construction of the box cut, portal and decline built to support a 1.2Mtpa project. Limited ore tonnages (c.200ktpa) from the start-up operation will be trucked to Antas for treatment whilst the 1.2Mtpa processing plant is constructed onsite. The operation aims to deliver 24ktpa Cu and 17kozpa Au for 11 years. This strategy appears sound and aims to deliver additional copper into a higher price environment. Combined copper output from Antas and Pedra Branca will reach 40ktpa by 2020, with AVB s stated 50ktpa target within 4-5 years appearing achievable given the optionality in the asset base. We have yet to include this upside in our forecasts (Figure 2). The recent CentroGold transaction has diversified the AVB asset base, with a large gold project and prospective tenement package now added to the expansive copper footprint it has in the Carajas region. With a 3.1Moz resource and an extensive dataset, CentroGold provides AVB with good potential to define another mid-sized, economically attractive development opportunity which can rapidly move toward production. Our base case valuation of A$0.15/sh for AVB assumes the current 7 year open pit mine plan at Antas and an 11 year underground operation at Pedra Blanca East. The allocation of a conservative A$40m (A$0.01/sh) to exploration value aims to account for the 3.1Moz resource base and exploration potential at CentroGold, near-mine extension potential at both Antas and PBE (depth and satellite ore sources) and regional exploration opportunities. With a well-defined development model, experienced in-country management, strong organic production growth, solid project pipeline, extensive exploration potential and significant upside to our A$0.15/sh valuation, we initiate coverage with a BUY recommendation. Figure 2: Forecast Cu production & AISC by asset Source: Petra Capital 5

6 Introduction Avanco Resources Limited (AVB) is a mining, development and exploration company focused on copper and gold in Brazil. After recently completing construction and ramp-up of the Antas Copper Project in Pará State, it has now turned its attention to growing copper output by committing to a rapid development strategy of the Pedra Branca Copper Project located 50km to the south east (Figure 3 & Figure 4). Through a staged development approach at Pedra Branca, AVB is aiming to progressively grow copper output to 50ktpa over a 4-5 year period with a view to align higher production with improved prices driven by tighter copper supply-demand dynamics. In addition, AVB has recently agreed to an undemanding earn-in deal on the advanced CentroGold Gold Project in neighbouring Maranhão State. A feasibility study completed in 2011 indicated the project was capable of producing 150kozpa from an open pit and CIL operation at 3.1:1 strip ratio over a 13 year mine life. Reserves of 64Mt at 1.14g/t have been defined. AVB aims to apply its prior familiarity with the project and proven in-country expertise to re-evaluate, license and develop the project at a scale more suited to AVB s expertise and financing capacity. Further details on AVB s strategy at CentroGold are expected over coming months. AVB s head office in Perth, however the majority of management are based in Brazil to ensure the success of the recent start-up at Antas and growth prospects are well managed. The company has US$20m in cash and is debt free. Figure 3: Location of major assets in Brazil Figure 4: Location of Antas & Pedra Branca 6

7 Antas Copper-Gold Project (100%) The Antas Copper Project is part of the Rio Verde exploration area located 25km southeast of the city of Parauapebas in Pará State, Brazil (Figure 4). Both Antas and Pedra Branca reside within the world-renowned Carajás Mineral Province which hosts several large iron ore operations, as well as numerous copper-gold mines and projects of Iron-Oxide-Copper-Gold (IOCG) affinity (Figure 5). Parauapebas is a city of 154,000 people which services the mining industry, with the Carajás airport located 35km from the project. The region is considered tropical and humid with a dry season from June to October and the wet season from November to May (Figure 6). Annual rainfall averages 1,600mm. AVB plan to build ROM stockpiles to insulate production from weather-related impacts during the wet season. Rio Verde was one of several exploration projects acquired by AVB in 2007 and formed part of the asset portfolio upon which AVB floated on the ASX later that year. Drilling commenced at Rio Verde in early 2008 which resulted in the discovery of a copper oxide deposit at Antas South. Drilling during 2011 focused on sulphide mineralisation and Antas North (Antas) was discovered (Figure 7). The resource drill-out consisted of 89 holes for 14,800m with the most recent resource of 6Mt at 2.45% Cu and 0.48g/t Au at 0.9% Cu cut-off. An open pittable reserve of 3.63Mt at 2.53% Cu and 0.55g/t Au was released in September 2014, with the orebody remaining open at depth. The Antas orebody is located close to the southern border of the Estrela Granite Complex and is hosted predominantly by mafic metvolcanic rocks of the Parauapebas Formation. The Antas deposit is considered an IOCG breccia pipe that is steeply dipping and contains fragments of massive and disseminated sulphides within a matrix of hydrothermal breccia (Figure 8). Later gabbro dykes cut the orebody and drive structurally-controlled, narrow, sub-vertical, breccia-hosted copper-gold mineralisation. Sulphides are dominated by chalcopyrite and pyrrhotite. The orebody is oriented northeast and coincides with the main soil (>1,000ppm Cu) and VTEM anomalies which defined the Antas North target. Alteration is typical of other IOCG deposits in the Carajás. Fresh sulphide ore starts around 15m below surface at Antas. The deposit is approximately 350m long and averages 25m thick and remains open at depth. Only four drill holes have been completed below the planned open pit. Figure 5: Copper deposits within the Carajás region Figure 6: Carajás rainfall chart 7

8 Figure 7: Antas deposits and regional targets Figure 8: Simplified section through Antas Antas to produce 12-15ktpa copper & 7koz gold over a minimum of 7 years AVB initially committed to developing Antas in October 2013 following the finalisation of a funding package, including the Blackrock royalty agreement. Subsequent work, including ordering long lead items, resource/reserve drilling and further definitive studies/design, along with additional equity financing, allowed full construction to begin in May First concentrate was produced in March 2016 and the operation quickly ramped-up beyond the 12ktpa output target during the June Q Commercial production was declared effective from 1 July Favourable currency movements and use of secondhand equipment has resulted in the final plant build costs coming in-line with the original capex budget of $53m. In-line with the current operating permit, AVB is initially targeting copper and gold production of 12ktpa and 7koz from Antas, respectively. An application to lift output to 18ktpa Cu has been submitted to authorities, with approval expected over coming months. Higher mill throughput is expected to drive Antas output toward 15ktpa Au, with the balance of the 18ktpa target to come from the processing of initial ore from the first stage of the Pedra Branca mine development. AVB are targeting Antas to be at 15ktpa by 2018 (Petra 2019). Mining MACA Limited (MACA) was awarded the open pit mining contract in July 2015 with pre-stripping activities starting in October The fleet initially consisted of a R964 Liebherr excavator (80 ton) and five Volvo articulated 40t trucks, although this is in the process of being upgraded to deal with harder, fresh rock; a 100t excavator and sixth truck are soon to be added. The explosive contract has been awarded to local firm Britanite, who has 47% of the Brazilian mining market. The mining and cost performance has been better than AVB forecasts to date, whilst grade reconciliation has reportedly been positive for both copper and gold, with additional data still to determine if tangible upside can be incorporated into the future mine plan. The Antas open pit is being developed in three stages, with the current mine plan dictating the delivery of ktpa of fresh sulphide ore over a 6.5 year period (Figure 9 & Figure 10). The life-ofmine strip ratio is around 7:1 and will remain elevated for the first few years as stripping occurs across a number of pit stages before reducing as the stages merge into a single pit. The open pit has a current design depth of c.200m with further potential to extend depending on the economics of additional cutbacks. An underground option is also being considered. It is AVB s policy to include all waste movements in the strip ratio and therefore expensing all material movements in the quoted mining cost for the period. The mining cost (and therefore C1 cost) will remain elevated for the first few years of operations in-line with the higher strip ratio. 8

9 Figure 9: Aerial view of Antas open pit Figure 10: Antas open pit showing three mining stages, Petra Capital Processing, Petra Capital The Antas processing plant is a conventional crush-grind-flotation plant with 800ktpa of installed capacity (Figure 11 & Figure 12). The flowsheet comprises two stage crushing, single stage milling (ball) and three stage flotation (rougher-scavenger & two cleaning stages). Both the ball mill and the flotation cells were sourced as second hand items and were refurbished prior to installation at Antas. The crushers and Metso dewatering filter have been purchased and installed as new components. The Bond Work Index is forecast to be 16KWh/t. Antas is connected to grid power. Copper recovery into concentrate is forecast to range from 94-97%, with gold recovery around 90% at a grind size of 150µm. Life of mine concentrate grade is forecast to be 28% Cu with no deleterious elements. The first full quarter of production (June Q) achieved 94.5% Cu recovery, 85.7% Au recovery and 27% Cu concentrate grade. Concentrate is containerised and transported 660km on sealed roads to the port of Belem for export. The first of two offtake agreements has been signed until the end of 2018 on favourable terms. All concentrate is currently being shipped to this customer in Asia. A second offtake agreement is expected in the coming months and will ensure a better spread of customer risk. The Antas open pit is expected to provide ktpa of ROM ore, with the spare ktpa of processing capacity to be designated to Pedra Branca ore during the start-up stage during 2017 and Regional exploration success has the potential to provide additional ore from satellite operations to fill the spare mill capacity from 2019 onwards. Figure 11: Ball mill and cyclone cluster at Antas Figure 12: Flotation cells and filter building at Antas 9

10 Antas operating performance has been impressive to date AVB completed construction of the Antas plant in early March with successful commissioning occurring by mid-march. Commercial production was declared from 1 July 2016 after steady state production of 1,000t of Cu in concentrate was achieved over 3 consecutive months. The final capex was in-line with the US$53m budget. Mining and plant performance has been impressive to date, with start-up issues associated with blasting fragmentation and flotation recoveries quickly identified and remedied. A 500t parcel of concentrate produced during commissioning was sold into the spot market in March. A total of 3.2Mt of material has been mined to the end of June, including 261kt of ore grading 1.93% Cu & 0.7g/t Au (Figure 13). Stockpiling of lower grade ore has allowed an elevated head grade to be processed, with 177kt at 2.32% Cu & 0.55g/t Au generating 3.8kt of copper in concentrate up until the end of the June Q. Copper recovery of 94.5% has achieved the bottom end of the 94-97% guidance, whilst gold recovery of 86% remains below the 90% target. Further optimisation of the flowsheet and consumable regime is likely to result in further improvements to both copper and gold recovery over coming months. Production guidance of 3kt Cu and 1,750oz gold has been provided for the September Q period (Petra 3.2kt Cu & 1,736oz Au). Figure 13: Antas operating performance since start-up Mining March Q June Q YTD Total material Mt Ore mined Mt Waste mined Mt Strip ratio W:O Cu grade % Au grade g/t Processing Tonnes processed Mt Cu grade % Au grade g/t Cu recovery % Au recovery % Production Concentrate DMT 2,156 11,832 13,988 Concentrate grade - Cu % Cu Concentrate grade - Au g/t Au Contained Cu t 602 3,246 3,848 Contained Au oz 351 2,343 2,694 10

11 Antas remains open at depth, potential to extend mine life A limited number of drill holes have tested the depth extension of the Antas orebody below the current planned open pit shell. Results have been encouraging, with further potential to push the open pit deeper, or pursue an underground operation. Previous drilling results indicate broad zones of moderate/high grade copper mineralisation extend at depth, including localised high grade zones eg. 6.1m at 6.4% Cu (Figure 14 & Figure 15). Results from deeper drilling include: 80m at 1.42% Cu & 0.2g/t Au 20m at 1.84% Cu & 0.41g/t Au 36m at 1.88% Cu & 0.42g/t Au AVB plan to further drill test the depth potential of the Antas orebody with follow up studies to determine the best approach for exploiting the deeper parts of this orebody. Previous resource calculations based on limited drilling data have defined 1.9Mt at 2.2% Cu and 0.45g/t Au sitting immediately below the Antas open pit. However, the orebody remains open and further extensional drilling is needed to better determine the depth potential. Figure 14: Antas section with deeper drilling Costs, capex and royalty agreement Figure 15: Antas long section with grade contours The most recent guidance provided by AVB targets life-of-mine C1 costs of around US$1/lb, with all-in sustaining costs (AISC) of US$1.61/lb. Unit cost assumptions were outlined in the Antas reserve statement from 2014 on the basis of 400ktpa processing rate; these include mining costs of US$2.50/t and processing costs of US$15.73/t. G&A and sustaining capex of US$7m was estimated. Mining and milling performance has been better than initial tonnage assumptions, resulting in unit costs below original forecasts for the six months of operation to date. C1 costs of US$1.03/lb Cu were reported in the June Q; the AISC was not provided. Around US$16m of additional costs is implied by the difference between AVB s forecast life-of-mine C1 and ASIC guidance. With a contract mining agreement and a small processing plant, sustaining capex is expected to be minimal (Petra US$4m/year). The majority of this cost is associated with elevated royalties mainly due to the Blackrock agreement and the balance attributed to tax and allocated corporate and exploration costs. Under a financing agreement entered into with Blackrock in 2013, Blackrock provided US$12m in return for Net Smelter Return (NSR) royalty payments comprising 2% on copper and 25% on gold from Antas and Petra Branca. The combination of State and other third party royalties results in a total NSR royalty rate of 5.7% for copper and 27.7% for gold. Royalty charges amount to US$6-8m or US$ /lb, in our view. 11

12 Modelled assumptions for Antas Our base case Antas model assumes the continuation of the current open pit mining and processing activities over a 6.5 year period until Our production assumptions align with the tonnage defined in the current reserve estimate and therefore we do not include any mine life extension associated with either deepening the open pit or an underground option. In-line with the current operating permit, we forecast 12ktpa of Cu production in 2017 and 2018, increasing to 15ktpa from 2019 upon receipt of an expansion permit. Spare mill capacity will be utilised by small tonnages of ore from Pedra Branca East which are expected to be delivered in 2H 2017 and throughout Development of small satellite operations may provide additional ore to satisfy the spare processing capacity after this time, however we do not include this in our forecasts. Key production assumptions for Antas open pit operations We make the following key assumptions in relation to the Antas operation (Figure 16 to Figure 21): 3.6Mt at 2.4% Cu & 0.47g/t Au processed 6.5 year mine life 6.8:1 average strip ratio starting at 10:1 with a reducing profile toward the end of mine life 27% Cu concentrate grade with 98% Cu payability Average annual copper production of 13.3kt Cu and 7.8koz Au Annual average sustaining capex of US$4m Expensing of all waste movements, in-line with current practice Operating costs consistent with assumptions used in reserve estimation, including: o o o o Mining costs of US$2.50/t Processing costs of US$15.73/t G&A of US$5/t Transport costs of US$150/t o TC/RC s of US$80/t and US$0.08/lb Average life-of-mine C1 costs of US$0.95/lb Average life-of-mine AISC of US$1.57/lb which includes C1 costs, royalty, sustaining capex and allocated exploration, tax, corporate costs. Figure 16: Key production assumptions relative to AVB forecasts Reserve/AVB forecasts Petra % var Mining inventory (Mt) % Mine life (years) % Strip ratio (W:O) % Cu grade (%) 2.53% 2.4% -5% Au grade (g/t) % LOM copper production (kt) % Mill throughput (Mtpa) % Cu recovery (%) % 1% Au recovery (%) 90% 90% 0% Annual Cu output (average) % C1 cost (US$/lb) % AISC (US$/lb) %, Petra Capital 12

13 Figure 17: Petra average LOM cost forecasts (US$/lb) Mining 0.41 Processing 0.32 Admin 0.10 Transport costs 0.28 Smelting/refining charge 0.20 By-Product Credits Other (movement in ROM & S/Ps) C1 Cash Cost 0.95 Royalty 0.24 Sustaining 0.14 Allocated exploration 0.05 Taxes & allocated corporate 0.19 AISC 1.57 Source: Petra Capital Figure 18: Antas material movements Source: Petra Capital Figure 20: Cu & Au production and AISC Figure 19: Antas ore processed and grade Source: Petra Capital Figure 21: Costs, margin and Cu price Source: Petra Capital Source: Petra Capital 13

14 Pedra Branca Copper Project The Pedra Branca (PB) copper-gold project is located 72km by road to the south east of the Antas operation in the Carajás region of Pará State, Brazil (Figure 4 & Figure 22). The town of Canaã dos Carajás is 20km to the east, whilst the mining city of Parauapedas is 50km to the north. Access to PB is via a new road built by Vale to its large S11D iron ore project. Vale s Sossego copper operation is around 15km to the north of PB (Figure 22). AVB acquired 100% interest in 172,000Ha of tenements, including the PB deposit, from Xstrata Copper in early 2012 for 15% of its issued capital. AVB agreed to take on an existing 1% NSR royalty and also pay Xstrata (Glencore) a total of US$10m upon reaching commercial production. The PB deposit is on flat ground with access to water and power nearby. The area is currently used for cattle farming and there are no known environmental constraints (Figure 23). AVB has submitted an application for a trial mining license which is expected to be granted over the coming months. This will allow site works to begin, including construction of the box cut, start of the decline and limited mining activities. It also permits trucking of ore to Antas for treatment. An application for a full mining license has also been submitted, with the statutory process likely to take around 12 months. The PB deposit and the proposed mining infrastructure lie within a single farm which has been purchased by AVB, giving it exclusive surface rights. Figure 22: Location of PB relative to Antas Figure 23: Site conditions & drilling at PB, Petra Capital, Petra Capital 14

15 Pedra Branca East the target of initial development PB is an IOCG deposit hosted predominantly by diorite and sheared granite within gneissic country rocks. The deposit occurs along an east-west striking regional shear zone which is mylonitic and intensely silicified. The shear zone is regionally crosscut by faults with a north-south, north-west and north-east orientation. These faults have cut the deposit into the Pedra Branca East (PBE) and Pedra Branca West (PBW) orebodies (Figure 24). A total resource of 17.7Mt at 2.44% Cu and 0.65g/t Au has been defined across the two zones, however PBW is more structurally complex and the majority of attention has recently been focused on PBE. A resource of 10.5Mt at 2.8% Cu and 0.7g/t Au has been defined at PBE, with 7.2Mt at 1.9% Cu and 0.59g/t Au at PBW. Within the PBE deposit, the Hanging Wall High Grade Zone (HW-HGZ) has been recognised as a thick, steeply dipping, coherent body of semi-massive and disseminated chalcopyrite mineralisation contained within a hydrothermal breccia (Figure 25 & Figure 26). The orebody averages 7m wide and is contained within highly competent wall rocks. The best grades are confined to a south plunging shoot (Figure 27). The HW-HGZ hosts a discrete Measured and Indicated resource of 4.5Mt at 2.8% Cu and 0.7g/t Au and is targeted to underpin a smaller start-up operation at PBE. Figure 24: PB geology plan including historical drill results & position of PBE & PBW 15

16 Figure 25: Representative section through PBE Figure 26: PBE drill core showing breccia textures Figure 27: PBE grade x thickness contours 16

17 Staged development approach has been given green light Following the recent success at Antas, AVB is now aiming to accelerate the development of the PB underground mine. A scoping study was recently completed which outlines details of a two staged development approach to bring PBE into production as soon as possible. A PFS is continuing on the smaller, start-up option, with further studies on the full-scale development to be assisted by actual results from the smaller operation. AVB has agreed to start construction of the box cut, portal and decline to support the full-scale 1.2Mtpa project (including 5.5 x 5.5m decline). However, the initial mining approach will be small scale, targeting around 200ktpa of ore to be mined from the HW-HGZ and trucked to Antas which has ktpa of spare processing capacity. Development of the PBW orebody has not been considered at this point, although may come online in coming years and support a plant expansion and eventual production of up to 35ktpa of Cu from PB. An underground mining contractor has been selected and is mobilising to site in preparation for the start of construction as soon as the trial mining permit is awarded. This start-up mine is expected to start delivering ore in 2H 2017 and continue until the end of 2018 when the operation then transitions toward the 1.2Mtpa rate by Construction of the new 1.2Mtpa processing plant would occur in 2018/19, with total capex estimated at US$150m, including the early stage, start-up work. This staged approach provide four advantages; (i) leverages off the amount of construction and development work which can occur under a trial mining license (ii) generates early cash flow which, when combined with cash flow from Antas, minimises the funding task for the larger project (iii) delivery of increased copper production which coincides with higher forecast copper prices (iv) spreads capex over a longer period. The mining schedule and key outcomes of the scoping study are shown in Figure 28 and Figure 29. The conceptual site layout for the 1.2Mtpa operation is shown in Figure 30. The mining method will be bench-and-fill sub-level open stoping with cemented paste fill (Figure 31). Pre-production capex for the full 1.2Mtpa operation and plant is US$150m, with around US$20m estimated for the box cut, portal and decline before first ore is brought to surface at the end of Figure 28: PBE mining schedule from the scoping study Figure 29: Key results from the 1.2Mtpa scoping study Year kt % Cu g/t Au Start-up date (year) 2017 Mining inventory (Mt) 10.8 Cu grade (%) 2.06 Au grade (g/t) 0.49 Mine life (yrs) 11 Average annual Cu production (t) 24,000 Average annual Au production (oz) 17,000 Mill throughput (Mtpa) 1.2 Cu recovery (%) 94 Gold recovery (%) 86 Pre-production capex (US$m) 150 Mining cost (US$/t) 32 Processing cost (US$/t) 15 G&A cost (US$/t) 3 C1 costs (US$/lb)

18 Figure 30: Conceptual mine site layout at PB Figure 31: PBE underground mine design SAMPLE ONLY 18

19 Modelled assumptions for Pedra Branca East Following completion of the scoping study and recent Board approval for the start of construction, we assume PBE is developed broadly in line with the published mine schedule. This dictates the imminent start of construction of the smaller start-up operation to produce ore by the end of 2017 for processing at Antas. This will be immediately followed by a transition to the 1.2Mtpa project by 2020 for total capex of US$150m. We do not include any production from the PBW deposit. Key operational assumptions and outcomes for PBE include (Figure 32 to Figure 36): start-up operation to producing ore in 2H 2017 and 2018 with 1.2Mtpa achieved in Mt at 2.06% Cu & 0.49g/t Au processed 11 year mine life 28% Cu concentrate grade Average annual copper production of 22.7kt Cu and 15.9koz Au once at steady state Average annual sustaining and underground development capex of US$12m (ranges from US$20m to US$5m at end of mine life) Operating costs consistent with outcomes from the scoping study, including: o o o o Mining costs of US$32/t Processing costs of US$15.00/t G&A of US$3/t Transport costs of US$132/t concentrate; US$0.08/t/km for ore o TC/RC s of US$75/t and US$0.075/lb Average life-of-mine C1 costs of US$1.22/lb and AISC of US$1.86/lb Average life-of-mine AISC of US$1.86/lb which includes C1 costs, royalty, sustaining capex and allocated exploration, tax, corporate costs. Figure 32: Comparison of key development and operations assumptions AVB forecasts Petra % var Start-up date (year) 2H H % Mining inventory (Mt) % Cu grade (%) % Au grade (g/t) % Mine life (yrs) % Average annual Cu production (t) 24,000 22,700-5% Average annual Au production (oz) 17,000 15,900-6% Mill throughput (Mtpa) % Cu recovery (%) % Gold recovery (%) % Pre-production capex (US$m) % Mining cost (US$/t) % Processing cost (US$/t) % G&A cost (US$/t) 3 3 0% C1 costs (US$/lb) % AISC NA 1.86 NA, Petra Capital 19

20 Figure 33: PBE ore mined/processed & grade Figure 34: PBE ore mined/processed and capex Source: Petra Capital Figure 35: PBE copper and gold production & AISC Source: Petra Capital Source: Petra Capital Figure 36: PBE margin, costs and Cu price Source: Petra Capital Targeting 50ktpa Cu within 4-5 years AVB is aiming to be a 50ktpa copper producer within 5 years. Based on the current plan to lift Antas to 15ktpa and bring c.25ktpa of new production on at PBE, a further 10ktpa is required to meet this target (Figure 37). In the absence of new discoveries, we believe there are a number of opportunities to add incremental copper production to achieve the 50ktpa target. Options include: Expansion of the 1.2Mtpa processing plant at Pedra Branca additional ore could come from an accelerated underground production schedule at PBE and/or ore from the adjacent Pedra Branca West deposit. Assuming a head grade around 2% Cu, an additional 500ktpa of processing capacity would be needed at PB to generate an incremental c.10ktpa of Cu. Development of satellite deposits near Antas targeting high grade mill feed from small satellite deposits nearby; aim to utilise the spare ktpa of processing capacity from

21 Figure 37: Annual Group copper production and AISC Source: Petra Capital Exploration strategy and potential in Carajás AVB has had an interesting exploration history since listing in 2007 based on the two projects in the Carajas region, Rio Verde and Serra Verde. Initial work focused on the Antas South copper oxide deposit within the Rio Verde tenement, before exploration turned to Antas North in 2011 where the sulphide copper deposit was discovered very early in the exploration campaign. The company has since focused on financing and developing Antas North, with little to no near-mine or regional activity occurring over the last 5 years. With the recent completion of the Antas mine, we believe management will now give more attention to the exploration upside within the AVB exploration portfolio. AVB currently holds significant exploration tenure throughout the Carajás region (330,000Ha), as well as earning into the 1,370km 2 (58% granted) contiguous tenement package around the CentroGold project. We believe the AVB exploration strategy will focus on three key areas of opportunity over the coming years: Regional exploration within Carajás tenements Near-mine opportunities around Antas to be developed as satellite ore sources, as well as nearby opportunities at Pedra Branca Upside potential at CentroGold including investigations of the multiple targets identified by previous work. Regional exploration strategy In the Carajas region, we understand regional exploration will be the immediate focus. This will largely involve the prioritisation and reassessment of known historic targets, as well as efforts to more thoroughly explore the tenement package with a focus on new discoveries capable of supporting standalone operations. This strategy is driven by (i) sufficient mine life defined at both Antas and PBE with no need to add incremental tonnes and extend mine life at this point and; (ii) the value creation which comes from a new discovery. The recent purchase of ground EM equipment will also allow rapid assessment of IOCG targets. The ASX listing prospectus from 2007 identified several prospective areas within both the Rio Verde and Serra Verde exploration licenses. Very little work has been completed on the majority of these targets. Key information is included below, with locations illustrated on Figure 38. A similar strategy will apply at PB, where multiple regional prospects have been defined by previous geochemistry and/or mapping, with more detailed follow-up and modern geophysics required. 21

22 Serra Verde the first modern exploration was conducted by Barrick in 1999 including mapping, geochemistry, geophysics and limited drilling. A number of prospects were delineated: o Garimpo Serra Verde is the site of an historic open pit (250m x 50m x 30m) with channel sampling of 3.28% Cu, 0.3g/t Au, 3.35% Cu, 2.5 g/t Au. Drill results include 0.61% Cu, 0.14g/t and 0.97%. To date Garimpo Serra Verde has had little exploration focus from Avanco but remains prospective. o Pedro located within a large 500ppm Cu soil anomaly it was the focus of a drilling campaign by AVB in early Drilling had mixed success, with several encouraging copper intersections returned, however the prospectivity was downgraded after interpretation suggested mineralisation was unlikely to represent a primary IOCG target. Alagoano is the site of historic shafts along a 1.5km soil anomaly. 5 holes drilled by Apoquindo Brazil Mineracao at the prospect all intersected low grade mineralisation. To date Alagoano has had little exploration focus from AVB but remains prospective. Rio Verde like Serra Verde the first modern exploration was conducted by Barrick in 1999 but followed up in 2001 by Noranda Inc. 57 holes have been drilled for 13km. Antas North and Antas South have been the focus with the list of near-by prospects including (Figure 39): o o o o o Antas South at the time of the IPO a 2,000m x 400m soil anomaly had limited drilling including 0.53% Cu. Antas South has had extensive drilling by Avanco and has been developed into a 0.8% Cu oxide resource. Clovis at the time of the IPO 8 holes had been drilled with hits including 2.2% Cu, 0.18g/t Au. There has been no subsequent follow up by AVB. Paulinho at the time of the IPO 2 holes had been drilled into Paulinho including 0.21% Cu. Like Clovis, Paulinho has had little exploration focus from AVB. Lazinho at the time of the IPO a number of holes had been drilled into Lazinho includeing 0.54% Cu inc 1.1% Cu. Whilst drilling programs had been planned on Lazinho, they were never conducted by Avanco. Capivara had little work at the time of the IPO and lies on the same trend at Antas North and Paulinho. Drilling by Avanco in 2011 included 1.3% Cu and 0.8% Cu. Like Lazinho, drilling had been planned on Capivara but were never conducted by AVB. Near-mine opportunities at Antas As described above, several targets have been identified in the immediate vicinity of the Antas copper mine (Figure 39). Given the operation is 6 months into a 7 year mine life, we believe these targets won t be given immediate priority in the next 1-2 years. However, given the results of previous work, the prospect of defining smaller, high grade orebodies which could be developed as sources of satellite mill feed remains good. This material could either be used to exploit the spare mill capacity available at Antas from 2019 (post PBE start-up), or help extend mine life. Figure 38. Targets within Rio Verde & Serra Verde Figure 39. Near-mine prospects with Rio Verde 22

23 CentroGold (Gurupi) Gold Project Introduction and location CentroGold is located in Northern Brazil, approximately 600km northeast of AVB s Carajás assets and 500km northwest by paved highway from São Luis the capital of Maranhão State (Figure 40). AVB recently announced an earn-in agreement with TSX-listed Jaguar Mining Inc. (Jaguar) which can result in AVB owning up to 100% of the Gurupi Gold Project (renamed CentroGold) if it satisfies certain milestones (Figure 41). CentroGold is considered an advanced stage gold project which has been the subject of significant previous exploration, evaluation and development/economic assessment. The project has NI compliant resource of 88.6Mt at 1.1g/t Au for 3.1Moz which includes a reserve and optimised open pit mine inventory of 64Mt at 1.14g/t for 2.4Moz at 3.14 strip ratio. The project area lies within an elongate northwest southeast trending shear zone developed along the boundary between the Lower Proterozoic Gurupi greenstone belt and the southwestern margin of the Archaean São Luis craton. The project consists of two open pittable, free-milling gold deposits (Cipoeiro and Chega Tudo) with mineralisation considered to be typical greenstone-related orogenicstyle. The two deposits are ~8km apart and 40km from the nearest town Cento Novo. With an extensive dataset to hand, AVB has initiated a scoping study to re-assess the project s scale and economics via a range of development scenarios. This is likely to involve the remodelling of resources (and conversion to JORC) to determine if a smaller, higher grade, lower capex project can be identified. This technical program will initially focus at the Blanket Zone at Cipoeiro, before assessing the Contact Zone and then moving to the nearby Chega Tudo deposit. This preliminary work is schedule for completion in early CY17, with a PFS to start in Q2 CY17. The Blanket Zone appears to present immediate potential for a low capex, fast start-up open pit development. A budget of US$0.5m has been proposed for the licensing/access and initial technical review program. Figure 40: Location of CentroGold Project 23

24 Figure 41: Terms of transaction summary AVB Earn In Timeline Requirement 20% 12mths / 24mths Pay Jaguar US$1.7m cash + US$0.5m cash or shares. Spend US$0.3m to perfect title / establish access 31% n/a Publish a JORC reserve >0.5Moz Au 29% n/a Demonstrate adequate funding, commence construction of plant with capacity of >50kozpa 20% n/a Pay Jaguar US$6.25m or US$12.5/oz of reserve from study (whichever the greater) Jaguar NSR Production Range 1% First 500koz 2% >500koz <=1,500koz 1% >1,500koz Jaguar Buy Back Source: Company Reports, Petra Capital Tenement package Conditions If Avanco cannot demonstrate adequate funding for the project, Jaguar have a onetime right to buy back 31% of CentroGold for the reasonable costs incurred in preparing the reserve and associated feasibility studies The tenement package is largely contiguous along a ~75km section of a northwest south east trending shear zone developed within highly strained volcanosedimentary rocks along the boundary between Lower Proterzoic Greenstone and the Archean São Luis Craton (Figure 42). There are already a number of advanced exploration targets along this prospective and mineralised trend based upon previous soil sampling, previous drilling and favourable geology/alteration (Figure 43). Figure 42: CentroGold tenements & regional geology Figure 43: Exploration prospects at CentroGold Source: Jaguar Mining Source: Jaguar Mining 24

25 Previous work Historic Activity There has been a long history of gold mining in the project area with gold first being discovered in the 1600 s by colonial settlers. Small scale production occurred in the early 1900 s and mid-1980 s exploiting oxidised and weathered material. Modern Exploration Exploration programmes utilising modern methods occurred between 1994 and 2000 including geological mapping, geochemical sampling, geophysics and drilling. Kinross Kinross acquired both Cipoeiro and Chega Tudo in 2003 where the company completed infill and definition drilling, metallurgical test work, bulk density determinations, an updated resource and a feasibility study. Jaguar Jaguar acquired the project in 2009 and released a renewed feasibility study in early A total of 130,000m of drilling (80% diamond drilling) has been completed in 880 holes on the project. Permitting As part of the earn-in transaction AVB is required to perfect the regulatory and access related issues within 24 months. Whilst both Cipeiro and Chega Tudo deposits are on Mining Lease Applications (MLA), access needs to be negotiated with a number of local parties, including local farmers who own the surface rights. Based on AVB s in-country experience, particularly the specialist skills of one of its Directors, Luis Azevedo, it believes this task will be successfully completed within 4-6 months. Mineralisation and geology Figure 44: Cipoeiro Deposit plan view Cipoeiro Deposit The deposit grades 1.2g/t and is the larger of the two deposits at 1.7Moz with a lower strip of 2.9. It consists of two zones of mineralisation; Blanket and Contact which are separated by a central fault (Figure 44). Mineralisation appears controlled by a ductile-brittle shear zone where a tonalite and metasediment are in contact associated with pyrite and quartzsericite alteration. The Blanket Zone has mineralisation from surface providing an opportunity to develop a low strip ratio, low capex start-up operation (Figure 45 to Figure 47). Figure 45: Typical section through Blanket Zone Source: Jaguar Mining 25

26 Figure 46: Cipoeiro Blanket Zone cross section Figure 47: Typical long section through Blanket Zone Source: Jaguar Mining Chega Tudo Deposit The deposit is lower grade than Cipoeiro at 1g/t for ~1Moz contained in an open pit with a strip of 3.8:1 (Figure 48). Mineralisation consists of a series of discontinuous mineralised zones within a m wide shear zone in metavolcanic sequence (Figure 49). Like Cipoeiro gold mineralisation is closely related with the concentration of pyrite with sericite quartz replacement forming a diffuse halo beyond the limits of economic mineralisation. Figure 48: Chega Tudo mine design from 2011 Figure 49: Chega Tudo Deposit plan view Source: Jaguar Mining Source: Jaguar Mining 26

27 Feasibility Study Jaguar completed an updated feasibility study in 2011 which included a resource of 1.1g/t for 3.1Moz and reserve of 1.1g/t for 2.4Moz at 3.1:1 strip. Key outcomes include: Mining Rate 4-5.2Mtpa LOM Strip Ratio 3.14 Mill Feed Grade 1.1g/t Recoveries 85.60% Gold Production 149kozpa Mine Life 13yrs Total Production 1,933koz Capex US$278m Sustaining capex US$57m Cash Costs US$445/oz (US$14.5/t) The mining schedule defined by the feasibility study has the Cipoeiro pit being mined first with Chega Tudo not entering the mine plan until year 8 of the 13 year mine life. The first two years has 5Mt of low grade sulphide ore of ~0.6g/t and ~3Mt of oxidised ore being stockpiled. This elevates the mill feed grade to 1.5g/t and 1.6g/t in years one and two respectively. Mill feed remains above the life-of-mine average for the first 7 years before falling below 1g/t in year 9 as Chega Tudo comes into production. The plant was initially designed to operate at 4Mt, lifting to 5Mt by year three. Exploration Potential The northwest south east trending shear zone developed predominantly within the volcanosedimentary rocks of the Chega Tudo Formation (dark grey in Figure 50) is the dominant host for mineralisation along this prospective trend. Mineralisation is broadly concordant with the regional northwest foliation, with mineralisation comprising of thick quartz vein sets and small quartzcarbonate-sulfide veinlets within hydrothermally altered host rocks. Advanced exploration targets along this trend have been identified based upon previous soil sampling, geophysics, mapping and reconnaissance drilling. These advanced exploration targets were not included the development plan but represent key targets for AVB to follow up on in the future. Figure 50: Geological map of the Gurupi Belt Source: Society of Economic Geologists, Petra Capital 27

28 Figure 51: Cash flow by asset Source: Petra Capital Cash flow analysis AVB has successfully built, commissioned and rapidly ramped up the Antas mine within the $53m budget and with minimal pressure on working capital. The cash balance has bottomed at US$20m and the company has no debt. We forecast Antas to generate US$13m in FCF in 2017, progressively lifting to US$54m in 2021 as copper prices increase and the lower strip ratio reduces costs. Cumulative life-of-mine FCF from Antas is forecast to be US$197m (Figure 51). We forecast AVB to be cash flow positive in 2H CY16, with increased costs related to the recent commitment to building PBE resulting in net cash outflows in 2017 and 2018 (Figure 52). Despite the US$150m capex for PBE, the cumulative cash outflow for the Group is only US$65m, with the shortfall potentially funded through a combination of debt and equity (Figure 53). We forecast the remaining pre-production capex for Pedra Branca to be US$152m to deliver the 1.2Mtpa project by We estimate around $30m will be required to construct the full-sized portal, decline and associated site and underground infrastructure prior to first ore from the smaller start-up operation in late Capital spend in CY18 will jump to US$70m as the 1.2Mtpa standalone operation is constructed. Further, AVB is required to pay Glencore US$10m upon commissioning of PB, with this payment expected to be made in 2H Costs associated with the recently acquired CentroGold gold project are confined to exploration and study-related expenditures at this point. This is captured in our US$5m/yr exploration budget. However, as AVB releases more detail on plans for this asset, increased costs may be incurred. This is particularly the case if AVB looks to quickly move this asset toward production. As we are yet to include CentroGold into our forecasts, associated costs haven t been considered in our analysis. Excluding any cost increases associated with CentroGold, we believe AVB requires US$60m of additional funding before positive free cash flow is generated in CY19 (Figure 53). We therefore forecast a US$30m of new equity at A$0.06/sh in CY17 and the establishment of a US$30m debt facility in Cash would bottom at US$17m by end of CY18, with peak gearing (nd/nd+e) of 7%. Figure 53: Cash flow forecasts incl debt & equity Figure 52: Net free cash flow Source: Petra Capital Figure 54: Margin between revenue and costs Source: Petra Capital Source: Petra Capital 28