Corp. (KAM-T) 2015 is All About The BFS At Coffee January 13, 2015 Michael Curran, CFA (416) 507-3950 mcurran@beaconsecurities.ca Kaminak Gold Corp. is advancing its 100%-owned Coffee gold project in the Yukon Territory, Canada. Feasibility Work Continues: KAM initiated a $30 million bankable feasibility study (BFS) last July, and remains on track to deliver the completed study by the end of 2015. A metallurgical sampling programme was completed late last year, and testwork results are expected in Q1/15. Fieldwork is expected to resume in March, and a resource update is expected later this year, once the 70,000m infill drill programme is completed. Kona North: several near-surface intercepts of oxidehosted gold mineralization were encountered from this new zone during the 2014 field season, including 28m grading 3.6g/t gold, 9m grading 2.7g/t gold, and 8m grading 4.1g/t gold. We expect Kona North can provide additional economic oxide ounces for the Coffee project, and management is optimistic that Kona North can be included in the feasibility study mineplan. Follow up drilling in Q4/14 extended the strike length of the mineralized zone to 240 metres, returning intercepts of 29m grading 3.1g/t, 16m grading 4.9g/t, and 9.1m grading 7g/t. Financial Position: Kaminak had $20 million in cash at the end of September. Two tranches of near-themoney warrants with an exercise price of $1.20 that expire in late March (7.0MM) and in mid-july (8.45MM) could mitigate the company s need for new financing to complete planned 2015 feasibility work. In late November, the company announced plans to change its fiscal year end from September 30 to December 31, thus the next audited financials will cover the 15-month period ended December 31, 2014. Update BUY (unch) $1.75 (prev. $2.00) Previous Close $0.91 12-month Target Price $1.75 Potential Return 92.3% Dividend Yield 0.0% 52 Week Price Range $.53-$1.19 Estimates (C$MM, except per unit) FY13 FY14e FY15e FY16e Revenue $0.0 $0.0 $0.0 $0.0 Net income ($14.2) ($25.0) ($5.5) ($7.0) Shares O/S, wgt. avg. 84 100 130 135 EPS (operating) ($0.15) ($0.23) ($0.03) ($0.04) CFPS ($0.17) ($0.23) ($0.03) ($0.04) Valuation P/E n/a n/a n/a n/a P/CF n/a n/a n/a n/a NAV $2.16 P/NAV 0.4x Financials Shares Outstanding 122.8 million Mgt/Insiders 2% (C$MM) Market Cap $111.7 LT Debt (corporate) $0.0 Working Capital $16.4 Enterprise Value $95.3 Fiscal Year End changing from SEP30 to DEC31 in 2014 Reserves / Resources 2P Reserves - M+I Resources 0.72 MMoz Total Resources (M+I+I) 4.15 MMoz Quarterly Estimates Q1/13 Q2/13 Q3/13 Q4/13 EPS (operating) $0.00 $0.00 $0.00 $0.00 CFPS -$0.01 $0.00 -$0.01 -$0.12 Q1/14 Q2/14 Q3/14 Q4/14 EPS (operating) -$0.03 -$0.02 -$0.02 -$0.09 CFPS -$0.03 -$0.02 -$0.02 -$0.09 Company at a Glance Kaminak Gold Corp. is exploring the Coffee Project, a high-grade oxidized gold project in Canada's Yukon Territory. In 2010, Kaminak executed the first drill programme at Coffee, and has since delineated a global gold resource ijust shy of 4.2 million ounces. All prices in C$ unless otherwise indicated. 3 2.5 2 1.5 1 0.5 Stock Performance Kaminak Gold Corporation Class A (KAM-CA) Volume (Millions) 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Volume Average Volume - KAM-CA Kaminak Gold Corporation Class A Price (CAD) 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 Source: FactSet Prices Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H1 416.643.3830 www.beaconsecurities.ca
Investment Thesis High Potential To Become A Mine We view Kaminak Gold as an attractive play for development success, with high potential for the company s Coffee gold project in the Yukon to become a low cost, medium-sized (+150Koz/yr) open pit mine. The deposit has several important attributes: sizeable resources (+4Moz), good grade mix (low+medium+high), and oxide mineralization that is amenable to both open pit mining and heap-leach processing. PEA Results in our view, the June 2014 PEA clearly showed a project with robust economics. Forecasts for both cash costs (US$613/oz) and cash + sustaining costs (US$688/oz) would represent lowest quartile costs globally. Fig 1 Coffee Project Parameters: June 2014 2014 PEA Initial capital US$MM 270 Sustaining capital US$MM 138 Throughput - annual MMt 5 Minelife years 11 Strip ratio waste:ore 4 Gold Grade - avg, lom g/t 1.23 Gold recovery % 88% Production - avg annual Koz 167 Production - total lom MMoz 1.9 Op Costs US$/t 22.53 Op Costs US$/oz 613 NPV - @5%, $1,250/oz, $0.95FX US$MM 497 Source: Company reports Fig 2 Resource Zones and Target Areas: Coffee Project Source: Company report January 13, 2015 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 a US$1,500/oz long-term gold price assumption, but have lower short-term gold price forecasts including US$1,300/oz for 2015, US$1,350/oz for 2016, and US$1,400/oz for 2017. Future year cash flows are then discounted using a base rate of 5%, to which a risk premium is added, depending on the overall political risk the company s assets are exposed to. Kaminak s Yukon assets are considered to be firmly among the lower risk group (5% base). For earlier-staged projects where a feasibility study has not yet been completed (such as Coffee), we employ a further 2% premium (i.e. 5% + 2% = 7%) for valuation purposes. Recent model changes include a delay of our forecast for the start of production from 2018 to 2019, to better reflect our view of the likely timeline for permitting and construction following the BFS. Fig 3 Net Asset Value Breakdown: Kaminak Gold Discount Value Per Share (C$/sh) Rate Ownership C$MM FY15e FY16e FY17e Coffee (Yukon) 7% 100% $600 $2.00 $1.91 $2.10 Operating assets $600 $2.00 $1.91 $2.10 Working Capital $16 $0.16 $0.20 $0.15 LT Debt (corporate only) $0 $0.00 $0.00 $0.00 Corporate assets $16 $0.16 $0.20 $0.15 NET ASSET VALUE $616 $2.16 $2.11 $2.25 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 (annual gold output below 250,000oz), we employ a target range of 0.5x-1.0x P/NAV. Using a target P/NAV multiple of 0.7x on our 2015 NAV estimate of $2.16 suggests a fair value of $1.50/sh for Kaminak Gold. On a forward-looking P/CF multiple analysis basis, we forecast Kaminak Gold could achieve average CFPS of $0.50/sh during the first three full years of mine operation (2019-2021). Discounting this average CFPS back to 2015 (at 15% per annum) suggests $0.29/sh. Applying our target multiple of 7.0x P/CF to this estimate, which is towards the lower end of our 5.0x- 12.5x target range for junior gold producers, suggests a fair value of $2.00/sh. Taking the average of our fair values generated using P/NAV and forwardlooking P/CF, generates our 12-month target price of $1.75/sh. January 13, 2015 Page 3 Michael Curran 416.507.3950 mcurran@beaconsecurities.ca
Appendix : Summary Financials Kaminak Gold Corp. Beacon Securities Limited Symbol KAM-V Share Price $0.91 Stock Rating BUY Shares O/S (MM) 122.8 Price Target $1.75 Mkt Cap ($MM) 112 Michael Curran, CFA (416) 507-3950 INCOME STATEMENT FY13 FY14e FY15e FY16e RATIO ANALYSIS FY13 FY14e FY15e FY16e Revenues C$MM - - - - Dividends Per Share $/sh - - - - Operating Costs C$MM - - - - Dividend Yield % - - - - EBITDA C$MM (14.4) (25.1) (5.5) (7.0) LT Debt/(Total Capital) % - - - - DD&A C$MM - - - - EV/EBITDA x - - - - EBIT C$MM (14.4) (25.1) (5.5) (7.0) PRICES/EXCHANGE RATES FY13 FY14e FY15e FY16e Interest Expense C$MM (0.2) (0.1) - - Gold Price US$/oz #REF! $1,275 $1,300 $1,350 EBT C$MM (15.7) (24.9) (4.0) (5.0) Realized Gold Price US$/oz - - - - Taxes/Recovery C$MM - - - - Silver Price US$/oz #REF! $19.50 $20.00 $20.50 Net Income (reported) C$MM (14.2) (25.0) (5.5) (7.0) Realized Silver Price US$/oz - - - - Non-Recurring Items/Other C$MM (1.5) 0.1 1.5 2.0 US$:C$ 1.03 1.07 1.06 1.05 Net Income (operating) C$MM (12.9) (23.3) (4.0) (5.0) MINE/EQUITY PRODUCTION FY13 FY14e FY15e FY16e Shares o/s (wgt avg.) MM 83.8 100.0 130.0 135.0 Gold Production 000 oz - - - - EPS (operating) $/sh ($0.15) ($0.23) ($0.03) ($0.04) Total Cash Costs US$/oz - - - - P/E Multiple x n.m. n.m. n.m. n.m. All-in Costs US$/oz - - - - Cash Flow (operating) C$MM (14.0) (23.3) (4.0) (5.0) Total incl. Cash Costs + royalties All-in CCs incl. sustex, exploration, corpg&a CFPS $/sh ($0.17) ($0.23) ($0.03) ($0.04) P/CF Multiple x n.m. n.m. n.m. n.m. 250,000 $1,000 SCFP Gold Prod'n (000oz) Cash Costs (US$/oz) Cash Flow from Operations Net Income C$MM (14.2) (25.0) (5.5) (7.0) 200,000 $800 DD&A C$MM - - - - Deferred Taxes C$MM - - - - 150,000 $600 Other C$MM (1.4) 1.7 1.5 2.0 Changes in Working Capital C$MM 0.8 - - - (14.8) (23.3) (4.0) (5.0) 100,000 $400 Cash Flow From Investing Capital Expenditure (net) C$MM - (10.0) (20.0) (5.0) Acquis./Investments C$MM - - - - 50,000 $200 Other C$MM - - - - 0.0 (10.0) (20.0) (5.0) 0 Cash Flow From Financing 2014 2015e 2016e 2017e 2018e 2019e 2020e $0 Equity Issues (net of costs) C$MM 19.7 25.0 10.0 150.0 Net Borrowings C$MM - - - - Dividends Paid & Other C$MM - - - - RESERVES / RESOURCES 19.7 25.0 10.0 150.0 Reserves MMoz - Net Inc/Dec (incl FX) C$MM 4.9 (8.3) (14.0) 140.0 AMC/oz* US$/oz n.m. Cash at End of Year C$MM 11.6 3.3 (10.7) 129.3 Total Resources MMoz 4.2 BALANCE SHEET AMC/oz** US$/oz 21 Cash & Equivalents C$MM 11.6 3.3 (10.7) 129.3 * AMC = Adjusted Market Capitalization = Market Cap + LT Debt - working cap Total Current Assets C$MM 12.9 4.6 (9.4) 130.6 ** Total Resources include measured, indicated, and inferred PP&E & Mining Interests C$MM 7.6 17.5 36.0 39.0 ESTIMATED NET ASSET VALUE (NAV)/SHARE - 2015 Other C$MM 0.7 0.7 0.7 0.7 Status Own'ship $MM $/Sh %NAV Total Assets C$MM 21.2 22.8 27.3 170.3 Coffee (Yukon) explor. 100% $600 $2.00 92% Current Liabilities C$MM 1.5 1.5 1.5 1.5 Other $0 $0.00 0% Long Term Debt C$MM - - - - Total Operating $600 $2.00 Other LT Liabilities C$MM - - - - Working capital $16 $0.16 8% Total Liabilities C$MM 2.8 2.8 2.8 2.8 LT Debt $0 $0.00 0% S/Holder Equity C$MM 18.4 20.0 24.5 167.5 NAV $616 $2.16 Total Liab. & S/Holder Equity C$MM 21.2 22.8 27.3 170.3 Current P/NAV 0.4x Working Capital C$MM 10.1 1.8 (12.2) 127.8 Source: Company reports, Beacon estimates January 13, 2015 Page 4 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 December 31, 2014 # Stocks Distribution BUY 38 81% BUY Total 12-month return expected to be >15% Speculative BUY 4 9% Speculative BUY Potential total 12-month return is high (>15%) but given elevated risk, investment could result in a material loss HOLD 4 9% 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 1 2% Total 47 100% 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