(ORG-V) Block 14 Resource Update February 6, 2017 Michael Curran, CFA (416) 507-3950 mcurran@beaconsecurities.ca Orca s main asset is the Block 14 gold project located in Sudan, in northeastern Africa. The May 2016 PEA outlined a robust 1.8MMtpa open pit mine capable of producing, on average, 73Koz/yr over a 16-year minelife (+1MMoz in total) at an AISC of US$805/oz, for an initial capital investment of US$123 million. Orca also recently added a portfolio of early-staged exploration ground in Cote d Ivoire, in West Africa. Updated Gold Resources: last week, Orca reported an updated resource estimate for the Block 14 project. Indicated resources were increased 10%, to 1.8MMoz (30.6MMt grading 1.82g/t gold). Inferred resources add a further 0.5MMoz (grading 1.7g/t). We d expect the conversion of inferred into indicated to lower the overall strip ratio in the open pit, thus benefitting project economics. The updated resources will now be used in a prefeasibility study (PFS) currently underway (expected completion later this quarter or in Q2/17). Longer-term Underground Potential?: several higher grade intercepts show good potential to support an underground mine (after open pit mining completed). Better intercepts at the Wadi Doum (WD) deposit include: 25m grading 18.4g/t gold, 27m grading 5.5g/t, 30m grading 8.1g/t, 30m grading 5.8g/t, and 14m grading 13.4g/t. Resource Update BUY (unch.) $0.90 (unch.) Previous Close $0.46 12-month Target Price $0.90 Potential Return 97.8% Dividend Yield 0.0% Low High 52 Week Price Range $0.14 $0.55 Annual Estimates (C$MM, except per unit) FY15 FY16e FY17e FY18e Revenue $0.0 $0.0 $0.0 $0.0 Net Income -$9.9 -$10.3 -$6.8 -$6.0 Shares O/S (wgt avg) 107 108 140 200 EPS (operating) -$0.09 -$0.09 -$0.04 -$0.03 CFPS -$0.09 -$0.09 -$0.04 -$0.03 Valuation P/E neg. neg. neg. neg. P/CF neg. neg. neg. neg. NAV $0.66 $0.82 $0.86 P/NAV 0.7x 0.6x 0.5x Financials Shares Outstanding 113.3 million Mgt/Insiders 8% (C$MM) Market Cap $51.5 LT Debt (corporate) $0.0 Working Capital $10.0 Enterprise Value $41.5 Fiscal Year End December 31 Reserves / Resources 2P Reserves - MMoz M+I Resources 1.6 MMoz Total Resources (M+I+I) 2.2 MMoz Quarterly Actuals/Estimates (C$/sh) Q1/15 Q2/15 Q3/15 Q4/15 EPS (operating) -$0.02 -$0.02 -$0.02 -$0.03 CFPS -$0.02 -$0.02 -$0.02 -$0.03 Q1/16 Q2/16 Q3/16 Q4/16e EPS (operating) -$0.01 -$0.02 -$0.02 -$0.03 CFPS -$0.01 -$0.02 -$0.02 -$0.03 Company at a Glance Orca Gold is a Canadian public company engaged in the acquisition and exploration of mineral properties in Africa. The main asset is the Block 14 project in Sudan. All prices in C$ unless otherwise indicated. Stock Performance Similarly at the Galat Sufar South (GSS) deposit, intercepts with underground potential include: 30m grading 8g/t, 20m grading 7.2g/t, as well as several teens-over-teens 10-20m grading 10-20g/t, both at GSS and Liseiwi (a new target area 15km north of WD). However, economics for potential underground mining will not be part of the current PFS. Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H1 416.643.3830 www.beaconsecurities.ca
Investment Thesis Re-rating Opportunity As Block 14 Advances (and drills start turning in Cote d Ivoire) We consider Orca Gold Mining to be an attractive investment for the combination of an undervalued emerging junior gold producer with expansion potential and exploration upside for free. Orca s Block 14 deposit in northern Sudan could become a 73Koz/yr open pit mine with AISC ~US$800/oz. We also see good potential to both increase production closer to the 100Koz/yr level and lower AISC (for moderately higher capital investment). Developing Africa-experienced Management Team a number of the senior management and Board of Directors of Orca Gold were involved with Red Back Mining, which built/expanded the Tasiast gold mine in Mauritania, before being taken over by Kinross Gold. They were also active explorers in Cote d Ivoire. Fig 1 Block 14 Project: Project Ownership (left) and Location Map (right) Source: Company reports Fig 2 Economic Parameters: Block 14 Project Jul-16 Beacon PEA model Initial capital US$MM 123 150 Sustaining capital US$MM 31 35 Resource Size MMt 28 28 Throughput - daily t 5,150 6,300 Throughput - annual MMt 1.8 2.2 Minelife years 16.0 13.0 Mined Grade - Gold g/t 1.52 1.50 Gold recovery % 86% 88% Gold Production - avg annual Koz 73 93 Gold Production - total lom MMoz 1.17 1.20 Op Costs US$/t 778 780 AISC US$/oz 805 877 IRR - after tax % 22% Payback - after tax years 4 Source: Company report and Beacon Securities estimates February 6, 2017 Page 2 Michael Curran 416.507.3950 mcurran@beaconsecurities.ca
Valuation Methodology Our favored valuation method for precious metals producers is a price-tonet-asset-value (P/NAV) multiple based on a discounted cash flow (DCF) model constructed using our estimates of the parameters of existing or potential mining operations. We employ long-term assumptions of US$1,300/oz for gold starting in 2017. Future year cash flows are then discounted using a base rate of 5%, to which a risk premium is added, depending on the overall political risk the company s assets are exposed to. Orca s asset exposure to the Sudan is considered medium-high risk (5% base + 2% premium). Until a prefeasibility study is completed, we also impose a further 2% premium to our valuation (7% + 2 % premium). For the newly-acquired exploration portfolio in Cote d Ivoire, we carry the assets at the value of ORG shares paid to Kinross. Fig 3 Net Asset Value Breakdown: Orca Gold Inc. Discount Rate Ownership Value Per Share (C$/sh) C$MM FY17e FY18e FY19e Block 14 (Sudan) 9.0% 70% $140 $0.59 $0.75 $0.79 Other exploration $0 $0.00 $0.00 $0.00 OPERATING ASSETS $140 $0.59 $0.75 $0.79 Cote d'ivoire properties $4 $0.04 $0.04 $0.04 Working Capital $10 $0.04 $0.03 $0.03 LT Debt (corporate only) $0 $0.00 $0.00 $0.00 CORPORATE ASSETS $14 $0.08 $0.07 $0.07 NET ASSET VALUE $154 $0.66 $0.82 $0.86 Source: Beacon Securities estimates In Fig. 3 we provide forward-looking NAV/sh estimates to show how the company s NAV is forecast to change over the next few years. For junior gold producers (gold production <250Koz/yr), we employ a target range of 0.50x-1.50x P/NAV. Using a target P/NAV multiple of 0.8x on our 2017 NAV estimate suggests a fair value of $0.55/sh for Orca Gold. On a forward-looking P/CF multiple analysis basis, we forecast Orca could achieve average CFPS of US$0.26/sh in its first year of production (2020). Discounting back to the present (at 20% per annum) suggests $0.15/sh. Applying our target multiple of 8.0x P/CF to this estimate, which is towards the middle of our 5.0x-15.0x target range for junior gold producers, suggests a fair value of $1.25/sh. On an adjusted market capitalization per total resource ounce basis (AMC or EV/oz), we see that Orca Gold trades at a significant discount to the peer group of non-producing golds with deposits of a similar grade. February 6, 2017 Page 3 Michael Curran 416.507.3950 mcurran@beaconsecurities.ca
Fig 4 AMC/oz For Similar Grade Non-Producers (M+I) (M+I+I) Share Shares Market Measured Total Gold AMC/ AMC/ Sym- Price O/S Cap AMC Indicated Resource Grade M+I oz M+I+I oz Area of Company Exch C$/sh M US$M US$M 000oz 000oz g/t US$/oz US$/oz Major Exploration Amarillo Gold AGC-V $0.41 80 $25 $25 1,210 1,498 1.62 21 17 Brazil Atlantic Gold AGB-V $0.97 168 $125 $126 1,158 2,198 1.54 109 57 Nova Scotia California Gold Mining CGM-V $0.47 32 $12 $12 515 879 1.60 23 13 California Columbus Gold CGT-T $0.87 143 $96 $89 1,885 2,965 1.49 47 30 French Guyana Falco Resources FPC-V $0.95 147 $107 $61 4,563 5,616 1.54 13 11 Quebec Midas Gold Corp. MAX-T $0.90 180 $125 $99 5,464 6,530 1.58 18 15 Idaho Sarama Resources SWA-V $0.19 121 $18 $17 282 1,202 1.83 59 14 Burkina Faso Treasury Metals TML-T $0.63 103 $50 $54 1,111 1,441 1.98 49 37 Ontario West African Resources WAF-V $0.30 409 $94 $79 983 2,026 1.25 81 39 Burkina Faso Mean 47 26 Orca Gold ORG-V $0.42 113 $37 $27 1,599 2,240 1.78 17 12 Sudan Orca Gold - 70% of resource ORG-V $0.42 113 $37 $27 1,119 1,568 1.78 24 17 Sudan Source: Company reports and Thompson Reuters Eikon data Using a 50/50 blend of fair values generated by NAV and CF analysis, generates our 12-month target price of $0.90 per ORG share. Fig 5 Property Location Map: Cote d Ivoire Source: Company reports February 6, 2017 Page 4 Michael Curran 416.507.3950 mcurran@beaconsecurities.ca
Appendix: Summary Financials Orca Gold Inc. Beacon Securities Limited Symbol ORG-V Share Price $0.46 Stock Rating BUY Shares O/S (MM) 113.3 Price Target $0.90 Mkt Cap ($MM) 52 Michael Curran, CFA (416) 507-3950 INCOME STATEMENT FY15 FY16e FY17e FY18e RATIO ANALYSIS FY15 FY16e FY17e FY18e Revenues C$MM - - - - Dividends Per Share $/sh - - - - Operating Costs C$MM - - - - Dividend Yield % - - - - EBITDA C$MM (10.4) (10.5) (6.0) (6.0) LT Debt/(Total Capital) % - - - - DD&A C$MM - - - - EV/EBITDA x - - - - EBIT C$MM (10.4) (10.5) (6.0) (6.0) PRICES/EXCHANGE RATES FY15 FY16e FY17e FY18e Interest Expense C$MM (0.5) (0.2) 0.8 - Gold Price US$/oz $1,166 $1,250 $1,300 $1,300 EBT C$MM (9.5) (9.3) (5.8) (5.0) Realized Gold Price US$/oz - - - - Taxes/Recovery C$MM - - - - Silver Price US$/oz $15.38 $17.50 $18.00 $19.00 Net Income (reported) C$MM (9.9) (10.3) (6.8) (6.0) Realized Silver Price US$/oz - - - - Non-Recurring Items/Other C$MM 0.4 1.0 1.0 1.0 US$:C$ 1.28 1.33 1.30 1.27 Net Income (operating) C$MM (9.5) (9.3) (5.8) (5.0) MINE/EQUITY PRODUCTION FY15 FY16e FY17e FY18e Shares o/s (wgt avg.) MM 107.4 107.5 140.0 200.0 Gold Production 000 oz - - - - EPS (operating) $/sh ($0.09) ($0.09) ($0.04) ($0.03) Total Cash Costs US$/oz - - - - P/E Multiple x n.m. n.m. n.m. n.m. All-in Sustaining Costs (AISC) US$/oz - - - - Cash Flow (operating) C$MM (9.5) (9.3) (5.8) (5.0) Total incl. Cash Costs + royalties AISC incl. sustex, exploration, corpg&a CFPS $/sh ($0.09) ($0.09) ($0.04) ($0.03) P/CF Multiple x n.m. n.m. n.m. n.m. 200 $1,000 SCFP Cash Flow from Operations Gold Prod'n (000oz) Cash Costs (US$/oz) Net Income C$MM (9.9) (10.3) (6.8) (6.0) 150 $750 DD&A C$MM 0.5 - - - Deferred Taxes C$MM - - - - Other C$MM 0.3 1.2 1.0 1.0 Changes in Working Capital C$MM (0.9) 0.8 - - 100 $500 (10.0) (8.3) (5.8) (5.0) Cash Flow From Investing Capital Expenditure (net) C$MM (4.7) - (5.0) (50.0) Acquis./Investments C$MM - 2.7 - - 50 $250 Other C$MM - - - - (4.7) 2.7 (5.0) (50.0) Cash Flow From Financing 0 $0 Equity Issues (net of costs) C$MM - 2.0 15.0 75.0 2015 2016e 2017e 2018e 2019e 2020e 2021e Net Borrowings C$MM - - - - Dividends Paid & Other C$MM - - - - RESERVES / RESOURCES - 2.0 15.0 75.0 Reserves MMoz - Net Inc/Dec (incl FX) C$MM (14.7) (3.6) 4.2 20.0 AMC/oz* US$/oz - Cash at End of Year C$MM 10.0 6.4 10.6 30.6 Total Resources MMoz 2.2 BALANCE SHEET AMC/oz** US$/oz 14 Cash & Equivalents C$MM 10.0 6.4 10.6 30.6 * AMC = Adjusted Market Capitalization = Market Cap + LT Debt - working cap Total Current Assets C$MM 17.9 11.9 16.1 36.1 ** Total Resources include measured, indicated, and inferred PP&E & Mining Interests C$MM 5.2 5.5 10.5 60.5 ESTIMATED NET ASSET VALUE (NAV)/SHARE - 2017 Other C$MM - - - - Status Own'ship $MM $/Sh %NAV Total Assets C$MM 23.1 17.4 26.6 96.6 Block 14 devo. 100% $140 $0.59 93% Current Liabilities C$MM 1.2 2.0 2.0 2.0 Other $0 $0.00 0% Long Term Debt C$MM - - - - Total Operating $140 $0.59 Other LT Liabilities C$MM - - - - Working capital $10 $0.04 7% Total Liabilities C$MM 1.2 2.0 2.0 2.0 LT Debt $0 $0.00 0% S/Holder Equity C$MM 21.9 15.4 24.6 94.6 NAV $150 $0.63 Total Liab. & S/Holder Equity C$MM 23.1 17.4 26.6 96.6 Current P/NAV 0.7x Working Capital C$MM 16.7 9.9 14.1 34.1 Source: Company reports, Beacon estimates February 6, 2017 Page 5 Michael Curran 416.507.3950 mcurran@beaconsecurities.ca
Disclosure Requirements Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? Yes No Does the analyst who prepared this research report have a position, either long or short, in any of the issuer s securities? Yes No Does Beacon Securities beneficially own more than 1% of equity securities of the issuer? Yes No Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for any services provided to the securities issuer during the preceding 12 months? Yes No Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for this issuer in the past 12 months? Yes No Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking Department? Yes No Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? Yes No Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? Yes No Is Beacon Securities a market maker in the equity of the issuer? Yes No Has the analyst visited the head office of the issuer and viewed its operations in a limited context? Yes No Did the issuer pay for or reimburse the analyst for the travel expenses? Yes No All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of the Investment Industry Regulatory Organization of Canada (IIROC). All facts and statistical data have been obtained or ascertained from sources, which we believe to be reliable, but are not warranted as accurate or complete. All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment decisions based on the content of this report. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries. As at January 31, 2017 # Stocks Distribution Buy 70 81% Buy Total 12-month return expected to be >15% Speculative BUY 8 9% Speculative Buy Potential total 12-month return is high (>15%) but given elevated risk, investment could result in a material loss Hold 3 3% Hold Total 12-month return expected to be between 0% and 15% Sell 0 0% Sell Total 12-month return expected to be negative Under Review 5 6% Under Review No current rating/target Tender 0 0% Tender Clients are advised to tender their shares to takeover bid or similar offer Total 86 100% Dissemination Beacon Securities distributes its research products simultaneously, via email, to its authorized client base. All research is then available on www.beaconsecurities.ca via login and password. Analyst Certification The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst s personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst s compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report. Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H1 416.643.3830 www.beaconsecurities.ca