TSTR. Tri-Star Resources. Speculative Buy. Potential To Become A Material Mineral Processor. Target price 0.60p

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1 Tri-Star Resources Potential To Become A Material Mineral Processor Tri-Star Resources is working to establish itself as a mining and mineral technology company. It has formed a JV (40% stake) with two significant partners in the Gulf to construct a mineral roaster and a third party assessment expects that a roaster in the region could deliver annual EBITDA of up to $59.6m. In addition, the group has prospective antimony mine sites in Canada and Turkey which could supply the roaster. There also could be significant further upside if the roasting IP can be used to treat refractory gold ores, which we understand is a considerable potential market. We recognise the risks of investing in a pre-feasibility stage company, however our valuation gives a target of 0.60p per share or upside of 300%. Speculative Buy. Roaster To Produce 20,000 Tonnes Antimony Per Annum Roasting can be applied to metal ores so that the metal within them can be processed. Tri-Star has developed a roasting method that it expects to use to construct a roasting plant by 2016 that is environmentally compliant to EU standards and that will deliver a NPV of up to $241.5m for CapEx of $60m. It is to be located in the Sohar Free Trade Zone in Oman, which has benefits such as a potential 0% tax rate. Tri-Star could construct up to three roasters in this region each producing 20,000 tonnes of antimony (Sb) per annum. Roasting IP Could Also Be Applicable To Refractory Gold Ores A third party assessment suggested a refractory gold plant could produce up to 500,000oz Au per annum, with each plant costing $342m with a NPV of $532m. However, there could be considerable value in the IP with minimal costs for Tri-Star if it could be licensed under a royalty model, for example. Tri-Star is Establishing Mines to Own the Supply Chain Tri-Star s potential mine in Turkey has a very preliminary estimate of c.350,000 tonnes at 1-3% Sb. Tri-Star also owns multiple claims within Canada, one of which has a preliminary estimate of 725,000-1,000,000 tonnes at % Sb. However, recent drilling here suggests the target could be much larger. If successful these mines will supply the roaster. Valuation We feel Tri-Star has taken a number of steps recently towards becoming a fully integrated antimony producer, including the establishment of a JV with two major partners to construct the roaster. In addition, it is also exploring the possibilities of applying the roaster IP to refractory gold, which could provide considerable upside. We also note that there are risks to the investment case that could have a material effect on our valuation, such that Tri-Star does not generate revenues as we have forecast or if any dilution occurs given the group does not yet generate cash. However, as we have attempted to account for these risks in our valuation, and it still suggests a target price of 0.60p, our stance is Speculative Buy. Initiation of Coverage 1 st September 2014 Speculative Buy Target price 0.60p Key data Share price 0.15p 52 week high/low 0.41p/0.15p Primary exchange AIM EPIC TSTR Shares in issue 6,937m Market Cap Sector 10.4m Mineral Processing Valuation Roaster NPV* 24.7m NAV 1.5m TNAV - * Tri-Star 40% share Share price chart Pence Tri-Star Resources PLC TSTR Volume (Daily) - M's '14 Nov Dec Feb Mar May Jun Oct Apr Jul 29/8/13 29/8/14 Analyst details Andrew Noone +44 (0) andrew.noone@gecr.co.uk Emanuil Manos Halicioglu +44 (0) emanuil.halicioglu@gecr.co.uk Important: All disclaimer information can be found on the last page of this document. Please note: this publication has been commissioned by the company to which this publication relates and therefore it cannot be considered independent. Ord Chart (c) ShareScope Table: Financial overview Year to 31st December 2012A 2013A 2014E 2015E Revenue ( 000) EBITDA ( 000) (2,310) (2,659) (896) (1,515) PBT ( 000) (2,351) (2,747) (896) (1,482) EPS (p) (0.05) (0.05) (0.01) (0.02) Source: GECR and company.

2 Executive Summary Tri-Star has been listed on the London Stock Exchange s AIM market since August 2010 and is working to become a major antimony miner, processer and retailer in the Western World. Its flagship project is to construct an antimony roasting facility, which it is progressing with two Joint Venture partners in the Sohar Free Trade Zone in Oman. The group also holds exploration licences over one claim in Turkey and numerous claim in Canada that host potential antimony deposits, which could provide a concentrate source for the roaster, giving Tri-Star some level of control over the supply chain. Lastly, Tri-Star is also exploring the possibilities of applying its roasting technology to treat refractory gold ores, which we understand could be a significant potential market for Tri-Star. Antimony Antimony is a silver/white metal that is classified as a minor metal. It is almost as rare as silver and has a range of industrial uses, with one primary use being a core component of flame retardants within a wide range of global industries. It is also used as an alloy hardener within lead acid batteries, within glass production and as a chemical catalyst. In 2012 it was ranked third on the British Geological Survey s Risk List 2012 of more than forty chemical elements and element groups ranked by their supply chain risk. Roaster Project Tri-Star s core asset in our view is its antimony roaster project in Oman. The facility is expected to be located here as it provides many benefits including being positioned on a centralised logistics route and potentially offering a 0% tax rate. A key feature of this project will be its compliance with EU level environmental regulations that should attract antimony ore providers globally, we feel. The project will produce both antimony metal ingots and a value added product, Antimony Trioxide (ATO), which is expected to be sold into the European flame retardants market and the global chemicals market. The roaster should be able to produce c.20,000 tonnes of antimony metal per annum, equivalent to c.12% of global estimated 2013 production. We expect first production to take place in Tri-Star is intending to source antimony concentrate from both its own (or Joint Ventured) antimony mining operations around the world and from third party suppliers. It has also received interest from international customers that require the supply of both Sb metal and ATO. In April 2014 Tri-Star signed a Shareholder s Agreement to create a Joint Venture with the Oman Investment Fund (OIF), a Sovereign Wealth Fund of the Sultanate of Oman, and Castell Investments Ltd (Castell), who s ultimate parent is the Dubai Transport Company (DUTCO). Tri-Star, OIF and Castell will own equity in the JV in the ratios of 2:2:1, with all major decisions requiring unanimous approval from all parties. The project is expected to have a capital cost of $60m but to deliver a NPV of $241.5m. Refractory Gold Opportunity We believe a major potential growth area for Tri-Star could be in the application of its roasting technology to so called refractory gold ores, which are gold hosting ores where the gold is trapped within sulphide minerals. This makes it very difficult to extract the gold using traditional methods. We understand that roasting can essentially free this gold so it can then be treated by traditional methods. In December 2013 Tri-Star received the results of a third party technical and economic report, which estimated that if Tri-Star were to build a roaster capable of treating refractory ores, the project would deliver a NPV of $532m with a capital cost of $342m. While the majority of the technology used to design a refractory gold plant is the same as that used for the antimony plant, the main reason the refractory gold plant has higher costs and NPV is because it would be much larger than the antimony plant, and should be able to produce 500,000oz gold per annum. The group believes there could be scope to construct one, two or three roasters in the Gulf region, again leveraging the positive effects of operating in the region, such being in a centralised global location with good logistics. This would enable Tri-Star to potentially access the significant NPV of the projects while producing just 1.5Moz of gold per annum, or c.1.7% of total 2012 gold production of c.86.5moz. However, there could be major additional upside for Tri-Star through the licensing of roasting IP to treat 2

3 refractory ores. This arrangement could potentially operate through a royalty, where IP holders would be paid a percentage of cash flows. This would mean no capital commitment for Tri-Star but a recurring cash flow from each plant constructed. If these agreements were non-exclusive, refractory ore bodies globally could harness this IP. Mines: Turkey and Canada Tri-Star s Turkish mine prospect at Goynuk centres around the evaluation and redevelopment of a historical artisanal mine that sits within a known antimony belt. Some hand cobbed high grade ores previously tested returned antimony grades of 16-23% implying that the historical miners should have been achieving grades of 10-15%. Drilling campaigns in 2010 and 2011 have identified further antimony trends in the local region, as has an independent report by Behre Dolbear that suggests mineralisation exists along a major fault zone that bisects the mine from east to west. In June 2012 Tri-Star announced a very preliminary estimate of the magnitude of its exploration target at Goynuk, which suggested there was c.350,000 tonnes at 1-3% antimony. In its update in September 2013 Tri-Star announced that it plans to construct a small-scale processing plant to treat c.75,000 tonnes of existing surface dump material at an average grade of 2.25% antimony. In April 2014 Tri-Star s hectare exploration licence at Goynuk East was upgraded to a mining licence, however in some sections further permitting will be required before a mining and operations permit can be issued. Tri-Star Canada houses the company s antimony deposits, gold assets and exploration portfolio in New Brunswick, Canada. In October 2013 Tri-Star completed the acquisition of Portage Minerals Inc., which has significant prospective antimony and gold deposits. This includes the Bald Hill deposit that contains an estimated c.30,000-50,000 tonnes of antimony, and 100% and 60% of two NI compliant gold deposits for 66,300oz Au and 520,000oz Au, respectively. Recent exploration surveys at Bald Hill have shown a trend extension from its original 450m strike drilled anomaly to over 1.5km along the fault strike. The Bond Road discovery is some 8km to the East of Bald Hill (but still falls under the Bald Hill deposit as a whole) and again shows a significant antimony anomaly along strike of a known parallel fault zone. In addition, in July 2014 Tri-Star announced that it had discovered new mineralisation c.1km southeast of the existing Bald Hill deposit that showed potential, with bedrock assaying 9.04% antimony over four samples totalling 2.6m and eleven antimony bearing boulders delivering assay result ranging from 8.25% to 48% antimony. Previous soil geochemical samples suggest that the entire strike length of this discovery could be up to 800m, with the entire Bald Hill deposit now having an indicated strike length of 2.2km. While no resources have been delineated nor any economic assessments undertaken, meaning there can be no assurance as to the feasibility of any mine, Bald Hill appears to us to be a major potential opportunity for Tri- Star that sits within a region hosting proven antimony deposits. Risks While we believe that Tri-Star offers potential, we note that there are some material risks to the investment case that we feel should be taken into account. We see as a primary risk that the roaster construction timeline is not met as any delays could have a material effect on our DCF model. In addition, given that Tri-Star currently generates no cash, dilution could be an issue for shareholders in the future. Tri-Star will also be exposed to the antimony price if operations commence as we expect, and potentially the gold price as well. The risk section later in this document discusses these and other risks in more detail, however we feel it is important to note the above risks here. Valuation Our valuation for Tri-Star is based on a sum of the parts valuation of three core projects (roaster and the two mines), combined with our forecast of central costs for the group over the lifetime of its projects, and finally subtracting net debt. We assume all operations will be conducted through subsidiaries and Joint Venture vehicles, and therefore we have forecast how we expect these to perform individually before combining them together to give the group valuation. We discuss our assumptions and estimates later in this document. This valuation gives a 0.60p target price. Speculative Buy. 3

4 Background Tri-Star Background/History Uc Yildiz in Turkey, the precursor to Tri-Star Resources, was formed in August 2008 by Vehbi Eyi. The company began by acquiring licences and permits for a brownfield antimony project in Gediz, Western Turkey. This included a 25 Hectare (Ha) Mining Permit and a 784Ha Prospecting Licence. This site was analysed in through geophysical exploration and a positive scout drilling programme. In August 2010 the company went through a corporate change when it listed on the London Stock Exchange s AIM market via a reverse takeover. This move gave the company access to capital markets at a time when it was looking to expand its portfolio of antimony assets. In 2011 Tri-Star expanded its exploration in western Turkey and acquired an adjoining 686Ha licence to the existing 784Ha Prospecting Licence to bring the total prospecting area to 1470Ha. In the same year the company acquired a significant 1,700Ha exploration licence in New Brunswick, Canada. This area hosts, among others, the largest antimony anomaly in New Brunswick, with some of these anomalies now confirmed through numerous drill programmes. Tri-Star added a significant antimony asset to its portfolio through the acquisition of Portage Minerals in October Its core deposit, Bald Hill, hosts an estimated 30,000-50,000 tonnes of antimony. Portage also has majority stakes in two gold deposits that have significant NI gold resources. All developments discussed above show to us how Tri-Star has begun constructing its own portfolio of exploration assets with the aim of producing antimony ores. The company has also signed a Shareholders Agreement with two major Joint Venture parties in the Middle East to construct an antimony roasting facility. This facility should be capable of producing 20,000 tonnes per annum of antimony metal, and the technology may also be applicable in the processing of other materials such as refractory gold. This plant offers significant upside for Tri-Star in our opinion and therefore it forms a core part of our valuation of the company. We discuss each of these assets in more detail below, and believe that Tri-Star is taking major strides to deliver on its strategy towards become a leading miner, producer and retailer of antimony metal and tri-oxide products in the western world. 4

5 Antimony 1 Antimony is a silver/white metal that is classified as a minor metal. It is present in the earth s crust in concentrations of 0.2ppm, making it almost as rare as silver. Antimony typically occurs in one of more than 40 common mineralised states, with the most important being the sulphide mineral, Stibnite (Sb 2 S 3 ), as this is the main source of metallic antimony that is commercially mined. In 2012 antimony was ranked third on the British Geological Survey s Risk List 2012 of more than forty chemical elements and element groups ranked by their supply chain risk 2. Uses of Antimony Antimony has a range of industrial uses, with one of the primary uses being a core component of flame retardants within a wide range of global industries, where it is present in the form of antimony trioxide (ATO). It acts as a synergist that improves the performance of a number of other flame retardant compounds, such as aluminium hydroxide, while also limiting the amount of retardant required. ATO is used in this way within plastics in areas such as the aerospace and automobile industries, within textiles and within electronics such as circuit boards 3. A report published by IndustryARC suggests that the global printed circuit board manufacturing market is expected to grow at a CAGR of 3.6% between 2013 and , which could drive further demand for antimony, in our view. We understand that because of its extensive uses within flame retardants, ATO accounts for c.72%, c.60% & c.50% of primary antimony consumption in Europe, USA and China, respectively. This use of antimony therefore creates a significant part of global antimony demand, in our view. Figure: Antimony Metal Ingots (Left) and Antimony Trioxide (Right) Source: Tri-Star Website Alongside its use within flame retardants, antimony has a number of additional uses: Alloy hardener within lead acid batteries Antimony is used to harden lead electrodes within lead acid batteries. The antimony content of these batteries has declined by weight to 1.6% from previous levels of up to 7% in the past, and this trend is set to continue as other metals such as calcium or aluminium replace its role in these batteries. However, the world car population is set to more than double to 2.5bn by 2050 from 1bn in 2010, and therefore increased demand could partially or completely offset this decline in the future, particularly within emerging markets. Glass production Antimony is present in the form of sodium antimonite and is used as a discolouring agent within optical glass, for example within cameras and spectacles. Chemical catalyst Antimony in various forms is used to catalyse chemical reactions for example in the production of polyethylene and the vulcanization of rubber. Other processes such as the production of brake linings and paint pigments. 5

6 New uses include antimony in high voltage power storage batteries as per the technologies developed by AMBRI, formerly Liquid Metal Battery Corporation, from MIT, Cambridge, Boston 5. The Antimony Price The antimony price reached a peak of $17,600/tonne in 2011, however since this time prices have reduced, trading between c.$10,141 c.$9,755 in the past six months. The six month trading range has been calculated based on values of 4.6 and $/lb, respectively, multiplied by the number of pounds in a tonne. Chart: Antimony (Min 99.65% Sb) CIF US Port 3-Year (left) / 6-month (right) Prices ($/lb) Source: Notes: 1 tonne = 2,204.62lb The Antimony Market The global antimony market has been dominated by China in recent years. Between 2001 and 2010 China has been responsible for c.88% of global production and in 2010 it hosted 45% of the world s antimony reserves. The world s largest antimony deposits were historically in the Hunan region of China and in the Murchison Belt of South Africa. The most famous deposit in the world is the Xikuangshan deposit in Hunan, which is indirectly majority owned by the Chinese Government. It is currently estimated that Xikuangshan is the dominant source within China, producing approximately 40,000 tonnes of contained antimony per annum, and that China s entire reserves are 0.95m tonnes. At estimated 2013 production rates of 130,000 tonnes antimony per annum that would imply there is less than eight years left. One of the main problem times for antimony was between when the price fell relative to copper, and between 2000 and 2010 the price fell below 1x the copper price. This was despite a growth in antimony demand due to its role in new industrial processes. The fall coincided with an increase in supply from China of c.4x. By 2010 total global production of antimony was 135,000 tonnes, with 89% of this production coming from China. Other notable producers include Bolivia, Russia, South Africa, Tajikistan, Canada and Australia. These countries, along with China, had total combined reserves of 1.8m tonnes of antimony, and the US Geological Survey has estimated that these reserves would deplete within thirteen years. However, a previous estimate of the US Geological Survey suggests that there could be 4-6m tonnes of known and unknown antimony reserves worldwide. Furthermore, the demand for antimony based flame retardants is expected to grow at 5-7% per annum. When both of these factors are taken into account the reserve life ratio increases to twenty years. It is thought that China s mines produced 120,000 tonnes of antimony in 2010 with the majority of this amount being sold as ATO. It has been quoted that China has an antimony mining capacity of 90,000 tonnes per annum in 2010 and a smelting capacity of 150,000 tonnes per annum. It is also thought that it imports 5,000-6,000 tonnes a month of antimony in concentrates. In 2011 China s mines produced 150,000 tonnes per annum 6

7 of contained antimony, which reduced to 145,000 tonnes in /7. In the US Geological Survey (USGS) Mineral Commodity Summaries 2014 China s antimony reserves were estimated at 950,000 tonnes, more than 50% of global reserves of 1.8m tonnes. While China produces significant quantities of antimony, there is also a considerable level of internal demand within the country. In 2010 China produced a total of 120,000 tonnes of antimony and exported 60,000, implying that c.60,000 tonnes remained for internal consumption or stockpiling. However, this 60,000 tonnes is slightly obscured as some of the antimony here is used within the Chinese manufacturing industry which processes it into a value-added product and then in some circumstances re-exports it. This antimony may therefore not be fully consumed within China. China s position as a global exporter has been growing rapidly over the past twenty years, with the country responsible for c.10% of global exports in 2010 (see chart below). Chart: China s Share of Global Exports Source: The Economist ( Based on a US consumption of antimony of c.21,600 tonnes in 2010, Tri-Star estimates China s core domestic demand for antimony is within the region of 25,000 tonnes per annum. Furthermore, as Chinese exports and GDP at constant prices are both expected to grow at 6.5% per annum or more until , and with the Chinese Government expected to take measures to boosting domestic consumption 9, we believe there is the potential for China s consumption of antimony to increase. It is therefore feasible that China could become an importer of antimony in the future, which could be of great significance to Tri-Star. In addition, the US was 85% net import reliant on antimony in 2013, with the major sources of this being China, Mexico, Belgium and Bolivia. We understand that some European countries including Germany and the Netherlands were also net importers in

8 Chart: Chinese Relative Real GDP Growths Source: See Chart Given the recent rise in antimony prices, many projects around the world that were halted are now becoming economical and as such significant quantities of antimony could be produced outside of China in the future. This bodes well for antimony explorers and processors, of which Tri-Star is both. Sources: 1 Unless otherwise stated information is either sourced from Tri-Star s Antimony Primer ( Tri-Star Resources, or is an opinion of GECR 2 %3A%2F%2Fwww.bgs.ac.uk%2Fdownloads%2Fstart.cfm%3Fid%3D2643&ei=QuaEUtvpCMPA0QXO3oC4D Q&usg=AFQjCNG0QWwUF4IX3Vt3sSB8a16W-eHVyA&bvm=bv ,d.d2k 3 United States Antimony Corporation ( 4 IndustryARC Global Printed Circuit Board Market & Recyclable PCB Market Analysis and Forecast ( ): By Segment (Recycling, Remanufacturing & Reconditioning); Components (Capacitors, Diodes, IC s, Resistors & Others); Materials, Applications & Geography - ( 5 AMBRI ( 6 USGS Mineral Commodity Summary 2013 ( 7 USGS Mineral Commodity Summary 2014 ( 8 IMF World Economic Outlook Database, April 2014 ( weorept.aspx?pr.x=108&pr.y=1&sy=2012&ey=2019&scsm=1&ssd=1&sort=country&ds=.&br=1&c=924&s=ngd P_RPCH&grp=0&a=) 9 Business Insider ( 10 British Geological Survey European Mineral Statistics ( 8

9 Antimony Roaster Project 1 Tri-Star s core asset in our view is its antimony roaster project in Oman, which forms a key piece in its plan to become a value-added antimony product manufacturer. The facility will be located in the Gulf region as it provides many benefits including being positioned on a centralised logistics route and having access to secure and reasonably inexpensive energy. A key feature of this project will be its compliance with EU level environmental regulations that should mean it can attract antimony ore providers globally. The project will produce both antimony metal ingots and a value added product, a hightint ATO, from sulphide concentrates. The ATO will have a low lead content and will be branded as Tri-Star ATO, and will be sold into the European flame retardants market and the global chemicals market. The roaster is expected to treat c.40,000 tonnes of concentrate per annum, and should be able to produce c.20,000 tonnes of antimony ingots per annum, equivalent to c.12% of the estimated total antimony produced in We expect first production of antimony to take place in As Tri-Star is intending to become an integrated supplier of antimony products, it will source antimony concentrate from its own (or joint ventured) antimony mining operations around the world, which we discuss in further detail in this report. However, it will also source material from third party suppliers. To this end, Tri-Star has received interest from international customers that require the supply of both antimony metal and ATO. Figure: Rendered 3D Image of Proposed Roaster Source: Tri-Star 2012 Annual Report How The Project Will Be Financed In October 2013 Tri-Star signed a non-binding MOU with Oman Investment Fund (OIF), a Sovereign Wealth Fund of the Sultanate of Oman, and Castell Investments Ltd (Castell), who s ultimate parent is the Dubai Transport Company (DUTCO), to establish a joint venture to construct and operate a 20,000 tonne per annum antimony metal and tri-oxide manufacturing facility. The proposed joint venture company, Strategic & Precious Metals Processing LLC (SPMP) will be incorporated in the Sohar Free Trade Zone (Sohar FTZ) in Oman, and is expected to enter into a land lease over a 22 hectare plot within this Zone. The Sohar FTZ is itself a joint venture between the Port of Rotterdam and the Sultanate of Oman, and offers an attractive investment environment as it has: excellent logistical connections being in close proximity to the Port of Sohar, low energy costs, and a zero corporation tax rate contingent upon achieving certain Oman national employment levels. Subsequently, the parties, after completing technical, commercial and legal due diligence, signed a Shareholders Agreement on the 14 th April Tri-Star, OIF and Castell will own equity in the JV in the ratios of 40%:40%:20%, with all major strategic and operational decisions requiring unanimous approval from all three parties. The facility is expected to have an overall cost of $60m, which is expected to be financed as follows: 9

10 $30m of finance raised from local and regional banks $10m mezzanine loan from OIF $20m funded by the equity partners, pro rata to their level of ownership (i.e. Tri- Star will fund $8m). Tri-Star s contribution could be offset by the inclusion of certain pre-development expenses and intellectual property to the joint venture Expected to be First Full Year of Operation The Roaster has been granted a preliminary Green Light Statement from the Ministry of Environment and Climate Affairs (MICA) in Oman, which confirms that it has no objection to SPMP progressing with the project. A full Environmental Impact Assessment (EIA) is now being prepared by SPMP, which has been filed. All parties involved are progressing towards the receipt of necessary approvals and the agreement of a financing package, with the aim of commencing construction in H Construction is expected to take twelve months, with a further three months required for commissioning of the facility. Therefore the first full year of operation is scheduled to be How The Roaster Works 3 Roasting is typically applied to sulphide minerals and refractory ores (discussed in the next section) and involves a reaction whereby the sulphides and organic carbon present are oxidised into SO 2 and CO 2 gas, respectively. This process is conducted at C. Once the concentrate has been roasted, it will then undergo recovery stages such as precipitation of crude oxides, smelting of crude oxides to metal, and fuming of metal to refined oxide. The facility will also ensure its environmental compliance through processes such as cleaning the gases released, cleaning slags produced and disposing of waste materials. The facility will also produce other bi-product materials that could be saleable such as gypsum. Significant Opportunities Using Roaster Technology For Other Refractory Ores 3 Tri-Star has invested significant amounts to date in developing and designing environmentally compliant methods of roasting refractory ores, which alongside antimony can be applied to ores of other metals, such as gold. As part of the agreement signed, the OIF and Castell can become owners in this intellectual property through investment in a separate company Tri-Star will establish that will own the IP rights. There is further significant potential in the use of the roasting process for other refractory ores such as gold, a stage Tri-Star has called Phase II. Refractory gold is gold that sits within an ore that is resistant to standard cyanidation or other extraction methods such as carbon-in-leach processes, because of the inclusion of sulphide minerals within the ore. A more specific definition for a refractory ore is it is an ore that has a gold recovery rate of less than 80% when direct cyanidation is applied to it. These refractory ores have received growing levels of attention given the number of ore-bodies falling into this category. Indeed, International Academics estimate that 30-50% of the world s remaining gold resources sit within refractory ores. Accordingly, these ores need to be refined before standard processing can be applied. There are four common pre-treatment options for these refractory ores: 10

11 Table: Comparison of Refractory Ore Processing Methods Method Process Advantages Disadvantages Roasting Sulphides & organic carbon in refractory ores are oxidised into SO 2 and CO 2 gas at temperatures of C High gold recovery Lower CapEx as oxygen plant not necessary; can roast in air Roasting typically completed within less than thirty minutes Environmental Issues gas scrubbing can be expensive POX Sulphides in refractory ores in aqueous solution are oxidised at high temperature and pressure in the presence of pure oxygen. This produces sulphuric acid and metal sulphate compounds that can be treated by cyanidation High gold recovery Lower environmental issues bi-products break down in solution and some are environmentally benign Reaction typically completed within one hour Large equipment site needed Overall CapEx typically very high Technical workforce required BIOX Bacteria are used to accelerate sulphide oxidation in air rather than pure oxygen, yielding similar endproducts to POX Lower CapEx than roasting & POX Reaction can take place in air Limited expertise required to operate Some toxic compounds break down into solution reducing environmental burden Economics more viable for smaller scale operations Reaction typically takes 4-5 days Plant footprint larger as inventories on hand for longer Cyanide consumption c.10x higher than roasting or POX this can be expensive Ultra-fine grinding The sulphide is ground very finely to expose the gold particles within it. It can then be treated with cyanidation Sources: Mining Magazine, GECR No chemical reaction host mineral not oxidised eliminating the need to treat reaction products Lowest CapEx and OpEx of all four processes if successful Typically impractical/ impossible to grind ore fine enough to liberate gold Increasingly energyintensive with each size reduction step It is therefore rare that this method is viable Therefore, of the four potential solutions, roasting appears the most viable for many refractory ore producers in our opinion. The major hurdle for roasting appears to be environmental issues and we know that the project is being designed to operate to EU standards and that MICA has granted SPMP a preliminary Green Light Statement confirming it has no objections to the project being progressed. Submission and approval of the EIA is accordingly a key next step for the roaster. Tri-Star s IP therefore provides a barrier to entry for other producers meaning these third parties may find it more difficult to construct their own roasters, in our view. Pressure Oxidation can potentially deliver higher gold recovery efficiency, however the level of CapEx required to construct and maintain a POX plant can be significant. In addition, while BIOX demands lower CapEx than POX and roasting, it is aimed at smaller scale operations and the significantly longer reaction time would reduce output and increase plant size for producers, in our opinion. We again rule out BIOX as a significant alternative as we expect Tri-Star to target larger scale operations for which a smaller scale plant is not viable. (Biox is variable as each shipment of concentrate changes the food for the bacteria will change so cannot use biox for large scale or variable feeds; it s not scalable to a merchant plant. We also note that Tri-Star s roaster will be located in Oman with a potential second Phase II roaster being constructed in the GCC. It is therefore important that we explain the rationale behind a producer exporting their ore/concentrate to the Gulf rather than constructing their own POX, Roaster or BIOX plant on-site given the potential cost offset this would allow. Firstly, we expect that a centralised plant will be able to achieve scale 11

12 offered by a consistent supply chain and consistent workforce. In addition, the project NPV can be bolstered significantly by the centralised plant s ability to operate continuously until theoretically no further supplies exist. A plant constructed near a mine would potentially only be able to process ores in a close proximity, as we would assume that issues such as logistical routes would not compare to Tri-Star s proposed location. Therefore miners could potentially improve their project NPV by outsourcing the processing of their ore to Tri-Star rather than taking on the financial burden of the CapEx required to construct its own plant. Why Would Miners Transport Ore To Tri-Star? For the Roaster to be viable miners need to be able to transport their ore potentially thousands of miles to the processing plant in Oman / GCC. We understand that a great disparity has emerged between the Baltic Freight Rate and the gold price. As such, there is a significant opportunity for producers to ship ores globally meaning that it is economically viable for miners to outsource their ore processing to Tri-Star. Table: Baltic Dry Index Versus the Gold Price Source: Tri-Star Resources This chart shows that until 2009 there were few, if any, opportunities where it would make economic sense for miners to ship ore to a centralised processing facility rather than invest considerable amounts to construct these facilities on site. However, since the financial crisis struck in 2008 shipping rates have remained well below the relative price of gold. Accordingly, it is now viable for these miners to export their ore/concentrate to Tri-Star s plant, offering: a safer and more efficient plant, relatively low energy costs, solid infrastructure, low or zero taxation and potential access to further scale. We therefore believe Tri-Star has a significant opportunity to utilise its IP to process refractory ores alongside antimony. These low shipping rates also apply to the antimony opportunity as well, as we understand that many ores are shipped to China for processing already. The willingness to move ores for processing is underpinned by the emergence of an antimony concentrate market. Source: 1 Unless otherwise stated information is either sourced from Tri-Star s Antimony Primer ( Tri-Star Resources, or is an opinion of GECR 3 Mining Magazine ( Q_DESIGN_NAME=print_friendly) 12

13 Oman Roaster Project Tri-Star s primary focus is now on constructing its first roasting facility in Oman. An Independent technical and cost benefit analysis was performed in February 2012, originally for another RAK based location, that estimated CapEx and working capital would be required of $60.0m and $63.0m, while the project NPV and full run-rate EBITDA would be $241.5m and $59.6m, respectively. Recently Tri-Star signed the Shareholders Agreement to fund the new plant in Oman, which is the primary focus for the company in the near term. However, much of the work done to date on the proposed RAK site and the associated IP has greatly assisted developments in Oman. While Oman offers a number of benefits including a potential 0% corporate tax rate and a centralised location globally, a key benefit for miners is the 0% import duty payable on concentrates, we believe. This is versus import duties in China that we understand are 17%. We believe China will be Tri-Star s major competitor as it is a significant antimony miner and processor, and as such the lack of import duties in Oman should provide a major competitive advantage for the group, in our view. 13

14 Göynūk, Western Turkey The first asset that Tri-Star acquired was a 25Ha Mining Permit and a 784Ha Prospecting Licence in Kuhtaya province, which is 2km east of Göynūk (Goynuk) village, western Turkey. This prospect centres around the evaluation and redevelopment of a historical artisanal mine that sits within a known antimony belt. The existing mine-works are located at an elevation of m, being c.50km from Uşak and c.250km east of the Port of Izmir. In 2011 the company expanded its exploration licence through the acquisition of an adjacent 686Ha site, bringing the total exploration area to 1470Ha. The mining licence has historically been mined in blocks of tonnes of antimony at a time as a crude reduced metal or in a high-grade ore. Indeed some hand cobbed high grade ores were previously tested and returned antimony grades of 16-23% implying that the historical miners should have been achieving grades of 10-15%. The exploration licence has access to water and electricity and is accessible by road. Figure: Göynūk Mine Layout Source: Tri-Star Company Website In October 2010 Tri-Star began a scout drilling campaign where it drilled at total of 1,362m across 20 holes. This showed that the high-grade mineralisation extended to the south-west of the existing deposit and also that the entire deposit is more complex than previous assessment has shown. The structural feature that hosts the existing mine extends for 17km and soil geochemical surveys have shown that there are 3 major anomalies within the original mine site, the most easterly of which forms the existing Goynuk mine with the remaining two yet to be explored. A further anomaly, believed to be a direct extension of the existing mine, is also located 750m along strike from the mine. In addition, there are numerous anomalies that have shown antimony concentrations of more than 90ppm and other deposits are known in the valley. A follow-up drilling programme commenced in July 2011 and was finished in January 2012 that completed a grid of drill holes over some of the un-mined extensions of the mineralised zones. A total of 4,116m was drilled which and increased the drilling density 14

15 in the south east area and extended the mineralisation further to the south east. A new mineralisation was discovered to the north-west and intersected some mineralisation near the original mine. A significant drill hole at this site also returned an antimony intercept of 7.10% over a 4.70m range. Three of the holes drilled here will now also be used for hydrological testing and then used as monitoring holes. Figure: Drilling Conducted At Göynūk Source: Tri-Star 2011 Annual Report Another potential trend has been identified in an independent report by Behre Dolbear that suggests mineralisation exists along a major fault zone that bisects the mine from east to west. The later mineralisation has been indicated by surface mapping, sampling and the drill programmes, and will be a focus of future drill programmes. On 20 th June 2012 Tri-Star announced a very preliminary estimate of the magnitude of its exploration target at Goynuk, which suggested there was c.350,000 tonnes at 1-3% antimony. In its update dated 2 nd September 2013 Tri-Star announced that it plans to construct a small-scale processing plant on 0.8 hectares of freehold land it has acquired adjacent to the mine. This would treat existing surface dump material, and the company has a permit to process this material at a rate of 14,400 tonnes per annum. The ore dumps contain c.75,000 tonnes of material at an average grade of 2.25% antimony. This update suggested that there was potential for this operation to commence by the end of Q1 2014, however this has not yet materialised as we assume the company is continuing to focus on its core project, the roaster. Mineralised rock from Goynuk was tested by Wardell Armstrong. Their report stated that The testing showed that, using a combined process, up to 92.9% of the antimony present in the feed could be recovered to a concentrate grading 61.1% Sb, with 69.5% of the antimony recovered from the initial gravity separation and the remaining 23.4% recovered by froth flotation. The strong recoveries of up to c.93% are encouraging in our view. Roasting tests of these concentrates are now being conducted by Hazen Research Inc. in the US. Lastly, in April 2014 Tri-Star announced that its hectare exploration licence at Goynuk East had been upgraded to a mining licence. However, certain sections of this licence will require further permitting before a mining and operations permit can be issued. 15

16 Tri-Star Canada, New Brunswick Tri-Star Canada houses the company s antimony deposits, gold assets and exploration portfolio in New Brunswick. The State is one of the most progressive and welcoming for mining companies in Canada in our view. The company s two target areas in the region, Bald Hill and Stanley, are situated within an antimony rich belt. The region has hosted major proven antimony deposits, including the Lake George and Beaver Brook mines. Figure: Stanley Project Location Source: Tri-Star Company Website In October 2013 Tri-Star completed the acquisition of Portage Minerals Inc. (Portage) This acquisition brings significant antimony and gold deposits to Tri-Star, including the Bald Hill deposit, that contains an estimated 30,000-50,000 tonnes of antimony. Portage also owns 100% and 60% of two NI compliant gold deposits for 66,300oz Au and 520,000oz Au, respectively. The acquisition was completed for a total consideration of 1,086m ordinary Tri-Star shares to Portage Shareholders and the further issue of 34m Tri-Star shares to Portage creditors. An NI technical report for Bald Hill detailed that drilling to date has identified a potential quantity and grade of 725,000-1,000,000 tonnes at % Sb. Exploration surveys have also defined a 1km extension to the zone that remains open in all directions. However, no resources have yet been delineated as there has been insufficient drilling and exploration to define them. Portage also owns 891 claims within the areas surrounding Bald Hill on the Annidale Gold Belt, which covers c.200km 2 and hosts historic gold and antimony occurrences. Portage also has a 100% and 60% stake, respectively in two gold projects: Golden Pike and Golden Ridge. Golden Pike has an inferred NI compliant resource of 214,800 tonnes at an average gold grade of 9.6g/t for 66,300oz Au. Golden Ridge is 60% owned through a joint venture with Cliffs Chromite Resources Inc. and has an inferred resource of 17,780,000 tonnes at an average gold grade of 0.91g/t for 520,000oz Au. Portage also has an interest in some earlier stage gold and base metal properties. 16

17 Figure: Portage Prospects Source: Company TriStar Canada has one of the largest land holding in the State (red above), over 19,500 hectares of antimony claims and 12,300 hectares of gold claims. Figure: Bald Hill Extension Source: Company The map above shows the recent trend extension at Bald Hill from its original 450m strike drilled anomaly to over 1.5km along the fault strike. The Bond Road discovery is some 8km to the East of Bald Hill and again shows a significant antimony anomaly along strike of a known parallel fault zone. 17

18 Figure: Bond Road Prospect Source: Company In February 2014 Tri-Star announced the results of its gridding, soil geochemical and very low frequency electromagnetic surveys at it Bald Hill and Bond Road prospects that fall within the umbrella of the overall Bald Hill project. These identified a 1.5km extension to the southeast of the Bald Hill deposit, originally 450m long, that includes multiple highpriority targets. The company also noted that boulder samples in the general region of this extension have historically assayed antimony concentrations up to 11.3%. In addition, soil geochemical surveys identified a further 600m anomaly at the Bond Road target (c.4km east of the Bald Hill deposit), with soil Sb concentrations up to 119ppm. In 2010 results from angular boulders in this area assayed Sb concentrations up to 53%, with seven of the eleven anomalous samples collected returning assay results of more than 15% Sb. In total, the Bald Hill deposit now hosts a prospect deposit length of 2.2km. In July 2014 Tri-Star announced that it had discovered new mineralisation c.1km southeast of the existing Bald Hill deposit with bedrock assaying 9.04% antimony over four samples totalling 2.6m, with two samples delivering an antimony grade of 12.32% over 1.7m. In addition, antimony bearing boulders of sizes up to 1.0m were said to be common within the area surrounding the discovery. Assay results of eleven of these boulders ranged from 8.25% to 48% antimony, with nine of these eleven being higher than 15%. Previous soil geochemical samples taken in 2013 suggest that the entire strike length of this discovery could be up to 800m, with the entire Bald Hill deposit now having an indicated strike length of 2.2km. While no resources have been delineated nor any economic assessments undertaken, meaning there can be no assurance as to the feasibility of any mine, Bald Hill appears to us to be a major potential opportunity for Tri- Star that sits within a region that hosts proven antimony deposits. The company has set its next exploration target within Bald Hill as the Bond Road prospect. Given recent developments at Bald Hill, we believe there could be material upside to the initial preliminary estimate of mineable minerals in the region of 0.725m-1.000m tonnes ore at % antimony. We believe there could be up to 120,000 to 200,000 tonnes of antimony in the ground that could be mineable. We note that this is speculative and there currently have not been any resources delineated at Bald Hill, however we believe that it offers significant potential for Tri-Star. 18

19 Considerable Antimony Opportunities Tri Star is actively trying to promote awareness of antimony mining, in our view, and it has created a sister website called Antimony World ( This shows the location of antimony occurrences, mines, exploration sites or other facilities globally. This therefore shows a considerable number of potential mining prospects that could be or become economically viable, especially if any increases in the antimony price occur. given an antimony price of c.$10,000 per tonne. There could be the potential therefore for these to provide material feedstock for Tri-Star s Roaster(s) in the Gulf. The basic numbers are as follows: China processed 165,000 tonnes of Sb last year. Its mines produced 85,000 tonnes (possibly will be revised down to 75,000 tonnes soon). This means that China imported around 80,000 90,000 tonnes per annum of antimony in concentratre form itself. The sources are various from Peru, Bolivia, Thailand, Myanmar, Australia, Canada and Russia. These sources are expected to grow in production and new sources entereing the market thanks to the recovery in prices from their depressed lows of the past few decades. This market in antimony concentrates is expected to grow to around 100,000 tonnes per annum by Tri-Star expects to access this market by offering its services at the roaster at improved terms, in some cases, and with better logistics and recoveries advantages to the Chinese facilities mostly still located inland and with difficult access and rising cost pressures. Tri-Star s market share of purchasing concentrates from this traded market would be around 10% by 2016, which is a modest entrance impact for the west s first compliant facility. 1 Furthermore, the company is in discussions with major long term antimony deposit owners that could supply the roaster not just in the short term but also post the next 15 years when it expects most of the high grade deposits to be exhausted. It then believes the world will seek feed from lower grade but much higher tonnage deposits, such as experienced in the copper industry over the past 20 years. Figure: Global Antimony Prospect Locations Source: Antimony World ( Key: Grey Icon Antimony Deposit Yellow/Grey Icon Antimony & Gold Deposit Green/Grey Icon Antimony & Other Metal Deposit Red Icon Known country occurrences, deposits or districts Sources: 1 Antimony World 19