Update on Merger with Polymetals - Notice of Meeting
Update on Merger with Polymetals - Notice of Meeting
Update on Merger with Polymetals - Notice of Meeting
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ASX ANNOUNCEMENT / MEDIA RELEASE<br />
Friday, 28 June 2013<br />
<strong>Merger</strong> Progress<br />
Southern Cross Goldfields and <strong>Polymetals</strong> Mining<br />
Southern Cross Goldfields General <strong>Meeting</strong><br />
Following the ASX Announcement <strong>of</strong> 21 June 2013, Southern Cross Goldfields Ltd ACN 124 374 321 (SXG)<br />
(ASX: SXG) provides a further update <strong>on</strong> the proposed merger <strong>with</strong> <strong>Polymetals</strong> Mining Limited ACN 075 664 961<br />
(<strong>Polymetals</strong>) (ASX: PLY) announced <strong>on</strong> 8 April 2013.<br />
The proposed merger (<strong>Merger</strong>) will be effected via a scheme <strong>of</strong> arrangement between <strong>Polymetals</strong> and<br />
<strong>Polymetals</strong> Shareholders (Scheme), as outlined in the Scheme Booklet lodged <strong>with</strong> the ASX <strong>on</strong> 21 June.<br />
The Scheme is c<strong>on</strong>diti<strong>on</strong>al up<strong>on</strong> SXG shareholder approval <strong>of</strong> a resoluti<strong>on</strong> to recognise that associates <strong>of</strong> Mr<br />
David Sproule, the current N<strong>on</strong>-Executive Chairman <strong>of</strong> <strong>Polymetals</strong>, will obtain an interest <strong>of</strong> approximately 26%<br />
in SXG under the <strong>Merger</strong> as a result <strong>of</strong> their existing interest <strong>of</strong> approximately 51% in <strong>Polymetals</strong> (Sproule<br />
Interest Resoluti<strong>on</strong>). SXG Shares will be issued to the Sproule Interests under the <strong>Merger</strong> <strong>on</strong> the same basis<br />
and terms as all other <strong>Polymetals</strong> Shareholders.<br />
Approval <strong>of</strong> the Sproule Interest Resoluti<strong>on</strong> by SXG Shareholders is therefore required in order for the<br />
Scheme to proceed.<br />
SXG Directors have recommended unanimously in favour <strong>of</strong> the <strong>Merger</strong> and, in the absence <strong>of</strong> an SXG<br />
Superior Proposal (as that term is defined in the Scheme Implementati<strong>on</strong> Agreement), recommend that<br />
SXG shareholders vote in favour <strong>of</strong> the Sproule Interest Resoluti<strong>on</strong> to enable the merger to proceed. SXG<br />
Directors intend to vote their SXG Shares in favour <strong>of</strong> the Sproule Interest Resoluti<strong>on</strong>.<br />
The Independent Expert, BDO Corporate Finance Pty Ltd (BDO), c<strong>on</strong>siders that the issue <strong>of</strong> new SXG<br />
shares to associates <strong>of</strong> Mr Sproule is integral to the merger and is fair and reas<strong>on</strong>able to SXG<br />
shareholders. A full copy <strong>of</strong> the BDO Independent Expert’s Report accompanies the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong>.<br />
SXG Shareholders are encouraged to vote either by attending the SXG General <strong>Meeting</strong> in pers<strong>on</strong>, or by lodging<br />
a proxy by the times specified in the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> and proxy form which will be mailed to SXG shareholders<br />
today.<br />
The SXG General <strong>Meeting</strong> will be held at 10.00am Perth time <strong>on</strong> Tuesday 30 July 2013 at the Celtic Club, 48<br />
Ord Street, West Perth, WA 6005.
Important Dates<br />
Other important indicative dates and indicative timing in relati<strong>on</strong> to the approval and implementati<strong>on</strong> <strong>of</strong> the<br />
Scheme are set out below.<br />
Event<br />
Date<br />
SXG General <strong>Meeting</strong> 10.00am (Perth time) <strong>on</strong> Tuesday, 30 July 2013<br />
<strong>Polymetals</strong>’ General <strong>Meeting</strong> 10.00am (Brisbane time) <strong>on</strong> Wednesday, 31 July 2013<br />
<strong>Polymetals</strong>’ Scheme <strong>Meeting</strong> 10.30am (Brisbane time) <strong>on</strong> Wednesday, 31 July 2013<br />
Sec<strong>on</strong>d Court Hearing to approve the Scheme M<strong>on</strong>day, 5 August 2013<br />
Effective Date Tuesday, 6 August 2013<br />
Record Date Tuesday, 13 August 2013<br />
Implementati<strong>on</strong> Date Tuesday, 20 August 2013<br />
The above timetable is indicative <strong>on</strong>ly and the actual timetable will depend <strong>on</strong> many factors. These factors include the Court approval<br />
process and the time at which the c<strong>on</strong>diti<strong>on</strong>s precedent to the Scheme are satisfied or waived (as applicable). These times and dates may<br />
vary <strong>with</strong>out directly notifying shareholders, subject to the approval <strong>of</strong> such variati<strong>on</strong> by ASX, the Court and <strong>Polymetals</strong>. Any variati<strong>on</strong> to<br />
the timetable will be announced to the ASX and will be published <strong>on</strong> the SXG website.<br />
For further informati<strong>on</strong>, please c<strong>on</strong>tact:<br />
- ENDS -<br />
Glenn Jardine, Managing Director – Southern Cross Goldfields Ltd<br />
Teleph<strong>on</strong>e: +61 8 9215 7600, email: glennj@scross.com.au<br />
Refer to www.scross.com.au<br />
Frank Terranova, Managing Director – <strong>Polymetals</strong> Mining Ltd<br />
Teleph<strong>on</strong>e: + 61 7 3289 3313, email: fterranova@polymetals.com<br />
Refer to www.polymetals.com.au<br />
For media inquiries, please c<strong>on</strong>tact:<br />
Nicholas Read – Read Corporate<br />
Teleph<strong>on</strong>e: +61 8 9388 1474, Mobile: 0419 929 046, email: nicholas@readcorporate.com.au
ABN 71 124 374 321<br />
U16,162 Colin St, West Perth WA 6005<br />
PO Box 708, West Perth WA 6872<br />
Ph<strong>on</strong>e +61 8 9215 7600<br />
Fax +61 8 9485 1283<br />
28 June 2013<br />
Dear Shareholder,<br />
Proposed <strong>Merger</strong> <strong>of</strong> SXG and <strong>Polymetals</strong> Mining<br />
<br />
<br />
<strong>Merger</strong> <strong>of</strong> equals to create a str<strong>on</strong>g and diversified Australian gold company<br />
Your vote is important to ensure that the merger proceeds<br />
I am writing to you ahead <strong>of</strong> a number <strong>of</strong> important developments for Southern Cross Goldfields (“SXG” or “the<br />
Company”) as we proceed to implement the proposed merger <strong>with</strong> <strong>Polymetals</strong> Mining (“<strong>Polymetals</strong>”)<br />
announced <strong>on</strong> 8 April 2013 and create a diversified Australian gold company (“Merged Group”).<br />
The merger is being implemented under a Scheme <strong>of</strong> Arrangement (“Scheme”) whereby SXG will <strong>of</strong>fer 11<br />
SXG shares for every 1 <strong>Polymetals</strong> share <strong>on</strong> issue. Details <strong>of</strong> the merger, which is scheduled to be completed<br />
by August 2013, are provided in the enclosed <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> and Explanatory Memorandum.<br />
The Board <strong>of</strong> SXG believes that the proposed merger is compelling, providing shareholders <strong>with</strong> the<br />
opportunity to participate in the combinati<strong>on</strong> <strong>of</strong> two asset-rich companies to create a merged entity <strong>with</strong> a<br />
diversified gold producti<strong>on</strong> pr<strong>of</strong>ile, a strengthened capital base and increased operati<strong>on</strong>al and managerial<br />
experience and expertise. The Merged Group will have:<br />
<br />
<br />
<br />
<br />
<br />
a combined JORC-compliant Mineral Resource inventory <strong>of</strong> 1.63Moz <strong>of</strong> gold and JORC- compliant Ore<br />
Reserves <strong>of</strong> 254,400oz <strong>of</strong> gold;<br />
a near-term producti<strong>on</strong> pr<strong>of</strong>ile <strong>of</strong> 69,000oz per annum from SXG’s Marda Gold Project in WA and<br />
<strong>Polymetals</strong>’ Mt Boppy Project in NSW (both 100% owned);<br />
a significant explorati<strong>on</strong> portfolio <strong>with</strong> approximately 5,000 km 2 <strong>of</strong> landholdings;<br />
a pro-forma combined market capitalizati<strong>on</strong> <strong>of</strong> $26.5 milli<strong>on</strong> based <strong>on</strong> the share prices <strong>of</strong> both<br />
companies immediately prior to the announcement <strong>of</strong> the merger; and<br />
combined pro-forma cash reserves <strong>of</strong> $13.2 milli<strong>on</strong> as at 31 March 2013 prior to the announcement <strong>of</strong><br />
the merger.<br />
At the same time, the Merged Group will be able to realize synergies arising from the c<strong>on</strong>solidati<strong>on</strong> <strong>of</strong><br />
corporate overheads and explorati<strong>on</strong> activities and will have a greater market presence and ability to fund the<br />
development <strong>of</strong> its key projects.<br />
In the current challenging equity market envir<strong>on</strong>ment for junior and mid-tier resource companies, SXG’s Board<br />
believes that the Merged Group will be able to achieve critical mass in terms <strong>of</strong> assets and market recogniti<strong>on</strong><br />
that would not otherwise be achievable. It will also be well placed to achieve further growth by participating in<br />
logical future industry c<strong>on</strong>solidati<strong>on</strong>.<br />
The enclosed investor presentati<strong>on</strong> highlights the key attributes <strong>of</strong> the Merged Group.
30 July Shareholder <strong>Meeting</strong> – Your Vote is Important<br />
The Scheme – which will involve SXG issuing a total <strong>of</strong> 458,537,981 new SXG shares to <strong>Polymetals</strong><br />
shareholders – is subject to a number <strong>of</strong> c<strong>on</strong>diti<strong>on</strong>s, including the approval by SXG shareholders <strong>of</strong><br />
Resoluti<strong>on</strong> 1 in the enclosed <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong>, approval <strong>of</strong> the merger by <strong>Polymetals</strong> shareholders and the<br />
satisfacti<strong>on</strong> <strong>of</strong> other c<strong>on</strong>diti<strong>on</strong>s precedent including court approval.<br />
If the merger proceeds, <strong>Polymetals</strong> shareholders will hold approximately 52.9 per cent <strong>of</strong> the Merged Group, <strong>of</strong><br />
which interests associated <strong>with</strong> <strong>Polymetals</strong>’ n<strong>on</strong>-executive Chairman and largest shareholder, Mr David<br />
Sproule (“Sproule Interests”), will comprise approximately 26.17 per cent <strong>of</strong> the Merged Group as a result <strong>of</strong><br />
the Sproule Interests’ current shareholding in <strong>Polymetals</strong>. Existing SXG shareholders will hold approximately<br />
47.1% <strong>of</strong> SXG post-merger.<br />
The SXG shares to be issued to the Sproule Interests under the merger will be issued <strong>on</strong> the same basis and<br />
terms as to all other <strong>Polymetals</strong> shareholders.<br />
Following c<strong>on</strong>sultati<strong>on</strong> between SXG and ASIC, SXG’s Board has decided that SXG shareholders should be<br />
given the opportunity to c<strong>on</strong>sider the effect <strong>of</strong> the acquisiti<strong>on</strong> by the Sproule Interests <strong>of</strong> a substantial interest in<br />
the Merged Group, if the Scheme is implemented.<br />
This approval is being sought from shareholders at a general meeting which has been c<strong>on</strong>vened for 30 July<br />
2013. Enclosed <strong>with</strong> the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> is an Independent Expert’s Report, which c<strong>on</strong>cludes that the issue<br />
<strong>of</strong> SXG shares to the Sproule Interests (as a c<strong>on</strong>sequence <strong>of</strong> which the Sproule Interests will obtain a relevant<br />
interest in SXG <strong>of</strong> approximately 26.17%) is fair and reas<strong>on</strong>able to SXG shareholders (see below).<br />
The <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> also includes two resoluti<strong>on</strong>s relating to the ratificati<strong>on</strong> <strong>of</strong> the issue <strong>of</strong> SXG shares as<br />
part <strong>of</strong> a placement undertaken in October 2012 and the issue <strong>of</strong> opti<strong>on</strong>s to RMB Australia Holdings Limited in<br />
March 2013 in relati<strong>on</strong> to the loan facility for the acquisiti<strong>on</strong> <strong>of</strong> the Sandst<strong>on</strong>e Gold Project. These two<br />
resoluti<strong>on</strong>s are unrelated to the merger <strong>with</strong> <strong>Polymetals</strong>.<br />
Your vote is important as the merger <strong>with</strong> <strong>Polymetals</strong> can <strong>on</strong>ly proceed if SXG shareholders approve<br />
the resoluti<strong>on</strong> for the issue <strong>of</strong> new SXG shares to the Sproule Interests.<br />
Your Board str<strong>on</strong>gly believes that the merger is in the best interests <strong>of</strong> SXG shareholders, particularly given<br />
that current market c<strong>on</strong>diti<strong>on</strong>s make it very difficult for junior resource companies to raise capital to progress<br />
their projects. Should the merger not proceed, your Directors are <strong>of</strong> the view that SXG’s ability to develop its<br />
flagship asset, the Marda Gold Project, would be negatively impacted.<br />
The Independent Expert c<strong>on</strong>cludes the transacti<strong>on</strong> is fair and reas<strong>on</strong>able to SXG shareholders<br />
The Independent Expert, BDO Corporate Finance Pty Ltd, c<strong>on</strong>siders that the issue <strong>of</strong> new SXG shares to the<br />
Sproule interests is integral to the merger and is fair and reas<strong>on</strong>able to SXG shareholders. BDO has<br />
c<strong>on</strong>cluded that the key advantages <strong>of</strong> approving the transacti<strong>on</strong> are:<br />
1. The Merged Group will be <strong>of</strong> significantly larger scale than the existing SXG – <strong>with</strong> a combined<br />
potential producti<strong>on</strong> pr<strong>of</strong>ile <strong>of</strong> 69,000oz per annum and a bigger and more diversified asset portfolio.<br />
2. The Scheme is a merger <strong>of</strong> two similar sized entities <strong>with</strong> equal Board representati<strong>on</strong> in the Merged<br />
Group – shareholders <strong>of</strong> each company will emerge <strong>with</strong> holdings <strong>of</strong> similar weighting to the current<br />
market capitalisati<strong>on</strong> <strong>of</strong> the two companies and <strong>with</strong> a Board drawn equally from the two companies.
3. Access to the cash reserves <strong>of</strong> <strong>Polymetals</strong> – the significant cash reserves <strong>of</strong> <strong>Polymetals</strong> will be<br />
available to the Merged Group to provide funding certainty for the Marda Gold Project and to allow<br />
immediate pursuit <strong>of</strong> those development projects prioritised by the Directors.<br />
4. Potential for synergies – combining the companies should allow efficiencies to be realized in terms <strong>of</strong><br />
c<strong>on</strong>solidating Western Australian-based activities and corporate and administrative costs, resulting in<br />
annualized savings estimated at $1.95 milli<strong>on</strong>.<br />
5. Str<strong>on</strong>g more diversified development pipeline – in additi<strong>on</strong> to the advanced Marda and Mt Boppy<br />
projects, both SXG and <strong>Polymetals</strong> have a portfolio <strong>of</strong> potential projects giving the directors significant<br />
choice in the projects to be prioritized.<br />
6. Shareholders will benefit from increased market relevance and liquidity <strong>of</strong> shares – the Merged<br />
Group will have a more significant market presence and there is likely to be greater liquidity, making it<br />
easier for shareholders to realize the value <strong>of</strong> their shares should they choose to sell.<br />
7. Technical expertise associated <strong>with</strong> the Sproule Interests – David Sproule, <strong>Polymetals</strong>’ current n<strong>on</strong>executive<br />
Chairman, will bring technical expertise to the Merged Group including expertise in refurbishing<br />
and rec<strong>on</strong>structing small gold plants and operating small gold plants. The Sproule Interests also bring <strong>with</strong><br />
them a committed visi<strong>on</strong> for growing small companies as well as cash reserves.<br />
8. Diversified and larger group <strong>of</strong> assets – the Merged Group will hold a larger pool <strong>of</strong> assets, providing the<br />
Company <strong>with</strong> greater flexibility and more opti<strong>on</strong>s to divest or develop a number <strong>of</strong> projects.<br />
Your Directors believe that the proposed merger <strong>with</strong> <strong>Polymetals</strong> provides the best possible pathway for SXG<br />
to develop and realize value for shareholders from its advanced Marda Gold Project and surrounding<br />
explorati<strong>on</strong> package, while also giving it exposure to <strong>Polymetals</strong>’ assets including the Mt Boppy Project.<br />
I am excited about the opportunities that lie ahead for the Merged Group and believe that the merger will<br />
unlock significant l<strong>on</strong>g-term value for shareholders. I look forward to your support at the upcoming general<br />
meeting.<br />
Your Directors will be available from 12pm to 5pm <strong>on</strong> 17 July 2013 to discuss by ph<strong>on</strong>e this important phase in<br />
the progressi<strong>on</strong> <strong>of</strong> your company ahead <strong>of</strong> the general meeting <strong>on</strong> 30 July, and invite you to call them <strong>on</strong> (08)<br />
9215 7600.<br />
In the meantime, if you have any queries about the merger or about the general meeting, I encourage you to<br />
c<strong>on</strong>tact our Managing Director, Glenn Jardine, or Chief Financial Officer, Stephen J<strong>on</strong>es <strong>on</strong> (08) 9215 7600.<br />
Yours sincerely<br />
Samantha Tough<br />
N<strong>on</strong>-executive Chairman<br />
Southern Cross Goldfields Ltd
ASX Code: <br />
<br />
Investor Presentati<strong>on</strong> June 2013
Disclaimer and Important <strong>Notice</strong><br />
• This presentati<strong>on</strong> has been prepared by Southern Cross Goldfields Limited (“SXG” or the “Company”). It should not be c<strong>on</strong>sidered as<br />
an <strong>of</strong>fer or invitati<strong>on</strong> to subscribe for or purchase any securities in the Company or as an inducement to make an <strong>of</strong>fer or invitati<strong>on</strong> <strong>with</strong><br />
respect to those securities. No agreement to subscribe for securities in the Company will be entered into <strong>on</strong> the basis <strong>of</strong> this<br />
presentati<strong>on</strong>.<br />
• You should c<strong>on</strong>sider all the Company’s announcements and reports lodged <strong>with</strong> the ASX before making any investment decisi<strong>on</strong>s.<br />
• This presentati<strong>on</strong> c<strong>on</strong>tains forecasts and forward looking informati<strong>on</strong>. These are not a guarantee <strong>of</strong> future performance and involve<br />
unknown risks and uncertainties. Actual results and developments will almost certainly differ materially from those expressed or<br />
implied. SXG has not audited nor investigated the accuracy or completeness <strong>of</strong> the informati<strong>on</strong>, statements and opini<strong>on</strong>s c<strong>on</strong>tained in<br />
this presentati<strong>on</strong>. Accordingly, to the maximum extent permitted by applicable laws, SXG makes no representati<strong>on</strong> and can give no<br />
assurance, guarantee or warranty, express or implied, as to, and take no resp<strong>on</strong>sibility and assume no liability for, the authenticity,<br />
validity, accuracy, suitability or completeness <strong>of</strong>, or any errors in or omissi<strong>on</strong>, from any informati<strong>on</strong>, statement or opini<strong>on</strong> c<strong>on</strong>tained in<br />
this presentati<strong>on</strong>.<br />
• You should not act or refrain from acting based <strong>on</strong> this presentati<strong>on</strong>. This presentati<strong>on</strong> does not purport to be all inclusive or to c<strong>on</strong>tain<br />
all informati<strong>on</strong> which its recipients may require in order to make an informed assessment <strong>of</strong> the Company’s prospects. You should<br />
c<strong>on</strong>duct your own investigati<strong>on</strong> and perform your own analysis in order to satisfy yourself as to the accuracy and completeness <strong>of</strong> the<br />
informati<strong>on</strong>, statements and opini<strong>on</strong>s c<strong>on</strong>tained in this presentati<strong>on</strong> before making any investment decisi<strong>on</strong>.
Introducti<strong>on</strong> – The New Envir<strong>on</strong>ment<br />
• A rapidly changing landscape for gold companies following the recent price correcti<strong>on</strong>....<br />
<br />
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<br />
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<br />
<br />
<br />
Producers aiming to<br />
drive down costs<br />
Explorati<strong>on</strong> & CAPEX<br />
budgets being cut<br />
Greater transparency<br />
<strong>on</strong> reporting <strong>of</strong> costs<br />
<br />
<br />
Market now c<strong>on</strong>ducive<br />
to M&A<br />
Sensible business<br />
combinati<strong>on</strong>s being<br />
proactively pursued<br />
<br />
<br />
Costs falling rapidly<br />
Overheated<br />
c<strong>on</strong>structi<strong>on</strong> market<br />
rapidly cooling<br />
<br />
Companies that<br />
survive will be very<br />
well placed, especially<br />
those <strong>with</strong> cash, low<br />
CAPEX/OPEX, grade<br />
• The medium-term outlook for gold remains positive due to:<br />
• C<strong>on</strong>tinued quantitative easing (QE) in the US and stimulus measures in Europe<br />
• Global currency devaluati<strong>on</strong> strategies<br />
• Gold and silver c<strong>on</strong>tinue to provide the ultimate hedge against inflati<strong>on</strong>
SXG – Well Placed<br />
<br />
• <br />
• <br />
<br />
• <br />
• Rare greenfields WA gold project<br />
• Regi<strong>on</strong>ally significant<br />
• Well advanced<br />
• Dem<strong>on</strong>strated explorati<strong>on</strong> upside<br />
• <br />
• <br />
•
Gold Resource Growth<br />
• Gold resource inventory has grown substantially over the past five years through acquisiti<strong>on</strong>,<br />
c<strong>on</strong>solidati<strong>on</strong>, explorati<strong>on</strong>....and now corporate activity <strong>with</strong> <strong>Polymetals</strong> Mining.<br />
2,000,000<br />
1,800,000<br />
Measured Indicated Inferred<br />
1,600,000<br />
1,400,000<br />
<br />
1,200,000<br />
1,000,000<br />
800,000<br />
600,000<br />
400,000<br />
200,000<br />
0<br />
2009 2010 2011 2012 2013 (target)
SXG and PLY - Key <strong>Merger</strong> Metrics<br />
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1) Based <strong>on</strong> Mt Boppy’s LOM producti<strong>on</strong> <strong>of</strong> 68koz divided by the 2 year mine life<br />
2) Based <strong>on</strong> Marda’s average LOM producti<strong>on</strong><br />
3) On the basis <strong>of</strong> PLY 75% earn-in at Turner River and 100% <strong>of</strong> Mt. Boppy<br />
4) As at 31 March 2013 and excluding any transacti<strong>on</strong> costs<br />
5) Assumes various change <strong>of</strong> c<strong>on</strong>trol scheme implementati<strong>on</strong> adjustments. The net impact increases PLY shares by 3,399,652 to 41,685,271<br />
6) Assumes an exchange ratio <strong>of</strong> 11 Southern Cross shares for every <strong>on</strong>e <strong>Polymetals</strong> share.
SXG and PLY – <strong>Merger</strong> Benefits<br />
• <br />
• Improved financing and transacti<strong>on</strong>al capability for growth.<br />
• Improved future producti<strong>on</strong> platform.<br />
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• <br />
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• Explorati<strong>on</strong>, project development, divestment or combinati<strong>on</strong> <strong>of</strong> all three activities.<br />
• <br />
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• Board and management capabilities are complimentary and relevant.<br />
• C<strong>on</strong>solidated corporate overheads.<br />
• Establishes project pipeline.
Indicative <strong>Merger</strong> Timetable<br />
<br />
<br />
• SXG shareholder meeting<br />
• <strong>Polymetals</strong> shareholder meeting<br />
• Sec<strong>on</strong>d Court hearing<br />
• Implementati<strong>on</strong> date
A Recommended <strong>Merger</strong> <strong>of</strong> Equals<br />
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• <strong>Polymetals</strong> unanimous Board recommendati<strong>on</strong><br />
• 11 SXG shares for every 1 PLY share<br />
• Scheme <strong>of</strong> Arrangement (“Scheme”) under Australian law between PLY and its shareholders<br />
• PLY Directors to vote their own holdings in favour <strong>of</strong> the Scheme, in the absence <strong>of</strong> a superior proposal<br />
• PLY shareholders to hold 52.9% <strong>of</strong> the combined entity post-merger, <strong>with</strong> SXG shareholders to own 47.1%<br />
• Pipeline <strong>of</strong> gold projects <strong>with</strong> potential to produce up to 69koz pa from 2014<br />
• Chairman – Samantha Tough (SXG)<br />
• N<strong>on</strong>-Executive Directors – David Sproule (PLY), John Rowe (SXG), Graham Brock (SXG), J<strong>on</strong> Parker (PLY),<br />
Frank Terranova (PLY)<br />
• Chief Executive Officer – Glenn Jardine (SXG)<br />
• C<strong>on</strong>solidated pro-forma<br />
• Cash <strong>of</strong> $13M before transacti<strong>on</strong> costs (as at 31 March 2013)<br />
• Debt <strong>of</strong> $7.0M (as at 31 March 2013)<br />
• Market capitalisati<strong>on</strong> <strong>of</strong> ~$26.5M (as at 3 April, 2013)<br />
• Key c<strong>on</strong>diti<strong>on</strong>s include:<br />
• Approval by PLY shareholders<br />
• Approval by SXG shareholders<br />
• Court approval<br />
• Certain regulatory approvals including Takeovers Act approval in Australia<br />
• <strong>Merger</strong> <strong>of</strong> Equals<br />
announced 8 April 2013<br />
• Str<strong>on</strong>g board and<br />
management <strong>with</strong><br />
experience in driving<br />
assets though to<br />
producti<strong>on</strong><br />
• Str<strong>on</strong>g capital base and<br />
balance sheet <strong>with</strong><br />
increased funding ability
A Diversified Portfolio <strong>of</strong> Australian Gold Assets<br />
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(1) Resources are inclusive <strong>of</strong> Ore Reserves
WA Gold Assets – Marda and Sandst<strong>on</strong>e<br />
• SXG is planning to develop a in<br />
WA based <strong>on</strong> the Marda and Sandst<strong>on</strong>e assets:<br />
• Marda Project – Feasibility Study complete:<br />
• 546koz JORC resource<br />
• Greenfields gold project – proposed 480ktpa plant<br />
• Targeting 50,000ozpa<br />
• Outstanding explorati<strong>on</strong> growth potential<br />
• Sandst<strong>on</strong>e Project – recent acquisiti<strong>on</strong> from Troy Resources<br />
(ASX: TRY)<br />
• 720koz JORC resource<br />
• 600ktpa gold plant and 100-pers<strong>on</strong> camp<br />
• Short- and l<strong>on</strong>g-term producti<strong>on</strong> opti<strong>on</strong>ality
Marda Project<br />
• Rare greenfields gold project in Australia.<br />
• Targeting 50,000ozpa.<br />
• Sandst<strong>on</strong>e gold plant and camp acquired from Troy<br />
Resources in 2012 to be relocated to Marda.<br />
• Well advanced project:<br />
• Positive Feasibility Study completed May 2012;<br />
• Sandst<strong>on</strong>e acquisiti<strong>on</strong> announced August 2012;<br />
• Indicative term sheets received from financiers;<br />
• Envir<strong>on</strong>mental approvals in progress.<br />
• Low Capex, High operating margins.<br />
• Outstanding explorati<strong>on</strong> upside.<br />
• Underexplored Evanst<strong>on</strong> Shear z<strong>on</strong>e at Marda ideal for new<br />
gold discoveries
Marda – Significant Explorati<strong>on</strong> Upside<br />
• SXG’s 2,920km 2 gold tenements and rights dominates the belt<br />
• Various mineralisati<strong>on</strong> styles present including BIF, porphyry<br />
• Evanst<strong>on</strong> Shear from King Brown to north <strong>of</strong> Evanst<strong>on</strong> ~30km<br />
• Opportunity for King Brown and Golden Orb repeats<br />
• Outstanding potential for new discoveries and additi<strong>on</strong>al<br />
resources, justifying a well-funded explorati<strong>on</strong> push<br />
• Systematic geochemical program now delivering numerous<br />
exciting targets al<strong>on</strong>g the Evanst<strong>on</strong> Shear (e.g. White Pointer,<br />
Thresher) and will c<strong>on</strong>tinue to do so<br />
• Covered structural targets to be tested <strong>with</strong> RAB drilling
Northern Gold Corridor Targets – Drill-Ready<br />
• Thresher prospect – new untested - +40ppb anomaly over 800m,<br />
+100ppb gold anomaly over 400m.<br />
• Reef prospect – 3.0 g/t Au in auger drilling 400m north <strong>of</strong> Vector<br />
Resources’ Gwendolyn Deposit (~200,000oz) – +40ppb anomalies<br />
over 500m strike.<br />
• Lancelot prospect – 2.1 g/t Au in auger drilling immediately south <strong>of</strong><br />
historic results including 4m @ 17.36 g/t Au and 5m @ 6.13 g/t Au.<br />
• Broadbent’s project –initial SXG auger drilling has identified +<br />
500ppb Au in soils.<br />
• Stream <strong>of</strong> targets will be generated in the coming m<strong>on</strong>ths between<br />
Lancelot and Gwendolyn for follow-up testing.
Evanst<strong>on</strong> Shear Targets – Drill-Ready<br />
• Gold corridor open to the south <strong>of</strong> Gwendolyn to be tested<br />
<strong>with</strong> <strong>on</strong>going auger geochemical drilling<br />
• Evanst<strong>on</strong> Shear is also open north and south <strong>of</strong> Red<br />
Boomerang. “Covered” c<strong>on</strong>tacts to be followed up <strong>with</strong> RAB<br />
• White Pointer - geochemical anomaly +100ppb Au over<br />
1,200 metres - untested<br />
• Red Boomerang – porphyry hosted mineralisati<strong>on</strong><br />
• Potential for large scale deposit in this area
WA Gold Assets - Turner River<br />
• Project acquired by <strong>Polymetals</strong> in September 2012<br />
• <strong>Polymetals</strong> earning 75%, <strong>with</strong> De Grey Mining (ASX: DEG)<br />
retaining 25%<br />
--------------------------------------------------<br />
• Highly prospective area for gold and base metals<br />
• Early stage gold development project <strong>with</strong> good metallurgy<br />
• Excellent infrastructure<br />
• Established gold and base metal resources<br />
• Extensive geological database
NSW Gold Assets - Canbelego<br />
• Cobar-style mineralisati<strong>on</strong> in the Lachlan Fold Belt<br />
• Active mineral field <strong>with</strong> +5Moz produced from the<br />
regi<strong>on</strong><br />
• Major mines in the regi<strong>on</strong> include CSA (Cobar), Tritt<strong>on</strong>,<br />
Girilamb<strong>on</strong>e, Northparkes<br />
• Recent discoveries include Mallee Bull/May Day (Peel<br />
Resources)<br />
• PLY has been operating there since 1992 – produced<br />
67koz from open pit operati<strong>on</strong>s (2002-2005)<br />
3D map from<br />
presentati<strong>on</strong><br />
Zoom into<br />
next slide<br />
• 204km 2 <strong>of</strong> highly prospective tenements <strong>with</strong> +20 prospects including historic mines<br />
• Major explorati<strong>on</strong> focus <strong>with</strong>in tenements surrounding the Mt Boppy Gold Mine (historic producti<strong>on</strong>: 490koz)<br />
• PLY has been exploring for more “Mt Boppy-style” projects
Mt Boppy – A Near-Term Producti<strong>on</strong> Opportunity<br />
• Redevelopment opportunity at Mt Boppy gold mine<br />
• ~70,000oz recovered gold to be mined from open pit<br />
• EIS completed<br />
• Approvals pending to facilitate early gold producti<strong>on</strong><br />
• Start-up time and cost advantage via existing 150ktpa plant and<br />
<strong>on</strong>-site camp<br />
• Redevelopment work required includes:<br />
• Increasing plant capacity to 300ktpa<br />
• New mobile crusher and 1,300kW ball mill, flotati<strong>on</strong> circuit<br />
• New cyanide destructi<strong>on</strong> circuit, reagent area, tailings storage facility
SXG – Compelling Investment Opportunity<br />
• <strong>Merger</strong> <strong>with</strong> <strong>Polymetals</strong> <strong>on</strong> track for completi<strong>on</strong> in August 2013<br />
• Near-term gold producti<strong>on</strong> – clear pathway to development<br />
• Outstanding potential to expand producti<strong>on</strong> through explorati<strong>on</strong> success<br />
• Str<strong>on</strong>g news flow from project enhancements, explorati<strong>on</strong> success and business<br />
development activities<br />
• Outstanding regi<strong>on</strong>al explorati<strong>on</strong> portfolio<br />
• Str<strong>on</strong>g combined management team <strong>with</strong> str<strong>on</strong>g track record in developing, operating and<br />
optimising gold projects
ASX Code: <br />
<br />
Investor Presentati<strong>on</strong> June 2013 – Additi<strong>on</strong>al Slides
Pro Forma Gold Resource Table<br />
Measured Indicated Inferred Total Resources<br />
kt g/t Au koz kt g/t Au koz kt g/t Au koz kt g/t Au koz<br />
Canbelego (1) 39 6.4 8 646 4.0 84 82 3.9 10 766 4.1 102<br />
Turner River Gold JV (Earning<br />
In) 2)<br />
Combined <strong>Polymetals</strong><br />
Project Total (3)<br />
2,669 1.8 157 1,145 1.3 47 2,936 1.5 141 6,750 1.6 345<br />
2,707 1.9 165 1,791 2.28 131 3,018 1.6 151 7,516 1.9 448<br />
Marda (4) 2,796 2.3 204 2,640 1.8 155 3,052 1.9 188 8,487 2.0 546<br />
Sandst<strong>on</strong>e (4) 1,932 2.4 146 12,586 1.4 574 14,518 1.5 720<br />
Combined Southern Cross<br />
Total<br />
<strong>Polymetals</strong> / Southern<br />
Cross Total (5)<br />
2,796 2.3 204 4,572 2.1 301 15,638 1.5 762 23,005 1.7 1,266<br />
5,503 2.1 368 6,362 2.1 433 18,655 1.5 914 30,521 1.8 1,714<br />
<strong>Polymetals</strong> Share / Southern<br />
Cross Total (6)<br />
4,836 2.1 329 6,076 2.2 421 17,921 1.5 878 28,833 1.8 1,627<br />
<br />
(1) Mt Boppy; 2.5g/t cut-<strong>of</strong>f; Boppy Sth: 1.0g/t cut-<strong>of</strong>f<br />
(2) <strong>Polymetals</strong> has a entered into an agreement <strong>with</strong> De Grey Mining to earn a 75% interest in the Turner River Gold Project<br />
(3) Total includes 100% Turner River Resources<br />
(4) Refer Competent Pers<strong>on</strong>s Statement<br />
(5) Figures may not add due to rounding. Includes 100% Turner River JV Resources<br />
(6) Figures may not add due to rounding. Includes 75%Turner River JV Resources
Pro Forma Gold Reserve Statement<br />
Proved Probable Total<br />
kt Au g/t oz kt Au g/t oz kt Au g/t oz<br />
Marda(1) 1,900 2.4 149,200 300 2.7 29,300 2,300 2.4 178,500<br />
Mt Boppy 42 5.6 7,636 507 4.2 68,312 549 4.3 75,945<br />
<strong>Polymetals</strong> / SXG Total (1) 1,942 2.5 156,836 807 3.8 97,612 2,849 2.8 254,449<br />
(1) Note: Rounding c<strong>on</strong>forming to JORC to appropriate levels <strong>of</strong> precisi<strong>on</strong> may cause minor computati<strong>on</strong>al errors.
Competent Pers<strong>on</strong>’s Statements<br />
compiled by:<br />
‣ in respect <strong>of</strong> Ore Reserves at the Marda Gold Project, Mr Denis Grubic, a Member <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy and an independent<br />
c<strong>on</strong>sultant employed by Rock Team Pty Ltd, who has sufficient experience which is relevant to the style <strong>of</strong> mineralisati<strong>on</strong> and type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and<br />
ian Code for Reporting <strong>of</strong> Explorati<strong>on</strong><br />
<br />
‣ in respect <strong>of</strong> Mineral Resources at the Marda <br />
Explorati<strong>on</strong> Manager, who has sufficient experience which is relevant to the type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and to the activity which he is undertaking to qualify<br />
ral <br />
‣ in respect <strong>of</strong> Mineral Resources at the Sandst<strong>on</strong>e Project, Mr David Otterman, a Fellow <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy, Chartered Pr<strong>of</strong>essi<strong>on</strong>al<br />
(Geology) and an independent c<strong>on</strong>sultant, who has sufficient experience which is relevant to the style <strong>of</strong> mineralisati<strong>on</strong> and type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and to<br />
Code for Reporting <strong>of</strong> Explorati<strong>on</strong><br />
<br />
‣ Each <strong>of</strong> Messrs Grubic, Simm<strong>on</strong>s and Otterman c<strong>on</strong>sents to the inclusi<strong>on</strong> in this Explanatory Memorandum <strong>of</strong> the statements based <strong>on</strong> his informati<strong>on</strong> in the form<br />
and c<strong>on</strong>text in which they appear.<br />
The Informati<strong>on</strong> in this Presentati<strong>on</strong> that relates to <strong>Polymetals</strong><br />
‣ in respect <strong>of</strong> Ore Reserves at the Mt Boppy Project, Messrs Sean Buxt<strong>on</strong> and Andrew Lawry, Members <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy and<br />
former employees <strong>of</strong> <strong>Polymetals</strong>, who have sufficient experience which is relevant to the style <strong>of</strong> mineralisati<strong>on</strong> and type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and to the<br />
Code for Reporting <strong>of</strong> Explorati<strong>on</strong><br />
<br />
‣ in respect <strong>of</strong> Mineral Resources at the Mt Boppy Project and Turner River Project, Mt Troy Lowien, a Member <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy<br />
and a <strong>Polymetals</strong> employee, who has sufficient experience which is relevant to the type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and to the activity which he is undertaking to<br />
ts, Mineral Resources and Ore<br />
<br />
‣ Each <strong>of</strong> Messrs Buxt<strong>on</strong>, Lawry and Lowien c<strong>on</strong>sents to the inclusi<strong>on</strong> in this Explanatory Memorandum <strong>of</strong> the statements based <strong>on</strong> his informati<strong>on</strong> in the form and<br />
c<strong>on</strong>text in which they appear.
ABN 71 124 374 321<br />
U16,162 Colin St, West Perth WA 6005<br />
PO Box 708, West Perth WA 6872<br />
Ph<strong>on</strong>e +61 8 9215 7600<br />
Fax +61 8 9485 1283<br />
Southern Cross Goldfields Ltd<br />
ACN 124 374 321<br />
<strong>Notice</strong> <strong>of</strong> General <strong>Meeting</strong><br />
and Explanatory Memorandum<br />
General <strong>Meeting</strong> to be held at<br />
The Celtic Club<br />
48 Ord Street, West Perth WA<br />
<strong>on</strong> Tuesday, 30 July 2013<br />
at 10.00am WST<br />
The <strong>Notice</strong> <strong>of</strong> General <strong>Meeting</strong>, Explanatory Memorandum and Proxy Form should be read in their<br />
entirety. If you are in doubt as to how you should vote, you should seek advice from your accountant,<br />
solicitor or other pr<strong>of</strong>essi<strong>on</strong>al adviser prior to voting.<br />
The Independent Expert has c<strong>on</strong>cluded that the transacti<strong>on</strong> the subject <strong>of</strong> Resoluti<strong>on</strong> 1 <strong>of</strong> the General<br />
<strong>Meeting</strong> is both fair and reas<strong>on</strong>able to N<strong>on</strong>-associated Shareholders. Shareholders should refer to<br />
the Independent Expert’s Report for further discussi<strong>on</strong> about Resoluti<strong>on</strong> 1. The Independent Expert’s<br />
Report is enclosed <strong>with</strong> this <strong>Notice</strong> <strong>of</strong> General <strong>Meeting</strong>.
C<strong>on</strong>tents<br />
<strong>Notice</strong> <strong>of</strong> General <strong>Meeting</strong> 3<br />
Proxy appointment, voting and <strong>Meeting</strong> instructi<strong>on</strong>s 5<br />
Explanatory Memorandum 6<br />
Schedule 1: Informati<strong>on</strong> about the Merged Group 23<br />
Schedule 2: Terms & c<strong>on</strong>diti<strong>on</strong>s <strong>of</strong> SXG Opti<strong>on</strong>s 33<br />
Schedule 3: Competent pers<strong>on</strong>s’ statement 36<br />
Glossary <strong>of</strong> terms used in <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> 37<br />
Annexure A: Independent Expert’s Report<br />
Annexure B: Technical Specialist’s Report<br />
Proxy Form<br />
Key dates<br />
Event<br />
Date<br />
Snapshot date for eligibility to vote Sunday, 28 July 2013<br />
Last day for receipt <strong>of</strong> Proxy Forms* Sunday, 28 July 2013<br />
SXG General <strong>Meeting</strong> Tuesday, 30 July 2013<br />
<strong>Meeting</strong> <strong>of</strong> <strong>Polymetals</strong> Shareholders to approve the Scheme** Wednesday, 31 July 2013<br />
Scheme Implementati<strong>on</strong> Date** Tuesday, 20 August 2013<br />
* Proxy Forms received after 10.00am WST <strong>on</strong> this date will be disregarded.<br />
** These dates are indicative <strong>on</strong>ly and are subject to change.
- 3 -<br />
<strong>Notice</strong> <strong>of</strong> General <strong>Meeting</strong><br />
<strong>Notice</strong> is hereby given that a General <strong>Meeting</strong> <strong>of</strong> Southern Cross Goldfields Ltd ACN<br />
124 374 321 (SXG or Company) will be held at the Celtic Club, 48 Ord Street, West Perth<br />
WA at 10.00am WST <strong>on</strong> Tuesday, 30 July 2013.<br />
The Explanatory Memorandum, which accompanies and forms part <strong>of</strong> this <strong>Notice</strong>, and the<br />
accompanying Annexures describe the various matters to be c<strong>on</strong>sidered.<br />
Terms used in this <strong>Notice</strong> will, unless the c<strong>on</strong>text otherwise requires, have the same<br />
meaning given to them in the Glossary set out in the Explanatory Memorandum.<br />
Business<br />
Resoluti<strong>on</strong> 1 – Approval, as a result <strong>of</strong> the <strong>Merger</strong> <strong>with</strong> <strong>Polymetals</strong>, <strong>of</strong> the issue<br />
<strong>of</strong> New SXG Shares to the Sproule Interests<br />
To c<strong>on</strong>sider and, if thought fit, to pass, <strong>with</strong> or <strong>with</strong>out amendment, the following resoluti<strong>on</strong><br />
as an ordinary resoluti<strong>on</strong>:<br />
“That for the purposes <strong>of</strong> item 7 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the Corporati<strong>on</strong>s Act and for all other<br />
purposes, approval, as a result <strong>of</strong> the <strong>Merger</strong> <strong>with</strong> <strong>Polymetals</strong>, is given for the issue <strong>of</strong><br />
227,031,189 New SXG Shares to the Sproule Interests, pursuant to which the Sproule<br />
Interests will obtain a relevant interest in SXG Shares in the Company in excess <strong>of</strong> the<br />
threshold set out in secti<strong>on</strong> 606(1) <strong>of</strong> the Corporati<strong>on</strong>s Act.”<br />
Independent Expert’s Report: SXG Shareholders should carefully c<strong>on</strong>sider the Independent Expert’s Report<br />
prepared by BDO Corporate Finance for the purposes <strong>of</strong> the SXG Shareholder approval required for this<br />
Resoluti<strong>on</strong> 1 in accordance <strong>with</strong> item 7 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the Corporati<strong>on</strong>s Act and which comments <strong>on</strong> the<br />
fairness and reas<strong>on</strong>ableness <strong>of</strong> the proposed issue <strong>of</strong> New SXG Shares by the Sproule Interests. The<br />
Independent Expert c<strong>on</strong>cludes that the proposal the subject <strong>of</strong> Resoluti<strong>on</strong> 1 is fair and reas<strong>on</strong>able to<br />
N<strong>on</strong>-associated Shareholders.<br />
Voting exclusi<strong>on</strong>: In accordance <strong>with</strong> item 7 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the Corporati<strong>on</strong>s Act, the Company will disregard<br />
any votes cast <strong>on</strong> Resoluti<strong>on</strong> 1 by the Sproule Interests and their Associates. However, the Company need not<br />
disregard a vote if it is cast by a pers<strong>on</strong> as a proxy for a pers<strong>on</strong> who is entitled to vote, in accordance <strong>with</strong> the<br />
directi<strong>on</strong>s <strong>on</strong> the proxy form, or it is cast by the pers<strong>on</strong> chairing the General <strong>Meeting</strong> as proxy for a pers<strong>on</strong> who is<br />
entitled to vote, in accordance <strong>with</strong> the directi<strong>on</strong> <strong>on</strong> the proxy form to vote as the proxy decides.<br />
Resoluti<strong>on</strong> 2 – Ratificati<strong>on</strong> <strong>of</strong> issue <strong>of</strong> Placement Shares<br />
To c<strong>on</strong>sider and, if thought fit, to pass, <strong>with</strong> or <strong>with</strong>out amendment, the following resoluti<strong>on</strong><br />
as an ordinary resoluti<strong>on</strong>:<br />
“That, for the purposes <strong>of</strong> ASX Listing Rule 7.4 and for all other purposes, SXG Shareholders<br />
approve and ratify the previous issue <strong>of</strong> 1,323,769 Placement Shares at an issue price <strong>of</strong><br />
$0.045 per Placement Share by the Company in October 2012, <strong>on</strong> the terms and c<strong>on</strong>diti<strong>on</strong>s<br />
referred to in the Explanatory Memorandum.<br />
Voting exclusi<strong>on</strong>: In accordance <strong>with</strong> Listing Rule 14.11, the Company will disregard any votes cast <strong>on</strong><br />
Resoluti<strong>on</strong> 2 by those pers<strong>on</strong>s who were issued SXG Shares and any Associates <strong>of</strong> those pers<strong>on</strong>s. However, the<br />
Company need not disregard a vote if it is cast by a pers<strong>on</strong> as a proxy for a pers<strong>on</strong> who is entitled to vote, in<br />
accordance <strong>with</strong> the directi<strong>on</strong>s <strong>on</strong> the proxy form, or it is cast by the pers<strong>on</strong> chairing the <strong>Meeting</strong> as proxy for a<br />
pers<strong>on</strong> who is entitled to vote, in accordance <strong>with</strong> the directi<strong>on</strong> <strong>on</strong> the proxy form to vote as the proxy decides.
- 4 -<br />
Resoluti<strong>on</strong> 3 – Ratificati<strong>on</strong> <strong>of</strong> issue <strong>of</strong> SXG Opti<strong>on</strong>s to RMB<br />
To c<strong>on</strong>sider and, if thought fit, to pass, <strong>with</strong> or <strong>with</strong>out amendment, the following resoluti<strong>on</strong><br />
as an ordinary resoluti<strong>on</strong>:<br />
“That, for the purposes <strong>of</strong> ASX Listing Rule 7.4 and for all other purposes, SXG Shareholders<br />
approve and ratify the previous issue <strong>of</strong> 34,255,319 SXG Opti<strong>on</strong>s to RMB Australia Holdings<br />
Limited by the Company in March 2013, <strong>on</strong> the terms and c<strong>on</strong>diti<strong>on</strong>s referred to in the<br />
Explanatory Memorandum.”<br />
Voting exclusi<strong>on</strong>: In accordance <strong>with</strong> Listing Rule 14.11, the Company will disregard any votes cast <strong>on</strong><br />
Resoluti<strong>on</strong> 3 by RMB and any Associates <strong>of</strong> RMB. However, the Company need not disregard a vote if it is cast<br />
by a pers<strong>on</strong> as a proxy for a pers<strong>on</strong> who is entitled to vote, in accordance <strong>with</strong> the directi<strong>on</strong>s <strong>on</strong> the proxy form, or<br />
it is cast by the pers<strong>on</strong> chairing the <strong>Meeting</strong> as proxy for a pers<strong>on</strong> who is entitled to vote, in accordance <strong>with</strong> the<br />
directi<strong>on</strong> <strong>on</strong> the proxy form to vote as the proxy decides.<br />
By order <strong>of</strong> the Board<br />
Dennis Wilkins<br />
Company Secretary<br />
28 June 2013
- 5 -<br />
Proxy appointment, voting and <strong>Meeting</strong> instructi<strong>on</strong>s<br />
Lodgement <strong>of</strong> a Proxy Form<br />
The Proxy Form (and any power <strong>of</strong> attorney or other authority, if any, under which it is signed) must be received<br />
at an address given below by 10.00am WST <strong>on</strong> Sunday, 28 July 2013 being not later than 48 hours before the<br />
commencement <strong>of</strong> the General <strong>Meeting</strong>. Any Proxy Form received after that time will not be valid.<br />
Proxy Forms may be lodged:<br />
By hand or post:<br />
By fax:<br />
Appointment <strong>of</strong> a proxy<br />
Computershare Investor Services Pty Ltd<br />
GPO Box 212<br />
Melbourne VIC 3001<br />
1800 783 447 (<strong>with</strong>in Australia) <strong>of</strong> +61 3 9473 2555 (outside Australia)<br />
An SXG Shareholder entitled to attend and vote at the General <strong>Meeting</strong> is entitled to appoint a proxy. The proxy<br />
may, but need not be, an SXG Shareholder.<br />
If you wish to appoint the Chairman as your proxy, mark the appropriate box <strong>on</strong> the Proxy Form. If the pers<strong>on</strong><br />
you wish to appoint as your proxy is some<strong>on</strong>e other than the Chairman please write the name <strong>of</strong> that pers<strong>on</strong>. If<br />
you leave this secti<strong>on</strong> blank, or your named proxy does not attend the <strong>Meeting</strong>, the Chairman will be your proxy.<br />
You are entitled to appoint up to two pers<strong>on</strong>s as proxies to attend the General <strong>Meeting</strong> and vote <strong>on</strong> a poll. If you<br />
wish to appoint a sec<strong>on</strong>d proxy, an additi<strong>on</strong>al Proxy Form may be obtained by teleph<strong>on</strong>ing Computershare <strong>on</strong><br />
1300 764 223 (<strong>with</strong>in Australia) or +61 3 9415 4319 (outside Australia), or you may photocopy the Proxy Form.<br />
To appoint a sec<strong>on</strong>d proxy you must <strong>on</strong> each Proxy Form state (in the appropriate box) the percentage <strong>of</strong> your<br />
voting rights which are the subject <strong>of</strong> the relevant proxy. If both Proxy Forms do not specify that percentage, each<br />
proxy may exercise half your votes. Fracti<strong>on</strong>s <strong>of</strong> votes will be disregarded.<br />
Corporate SXG Shareholders<br />
Corporate SXG Shareholders should comply <strong>with</strong> the executi<strong>on</strong> requirements set out <strong>on</strong> the proxy form or<br />
otherwise <strong>with</strong> the provisi<strong>on</strong>s <strong>of</strong> secti<strong>on</strong> 127 <strong>of</strong> the Corporati<strong>on</strong>s Act. Secti<strong>on</strong> 127 <strong>of</strong> the Corporati<strong>on</strong>s Act<br />
provides that a company may execute a document <strong>with</strong>out using its comm<strong>on</strong> seal if the document is signed by:<br />
• two directors <strong>of</strong> the company;<br />
• a director and a company secretary <strong>of</strong> the company; or<br />
• for a proprietary company that has a sole director who is also the sole company secretary – that director.<br />
Votes <strong>on</strong> Resoluti<strong>on</strong>s<br />
You may direct your proxy how to vote <strong>on</strong> a Resoluti<strong>on</strong> by placing a mark in <strong>on</strong>e <strong>of</strong> the boxes opposite the<br />
Resoluti<strong>on</strong>. All your shareholding will be voted in accordance <strong>with</strong> such a directi<strong>on</strong> unless you indicate <strong>on</strong>ly a<br />
porti<strong>on</strong> <strong>of</strong> voting rights are to be voted <strong>on</strong> the Resoluti<strong>on</strong>s by inserting the percentage or number <strong>of</strong> SXG Shares<br />
you wish to vote in the appropriate box or boxes. If you do not mark any <strong>of</strong> the boxes <strong>on</strong> the Resoluti<strong>on</strong>s, your<br />
proxy may vote as he or she chooses. If you mark more than <strong>on</strong>e box <strong>on</strong> a Resoluti<strong>on</strong> your vote <strong>on</strong> the<br />
Resoluti<strong>on</strong> will be invalid.<br />
Chairman voting undirected proxies<br />
The Chairman will vote undirected proxies <strong>on</strong>, and in favour <strong>of</strong>, all <strong>of</strong> the proposed resoluti<strong>on</strong>s.<br />
Voting entitlement (snapshot date)<br />
For the purposes <strong>of</strong> determining voting and attendance entitlements at the General <strong>Meeting</strong>, SXG Shares will be<br />
taken to be held by the pers<strong>on</strong>s who are registered as holding the SXG Shares at 10.00 WST <strong>on</strong> Sunday,<br />
28 July 2013. Accordingly, transacti<strong>on</strong>s registered after that time will be disregarded in determining entitlements<br />
to attend and vote at the General <strong>Meeting</strong>.<br />
Corporate representatives<br />
A corporati<strong>on</strong> may elect to appoint an individual to act as its representative in accordance <strong>with</strong> secti<strong>on</strong> 250D <strong>of</strong><br />
the Corporati<strong>on</strong>s Act, in which case the Company will require a certificate <strong>of</strong> appointment <strong>of</strong> the corporate<br />
representative executed in accordance <strong>with</strong> the Corporati<strong>on</strong>s Act. The certificate <strong>of</strong> appointment must be lodged<br />
<strong>with</strong> the Company and/or the Company's share registry before the General <strong>Meeting</strong> or at the registrati<strong>on</strong> desk <strong>on</strong><br />
the day <strong>of</strong> the General <strong>Meeting</strong>.
- 6 -<br />
Explanatory Memorandum<br />
This Explanatory Memorandum has been prepared for the informati<strong>on</strong> <strong>of</strong> SXG Shareholders in<br />
relati<strong>on</strong> to the business to be c<strong>on</strong>ducted at the General <strong>Meeting</strong>.<br />
The purpose <strong>of</strong> this Explanatory Memorandum is to provide SXG Shareholders <strong>with</strong> all informati<strong>on</strong><br />
known to the Company which is material to a decisi<strong>on</strong> <strong>on</strong> how to vote <strong>on</strong> the Resoluti<strong>on</strong>s in the<br />
accompanying <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong>.<br />
This Explanatory Memorandum should be read in c<strong>on</strong>juncti<strong>on</strong> <strong>with</strong> the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong>, the<br />
Independent Expert’s Report and the Technical Specialist’s Report. Capitalised terms in this<br />
Explanatory Memorandum are defined in the Glossary.<br />
1. Resoluti<strong>on</strong> 1 – Approval, as a result <strong>of</strong> the <strong>Merger</strong> <strong>with</strong> <strong>Polymetals</strong>, <strong>of</strong> the<br />
issue <strong>of</strong> New SXG Shares to the Sproule Interests<br />
1.1 Introducti<strong>on</strong> and background to the <strong>Merger</strong><br />
The Company has entered into an agreement for a proposed merger <strong>with</strong> <strong>Polymetals</strong><br />
Mining Limited (<strong>Merger</strong>) by way <strong>of</strong> a scheme <strong>of</strong> arrangement between <strong>Polymetals</strong> and<br />
<strong>Polymetals</strong> Shareholders (Scheme).<br />
Under the <strong>Merger</strong> it is proposed that SXG will acquire all <strong>of</strong> the <strong>Polymetals</strong> Shares from<br />
<strong>Polymetals</strong> Shareholders (so that <strong>Polymetals</strong> becomes a wholly owned subsidiary <strong>of</strong> SXG)<br />
and SXG will issue to <strong>Polymetals</strong> Shareholders 11 New SXG Shares for every 1 <strong>Polymetals</strong><br />
Share held.<br />
The Sproule Interests are <strong>Polymetals</strong> largest shareholders, collectively holding a relevant<br />
interest in approximately 49.51% 1 <strong>of</strong> the issued capital <strong>of</strong> <strong>Polymetals</strong>. As a result <strong>of</strong> the<br />
<strong>Merger</strong>, the Company will issue 227,031,189 New SXG Shares to the Sproule Interests <strong>on</strong><br />
the same basis and terms as all other <strong>Polymetals</strong> Shareholders, which will represent<br />
approximately 26.17% <strong>of</strong> the issued capital <strong>of</strong> the Company post merger.<br />
Following c<strong>on</strong>sultati<strong>on</strong> <strong>with</strong> ASIC, the Directors have c<strong>on</strong>vened the <strong>Meeting</strong> to approve the<br />
issue <strong>of</strong> New SXG Shares to the Sproule Interests, which as a result <strong>of</strong> the <strong>Merger</strong> will<br />
obtain an interest in SXG in excess <strong>of</strong> 20% (and thus require SXG Shareholder approval in<br />
accordance <strong>with</strong> item 7 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the Corporati<strong>on</strong>s Act).<br />
Implementati<strong>on</strong> <strong>of</strong> the <strong>Merger</strong> is dependent <strong>on</strong> SXG Shareholders approving Resoluti<strong>on</strong> 1.<br />
If Resoluti<strong>on</strong> 1 is not passed, a c<strong>on</strong>diti<strong>on</strong> <strong>of</strong> the Scheme will not be satisfied and the <strong>Merger</strong><br />
as proposed will not occur.<br />
The Directors c<strong>on</strong>sider the <strong>Merger</strong> to be in the best interests <strong>of</strong> the Company and<br />
unanimously recommend you vote in favour <strong>of</strong> Resoluti<strong>on</strong> 1.<br />
The <strong>Merger</strong> is also subject to the approval <strong>of</strong> the Scheme by <strong>Polymetals</strong> Shareholders and<br />
the Court.<br />
The Directors are pleased to provide SXG Shareholders <strong>with</strong> an opportunity to vote <strong>on</strong> an<br />
important matter in the development <strong>of</strong> the Company.<br />
1 This percentage holding is comprised <strong>of</strong> the Sproule Interests’ holdings in <strong>Polymetals</strong> as at the date <strong>of</strong> the <strong>Notice</strong>, plus<br />
the <strong>Polymetals</strong> Shares to be issued to Meadowhead Investments as the Indemnity C<strong>on</strong>siderati<strong>on</strong>, subject to the approval<br />
<strong>of</strong> <strong>Polymetals</strong> Shareholders and implementati<strong>on</strong> <strong>of</strong> the Scheme.
- 7 -<br />
1.2 Rati<strong>on</strong>ale for the <strong>Merger</strong><br />
The <strong>Merger</strong> has been proposed as a “merger <strong>of</strong> equals” and brings together two highly<br />
complementary companies to create a significant gold explorati<strong>on</strong> and development<br />
company.<br />
The Directors’ key reas<strong>on</strong>s for proposing the <strong>Merger</strong> and for recommending that SXG<br />
Shareholders vote in favour <strong>of</strong> Resoluti<strong>on</strong> 1 are as follows:<br />
The <strong>Merger</strong> provides an opportunity to create a diversified Australian gold and base<br />
metals company <strong>with</strong> potential for annual producti<strong>on</strong> <strong>of</strong> 69,000 ounces <strong>of</strong> gold and a<br />
pipeline <strong>of</strong> development assets.<br />
The combinati<strong>on</strong> <strong>of</strong> the Company and <strong>Polymetals</strong> broadens and strengthens the capital<br />
base through the creati<strong>on</strong> <strong>of</strong> a superior balance sheet, improving funding capability.<br />
The Merged Group will own a significant explorati<strong>on</strong> portfolio <strong>with</strong> 4,930 km 2<br />
landholdings in highly prospective locati<strong>on</strong>s across Australia.<br />
<strong>of</strong><br />
The <strong>Merger</strong> will generate synergies resulting from the c<strong>on</strong>solidati<strong>on</strong> <strong>of</strong> corporate<br />
overheads and explorati<strong>on</strong> activities.<br />
The <strong>Merger</strong> combines capable and experienced boards and management <strong>with</strong> a proven<br />
track record in driving development assets through to producti<strong>on</strong>.<br />
The Merged Group will have a cash balance <strong>of</strong> $13.2M (pro forma 31 March 2013)<br />
which will enable the Merged Group to c<strong>on</strong>tinue to advance the Marda Gold Project<br />
towards development.<br />
These reas<strong>on</strong>s are explained in further detail in Secti<strong>on</strong> 1.10, together <strong>with</strong> possible<br />
reas<strong>on</strong>s not to vote in favour <strong>of</strong> Resoluti<strong>on</strong> 1.<br />
1.3 Summary <strong>of</strong> effect <strong>of</strong> <strong>Merger</strong><br />
If the <strong>Merger</strong> proceeds, the Merged Group will have the following key characteristics, based<br />
<strong>on</strong> informati<strong>on</strong> current as at the Announcement Date (unless otherwise stated):<br />
SXG <strong>Polymetals</strong> Merged Group<br />
Shares <strong>on</strong> issue<br />
(milli<strong>on</strong>)<br />
408.9 41.7 6 867.5<br />
Market<br />
12.7 13.8 26.5<br />
capitalisati<strong>on</strong> ($m) 1<br />
Cash ($m) 2 3.4 9.8 13.2<br />
Debt ($m) 2 7.0 0.0 7.0<br />
Ore Reserves (oz.) 3 178,500 75,945 254,449<br />
Mineral Resources 1,266,000 361,000 1,627,000<br />
(oz.) 4<br />
Potential annual<br />
35,000 34,000 69,000<br />
producti<strong>on</strong> (oz.) 5<br />
Notes:<br />
1. Based <strong>on</strong> the share prices as at 3 April 2013 (the Business Day prior to a trading halt by both companies).<br />
2. Based <strong>on</strong> the cash and debt <strong>of</strong> each company at the end <strong>of</strong> March 2013.<br />
3. The estimates reflect the total Ore Reserves <strong>of</strong> the Company and <strong>Polymetals</strong> as reported to ASX <strong>on</strong><br />
10 May 2012 and 29 January 2013 respectively.
- 8 -<br />
4. The estimates reflect the total Mineral Resources <strong>of</strong> the Company and <strong>Polymetals</strong> as reported to ASX <strong>on</strong><br />
10 May 2012 and 29 January 2013 respectively, excluding those <strong>of</strong> <strong>Polymetals</strong>’ White Dam Project interest<br />
(since divested), and the Turner River base metals Mineral Resource.<br />
5. As reported by the Company and <strong>Polymetals</strong> to ASX <strong>on</strong> 10 May 2012 and 29 January 2013 respectively.<br />
6. <strong>Polymetals</strong> Shares <strong>on</strong> issue as at the Scheme Implementati<strong>on</strong> Date.<br />
1.4 Overview <strong>of</strong> Merged Group<br />
If Resoluti<strong>on</strong> 1 is approved by SXG Shareholders and the Scheme is approved by<br />
<strong>Polymetals</strong> Shareholders and the Court:<br />
• The Company will issue a total <strong>of</strong> 458,537,981 New SXG Shares to the <strong>Polymetals</strong><br />
Shareholders to acquire their <strong>Polymetals</strong> Shares, <strong>on</strong> the basis <strong>of</strong> 11 New SXG<br />
Shares for every 1 <strong>Polymetals</strong> Share <strong>on</strong> issue.<br />
• <strong>Polymetals</strong> will become a wholly owned subsidiary <strong>of</strong> the Company.<br />
• Existing SXG Shareholders will hold approximately 47.1% <strong>of</strong> the Merged Group and<br />
<strong>Polymetals</strong> Shareholders will hold approximately 52.9% <strong>of</strong> the Merged Group.<br />
• The Board <strong>of</strong> SXG will comprise existing SXG Directors Samantha Tough, John<br />
Rowe and Graham Brock, and <strong>Polymetals</strong> Directors David Sproule, J<strong>on</strong> Parker and<br />
Frank Terranova.<br />
• The Company’s Chairman, Ms Samantha Tough, will c<strong>on</strong>tinue as the Chairman <strong>of</strong><br />
the Merged Group.<br />
• The Company’s Managing Director, Glenn Jardine, will c<strong>on</strong>tinue as the Chief<br />
Executive Officer <strong>of</strong> the Merged Group.<br />
• The Company will retain its focus <strong>on</strong> developing its Marda Gold Project.<br />
• The Company will remain headquartered in Perth, Western Australia.<br />
For detailed informati<strong>on</strong> in respect <strong>of</strong> the Merged Group’s proposed capital structure,<br />
financial positi<strong>on</strong> and mining and explorati<strong>on</strong> projects, please refer to the following<br />
documents:<br />
Where Document Informati<strong>on</strong> relating to…<br />
Schedule 1 <strong>of</strong> this<br />
Explanatory Memorandum<br />
Informati<strong>on</strong> about the<br />
Merged Group<br />
• proposed intenti<strong>on</strong>s, activities and strategic directi<strong>on</strong> <strong>of</strong><br />
the Merged Group;<br />
• the Merged Group’s Mineral Resources and Ore<br />
Reserves;<br />
• the Merged Group’s directors and senior management;<br />
• the capital structure and ownership <strong>of</strong> the Merged Group;<br />
and<br />
• pro forma historical financial informati<strong>on</strong>.<br />
Annexure A Independent Expert’s Report • pr<strong>of</strong>iles <strong>of</strong> SXG and <strong>Polymetals</strong>;<br />
Annexure B<br />
Technical Specialist’s<br />
Report<br />
• an analysis <strong>of</strong> the ec<strong>on</strong>omic and industry c<strong>on</strong>text <strong>of</strong> the<br />
<strong>Merger</strong>;<br />
• valuati<strong>on</strong>s <strong>of</strong> SXG and the Merged Group; and<br />
• an assessment as to whether the issue <strong>of</strong> Shares to the<br />
Sproule Interests is fair and reas<strong>on</strong>able for SXG<br />
Shareholders.<br />
• the mineral assets <strong>of</strong> the Merged Group;<br />
• valuati<strong>on</strong> methods and macroec<strong>on</strong>omic factors; and<br />
• technical details <strong>of</strong> the Merged Group’s projects<br />
(including geology, explorati<strong>on</strong>, mining, ore reserves,<br />
metallurgy, processing operati<strong>on</strong>s, and envir<strong>on</strong>ment).
- 9 -<br />
1.5 Implementati<strong>on</strong> <strong>of</strong> the <strong>Merger</strong><br />
Implementati<strong>on</strong> <strong>of</strong> the <strong>Merger</strong> is dependent <strong>on</strong> a number <strong>of</strong> approvals and c<strong>on</strong>diti<strong>on</strong>s being<br />
satisfied, including:<br />
(a)<br />
(b)<br />
SXG Shareholders approving Resoluti<strong>on</strong> 1 c<strong>on</strong>tained in the <strong>Notice</strong>;<br />
<strong>Polymetals</strong> obtaining <strong>Polymetals</strong> Shareholder approval for:<br />
(i)<br />
(ii)<br />
the cancellati<strong>on</strong> <strong>of</strong> <strong>Polymetals</strong> Shares issued under the Loan Funded Share<br />
Plan, whereby eligible employees <strong>of</strong> <strong>Polymetals</strong> were invited to apply to<br />
acquire <strong>Polymetals</strong> Shares and for a loan to finance the acquisiti<strong>on</strong> <strong>of</strong> the<br />
<strong>Polymetals</strong> Shares; and<br />
the issue <strong>of</strong> 1,939,508 <strong>Polymetals</strong> Shares and the payment <strong>of</strong> $300,000 to<br />
Meadowhead Investments as the Indemnity C<strong>on</strong>siderati<strong>on</strong> in return for the<br />
indemnity provided to <strong>Polymetals</strong> by Meadowhead Investments in respect <strong>of</strong><br />
the Peak Litigati<strong>on</strong> (Meadowhead Indemnity) – see Secti<strong>on</strong> 1.13 <strong>of</strong> this<br />
Explanatory Memorandum for further details;<br />
(c)<br />
(d)<br />
(e)<br />
<strong>Polymetals</strong> Shareholders approving the Scheme;<br />
Court approval <strong>of</strong> the Scheme; and<br />
the satisfacti<strong>on</strong> or waiver <strong>of</strong> a number <strong>of</strong> c<strong>on</strong>diti<strong>on</strong>s precedent comprising the<br />
Scheme C<strong>on</strong>diti<strong>on</strong>s.<br />
1.6 Regulatory purpose for Resoluti<strong>on</strong> 1<br />
If the <strong>Merger</strong> is implemented, interests associated <strong>with</strong> <strong>Polymetals</strong>’ Chairman,<br />
Mr David Sproule (the Sproule Interests) will collectively be issued New SXG Shares <strong>on</strong><br />
the same basis and terms as all other <strong>Polymetals</strong> Shareholders comprising an interest <strong>of</strong><br />
approximately 26.17% <strong>of</strong> the expanded issued capital <strong>of</strong> SXG as a result <strong>of</strong> the Sproule<br />
Interests holding <strong>of</strong> 49.5% in <strong>Polymetals</strong> prior to the <strong>Merger</strong>.<br />
Several relatives <strong>of</strong> David Sproule also own <strong>Polymetals</strong> Shares. As at the date <strong>of</strong> this<br />
<strong>Notice</strong>, David Sproule’s relatives together held 4,504,470 <strong>Polymetals</strong> Shares, equating to<br />
11.77% <strong>of</strong> <strong>Polymetals</strong>’ issued capital. In accordance <strong>with</strong> the Corporati<strong>on</strong>s Act, these<br />
relatives are not Associates <strong>of</strong> David Sproule, and their interests in SXG post-<strong>Merger</strong> are<br />
not included in the Sproule Interests’ holdings in the expanded issued capital <strong>of</strong> SXG<br />
referred to above.<br />
Following c<strong>on</strong>sultati<strong>on</strong> <strong>with</strong> ASIC, it has been determined that it is appropriate for SXG<br />
Shareholders to vote <strong>on</strong> the proposed issue to the Sproule Interests <strong>of</strong> New SXG Shares<br />
under the <strong>Merger</strong> which will comprise more than 20% <strong>of</strong> the total SXG Shares <strong>on</strong> issue<br />
after completi<strong>on</strong> <strong>of</strong> the <strong>Merger</strong>.<br />
SXG Shareholders are not required by law or the Listing Rules <strong>of</strong> ASX to approve the<br />
<strong>Merger</strong> or the issue <strong>of</strong> all New SXG Shares proposed to be issued under the <strong>Merger</strong>.<br />
Instead, the specific regulatory purpose <strong>of</strong> Resoluti<strong>on</strong> 1 is to obtain SXG Shareholder<br />
approval for the issue <strong>of</strong> New SXG Shares to the Sproule Interests <strong>on</strong> implementati<strong>on</strong> <strong>of</strong><br />
the <strong>Merger</strong>.<br />
However it is important to note that if SXG Shareholder approval <strong>of</strong> Resoluti<strong>on</strong> 1 is not<br />
obtained, then the <strong>Merger</strong> will not proceed. Effectively therefore SXG Shareholders have<br />
an opportunity to determine an important step in the development <strong>of</strong> the Company.
- 10 -<br />
The Sproule Interests are <strong>Polymetals</strong> largest shareholders, collectively holding a relevant<br />
interest in approximately 49.5% <strong>of</strong> the issued capital <strong>of</strong> <strong>Polymetals</strong>. On successful<br />
implementati<strong>on</strong> <strong>of</strong> the Scheme, the Company will issue 227,031,189 New SXG Shares to<br />
the Sproule Interests, representing approximately 26.17% <strong>of</strong> the expanded issued capital <strong>of</strong><br />
the Company.<br />
If Resoluti<strong>on</strong> 1 is passed the Sproule Interests will, by the issue to them <strong>of</strong> New SXG<br />
Shares as the Scheme C<strong>on</strong>siderati<strong>on</strong> which they are entitled to receive as <strong>Polymetals</strong><br />
Shareholders and <strong>on</strong> the same basis and terms as all other <strong>Polymetals</strong> Shareholders, be<br />
deemed to have “acquired” (<strong>with</strong>in the meaning <strong>of</strong> the Corporati<strong>on</strong>s Act) a “relevant<br />
interest” in more than 20% <strong>of</strong> the total SXG Shares <strong>on</strong> issue.<br />
It is important to note that the Sproule Interests will receive the same c<strong>on</strong>siderati<strong>on</strong> under<br />
the <strong>Merger</strong> as all other <strong>Polymetals</strong> Shareholders.<br />
Implementati<strong>on</strong> <strong>of</strong> the <strong>Merger</strong> is dependent <strong>on</strong> SXG Shareholders approving Resoluti<strong>on</strong> 1.<br />
If Resoluti<strong>on</strong> 1 is not passed, a c<strong>on</strong>diti<strong>on</strong> <strong>of</strong> the Scheme will not be satisfied and the <strong>Merger</strong><br />
as proposed will not occur.<br />
The Directors c<strong>on</strong>sider the <strong>Merger</strong> to be in the best interests <strong>of</strong> the Company and<br />
unanimously recommend you vote in favour <strong>of</strong> Resoluti<strong>on</strong> 1.<br />
Further informati<strong>on</strong> about the Sproule Interests is set out in Secti<strong>on</strong> 1.14.<br />
Mr David Sproule is the n<strong>on</strong>-executive Chairman <strong>of</strong> <strong>Polymetals</strong> and if the <strong>Merger</strong> is<br />
implemented it is proposed that he would be appointed as a n<strong>on</strong>-executive Director <strong>of</strong> the<br />
Company. Further details <strong>of</strong> Mr Sproule’s experience and background are set out in<br />
Secti<strong>on</strong> 3 <strong>of</strong> Schedule 1.<br />
As at the date <strong>of</strong> the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong>, the Sproule Interests do not hold any SXG Shares<br />
and, in any event, the Sproule Interests are not entitled to vote <strong>on</strong> Resoluti<strong>on</strong> 1.<br />
As a matter <strong>of</strong> compliance <strong>with</strong> the Corporati<strong>on</strong>s Act and the Listing Rules, the <strong>Merger</strong> itself<br />
is not subject to any particular Listing Rules requirements.<br />
1.7 Independent Expert’s Report<br />
To ensure SXG Shareholders are provided <strong>with</strong> all material informati<strong>on</strong> about Resoluti<strong>on</strong> 1<br />
relevant to their decisi<strong>on</strong> and to satisfy regulatory requirements, the Directors<br />
commissi<strong>on</strong>ed BDO Corporate Finance (WA) Pty Ltd to provide an independent expert’s<br />
report <strong>on</strong> the proposed issue <strong>of</strong> New SXG Shares to the Sproule Interests under the terms<br />
<strong>of</strong> the <strong>Merger</strong>, particularly whether the issue <strong>of</strong> New SXG Shares to the Sproule Interests is<br />
fair and reas<strong>on</strong>able to the SXG Shareholders who are not associated <strong>with</strong> the Sproule<br />
Interests.<br />
The Independent Expert’s Report c<strong>on</strong>tains an assessment <strong>of</strong> the advantages and<br />
disadvantages <strong>of</strong> the issue <strong>of</strong> SXG Shares to the Sproule Interests up<strong>on</strong> implementati<strong>on</strong> <strong>of</strong><br />
the Scheme (Transacti<strong>on</strong>) if Resoluti<strong>on</strong> 1 is approved.<br />
The Independent Expert has c<strong>on</strong>cluded that the Transacti<strong>on</strong> is fair and reas<strong>on</strong>able to<br />
N<strong>on</strong>-associated Shareholders.<br />
The Independent Expert's Report is enclosed <strong>with</strong> this <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> and it is<br />
recommended that SXG Shareholders read the Independent Expert’s Report in full.<br />
1.8 Other alternatives and c<strong>on</strong>sequences if Resoluti<strong>on</strong> 1 is not approved<br />
In the current challenging equity market envir<strong>on</strong>ment for junior and mid-tier resource<br />
companies, the Board believes that the Merged Group will be able to achieve critical mass
- 11 -<br />
in terms <strong>of</strong> assets and market recogniti<strong>on</strong> that would not otherwise be achievable. The<br />
Merged Group will have flexibility in respect <strong>of</strong> the combined asset base.<br />
Your Board str<strong>on</strong>gly believes that the <strong>Merger</strong> is in the best interests <strong>of</strong> SXG Shareholders,<br />
particularly given current market c<strong>on</strong>diti<strong>on</strong>s, which make it very difficult for junior resource<br />
companies to raise capital and to progress their assets through explorati<strong>on</strong> and project<br />
development.<br />
Should the <strong>Merger</strong> not proceed, the Directors are <strong>of</strong> the view that SXG’s ability as a<br />
stand-al<strong>on</strong>e company to progress its explorati<strong>on</strong> projects and to develop its flagship asset,<br />
the Marda Gold Project, would be negatively impacted.<br />
1.9 Directors’ recommendati<strong>on</strong><br />
The Directors unanimously recommend that SXG Shareholders vote in favour <strong>of</strong> Resoluti<strong>on</strong><br />
1 to enable the <strong>Merger</strong> to be implemented.<br />
The Directors c<strong>on</strong>sider that the <strong>Merger</strong> is in the best interests <strong>of</strong> the Company in the<br />
absence <strong>of</strong> a Superior Proposal.<br />
The Directors’ reas<strong>on</strong>s for their recommendati<strong>on</strong> are outlined in this Explanatory<br />
Memorandum, particularly at Secti<strong>on</strong> 1.10.<br />
Based <strong>on</strong> the informati<strong>on</strong> available, including that c<strong>on</strong>tained in this Explanatory<br />
Memorandum and the Independent Expert's Report, the Directors c<strong>on</strong>sider the advantages<br />
<strong>of</strong> the <strong>Merger</strong> and Shareholder approval <strong>of</strong> Resoluti<strong>on</strong> 1 outweigh any perceived<br />
disadvantages. (Refer to Secti<strong>on</strong>s 1.10 and 1.11 for further informati<strong>on</strong> <strong>on</strong> the perceived<br />
advantages and possible disadvantages.)<br />
In the absence <strong>of</strong> a Superior Proposal, each Director intends to vote all SXG Shares held or<br />
c<strong>on</strong>trolled by that Director in favour <strong>of</strong> Resoluti<strong>on</strong> 1.<br />
1.10 Advantages <strong>of</strong> the <strong>Merger</strong> and reas<strong>on</strong>s to vote for Resoluti<strong>on</strong> 1<br />
Shareholder approval <strong>of</strong> Resoluti<strong>on</strong> 1 is necessary for the issue <strong>of</strong> New SXG Shares to the<br />
Sproule Interests under the <strong>Merger</strong> and is therefore necessary to enable the <strong>Merger</strong> to<br />
proceed.<br />
The Directors c<strong>on</strong>sider that there are several reas<strong>on</strong>s why SXG Shareholders should vote<br />
in favour <strong>of</strong> Resoluti<strong>on</strong> 1.<br />
(a)<br />
The <strong>Merger</strong> provides an opportunity to create a diversified Australian gold and base<br />
metals company <strong>with</strong> potential annual producti<strong>on</strong> <strong>of</strong> 69,000 ounces <strong>of</strong> gold<br />
As shareholders <strong>of</strong> the Merged Group, SXG Shareholders are expected to benefit<br />
from being part <strong>of</strong> a larger, more diversified Australian gold and base metals<br />
company <strong>with</strong> explorati<strong>on</strong> tenements <strong>of</strong> approximately 4,930 km 2 that c<strong>on</strong>tain a<br />
JORC compliant Mineral Resource totalling 1.63 milli<strong>on</strong> ounces <strong>of</strong> gold and JORC<br />
compliant Ore Reserves totalling 254,400 ounces <strong>of</strong> gold.<br />
The Merged Group will have a diversified risk pr<strong>of</strong>ile spread across assets in two<br />
States <strong>with</strong> projects spanning development, scoping study and explorati<strong>on</strong> stages.<br />
The Merged Group’s str<strong>on</strong>g emerging pipeline <strong>of</strong> near-term producti<strong>on</strong> assets<br />
include the Marda Project in Western Australia and the Mt Boppy Project in New<br />
South Wales, which combined have the potential to support a near-term producti<strong>on</strong><br />
pr<strong>of</strong>ile <strong>of</strong> up to 69,000 ounces <strong>of</strong> gold per annum at a competitive forecast cash<br />
cost.<br />
(b)<br />
The combinati<strong>on</strong> <strong>of</strong> the Company and <strong>Polymetals</strong> broadens the capital base and<br />
strengthens the balance sheet which improves funding capability
- 12 -<br />
The Merged Group will have increased scale and liquidity as an Australian gold and<br />
base metals company, a strengthened capital base and improved ability to access<br />
the capital markets. It will also have greater visibility and investor relevance, which<br />
when combined <strong>with</strong> a str<strong>on</strong>g balance sheet including approximately $13 milli<strong>on</strong> in<br />
cash, enhances the ability to accelerate the development <strong>of</strong> projects <strong>with</strong>in its<br />
growth pipeline.<br />
With a combined market capitalisati<strong>on</strong> <strong>of</strong> approximately $26.5 milli<strong>on</strong> and existing<br />
cash reserves, the Merged Group is better placed to fund the development <strong>of</strong> the<br />
Marda Project. SXG Shareholders will benefit from the anticipated near-term<br />
development <strong>of</strong> the Marda Project and enhanced potential to fund future project<br />
development <strong>of</strong> the Mt Boppy Project than would be the case if the Company<br />
remained a stand-al<strong>on</strong>e company.<br />
(c)<br />
The Merged Group will own a significant explorati<strong>on</strong> portfolio <strong>with</strong> 4,930 km2 <strong>of</strong><br />
landholdings in highly prospective locati<strong>on</strong>s across Australia<br />
The Merged Group has explorati<strong>on</strong> upside <strong>with</strong>in an extensive portfolio covering<br />
4,930 km 2 <strong>with</strong>in highly prospective mineral provinces. The Merged Group will hold<br />
4,720 km 2 <strong>of</strong> tenements in Western Australia in the Southern Cross and Sandst<strong>on</strong>e<br />
Greenst<strong>on</strong>e Belts (which host the Marda and Sandst<strong>on</strong>e Projects) and the Pilbara<br />
regi<strong>on</strong> (which hosts the Turner River Projects) and 210km 2 in the Lachlan Fold Belt<br />
in New South Wales (which hosts the Mt Boppy Project).<br />
(d)<br />
The <strong>Merger</strong> will generate synergies resulting from the c<strong>on</strong>solidati<strong>on</strong> <strong>of</strong> corporate<br />
overheads and explorati<strong>on</strong> activities<br />
The Directors believe the <strong>Merger</strong> will provide SXG Shareholders <strong>with</strong> access to<br />
synergies as a result <strong>of</strong> c<strong>on</strong>solidating the corporate and administrative overheads <strong>of</strong><br />
both companies as well as the streamlining <strong>of</strong> explorati<strong>on</strong> activities, particularly in<br />
Western Australia.<br />
(e)<br />
The <strong>Merger</strong> combines capable and experienced boards and management <strong>with</strong> a<br />
proven track record in driving development assets through to producti<strong>on</strong><br />
The <strong>Merger</strong> will combine the expertise and technical, industry, commercial,<br />
development and operating skills <strong>of</strong> both sets <strong>of</strong> boards and management, to<br />
successfully deliver the Merged Group’s plan <strong>of</strong> bringing the Marda and Mt Boppy<br />
Projects into producti<strong>on</strong>. There will be equal Merged Group board representati<strong>on</strong><br />
from the Company and <strong>Polymetals</strong>, <strong>with</strong> the Company’s current chairman,<br />
Samantha Tough, as chairman <strong>of</strong> the Merged Group.<br />
Both the Company and <strong>Polymetals</strong> have management <strong>with</strong> extensive mining,<br />
development and explorati<strong>on</strong> experience <strong>with</strong> a successful track record <strong>of</strong> driving<br />
development assets through to producti<strong>on</strong>. Senior management will benefit from the<br />
collective skills and experience <strong>of</strong> the Merged Group workforce, enabling the<br />
deployment <strong>of</strong> the most qualified pers<strong>on</strong>nel and operati<strong>on</strong>al and technical skills<br />
across the two companies’ portfolio <strong>of</strong> assets.<br />
1.11 Possible reas<strong>on</strong>s to vote against Resoluti<strong>on</strong> 1 and potential disadvantages <strong>of</strong> the<br />
issue <strong>of</strong> New SXG Shares to the Sproule Interests<br />
The Directors are <strong>of</strong> the view that the <strong>Merger</strong> is in the best interests <strong>of</strong> the Company and<br />
therefore unanimously recommend that SXG Shareholders vote in favour <strong>of</strong> Resoluti<strong>on</strong> 1.<br />
To ensure SXG Shareholders are appropriately informed <strong>on</strong> the decisi<strong>on</strong> they are required<br />
to make, outlined below are some matters which might c<strong>on</strong>stitute reas<strong>on</strong>s to vote against<br />
Resoluti<strong>on</strong> 1.
- 13 -<br />
(a)<br />
You may not agree <strong>with</strong> the recommendati<strong>on</strong>s <strong>of</strong> the Directors<br />
In c<strong>on</strong>cluding that the issue <strong>of</strong> New SXG Shares to the Sproule Interests is in the<br />
best interests <strong>of</strong> the Company, the Directors are making judgements based <strong>on</strong><br />
future trading c<strong>on</strong>diti<strong>on</strong>s and events which are not predictable <strong>with</strong> certainty and<br />
which may prove to be inaccurate (either positively or negatively). SXG<br />
Shareholders may hold a different view from, and are not obliged to follow the<br />
recommendati<strong>on</strong> <strong>of</strong>, the Directors.<br />
(b)<br />
You may not agree <strong>with</strong> the c<strong>on</strong>clusi<strong>on</strong>s <strong>of</strong> the Independent Expert<br />
In c<strong>on</strong>cluding that the issue <strong>of</strong> New SXG Shares to the Sproule Interests is fair and<br />
reas<strong>on</strong>able to N<strong>on</strong>-associated Shareholders, the Independent Expert is making<br />
judgements based <strong>on</strong> future trading c<strong>on</strong>diti<strong>on</strong>s and events which are not predictable<br />
<strong>with</strong> certainty and which may prove to be inaccurate (either positively or negatively).<br />
SXG Shareholders may hold a different view from, and may not agree <strong>with</strong>, the<br />
Independent Expert’s c<strong>on</strong>clusi<strong>on</strong>s.<br />
(c)<br />
There will be a change in the risk pr<strong>of</strong>ile <strong>of</strong>, and risks <strong>of</strong> investment in, SXG<br />
If the Scheme completes, <strong>Polymetals</strong> will become a wholly owned subsidiary <strong>of</strong><br />
SXG. As a result, SXG Shareholders will be exposed to:<br />
(i)<br />
(ii)<br />
new risks relating to <strong>Polymetals</strong> (including, but not limited to, risks specific to<br />
<strong>Polymetals</strong> set out in Secti<strong>on</strong> 1.15; and<br />
certain additi<strong>on</strong>al risks related to the integrati<strong>on</strong> <strong>of</strong> <strong>Polymetals</strong> and its<br />
operati<strong>on</strong>s <strong>with</strong> the Company and its operati<strong>on</strong>s (which are also set out in<br />
Secti<strong>on</strong> 1.15).<br />
The Company and <strong>Polymetals</strong> are both early stage precious and base metals<br />
explorers and developers, and the risks to <strong>Polymetals</strong> are substantially similar to the<br />
risks to the Company as a stand-al<strong>on</strong>e entity.<br />
Further details <strong>of</strong> the risks which are applicable to both businesses and which the<br />
Merged Group will be subject to following implementati<strong>on</strong> <strong>of</strong> the Scheme are set out<br />
in Secti<strong>on</strong> 1.15.<br />
(d)<br />
There are risks in integrating the respective businesses <strong>of</strong> the Company and<br />
<strong>Polymetals</strong><br />
The l<strong>on</strong>g-term success <strong>of</strong> the Merged Group will depend, am<strong>on</strong>gst other things, <strong>on</strong><br />
the success <strong>of</strong> management in integrating the respective businesses and the<br />
strength <strong>of</strong> management <strong>of</strong> the Company and <strong>Polymetals</strong>. There is no guarantee<br />
that the businesses <strong>of</strong> the Company and <strong>Polymetals</strong> will be able to be integrated<br />
successfully, or synergies realised.<br />
There is a risk that the integrati<strong>on</strong> <strong>of</strong> the businesses <strong>of</strong> the Company and <strong>Polymetals</strong><br />
may take l<strong>on</strong>ger than expected and that anticipated synergies, efficiencies and<br />
benefits <strong>of</strong> that integrati<strong>on</strong> may be less than estimated. These risks include possible<br />
differences in the management culture <strong>of</strong> the two groups, inability to achieve<br />
synergy benefits and cost savings, and the potential loss <strong>of</strong> key pers<strong>on</strong>nel.<br />
Please refer to Secti<strong>on</strong> 1.15 for further informati<strong>on</strong> about risks.
- 14 -<br />
(e)<br />
You may prefer the Company to be exposed to the opportunity for increased value<br />
by remaining as an independent company<br />
You may believe that the Company will deliver greater returns to SXG Shareholders<br />
over the l<strong>on</strong>g term by remaining an independent company.<br />
(f)<br />
There will be a new substantial SXG Shareholder<br />
As a c<strong>on</strong>sequence <strong>of</strong> the issue <strong>of</strong> the Scheme C<strong>on</strong>siderati<strong>on</strong> <strong>on</strong> successful<br />
implementati<strong>on</strong> <strong>of</strong> the <strong>Merger</strong>, the Sproule Interests and each <strong>of</strong> its members will<br />
have voting power in the Company <strong>of</strong> approximately 26.17%. However, the<br />
Directors c<strong>on</strong>sider that the <strong>Merger</strong> brings into the Company a major shareholder<br />
aligned <strong>with</strong> and supportive <strong>of</strong> the Company’s strategic directi<strong>on</strong>.<br />
1.12 Informati<strong>on</strong> about <strong>Polymetals</strong><br />
<strong>Polymetals</strong> is an ASX-listed Australian mining company, <strong>with</strong> a 26 year history <strong>of</strong><br />
developing precious and base metal producing assets. <strong>Polymetals</strong> listed <strong>on</strong> the ASX in<br />
April 2011.<br />
<strong>Polymetals</strong>’ existing assets include the Mt Boppy Gold Project in New South Wales and<br />
Turner River Project in Western Australia.<br />
Capital structure and ownership <strong>of</strong> <strong>Polymetals</strong><br />
As at the Scheme Implementati<strong>on</strong> Date, it is expected <strong>Polymetals</strong> will have 41,685,271<br />
<strong>Polymetals</strong> Shares <strong>on</strong> issue.<br />
As at the Scheme Implementati<strong>on</strong> Date, it is expected that <strong>Polymetals</strong> will have the<br />
following significant shareholders (being the top 5 shareholdings):<br />
Name<br />
Number <strong>of</strong> <strong>Polymetals</strong><br />
Shares held<br />
% held <strong>of</strong> issued<br />
ordinary capital<br />
Meadowhead Investments, an<br />
Associate <strong>of</strong> Mr David Sproule, the<br />
Chairman <strong>of</strong> <strong>Polymetals</strong><br />
Mrs Jane Christine Sproule, the<br />
spouse <strong>of</strong> Mr David Sproule<br />
12,143,564 1 29.13<br />
8,390,635 20.13<br />
Richlark Pty Ltd 2 4,231,189 11.06<br />
Washingt<strong>on</strong> H Soul Pattins<strong>on</strong> and<br />
Company Limited<br />
2,000,000 4.80<br />
Mrs Elaine Clare Lawry 1,637,226 3.93<br />
Notes:<br />
1. This number represents Meadowhead Investments’ holding <strong>of</strong> <strong>Polymetals</strong> Shares inclusive <strong>of</strong> the Indemnity<br />
C<strong>on</strong>siderati<strong>on</strong>.<br />
2. Richlark Pty Ltd is trustee for various entities associated <strong>with</strong> relatives <strong>of</strong> David Sproule, who collectively<br />
hold 11.77% <strong>of</strong> <strong>Polymetals</strong>’ issued capital. Those relatives <strong>of</strong> David Sproule are not Associates <strong>of</strong><br />
David Sproule for the purposes <strong>of</strong> the Corporati<strong>on</strong>s Act.<br />
Further informati<strong>on</strong> about <strong>Polymetals</strong><br />
Further informati<strong>on</strong> about <strong>Polymetals</strong> is c<strong>on</strong>tained in:<br />
(a) the Independent Expert’s Report at Annexure A;
- 15 -<br />
(b)<br />
the Technical Specialist’s Report at Annexure B; and<br />
The Annexures include informati<strong>on</strong> about:<br />
(a)<br />
(b)<br />
<strong>Polymetals</strong>’ projects, mineral resources and ore reserves; and<br />
<strong>Polymetals</strong> assets, liabilities and financial positi<strong>on</strong>.<br />
1.13 Litigati<strong>on</strong><br />
<strong>Polymetals</strong> is currently subject to litigati<strong>on</strong> in the Supreme Court <strong>of</strong> New South Wales<br />
brought by Peak Gold Mines Pty Ltd (Peak) <strong>on</strong> 6 July 2009 seeking damages <strong>of</strong><br />
$5,240,984. Peak alleges <strong>Polymetals</strong> made a number <strong>of</strong> misleading and deceptive<br />
statements pursuant to secti<strong>on</strong> 72 <strong>of</strong> the Fair Trading Act 1987 (NSW) in relati<strong>on</strong> to a joint<br />
venture agreement between <strong>Polymetals</strong> and Peak dated 16 August 2006 (Peak JVA). The<br />
Peak JVA c<strong>on</strong>cerns the development <strong>of</strong> the Mt Boppy Project held by <strong>Polymetals</strong>’<br />
wholly-owned subsidiary, <strong>Polymetals</strong> (Mt Boppy) Pty Ltd.<br />
The damages being sought by Peak are for:<br />
• m<strong>on</strong>ies paid to <strong>Polymetals</strong>;<br />
• GST <strong>on</strong> m<strong>on</strong>ies paid to <strong>Polymetals</strong>; and<br />
• m<strong>on</strong>ies expended <strong>on</strong> salaries to staff engaged to further the site and costs associated<br />
<strong>with</strong> improving the mine site,<br />
all in relati<strong>on</strong> to the Peak JVA.<br />
<strong>Polymetals</strong> denies that there were any misrepresentati<strong>on</strong>s and has filed a counterclaim<br />
against Peak. Under the counterclaim, <strong>Polymetals</strong> is seeking damages <strong>of</strong> $2,600,000 plus<br />
interest for Peak’s breach <strong>of</strong> the Peak JVA for Peak’s failure to purchase gold products from<br />
the Mt Boppy Project during the term <strong>of</strong> the Peak JVA.<br />
As the Peak Litigati<strong>on</strong> was brought against <strong>Polymetals</strong> prior to its listing <strong>on</strong> the ASX in 2011<br />
(IPO), the pre-IPO <strong>Polymetals</strong> Shareholders created the PMG Unit Trust and collectively<br />
c<strong>on</strong>tributed $4 milli<strong>on</strong> to the PMG Unit Trust. The PMG Unit Trust granted <strong>Polymetals</strong> an<br />
indemnity against the Peak Litigati<strong>on</strong> (and other litigati<strong>on</strong> that has subsequently been<br />
settled) (limited to the cash in the PMG Unit Trust) to the extent that the Peak Litigati<strong>on</strong> was<br />
determined or settled unfavourably against <strong>Polymetals</strong> (PMG Indemnity).<br />
As at 23 May 2013, the PMG Unit Trust balance was $3.7 milli<strong>on</strong>. The PMG Unit Trust<br />
meets the costs <strong>of</strong> the Peak Litigati<strong>on</strong> under the terms <strong>of</strong> the PMG Indemnity.<br />
In order to mitigate the potential risk <strong>of</strong> the Merged Group to the Peak Litigati<strong>on</strong>,<br />
<strong>Polymetals</strong> and SXG have agreed, as a Scheme C<strong>on</strong>diti<strong>on</strong>, that Meadowhead<br />
Investments will grant a full indemnity in respect <strong>of</strong> the Peak Litigati<strong>on</strong>.<br />
Meadowhead Investments has agreed to grant the Meadowhead Indemnity in<br />
exchange for the Indemnity C<strong>on</strong>siderati<strong>on</strong>.<br />
The Meadowhead Indemnity is subordinate to the PMG Indemnity.<br />
Following the implementati<strong>on</strong> <strong>of</strong> the Scheme, Meadowhead Investments’ major asset will<br />
be its SXG Shares and its ability to meet the Meadowhead Indemnity will be dependent<br />
up<strong>on</strong> the value <strong>of</strong> those SXG Shares. To the extent that there is insufficient value in the<br />
SXG Shares held by Meadowhead Investments to fulfil Meadowhead Investments’<br />
obligati<strong>on</strong>s under the Meadowhead Indemnity, unless Meadowhead has access to other<br />
assets at the relevant time, SXG will bear that residual exposure.
- 16 -<br />
The Meadowhead Indemnity is not secured against any assets <strong>of</strong> Meadowhead<br />
Investments.<br />
The provisi<strong>on</strong> <strong>of</strong> the Meadowhead Indemnity is a Scheme C<strong>on</strong>diti<strong>on</strong> under the Scheme<br />
Implementati<strong>on</strong> Agreement.<br />
The Indemnity C<strong>on</strong>siderati<strong>on</strong> is:<br />
(a)<br />
(b)<br />
the issue <strong>of</strong> 1,939,058 <strong>Polymetals</strong> Shares; and<br />
$300,000 cash,<br />
payable to Meadowhead <strong>on</strong> the Effective Date, or in any event <strong>with</strong>in <strong>on</strong>e m<strong>on</strong>th from the<br />
date <strong>of</strong> the general meeting <strong>of</strong> <strong>Polymetals</strong> Shareholders to be held <strong>on</strong> 31 July 2013.<br />
As <strong>Polymetals</strong> and Meadowhead Investments are related parties because <strong>of</strong> their comm<strong>on</strong><br />
director, Mr David Sproule, the issue <strong>of</strong> the Indemnity C<strong>on</strong>siderati<strong>on</strong> to Meadowhead<br />
Investments requires the approval <strong>of</strong> <strong>Polymetals</strong> Shareholders.<br />
1.14 Regulatory informati<strong>on</strong> relevant to Resoluti<strong>on</strong> 1<br />
C<strong>on</strong>sultati<strong>on</strong> <strong>with</strong> ASIC<br />
In accordance <strong>with</strong> ASIC Regulatory Guide 60, the Company and <strong>Polymetals</strong> have<br />
c<strong>on</strong>sulted ASIC regarding the Scheme (given the Sproule Interests will obtain voting power<br />
in the Company <strong>of</strong> more than 20% post-<strong>Merger</strong>) to c<strong>on</strong>sider whether the issue <strong>of</strong> New SXG<br />
Shares to the Sproule Interests as Scheme C<strong>on</strong>siderati<strong>on</strong> might result in a change in<br />
c<strong>on</strong>trol <strong>of</strong> the Company, or have an effect <strong>on</strong> c<strong>on</strong>trol <strong>of</strong> the Company, and therefore require<br />
SXG Shareholder approval.<br />
In light <strong>of</strong> that c<strong>on</strong>sultati<strong>on</strong>, the Company has determined that SXG Shareholders should be<br />
given the opportunity to c<strong>on</strong>sider the effect <strong>of</strong> the issue to the Sproule Interests <strong>of</strong> a<br />
substantial interest in the Company, if the Scheme is implemented.<br />
Listing Rules requirements<br />
Although the Company proposes to issue in excess <strong>of</strong> 15% <strong>of</strong> its issued share capital,<br />
Listing Rule 7.1 does not apply to the issue <strong>of</strong> New SXG Shares under Resoluti<strong>on</strong> 1 <strong>on</strong> the<br />
basis that:<br />
(a)<br />
(b)<br />
an issue <strong>of</strong> securities approved for the purposes <strong>of</strong> Item 7 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the<br />
Corporati<strong>on</strong>s Act is an excepti<strong>on</strong> to this rule (Excepti<strong>on</strong> 16, Listing Rule 7.2); and<br />
an issue <strong>of</strong> securities approved for the purposes <strong>of</strong> Item 17 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the<br />
Corporati<strong>on</strong>s Act (i.e. an issue that results from an arrangement approved by the<br />
Court under Part 5.1 <strong>of</strong> the Corporati<strong>on</strong>s Act) is an excepti<strong>on</strong> to this rule (Excepti<strong>on</strong><br />
5, Listing Rule 7.2).<br />
Corporati<strong>on</strong>s Act requirements<br />
The following paragraphs set out informati<strong>on</strong> required to be provided to SXG Shareholders<br />
under item 7 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the Corporati<strong>on</strong>s Act and ASIC Regulatory Guide 74.<br />
SXG Shareholders are also referred to the Independent Expert’s Report accompanying this<br />
Explanatory Memorandum.
- 17 -<br />
(a)<br />
Identity <strong>of</strong> the pers<strong>on</strong> receiving the New SXG Shares to be issued, its Associates<br />
and any other pers<strong>on</strong>s obtaining a relevant interest<br />
The New SXG Shares issued as a result <strong>of</strong> the payment <strong>of</strong> the Scheme<br />
C<strong>on</strong>siderati<strong>on</strong> will be issued to the Sproule Interests, being:<br />
(i)<br />
(ii)<br />
(iii)<br />
Meadowhead Investments – 133,579,204 New SXG Shares;<br />
Jane Christine Sproule – 92,296,985 New SXG Shares;<br />
David & Jane Sproule – 1,155,000 New SXG Shares; and<br />
New SXG Shares will also be issued to other <strong>Polymetals</strong> Shareholders which are<br />
entities associated <strong>with</strong> relatives <strong>of</strong> David Sproule and Jane Sproule, but are not<br />
Associates <strong>of</strong> the Sproule Interests. Those entities and their post-<strong>Merger</strong> interests<br />
in SXG are as follows:<br />
(iv)<br />
(v)<br />
(vi)<br />
(vii)<br />
Richlark Pty Ltd (as trustee for HL Sproule Family Trust) – 21,484,749 New<br />
SXG Shares;<br />
Richlark Pty Ltd (as trustee for RJ Sproule Family Trust) – 12,529,165 New<br />
SXG Shares;<br />
Richlark Pty Ltd (as trustee for Akers Family Trust) – 12,529,165 New SXG<br />
Shares; and<br />
H L & G E Sproule Pty Ltd – 3,006,091 New<br />
SXG Shares.<br />
(b)<br />
Increase in the Sproule Interests’ voting power in the Company resulting from the<br />
issue <strong>of</strong> New SXG Shares<br />
As at the date <strong>of</strong> this <strong>Notice</strong>, the Sproule Interests do not have a relevant interest in<br />
any SXG Shares and the current voting power in the Company <strong>of</strong> the Sproule<br />
Interests is nil.<br />
As a c<strong>on</strong>sequence <strong>of</strong> the issue <strong>of</strong> the Scheme C<strong>on</strong>siderati<strong>on</strong> <strong>on</strong> successful<br />
implementati<strong>on</strong> <strong>of</strong> the <strong>Merger</strong>, the Sproule Interests and each <strong>of</strong> its members will<br />
have voting power in the Company <strong>of</strong> approximately 26.17%.<br />
(c)<br />
Reas<strong>on</strong>s for the proposed issue <strong>of</strong> New SXG Shares<br />
The Board c<strong>on</strong>siders that, for the reas<strong>on</strong>s set out in paragraphs 1.9 and 1.10 <strong>of</strong> this<br />
Explanatory Memorandum, it is in the interests <strong>of</strong> SXG Shareholders to undertake<br />
the <strong>Merger</strong>. To do so, the Company proposes to issue the New SXG Shares to the<br />
Sproule Interests in accordance <strong>with</strong> its obligati<strong>on</strong>s to pay the Scheme<br />
C<strong>on</strong>siderati<strong>on</strong> to <strong>Polymetals</strong> Shareholders <strong>on</strong> the Scheme Implementati<strong>on</strong> Date.<br />
(d)<br />
Timing <strong>of</strong> the issue <strong>of</strong> New SXG Shares<br />
The terms <strong>of</strong> the Scheme require that New SXG Shares will be issued <strong>with</strong>in<br />
21 days <strong>of</strong> Court approval being obtained, being the Scheme Implementati<strong>on</strong> Date.<br />
(e)<br />
Material terms <strong>of</strong> the issue <strong>of</strong> New SXG Shares to the Sproule Interests<br />
Subject to SXG Shareholder approval <strong>of</strong> Resoluti<strong>on</strong> 1 and implementati<strong>on</strong> <strong>of</strong> the<br />
Scheme, the Company will issue 227,031,189 New SXG Shares to the Sproule<br />
Interests <strong>on</strong> the basis <strong>of</strong> 11 New SXG Shares for every 1 <strong>Polymetals</strong> Share held by<br />
the Sproule Interests in accordance <strong>with</strong> the terms <strong>of</strong> the Scheme.
- 18 -<br />
Implementati<strong>on</strong> <strong>of</strong> the Scheme is dependent <strong>on</strong> a number <strong>of</strong> c<strong>on</strong>diti<strong>on</strong>s, including:<br />
(i)<br />
(ii)<br />
SXG Shareholders approving Resoluti<strong>on</strong> 1 c<strong>on</strong>tained in the <strong>Notice</strong>;<br />
<strong>Polymetals</strong> obtaining shareholder approval for:<br />
A. the cancellati<strong>on</strong> <strong>of</strong> the Loan Funded Shares; and<br />
B. the issue <strong>of</strong> the Indemnity C<strong>on</strong>siderati<strong>on</strong>; and<br />
(iii)<br />
the satisfacti<strong>on</strong> or waiver <strong>of</strong> a number <strong>of</strong> c<strong>on</strong>diti<strong>on</strong>s precedent comprising the<br />
Scheme C<strong>on</strong>diti<strong>on</strong>s.<br />
(f)<br />
Sproule Interests’ intenti<strong>on</strong>s regarding the future <strong>of</strong> the Company<br />
The Sproule Interests have advised the Board that they have no intenti<strong>on</strong> <strong>of</strong>:<br />
(i)<br />
(ii)<br />
(iii)<br />
(iv)<br />
(v)<br />
requesting the Merged Group to change its strategic directi<strong>on</strong> or operati<strong>on</strong>al<br />
priorities, or to change its business;<br />
seeking to inject capital into the entity;<br />
seeking to change the Merged Group’s proposed employment arrangements;<br />
seeking to acquire any <strong>of</strong> the Merged Group’s assets or otherwise redeploy<br />
the assets <strong>of</strong> the Merged Group; or<br />
using its increased voting power to attempt to secure additi<strong>on</strong>al Board<br />
positi<strong>on</strong>s or vary the current balance <strong>of</strong> nominee and independent directors.<br />
(g)<br />
Sproule Interests’ intenti<strong>on</strong>s regarding the financial or dividend distributi<strong>on</strong> policies<br />
<strong>of</strong> the Company<br />
The Sproule Interests have advised the Board that they have no intenti<strong>on</strong> <strong>of</strong> seeking<br />
to change the financial or dividend distributi<strong>on</strong> policies <strong>of</strong> the Company.<br />
(h)<br />
Appointment <strong>of</strong> Mr David Sproule as a Director<br />
(i)<br />
(ii)<br />
(iii)<br />
(iv)<br />
If SXG Shareholders approve Resoluti<strong>on</strong> 1, and the Scheme is approved by<br />
<strong>Polymetals</strong> Shareholders and the Court, the Company proposes to appoint<br />
Mr David Sproule as a Director.<br />
Mr Sproule founded <strong>Polymetals</strong> and has over twenty five years <strong>of</strong> experience<br />
in the mining industry encompassing project generati<strong>on</strong> and assessment,<br />
development, operati<strong>on</strong>al management and corporate experience. Further<br />
details <strong>of</strong> Mr Sproule’s background and experience is set out in Secti<strong>on</strong> 3.<br />
Mr Sproule is a director <strong>of</strong> Meadowhead Investments, Richlark Pty Ltd<br />
(Richlark) and H L & G E Sproule Pty Ltd. Jane Christine Sproule is Mr<br />
Sproule’s wife. Richlark is the trustee for various trusts <strong>of</strong> which related<br />
parties <strong>of</strong> Mr Sproule are beneficiaries. Mr Sproule does not have a relevant<br />
interest in any Shares held by Richlark as trustee.<br />
Mr Sproule has indicated that he understands and agrees <strong>with</strong> the Sproule<br />
Interests’ intenti<strong>on</strong>s regarding the future <strong>of</strong> the Company as set out in<br />
Secti<strong>on</strong> 1.14(f) above.
- 19 -<br />
(i)<br />
Other matters<br />
The Directors further note that implementati<strong>on</strong> <strong>of</strong> the Scheme is c<strong>on</strong>diti<strong>on</strong>al <strong>on</strong> SXG<br />
Shareholder approval <strong>of</strong> Resoluti<strong>on</strong> 1.<br />
1.15 Key risks <strong>of</strong> the Merged Group, if the Scheme is implemented<br />
If the Scheme is implemented, <strong>Polymetals</strong> will become a wholly-owned subsidiary <strong>of</strong> SXG<br />
and SXG Shareholders will be exposed to the risks associated <strong>with</strong> the Company acquiring<br />
ownership and c<strong>on</strong>trol <strong>of</strong> <strong>Polymetals</strong> and <strong>Polymetals</strong>’ assets and operati<strong>on</strong>s as a result <strong>of</strong><br />
the <strong>Merger</strong>.<br />
Risks that may impact the financial and operati<strong>on</strong>al performance <strong>of</strong> the Merged Group are<br />
outlined below.<br />
These risks:<br />
(a)<br />
(b)<br />
are not, and should not be relied <strong>on</strong> as, or c<strong>on</strong>sidered to be, an exhaustive list <strong>of</strong> the<br />
risks that SXG Shareholders may face or be exposed to if the <strong>Merger</strong> is successful;<br />
and<br />
are general in nature and regard has not been had to the individual circumstances,<br />
including the investment objective, financial situati<strong>on</strong>, tax positi<strong>on</strong> or particular needs<br />
<strong>of</strong> SXG Shareholders.<br />
Additi<strong>on</strong>al risks and uncertainties that SXG is currently unaware <strong>of</strong>, or that SXG currently<br />
c<strong>on</strong>siders to be immaterial, may also become important factors that can adversely affect the<br />
Merged Group’s operating and financial performance in the future.<br />
(a)<br />
Sale <strong>of</strong> SXG Shares by <strong>Polymetals</strong> Shareholders issued as Scheme C<strong>on</strong>siderati<strong>on</strong><br />
<strong>Polymetals</strong> Shareholders will receive a specified number <strong>of</strong> New SXG Shares based<br />
<strong>on</strong> their holdings in <strong>Polymetals</strong> as at the Record Date. Some <strong>of</strong> the <strong>Polymetals</strong><br />
Shareholders may not wish to hold their allotment <strong>of</strong> New SXG Shares and may<br />
choose to sell them <strong>on</strong> ASX.<br />
The SXG share price <strong>on</strong> ASX may be adversely affected in the short term if a<br />
significant number <strong>of</strong> <strong>Polymetals</strong> Shareholders sell their allotment <strong>of</strong> New SXG<br />
Shares so<strong>on</strong> after implementati<strong>on</strong> <strong>of</strong> the Scheme.<br />
(b)<br />
Integrati<strong>on</strong> risks and realisati<strong>on</strong> <strong>of</strong> anticipated synergies<br />
The l<strong>on</strong>g-term success <strong>of</strong> the Merged Group will depend, am<strong>on</strong>gst other things, <strong>on</strong><br />
the success <strong>of</strong> management in integrating the respective businesses and the<br />
strength <strong>of</strong> management <strong>of</strong> the Merged Group. The <strong>Merger</strong> between SXG and<br />
<strong>Polymetals</strong> to form the Merged Group involves the integrati<strong>on</strong> <strong>of</strong> businesses and<br />
operati<strong>on</strong>s that have previously operated as independent entities. There is no<br />
guarantee that the businesses <strong>of</strong> the Merged Group will be able to be integrated<br />
successfully, <strong>with</strong>out unexpected delays or incurring additi<strong>on</strong>al costs.<br />
Further, as discussed in Secti<strong>on</strong> 1.11, while SXG and <strong>Polymetals</strong> expect that value<br />
can be added to the Merged Group through the realisati<strong>on</strong> <strong>of</strong> synergies, there is a<br />
risk that implementati<strong>on</strong> <strong>of</strong> the <strong>Merger</strong> may not result in realisati<strong>on</strong> <strong>of</strong> the synergies<br />
expected due to:<br />
(i)<br />
unexpected delays, challenges, liabilities and costs in relati<strong>on</strong>, but not<br />
limited, to integrating operating and management systems; and
- 20 -<br />
(ii)<br />
possible differences in the management culture <strong>of</strong> the two groups leading to<br />
the loss <strong>of</strong> key employees <strong>of</strong> SXG and <strong>Polymetals</strong>.<br />
If the integrati<strong>on</strong> is not achieved in an orderly fashi<strong>on</strong> and <strong>with</strong>in a reas<strong>on</strong>able time<br />
period, the full benefits, cost savings and other expected synergies, efficiencies and<br />
benefits may be achieved <strong>on</strong>ly in part, or not at all. This could adversely impact the<br />
Merged Group’s financial performance and positi<strong>on</strong>, and the future prospects <strong>of</strong> the<br />
Merged Group.<br />
This risk <strong>of</strong> integrati<strong>on</strong> is mitigated due to the scale <strong>of</strong> each respective organisati<strong>on</strong>.<br />
Each <strong>of</strong> SXG’s three n<strong>on</strong>-executive directors is proposed to remain <strong>on</strong> the Board<br />
post-<strong>Merger</strong>. SXG’s pers<strong>on</strong>nel comprises <strong>on</strong>ly five full time employees, who it is<br />
proposed will remain <strong>with</strong> the Company.<br />
(c)<br />
Exposure to <strong>Polymetals</strong> assets<br />
SXG Shareholders will become exposed to <strong>Polymetals</strong>’ existing asset portfolio<br />
which carries specific risks which may differ to SXG’s existing assets. <strong>Polymetals</strong>’<br />
portfolio is comprised <strong>of</strong> development and explorati<strong>on</strong> stage assets, including the<br />
development stage Mt Boppy Project. The development <strong>of</strong> the Mt Boppy Project<br />
has additi<strong>on</strong>al inherent risks which SXG Shareholders will become exposed to if the<br />
Scheme is implemented. However, these risks are largely the same as those that<br />
SXG Shareholders are currently facing <strong>with</strong> the development <strong>of</strong> the Marda Project<br />
and Sandst<strong>on</strong>e Project, and as such, the impact <strong>of</strong> these risks will likely be reduced<br />
as a result <strong>of</strong> more diversified operati<strong>on</strong>s.<br />
(d)<br />
Accounting risk<br />
In accounting for the <strong>Merger</strong>, the Merged Group will need to perform a fair value<br />
assessment <strong>of</strong> all <strong>of</strong> <strong>Polymetals</strong>’ assets, liabilities and c<strong>on</strong>tingent liabilities, which<br />
will include the identificati<strong>on</strong> and valuati<strong>on</strong> <strong>of</strong> mineral rights and intangible assets.<br />
As a result <strong>of</strong> this fair value assessment, the Merged Group’s depreciati<strong>on</strong> and<br />
amortisati<strong>on</strong> charges may be greater than the depreciati<strong>on</strong> and amortisati<strong>on</strong><br />
charges <strong>of</strong> SXG and <strong>Polymetals</strong> as separate businesses and to that extent may<br />
reduce the future earnings <strong>of</strong> the Merged Group.<br />
To the extent goodwill is recognised in respect <strong>of</strong> accounting for the <strong>Merger</strong>, it will<br />
be subject to annual impairment testing. In the event that the recoverable amount <strong>of</strong><br />
goodwill is impaired, this will result in a charge against future earnings.<br />
The Merged Group will be subject to the usual business risk that there may be<br />
changes in accounting policies which may have an adverse impact <strong>on</strong> the Merged<br />
Group.<br />
The impact <strong>of</strong> changes to Australian Internati<strong>on</strong>al Financial Reporting Standards<br />
could adversely affect the Merged Group’s reported earnings performance in any<br />
given period and its financial positi<strong>on</strong> from time to time.<br />
2. Resoluti<strong>on</strong> 2 – Ratificati<strong>on</strong> <strong>of</strong> issue <strong>of</strong> Placement Shares<br />
Introducti<strong>on</strong><br />
As announced to ASX <strong>on</strong> 25 October 2012, the Company has raised $1.5 milli<strong>on</strong> through a<br />
share placement to l<strong>on</strong>g term instituti<strong>on</strong>al investors and cornerst<strong>on</strong>e investors (Placement).<br />
Of the 35,555,556 SXG Shares issued pursuant to the Placement, 34,231,787 SXG Shares<br />
were issued under the shortfall arrangements arising from the Company’s rights issue in<br />
September 2012. The balance <strong>of</strong> the Placement, being 1,323,769 SXG Shares<br />
(Placement Shares), were issued under the Company’s “15% capacity” pursuant to Listing<br />
Rule 7.1.
- 21 -<br />
The purpose <strong>of</strong> Resoluti<strong>on</strong> 2 is to seek SXG Shareholder ratificati<strong>on</strong> for the issue <strong>of</strong> the<br />
Placement Shares.<br />
Listing Rules informati<strong>on</strong> requirements<br />
Listing Rule 7.1 provides that prior approval <strong>of</strong> shareholders is required for an issue <strong>of</strong><br />
securities if the securities will, when aggregated <strong>with</strong> the securities issued by a company<br />
during the previous 12 m<strong>on</strong>ths, exceed 15% <strong>of</strong> the number <strong>of</strong> securities <strong>on</strong> issue at the<br />
commencement <strong>of</strong> that 12 m<strong>on</strong>th period.<br />
Listing Rule 7.4 states that an issue by a company <strong>of</strong> securities made <strong>with</strong>out approval<br />
under Listing Rule 7.1 is treated as having been made <strong>with</strong> approval for the purpose <strong>of</strong><br />
Listing Rule 7.1 if the issue did not breach Listing Rule 7.1 and the company’s members<br />
subsequently approve it.<br />
Under Resoluti<strong>on</strong> 2, the Company seeks Shareholder approval for, and ratificati<strong>on</strong> <strong>of</strong>, the<br />
issue <strong>of</strong> the Placement Shares so as to restore the Company’s capacity under Listing Rule<br />
7.1 to issue further securities representing up to 15% <strong>of</strong> the Company’s issued capital in the<br />
next 12 m<strong>on</strong>ths.<br />
For the purposes <strong>of</strong> the informati<strong>on</strong> requirements <strong>of</strong> Listing Rule 7.5, the following matters<br />
are noted:<br />
(a) the Company issued 1,323,769 Placement Shares <strong>on</strong> 24 October 2012;<br />
(b)<br />
(c)<br />
(d)<br />
the Placement Shares were issued at an issue price <strong>of</strong> A$0.045 per Placement<br />
Share;<br />
all Placement Shares issued rank equally <strong>with</strong> all other SXG Shares <strong>on</strong> issue;<br />
the Placement Shares were issued and allotted to l<strong>on</strong>g term instituti<strong>on</strong>al investors<br />
and cornerst<strong>on</strong>e investors;<br />
(e) the issue <strong>of</strong> the Placement Shares raised $59,569.60;<br />
(f)<br />
(g)<br />
n<strong>on</strong>e <strong>of</strong> the pers<strong>on</strong>s to whom Placement Shares have been issued were, at the time<br />
<strong>of</strong> issue <strong>of</strong> the Placement Shares, a Director, an Associate <strong>of</strong> a Director or a Related<br />
Party <strong>of</strong> the Company; and<br />
an appropriate voting exclusi<strong>on</strong> statement is included in the <strong>Notice</strong>.<br />
Directors’ recommendati<strong>on</strong><br />
The Directors unanimously recommend that SXG Shareholders vote in favour <strong>of</strong><br />
Resoluti<strong>on</strong> 2.<br />
3. Resoluti<strong>on</strong> 3 – Ratificati<strong>on</strong> <strong>of</strong> issue <strong>of</strong> SXG Opti<strong>on</strong>s to RMB<br />
Introducti<strong>on</strong><br />
As announced to ASX <strong>on</strong> 27 March 2013, the Company issued 34,255,319 SXG Opti<strong>on</strong>s as<br />
part <strong>of</strong> the c<strong>on</strong>siderati<strong>on</strong> for the acquisiti<strong>on</strong> <strong>of</strong> the Sandst<strong>on</strong>e project.<br />
The purpose <strong>of</strong> Resoluti<strong>on</strong> 3 is to seek SXG Shareholder ratificati<strong>on</strong> for the issue <strong>of</strong> the<br />
SXG Opti<strong>on</strong>s.
Listing Rules informati<strong>on</strong> requirements<br />
- 22 -<br />
Listing Rule 7.1 provides that prior approval <strong>of</strong> shareholders is required for an issue <strong>of</strong><br />
securities if the securities will, when aggregated <strong>with</strong> the securities issued by a company<br />
during the previous 12 m<strong>on</strong>ths, exceed 15% <strong>of</strong> the number <strong>of</strong> securities <strong>on</strong> issue at the<br />
commencement <strong>of</strong> that 12 m<strong>on</strong>th period.<br />
Listing Rule 7.4 states that an issue by a company <strong>of</strong> securities made <strong>with</strong>out approval<br />
under Listing Rule 7.1 is treated as having been made <strong>with</strong> approval for the purpose <strong>of</strong><br />
Listing Rule 7.1 if the issue did not breach Listing Rule 7.1 and the company’s members<br />
subsequently approve it.<br />
Under Resoluti<strong>on</strong> 3, the Company seeks Shareholder approval for, and ratificati<strong>on</strong> <strong>of</strong>, the<br />
issue <strong>of</strong> the Placement Shares so as to restore the Company’s capacity under Listing Rule<br />
7.1 to issue further securities representing up to 15% <strong>of</strong> the Company’s issued capital in the<br />
next 12 m<strong>on</strong>ths.<br />
For the purposes <strong>of</strong> the informati<strong>on</strong> requirements <strong>of</strong> Listing Rule 7.5, the following matters<br />
are noted:<br />
(a) the Company issued 34,255,319 SXG Opti<strong>on</strong>s <strong>on</strong> 27 March 2013;<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
the SXG Opti<strong>on</strong>s were issued as part c<strong>on</strong>siderati<strong>on</strong> for a facility agreement entered<br />
into <strong>with</strong> RMB Australia Holdings Limited for the purpose <strong>of</strong> funding the acquisiti<strong>on</strong><br />
<strong>of</strong> the Sandst<strong>on</strong>e project;<br />
the full terms and c<strong>on</strong>diti<strong>on</strong>s <strong>of</strong> the SXG Opti<strong>on</strong>s are set out in Schedule 2 to this<br />
Explanatory Statement;<br />
the SXG Opti<strong>on</strong>s were issued to RMB;<br />
the placement <strong>of</strong> the SXG Opti<strong>on</strong>s did not raise any funds, however a total <strong>of</strong><br />
A$1,610,000 will be raised if all SXG Opti<strong>on</strong>s are exercised at A$0.047 each;<br />
n<strong>on</strong>e <strong>of</strong> the pers<strong>on</strong>s to whom SXG Opti<strong>on</strong>s have been issued were, at the time <strong>of</strong><br />
issue <strong>of</strong> the SXG Opti<strong>on</strong>s, a Director, an Associate <strong>of</strong> a Director or a Related Party<br />
<strong>of</strong> the Company; and<br />
an appropriate voting exclusi<strong>on</strong> statement is included in the <strong>Notice</strong>.<br />
Directors’ recommendati<strong>on</strong><br />
The Directors unanimously recommend that SXG Shareholders vote in favour <strong>of</strong><br />
Resoluti<strong>on</strong> 3.
- 23 -<br />
Schedule 1 – Informati<strong>on</strong> about the Merged Group<br />
1. Proposed activities and strategic directi<strong>on</strong> <strong>of</strong> the Merged Group<br />
The Merged Group will own 100% <strong>of</strong> the Marda Gold Project and the Mt Boppy Gold<br />
Project, and have a significant portfolio <strong>of</strong> explorati<strong>on</strong> tenements in Australia. If the <strong>Merger</strong><br />
proceeds, the primary intenti<strong>on</strong> <strong>of</strong> the Merged Group is to progress regulatory approvals<br />
and financing for the development <strong>of</strong> the Marda Gold Project.<br />
It is anticipated that these approvals will be gained in the third quarter <strong>of</strong> 2013, <strong>with</strong> project<br />
c<strong>on</strong>structi<strong>on</strong> activity to commence immediately thereafter. Producti<strong>on</strong> from the Marda Gold<br />
Project is expected to commence in the sec<strong>on</strong>d half <strong>of</strong> 2014.<br />
The Mt Boppy Project will be prioritised for development as sufficient cash reserves<br />
become available and in c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> other opportunities for gold or base metals<br />
producti<strong>on</strong> <strong>with</strong>in the Merged Group.<br />
Decisi<strong>on</strong>s relating to these activities will be made by the Board in light <strong>of</strong> material<br />
informati<strong>on</strong> and circumstances available at the relevant time. As such these are current<br />
intenti<strong>on</strong>s <strong>on</strong>ly and may change as new informati<strong>on</strong> arises or circumstances dictate.<br />
2. Mineral Resources and Ore Reserves <strong>of</strong> the Merged Group<br />
The tables below display the Mineral Resources and Ore Reserves <strong>of</strong> the Merged Group.<br />
Combined SXG and <strong>Polymetals</strong> JORC Measured, Indicated and Inferred Mineral Resource Statement<br />
Measured Indicated Inferred Total Resources<br />
kt<br />
g/t<br />
Au<br />
koz<br />
kt<br />
g/t<br />
Au<br />
koz<br />
kt<br />
g/t<br />
Au<br />
koz<br />
kt<br />
g/t<br />
Au<br />
koz<br />
Canbelego (1) 39 6.4 8 646 4.0 84 82 3.9 10 766 4.1 102<br />
Turner River Gold<br />
2) 2,669 1.8 157 1,145 1.3 47 2,936 1.5 141 6,750 1.6 345<br />
JV (Earning In)<br />
Combined<br />
<strong>Polymetals</strong><br />
2,707 1.9 165 1,791 2.28 131 3,018 1.6 151 7,516 1.9 448<br />
Project Total (3)<br />
Marda (4) 2,796 2.3 204 2,640 1.8 155 3,052 1.9 188 8,487 2.0 546<br />
Sandst<strong>on</strong>e (4) 1,932 2.4 146 12,586 1.4 574 14,518 1.5 720<br />
Combined SXG<br />
Total<br />
2,796 2.3 204 4,572 2.1 301 15,638 1.5 762 23,005 1.7 1,266<br />
<strong>Polymetals</strong> / SXG<br />
(5) 5,503 2.1 368 6,362 2.1 433 18,655 1.5 914 30,521 1.8 1,714<br />
Total<br />
<strong>Polymetals</strong> Share<br />
(6) 4,836 2.1 329 6,076 2.2 421 17,921 1.5 878 28,833 1.8 1,627<br />
/ SXG Total<br />
(1) Mt Boppy; 2.5g/t cut-<strong>of</strong>f; Boppy Sth: 1.0g/t cut-<strong>of</strong>f.<br />
(2) 100% Project Total - <strong>Polymetals</strong> has a 75% interest in the Turner River Gold Project.<br />
(3) Total includes 100% <strong>of</strong> Turner River Resources <strong>of</strong> which <strong>Polymetals</strong> has a 75% interest.
- 24 -<br />
(4) Marda and Sandst<strong>on</strong>e; 1.0 g/t Au cut-<strong>of</strong>f grade.<br />
(5) Figures may not add due to rounding. Includes 100% <strong>of</strong> Turner River JV Resources.<br />
(6) Figures may not add due to rounding. Includes 75% <strong>of</strong> Turner River JV Resources.<br />
Turner River Base Metals Project JV JORC Resource Summary (1.0%Zn cut-<strong>of</strong>f grade) – <strong>Polymetals</strong> Earning<br />
75%<br />
Deposit<br />
Resource<br />
Category<br />
kt<br />
Zinc<br />
Zn%<br />
Silver<br />
Ag g/t<br />
Lead<br />
Pb %<br />
Gold<br />
Au g/t<br />
Discovery Inferred 1,116 2.6 94 1.0 0.9<br />
Orchard Tank Inferred 1,492 2.7 84 1.1 0.6<br />
Total (1) Inferred 2,608 2.7 89 1.1 0.7<br />
(1) Total includes 100% <strong>of</strong> Turner River Project Resources.<br />
Combined SXG and <strong>Polymetals</strong> JORC Proved and Probable Ore Reserve Statement<br />
Proved Probable Total<br />
kt<br />
Au<br />
g/t<br />
oz<br />
kt<br />
Au<br />
g/t<br />
oz<br />
kt<br />
Au<br />
g/t<br />
oz<br />
Marda(1) 1,937 2.4 149,200 340 2.7 29,100 2,277 2.4 178,500<br />
Mt Boppy 42 5.6 7,636 507 4.2 68,312 549 4.3 75,945<br />
<strong>Polymetals</strong> /<br />
SXG Total (1) 1,979 2.5 156,836 847 3.8 97,412 2,826 2.8 254,445<br />
(1) Note: Rounding c<strong>on</strong>forming to JORC to appropriate levels <strong>of</strong> precisi<strong>on</strong> may cause minor computati<strong>on</strong>al errors.<br />
3. Merged Group Board<br />
The Merged Group will comprise six n<strong>on</strong>-executive directors, <strong>with</strong> three from each <strong>of</strong><br />
<strong>Polymetals</strong> and SXG.<br />
Director<br />
Samantha Tough<br />
(N<strong>on</strong>-Executive<br />
Chairman)<br />
Biography<br />
Samantha Tough is currently a pr<strong>of</strong>essi<strong>on</strong>al company director <strong>with</strong> over 12 years’<br />
experience <strong>on</strong> a number <strong>of</strong> public and private boards. She is presently Chairman <strong>of</strong><br />
Southern Cross Goldfields Ltd; the Chairman <strong>of</strong> Structerre Pty Ltd (largest<br />
engineering service company in WA in residential and small commercial); the<br />
Chairman <strong>of</strong> RemCo Ltd (overseas gas retail networks in WA); the Chairman <strong>of</strong><br />
Aeris<strong>on</strong> Pty Ltd (supplier <strong>of</strong> products and services to the mining, mineral<br />
processing, oil and natural gas producti<strong>on</strong> and manufacturing industries) and a<br />
N<strong>on</strong>-Executive Director <strong>of</strong> Strike Resources Ltd. Samantha’s previous board<br />
positi<strong>on</strong>s include N<strong>on</strong>-Executive Director <strong>of</strong> Murchis<strong>on</strong> Metals Ltd; Executive<br />
Chairman <strong>of</strong> Advanced Well Technologies Pty Ltd (engineering services to oil and<br />
gas and CSM); member <strong>of</strong> the Curtin University Investment Committee and various<br />
subsidiary boards <strong>of</strong> Woodside Energy Ltd.<br />
In additi<strong>on</strong> to her board experience, Samantha has senior executive management<br />
experience in oil and gas including General Manager, North West Shelf for
- 25 -<br />
Woodside Energy Ltd and Director <strong>of</strong> Strategy for Hardman Resources Ltd.<br />
Samantha has recently worked <strong>with</strong> the Comm<strong>on</strong>wealth Bank as Senior Advisor to<br />
the Natural Resources Group (oil, gas, metals and mining) and was Director <strong>of</strong> the<br />
Pilbara Power Project <strong>on</strong> behalf <strong>of</strong> the Premier’s Office working <strong>with</strong> industry and<br />
government to find a workable soluti<strong>on</strong> to the power needs <strong>of</strong> the Pilbara regi<strong>on</strong>.<br />
Samantha also worked in the venture capital industry for a number <strong>of</strong> years<br />
focussed <strong>on</strong> young companies and assisting them through various phases <strong>of</strong><br />
growth.<br />
Graham Brock<br />
(N<strong>on</strong>-Executive<br />
Director)<br />
Graham Brock is a metallurgist and has worked in the minerals industry for over 40<br />
years <strong>on</strong> a diverse mix <strong>of</strong> commodities including gold, nickel, tin, copper, zinc,<br />
silver, magnetite and graphite. In the last 25 years Graham has worked in the field<br />
<strong>of</strong> project development from c<strong>on</strong>ceptual studies through to c<strong>on</strong>structi<strong>on</strong> and has<br />
successfully evaluated, built and commissi<strong>on</strong>ed several gold, nickel and tin projects<br />
including Wheal Jane tin, Mt Keith nickel, Black Swan nickel, Golden Crown gold,<br />
Waihi gold, Wirralie gold, Salsigne gold, Lake Johns<strong>on</strong> nickel and West<strong>on</strong>ia gold.<br />
Graham graduated from the Royal School <strong>of</strong> Mines (RSM), L<strong>on</strong>d<strong>on</strong> in 1968 <strong>with</strong> a<br />
BSc Eng and Associateship <strong>of</strong> RSM. Graham is a Fellow <strong>of</strong> the AusIMM and has<br />
worked in Australia, UK, Fiji and USA. He has held positi<strong>on</strong>s as General Manager<br />
Projects for Li<strong>on</strong>Ore; Group Metallurgist and Director Technology for MPI Mines<br />
and Group Metallurgist for Australian C<strong>on</strong>solidated Minerals.<br />
J<strong>on</strong> Parker (N<strong>on</strong>-<br />
Executive Director)<br />
J<strong>on</strong> Parker has had 30 years in commercial, development and strategy roles,<br />
preceded by 10 years in technical roles.<br />
J<strong>on</strong> held executive roles <strong>with</strong>in Rio Tinto for 26 years in management and<br />
executive roles in ir<strong>on</strong> ore, energy, kaolin and aluminium. This was followed by 4.5<br />
years as Managing Director <strong>with</strong> Felix Resources Limited and, more recently, as<br />
Managing Director <strong>of</strong> Nort<strong>on</strong> Gold Fields Limited for 2 years until January 2010.<br />
J<strong>on</strong> has a degree in Physical Chemistry (H<strong>on</strong>s) (Sydney) and a Graduate Diploma<br />
Business Administrati<strong>on</strong> (Curtin) complemented by management programs in<br />
Australia (Mt Eliza) and the US (Columbia).<br />
John Rowe (N<strong>on</strong>-<br />
Executive Director)<br />
John Rowe holds a BSc (H<strong>on</strong>s) in Mining Geology from the Royal School <strong>of</strong> Mines,<br />
Imperial College, L<strong>on</strong>d<strong>on</strong> University and has had a distinguished career over a 40<br />
year period in the mining industry.<br />
John is the principal <strong>of</strong> John Rowe and Associates which provides geological and<br />
business development advice to the mining industry and is a n<strong>on</strong>-executive<br />
Director <strong>of</strong> Panoramic Resources Ltd and Evoluti<strong>on</strong> Mining Limited. During his<br />
period as Chairman <strong>of</strong> Catalpa Resources (former name for Evoluti<strong>on</strong> Mining) in<br />
2008/2009, Catalpa finalised the bankable feasibility study and completed debt and<br />
equity funding for the 100,000oz/year Edna May Gold Project at West<strong>on</strong>ia. Prior to<br />
establishing John Rowe and Associates in 2006, John spent 13 years <strong>with</strong> MPI<br />
Mines / Li<strong>on</strong> Ore Australia in various group executive roles including Executive<br />
General Manager Mineral Inventory and Group Executive – Acquisiti<strong>on</strong>s &<br />
Resource Management. John’s role at MPI Mines included resp<strong>on</strong>sibility for all<br />
geological activities including explorati<strong>on</strong>, mine geology and project evaluati<strong>on</strong>.<br />
This included involvement in the development and producti<strong>on</strong> <strong>of</strong> the high grade<br />
Silver Swan nickel sulphide project as well as the 100,000oz/year Stawell Gold<br />
Mine in Victoria. He had a short period <strong>with</strong> R&I Gold Bank in the technical divisi<strong>on</strong><br />
before joining MPI Mines in 1993.
- 26 -<br />
David Sproule (N<strong>on</strong>-<br />
Executive Director)<br />
David Sproule founded <strong>Polymetals</strong> and has over twenty five years <strong>of</strong> experience in<br />
the mining industry encompassing project generati<strong>on</strong> and assessment,<br />
development, operati<strong>on</strong>al management and corporate experience.<br />
In 1986, during his final year at the Western Australian School <strong>of</strong> Mines, David<br />
registered Meerschaum Gold which subsequently became <strong>Polymetals</strong>. Whilst<br />
overseas as a recipient <strong>of</strong> an inaugural bursary <strong>of</strong>fered to two Australian graduates<br />
by the West German company Metallgesellschaft AG, David c<strong>on</strong>solidated his view<br />
that there was enormous opportunity <strong>with</strong>in the Australian resources industry for a<br />
young entrepreneur. Returning to Australia, David spent his early years c<strong>on</strong>tracting<br />
his services <strong>on</strong> process plant c<strong>on</strong>structi<strong>on</strong> moving to minority equity/ joint venture<br />
interests and management <strong>of</strong> various gold projects <strong>with</strong>in the Eastern Goldfields <strong>of</strong><br />
Western Australia.<br />
Following several years c<strong>on</strong>tracting in Tanzania, David raised $600,000 from family<br />
and friends to purchase the Mt Boppy plant and tenements, the platform used to<br />
develop <strong>Polymetals</strong>’ first wholly-owned operati<strong>on</strong> re-treating a silver/gold tailing<br />
transported to the site. A Metallurgical Engineer, David was Managing Director<br />
until December 2007 when he was appointed Chairman. David is the principal<br />
shareholder <strong>of</strong> <strong>Polymetals</strong> Mining Limited.<br />
Frank Terranova<br />
(N<strong>on</strong>-Executive<br />
Director)<br />
Frank Terranova joined <strong>Polymetals</strong> as Chief Executive Officer in September 2012<br />
and was appointed to the <strong>Polymetals</strong> Board as Managing Director in February<br />
2013. He is a senior executive <strong>with</strong> experience across the internati<strong>on</strong>al resources<br />
sector.<br />
Frank’s most recent positi<strong>on</strong> was as Managing Director and CEO <strong>with</strong> Allied Gold<br />
Mining PLC, where he presided over its successful +$500m M&A transacti<strong>on</strong> <strong>with</strong><br />
St Barbara Mines (ASX:SBM). Frank had a major role in the strategic and<br />
operati<strong>on</strong>al development <strong>of</strong> Allied Gold over the past four years.<br />
Frank is a Chartered Accountant <strong>with</strong> extensive experience in corporate finance<br />
and financial risk management and has held senior positi<strong>on</strong>s for various ASX listed<br />
corporati<strong>on</strong>s, predominately <strong>with</strong>in the mining, agriculture and manufacturing<br />
sectors.<br />
4. Merged Group senior management<br />
The Merged Group’s will comprise SXG’s Glenn Jardine and Stephen J<strong>on</strong>es.<br />
Senior management<br />
Glenn Jardine (Chief<br />
Executive Officer)<br />
Biography<br />
Glenn Jardine is a mining engineer <strong>with</strong> a Bachelor <strong>of</strong> Engineering (Mining) from<br />
the University <strong>of</strong> Queensland. Glenn’s senior management experience<br />
commenced as Project Manager and General Manager <strong>of</strong> the Henty gold mine in<br />
Tasmania for Goldfields Ltd. He joined Li<strong>on</strong>Ore Australia from Goldfields in 1998.<br />
While <strong>with</strong> Li<strong>on</strong>Ore Australia his resp<strong>on</strong>sibilities included Project Manager <strong>of</strong> the<br />
Emily Ann and Maggie Hays nickel mines, General Manager – New Business,<br />
Chief Operating Officer and then Managing Director <strong>of</strong> Li<strong>on</strong>Ore Australia in 2006.<br />
During this period Li<strong>on</strong>Ore’s producti<strong>on</strong> in Australia grew from a zero base to<br />
having 3 nickel producti<strong>on</strong> centres (Lake Johnst<strong>on</strong>, Black Swan, Waterloo) and<br />
<strong>on</strong>e gold mine (Thunderbox). Prior to joining SXG, he worked <strong>with</strong> Apex Minerals<br />
until mid-2009 as a c<strong>on</strong>sultant and then Operati<strong>on</strong>s Director to successfully recommissi<strong>on</strong><br />
the Wiluna gold mine and plant.<br />
Since joining SXG in 2010, SXG has c<strong>on</strong>ducted explorati<strong>on</strong> and corporate<br />
transacti<strong>on</strong>s increasing SXG’s resource base from 0.3 to 1.3 milli<strong>on</strong> ounces and<br />
has also completed a positive feasibility study into SXG’s greenfields gold projects<br />
at Marda.
- 27 -<br />
Stephen J<strong>on</strong>es<br />
(Chief Financial<br />
Officer)<br />
Stephen J<strong>on</strong>es has more than 15 years’ experience in a range <strong>of</strong> entities <strong>with</strong><br />
operati<strong>on</strong>s in Australia, the Americas and Africa. Stephen has worked in corporate<br />
administrati<strong>on</strong>, finance management and project development roles for companies<br />
involved in explorati<strong>on</strong>, project evaluati<strong>on</strong> and development and operati<strong>on</strong>s in a<br />
range <strong>of</strong> minerals including ir<strong>on</strong> ore, coal, gold and base metals.<br />
5. Intenti<strong>on</strong>s in relati<strong>on</strong> to SXG, <strong>Polymetals</strong> and the Merged Group<br />
If the <strong>Merger</strong> is implemented:<br />
• SXG will c<strong>on</strong>tinue as an ASX listed entity;<br />
• <strong>Polymetals</strong> will become a wholly owned subsidiary <strong>of</strong> the Company; and<br />
• the board <strong>of</strong> SXG will be rec<strong>on</strong>stituted so that it comprises the pers<strong>on</strong>s as set out in<br />
Secti<strong>on</strong> 3.<br />
If the Scheme is implemented, it is intended that:<br />
• <strong>Polymetals</strong> will apply for removal from the <strong>of</strong>ficial list <strong>of</strong> ASX; and<br />
• as <strong>Polymetals</strong> will be a wholly owned subsidiary <strong>of</strong> the Company, the board <strong>of</strong><br />
<strong>Polymetals</strong> will be rec<strong>on</strong>stituted so that it comprises pers<strong>on</strong>s nominated by the Board.<br />
It is intended that the Merged Group rati<strong>on</strong>alise administrative functi<strong>on</strong>s, <strong>with</strong> the closure<br />
and sale <strong>of</strong> the <strong>Polymetals</strong> <strong>of</strong>fice in Queensland and relocati<strong>on</strong> <strong>of</strong> relevant activity and<br />
informati<strong>on</strong> to the Company’s Perth <strong>of</strong>fice. This will result in some redundancies <strong>with</strong>in the<br />
<strong>Polymetals</strong> group.<br />
It is not expected that there will be any payment <strong>of</strong> a dividend by the Merged Group in the<br />
short term. It is the intenti<strong>on</strong> <strong>of</strong> the Merged Group to c<strong>on</strong>sider the payment <strong>of</strong> future<br />
dividends having due regard to the Merged Group’s pr<strong>of</strong>its, financial positi<strong>on</strong> and future<br />
capital requirements.<br />
6. Capital structure and ownership <strong>of</strong> the Merged Group<br />
<strong>Polymetals</strong> Shareholders will receive 11 New SXG Shares for each <strong>Polymetals</strong> Share they<br />
own as at the Record Date. Based <strong>on</strong> <strong>Polymetals</strong>’ current issued share capital, if the<br />
Scheme is implemented, SXG will issue approximately 458,537,981 New SXG Shares to<br />
<strong>Polymetals</strong> Shareholders.<br />
As a result, the number <strong>of</strong> SXG Shares <strong>on</strong> issue will increase from 408,912,834 (being the<br />
number currently <strong>on</strong> issue) to 867,450,815 <strong>on</strong> an undiluted basis.<br />
New SXG Shares to be<br />
issued<br />
Cumulative total <strong>of</strong> SXG<br />
Shares <strong>on</strong> issue<br />
As at the date <strong>of</strong> the Scheme<br />
Booklet<br />
To be issued as Scheme<br />
C<strong>on</strong>siderati<strong>on</strong><br />
Not applicable 408,912,834<br />
458,537,981 867,450,815<br />
If the Scheme is implemented, <strong>Polymetals</strong> Shareholders will collectively hold approximately<br />
52.9% <strong>of</strong> the shares in the Merged Group, <strong>with</strong> SXG Shareholders collectively holding the<br />
remaining 47.1%.
- 28 -<br />
There will be two substantial shareholders in the Merged Group which, together <strong>with</strong> D & J<br />
Sproule and E Sproule, are the Sproule Interests:<br />
Name<br />
Number <strong>of</strong> fully paid<br />
ordinary shares held<br />
% held <strong>of</strong> issued ordinary<br />
capital<br />
Meadowhead Investments 133,579,204 15.40%<br />
Mrs Jane Christine Sproule* 92,296,985 10.64%<br />
*David and Jane Sproule will also hold jointly an additi<strong>on</strong>al 1,155,000 SXG Shares,<br />
equating to 0.13% <strong>of</strong> the issued capital <strong>of</strong> the Merged Group.<br />
Meadowhead Investments and Jane Sproule are Associates and are related parties <strong>of</strong><br />
David Sproule. The holdings set out in the table above do not include the relevant interests<br />
held by relatives <strong>of</strong> David Sproule who are not Associates <strong>of</strong> Meadowhead Investments or<br />
Jane Sproule.<br />
7. Pro forma historical financial informati<strong>on</strong><br />
(a)<br />
Historical financial pr<strong>of</strong>ile <strong>of</strong> the Merged Group<br />
The Merged Group pro forma historical financial informati<strong>on</strong> provided in this<br />
Explanatory Memorandum comprises a pro forma c<strong>on</strong>solidated statement <strong>of</strong><br />
financial positi<strong>on</strong> as at 31 December 2012 which is based up<strong>on</strong>:<br />
• the Company’s audited c<strong>on</strong>solidated statement <strong>of</strong> financial positi<strong>on</strong> as at<br />
31 December 2012; and<br />
• the <strong>Polymetals</strong> audited c<strong>on</strong>solidated statement <strong>of</strong> financial positi<strong>on</strong> as at<br />
31 December 2012,<br />
(collectively the Historical Financial Informati<strong>on</strong>); and<br />
• relevant pro forma adjustments required to present SXG Shareholders <strong>with</strong> an<br />
indicati<strong>on</strong> <strong>of</strong> the pr<strong>of</strong>ile <strong>of</strong> the Merged Group, (collectively the Pro Forma<br />
Financial Informati<strong>on</strong>).<br />
(b)<br />
Basis <strong>of</strong> preparati<strong>on</strong><br />
The Pro Forma Financial Informati<strong>on</strong> is provided for illustrative purposes and is<br />
prepared <strong>on</strong> the assumpti<strong>on</strong> that the <strong>Merger</strong> had occurred <strong>on</strong> 31 March 2013. The<br />
Merged Group financial statements are based <strong>on</strong> the Company’s and <strong>Polymetals</strong>’<br />
financial statements as at 31 December 2012 which were audited by Stant<strong>on</strong>s<br />
Internati<strong>on</strong>al and Deloitte Touche Tohmatsu respectively.<br />
The Pro Forma Financial Informati<strong>on</strong>:<br />
• has been prepared in accordance <strong>with</strong> the recogniti<strong>on</strong> and measurement<br />
principles <strong>of</strong> AASBs, together <strong>with</strong> pro forma adjustments to reflect the <strong>Merger</strong>;<br />
• has been presented in an abbreviated form and does not include all disclosures<br />
required by the Australian Accounting Standards applicable to annual financial<br />
reports prepared in accordance <strong>with</strong> the Corporati<strong>on</strong>s Act; in particular it does<br />
not include the notes to and forming part <strong>of</strong> the financial statements <strong>of</strong> the<br />
Company and <strong>Polymetals</strong>; and<br />
• has been prepared <strong>on</strong> the basis <strong>of</strong> historical cost, except for available-for-sale<br />
financial assets which are measured at fair value.
- 29 -<br />
In accordance <strong>with</strong> ASIC Class Order 98/100, amounts in the Pro Forma Financial<br />
Informati<strong>on</strong> are rounded <strong>of</strong>f to the nearest thousand dollars, unless otherwise<br />
indicated. All amounts are presented in Australian dollars, unless otherwise noted.<br />
(c)<br />
Pro forma adjustments<br />
Australian Accounting Standards require the <strong>Merger</strong> to be accounted for as an “in<br />
substance acquisiti<strong>on</strong>”, <strong>with</strong> the Company deemed to be the acquirer.<br />
Acquisiti<strong>on</strong> accounting will be applied in accordance <strong>with</strong> AASB 3: Business<br />
Combinati<strong>on</strong>s. The value <strong>of</strong> the acquisiti<strong>on</strong> c<strong>on</strong>siderati<strong>on</strong> will be measured based<br />
<strong>on</strong> the value <strong>of</strong> SXG Shares at close <strong>of</strong> trading <strong>on</strong> the Scheme Implementati<strong>on</strong> Date.<br />
For the purposes <strong>of</strong> the Pro Forma Financial Informati<strong>on</strong>, a value <strong>of</strong> $0.026 per SXG<br />
Share has been assumed, being the closing price <strong>of</strong> SXG Shares <strong>on</strong> 5 April 2013<br />
(being the last trading price before the executi<strong>on</strong> <strong>of</strong> the Scheme Implementati<strong>on</strong><br />
Agreement and the announcement <strong>of</strong> the <strong>Merger</strong>). C<strong>on</strong>sequently, the value <strong>of</strong> the<br />
acquisiti<strong>on</strong> c<strong>on</strong>siderati<strong>on</strong> for accounting purposes may differ from the amount<br />
assumed in the Pro Forma Financial Informati<strong>on</strong>.<br />
The following pro forma adjustments to the Historical Financial Informati<strong>on</strong> have<br />
been made in order to present the Pro Forma Financial Informati<strong>on</strong>:<br />
• the acquisiti<strong>on</strong> and funding <strong>of</strong> the Sandst<strong>on</strong>e Gold Project assets by the<br />
Company;<br />
• the divestment <strong>of</strong> its 50% interest in the White Dam gold project and associated<br />
Drew Hill explorati<strong>on</strong> tenements by <strong>Polymetals</strong> in May 2013;<br />
• the acquisiti<strong>on</strong> <strong>of</strong> <strong>Polymetals</strong> by the Company through the issue <strong>of</strong> 11 New SXG<br />
Shares for each <strong>Polymetals</strong> Share, being 458,537,981New SXG Shares in total;<br />
• the cancellati<strong>on</strong> <strong>of</strong> 914,407 <strong>Polymetals</strong> Shares currently <strong>on</strong> issue under<br />
<strong>Polymetals</strong>’ “loan funded share scheme”;<br />
• the issue <strong>of</strong> 2,375,000 <strong>Polymetals</strong> Shares up<strong>on</strong> the vesting <strong>of</strong> performance<br />
rights under <strong>Polymetals</strong>’ performance rights plan as a result <strong>of</strong> the Scheme;<br />
• the issue <strong>of</strong> 1,939,058 <strong>Polymetals</strong> Shares to Meadowhead Investments in<br />
c<strong>on</strong>siderati<strong>on</strong> for Meadowhead Investments granting the Meadowhead<br />
Indemnity;<br />
• the inclusi<strong>on</strong> <strong>of</strong> transacti<strong>on</strong> costs totalling approximately $1.5 milli<strong>on</strong> associated<br />
<strong>with</strong> the <strong>Merger</strong>, thus reducing the overall cash balance <strong>of</strong> the Merged Group;<br />
and<br />
• the inclusi<strong>on</strong> <strong>of</strong> other costs <strong>of</strong> operating SXG and <strong>Polymetals</strong> from<br />
31 December 2012 to 31 March 2013, totalling $3.5 milli<strong>on</strong>.<br />
(d)<br />
Pro Forma Financial Informati<strong>on</strong><br />
This paragraph c<strong>on</strong>tains the Pro Forma Financial Informati<strong>on</strong> for the Merged Group,<br />
reflecting the combined businesses <strong>of</strong> the Company and <strong>Polymetals</strong>. The Pro<br />
Forma Financial Informati<strong>on</strong> is presented to provide SXG Shareholders <strong>with</strong> an<br />
indicati<strong>on</strong> <strong>of</strong> the Merged Group statement <strong>of</strong> financial positi<strong>on</strong> as if the <strong>Merger</strong><br />
occurred as at 31 March 2013.
- 30 -<br />
SXG as at<br />
31/12/12<br />
PLY as at<br />
31/12/12<br />
(i)<br />
Purchase and<br />
funding <strong>of</strong><br />
Sandst<strong>on</strong>e by<br />
SXG<br />
(ii)<br />
Sale <strong>of</strong><br />
White Dam<br />
by PLY<br />
(iii)<br />
Transacti<strong>on</strong><br />
costs and<br />
other<br />
adjustments<br />
Notes<br />
Merged<br />
Group as at<br />
31/03/13<br />
ASSETS<br />
$'000 $'000 $'000 $'000 $'000 $'000<br />
Current Assets<br />
Cash and cash equivalents 4,073 11,016 1,731 1,437 (5,300) (a) 12,957<br />
Trade and other receivables 185 752 - (166) - 771<br />
Inventories 668 - (650) - 18<br />
Other financial assets - 708 - (9) - 699<br />
Total Current Assets 4,258 13,144 - - - 14,445<br />
N<strong>on</strong>-Current Assets<br />
Receivables - b<strong>on</strong>ds 101 - 2,719 - - 2,820<br />
Property, plant and equipment 227 3,455 2,013 (183) - 5,512<br />
Tenement acquisiti<strong>on</strong> costs 3,332 17,421 1,640 (2,840) (10,987) (b) 8,566<br />
Capitalised mining development costs - 1,338 - (801) - 537<br />
Other financial assets - 1,031 - (800) - 231<br />
Total N<strong>on</strong>-Current Assets 3,660 23,245 - - - 17,666<br />
TOTAL ASSETS 7,918 36,389 - - - 32,111<br />
LIABILITIES<br />
Current Liabilities<br />
Trade and other payables 1,843 2,604 - (870) - 3,577<br />
Current tax liabilities - 112 - - - 112<br />
Provisi<strong>on</strong>s 81 1,256 1,000 (662) - 1,675<br />
Other current liabilities - 1,063 7,000 - - 8,063<br />
Total Current Liabilities 1,924 5,035 - - - 13,427<br />
N<strong>on</strong> Current Liabilities<br />
Deferred tax liabilities - 4,682 - (885) (3,797) (c ) -<br />
Deferred tax assets (1,968) - 370 1,598 (c ) -<br />
Provisi<strong>on</strong>s 16 480 - - - 496<br />
Other n<strong>on</strong>-current liabilities - 877 - - - 877<br />
Total N<strong>on</strong>-Current Liabilities 16 4,071 - - - 1,373<br />
TOTAL LIABILITIES 1,940 9,106 - - - 14,800<br />
- - - -<br />
NET ASSETS 5,978 27,283 - - - 17,311<br />
Equity<br />
Issued capital 30,381 8,302 - - (8,302) (d)<br />
11,922 (e ) 42,303<br />
Reserves 3,168 456 493 - (456) (d) 3,661<br />
Accumulated losses (27,571) 18,525 (390) (1,965) (17,252) (d) (28,653)<br />
TOTAL EQUITY 5,978 27,283 - - - 17,311<br />
(e)<br />
Notes to Pro Forma Financial Informati<strong>on</strong><br />
(i)<br />
Purchase and funding <strong>of</strong> Sandst<strong>on</strong>e Gold Project by SXG<br />
On 14 August 2012 SXG announced that it had reached agreement to<br />
acquire the Sandst<strong>on</strong>e Gold Project from Troy Resources. On 26 March<br />
2013 the purchase <strong>of</strong> the Sandst<strong>on</strong>e Gold Project was completed after<br />
securing a $7 milli<strong>on</strong> bank loan from RMB (the RMB Facility). The<br />
acquisiti<strong>on</strong> included the following elements:<br />
• a cash payment <strong>of</strong> $2.281 milli<strong>on</strong> to Troy Resources, assumpti<strong>on</strong> <strong>of</strong><br />
envir<strong>on</strong>mental liabilities valued at $1 milli<strong>on</strong> and the issue <strong>of</strong> 43.665
- 31 -<br />
milli<strong>on</strong> SXG Opti<strong>on</strong>s which had a calculated value <strong>of</strong> $0.372 milli<strong>on</strong> giving<br />
total acquisiti<strong>on</strong> cost for accounting purposes <strong>of</strong> $3.653 milli<strong>on</strong>. This<br />
acquisiti<strong>on</strong> price is recorded as $2.013 milli<strong>on</strong> to property, plant and<br />
equipment and $1.640 milli<strong>on</strong> to tenements;<br />
• a deposit <strong>of</strong> $2.719 milli<strong>on</strong> to cash back envir<strong>on</strong>mental b<strong>on</strong>ds relating to<br />
previous activities <strong>on</strong> the Sandst<strong>on</strong>e Gold Project;<br />
• recording a liability <strong>of</strong> $1 milli<strong>on</strong> for the existing envir<strong>on</strong>mental liabilities<br />
assumed;<br />
• recording a liability <strong>of</strong> $7 milli<strong>on</strong> for the loan from RMB; and<br />
• recording additi<strong>on</strong>al reserves <strong>of</strong> $0.493 milli<strong>on</strong> being the calculated value<br />
<strong>of</strong> opti<strong>on</strong>s issued as follows: opti<strong>on</strong>s issued to Troy Resources $0.372<br />
milli<strong>on</strong>, opti<strong>on</strong>s issued to RMB $0.11 milli<strong>on</strong>, opti<strong>on</strong>s issued to PCF<br />
Capital Group Pty Limited $0.011 milli<strong>on</strong>.<br />
(ii)<br />
Sale <strong>of</strong> White Dam and Drew Hill by <strong>Polymetals</strong><br />
On 27 May 2013 <strong>Polymetals</strong> announced the sale <strong>of</strong> its interests in the Drew<br />
Hill and White Dam operati<strong>on</strong>s. The sale included the following elements:<br />
• receipt <strong>of</strong> cash <strong>of</strong> $1.437 milli<strong>on</strong> from Exco Resources Limited (Exco) as<br />
c<strong>on</strong>siderati<strong>on</strong>;<br />
• additi<strong>on</strong> <strong>of</strong> $0.275 milli<strong>on</strong> to property, plant and equipment to reflect<br />
additi<strong>on</strong>al c<strong>on</strong>siderati<strong>on</strong> being the receipt <strong>of</strong> Exco’s 50% share <strong>of</strong> the<br />
White Dam mine camp; and<br />
• disposal <strong>of</strong> current and n<strong>on</strong>-current assets and liabilities as shown<br />
above.<br />
(iii)<br />
Transacti<strong>on</strong> costs and other adjustments<br />
(a)<br />
(b)<br />
(c)<br />
transacti<strong>on</strong> costs <strong>of</strong> $1.5 milli<strong>on</strong>, payment to Meadowhead<br />
Investments <strong>of</strong> $0.3 milli<strong>on</strong> and combined SXG and <strong>Polymetals</strong> cash<br />
outflows <strong>of</strong> $3.5 milli<strong>on</strong> during the quarter from 31 December 2012 to<br />
31 March 2013 have been deducted from the 31 December 2012<br />
cash balance;<br />
<strong>Polymetals</strong> accounting policy is to capitalise the costs <strong>of</strong> explorati<strong>on</strong><br />
evaluati<strong>on</strong> and development (EE&D) expenditure as well as tenement<br />
acquisiti<strong>on</strong> costs. The accounting policy <strong>of</strong> SXG is to capitalise<br />
tenement acquisiti<strong>on</strong> costs but expense EE&D costs as they are<br />
incurred. This adjustment reflects the expensing <strong>of</strong> the previously<br />
capitalised EE&D costs <strong>of</strong> <strong>Polymetals</strong> to align <strong>with</strong> the SXG<br />
accounting policy;<br />
as an operating and cash producing company <strong>Polymetals</strong> has<br />
previously recorded deferred liabilities (DTLs) and deferred tax assets<br />
(DTAs) (including carried forward tax losses). With the sale <strong>of</strong> White<br />
Dam (<strong>Polymetals</strong> <strong>on</strong>ly operating asset) and no future operati<strong>on</strong>s that<br />
are virtually certain <strong>of</strong> realising taxable income the merged entity will<br />
not record DTLs and DTAs. This adjustment removes all DTLs and<br />
DTAs from the merged entity balance sheets;
- 32 -<br />
(d)<br />
(e)<br />
the eliminati<strong>on</strong> <strong>of</strong> <strong>Polymetals</strong> c<strong>on</strong>tributed equity <strong>of</strong> $8.302 milli<strong>on</strong>,<br />
reserves <strong>of</strong> $0.456 milli<strong>on</strong> and accumulated gains <strong>of</strong> $17.252 milli<strong>on</strong>;<br />
and<br />
the value <strong>of</strong> the c<strong>on</strong>siderati<strong>on</strong> paid to <strong>Polymetals</strong> Shareholders for<br />
their <strong>Polymetals</strong> Shares under the Scheme is based <strong>on</strong> the SXG<br />
Share price <strong>of</strong> $0.026 per SXG Share (being the ASX closing price <strong>of</strong><br />
SXG Shares <strong>on</strong> 5 April 2013) <strong>of</strong> $11.922 milli<strong>on</strong>. The actual value <strong>of</strong><br />
the c<strong>on</strong>siderati<strong>on</strong> paid will depend <strong>on</strong> the actual SXG Share price at<br />
close <strong>of</strong> trading <strong>on</strong> ASX <strong>on</strong> the Implementati<strong>on</strong> Date.
- 33 -<br />
Schedule 2 – Terms & C<strong>on</strong>diti<strong>on</strong>s <strong>of</strong> SXG Opti<strong>on</strong>s<br />
Terms used and not defined in these terms and c<strong>on</strong>diti<strong>on</strong>s have the same meanings as in the<br />
facility agreement dated 22 March 2013 between the Company (as Borrower), RMB Australia<br />
Holdings Limited (as Financier) and RMB Resources Limited (as Agent) (Facility Agreement).<br />
The SXG Opti<strong>on</strong>s are issued <strong>on</strong> the terms set out below:<br />
1. No c<strong>on</strong>siderati<strong>on</strong> is payable for the issue <strong>of</strong> the SXG Opti<strong>on</strong>s.<br />
2. The exercise price payable by the SXG Opti<strong>on</strong>holder <strong>on</strong> the exercise <strong>of</strong> the SXG Opti<strong>on</strong>s is<br />
$0.047c per SXG Opti<strong>on</strong> (Exercise Price).<br />
3. SXG Opti<strong>on</strong>s that have not been exercised in accordance <strong>with</strong> these terms will lapse at<br />
5.00pm <strong>on</strong> the day which is 2 years after the date <strong>on</strong> which those SXG Opti<strong>on</strong>s have been<br />
issued under the Facility Agreement, being 21 March 2015 (Expiry Date).<br />
4. In relati<strong>on</strong> to an SXG Opti<strong>on</strong>, the SXG Opti<strong>on</strong>holder may, subject to paragraphs 5 to 8<br />
(inclusive), exercise that SXG Opti<strong>on</strong> at any time before 5:00pm (Melbourne time) <strong>on</strong> the<br />
Expiry Date (Exercise Period).<br />
5. If the SXG Opti<strong>on</strong>holder proposes to give the Borrower a notice <strong>of</strong> exercise, it must first<br />
give the Borrower prior notice (C<strong>on</strong>sultati<strong>on</strong> <strong>Notice</strong>) and must c<strong>on</strong>sult <strong>with</strong> the Borrower<br />
regarding the proposed notice <strong>of</strong> exercise in accordance <strong>with</strong> paragraphs 6 to 8 (inclusive)<br />
before it can give the notice <strong>of</strong> exercise.<br />
6. If at the time the Borrower receives the C<strong>on</strong>sultati<strong>on</strong> <strong>Notice</strong> there is excluded informati<strong>on</strong><br />
(as defined in secti<strong>on</strong> 708A(7) <strong>of</strong> the Corporati<strong>on</strong>s Act) in respect <strong>of</strong> the Borrower<br />
(Excluded Informati<strong>on</strong>), the Borrower must, <strong>with</strong>in 2 Business Days from receipt <strong>of</strong> the<br />
C<strong>on</strong>sultati<strong>on</strong> <strong>Notice</strong>, advise the SXG Opti<strong>on</strong>holder that there is Excluded Informati<strong>on</strong> and<br />
the SXG Opti<strong>on</strong>holder must, subject to paragraph 7, c<strong>on</strong>sult <strong>with</strong> the Borrower regarding<br />
the proposed exercise <strong>of</strong> notice for a period <strong>of</strong> 15 Business Days.<br />
7. If at the time the Borrower receives the C<strong>on</strong>sultati<strong>on</strong> <strong>Notice</strong> or at any time during the<br />
c<strong>on</strong>sultati<strong>on</strong> period referred to in paragraph 6 there is no Excluded Informati<strong>on</strong>, the<br />
Borrower must, <strong>with</strong>in 2 Business days from receipt <strong>of</strong> the C<strong>on</strong>sultati<strong>on</strong> <strong>Notice</strong>, advise the<br />
SXG Opti<strong>on</strong>holder accordingly and the SXG Opti<strong>on</strong>holder may then give the proposed<br />
notice <strong>of</strong> exercise <strong>on</strong> the next Business Day.<br />
8. If after giving a C<strong>on</strong>sultati<strong>on</strong> <strong>Notice</strong> the SXG Opti<strong>on</strong>holder does not give a notice <strong>of</strong><br />
exercise <strong>with</strong>in 2 Business Days <strong>of</strong> the expiry <strong>of</strong> the periods referred to in paragraphs 6 or 7<br />
(as applicable), the SXG Opti<strong>on</strong>holder must again comply <strong>with</strong> paragraph 5 before giving a<br />
notice <strong>of</strong> exercise.<br />
9. Subject to paragraphs 5 to 8 (inclusive), the SXG Opti<strong>on</strong>s are exercisable by lodging <strong>with</strong><br />
the Company during the Exercise Period:<br />
(a)<br />
(b)<br />
(c)<br />
a written notice <strong>of</strong> exercise <strong>of</strong> SXG Opti<strong>on</strong>s specifying the number <strong>of</strong> SXG Opti<strong>on</strong>s<br />
being exercised (Exercise <strong>Notice</strong>);<br />
a cheque, or other evidence satisfactory to the Company <strong>of</strong> payment <strong>of</strong> the Exercise<br />
Price for the number <strong>of</strong> SXG Opti<strong>on</strong>s being exercised; and<br />
the certificate for those SXG Opti<strong>on</strong>s, for cancellati<strong>on</strong> by the Company,<br />
provided that, unless the Borrower agrees otherwise, no more than 3 Exercise <strong>Notice</strong>s may<br />
be given in respect <strong>of</strong> all the opti<strong>on</strong>s issued pursuant to clause 7 <strong>of</strong> the Facility Agreement.
- 34 -<br />
10. Within 2 Business Days <strong>of</strong> receipt <strong>of</strong> an Exercise <strong>Notice</strong> accompanied by the Exercise Price<br />
the Company will allot the number <strong>of</strong> SXG Shares specified in the Exercise <strong>Notice</strong> to the<br />
relevant SXG Opti<strong>on</strong>holder. Within 5 Business Days <strong>of</strong> the issue <strong>of</strong> SXG Shares, the<br />
Company will:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
procure that the relevant SXG Opti<strong>on</strong>holder is issued a CHESS holding statement or<br />
issuer sp<strong>on</strong>sored holding statement in respect <strong>of</strong> the allotted SXG Shares;<br />
lodge <strong>with</strong> ASX a notice in accordance <strong>with</strong> secti<strong>on</strong> 708A(5) and (6) <strong>of</strong> the<br />
Corporati<strong>on</strong>s Act in relati<strong>on</strong> to the issue <strong>of</strong> the SXG Shares or, if the Company is<br />
unable to comply <strong>with</strong> each <strong>of</strong> the obligati<strong>on</strong>s required to issue such a notice, lodge<br />
a disclosure document complying <strong>with</strong> part 6D.2 <strong>of</strong> the Corporati<strong>on</strong>s Act <strong>with</strong>in a<br />
further 30 Business Days;<br />
cancel the certificate for the SXG Opti<strong>on</strong>s being exercised; and<br />
if applicable, issue a new certificate for any unexercised SXG Opti<strong>on</strong>s to the<br />
relevant SXG Opti<strong>on</strong>holder.<br />
11. The Company will not apply for <strong>of</strong>ficial quotati<strong>on</strong> by ASX <strong>of</strong> the SXG Opti<strong>on</strong>s.<br />
12. The Company must apply for <strong>of</strong>ficial quotati<strong>on</strong> <strong>on</strong> the ASX <strong>of</strong> any SXG Shares issued <strong>on</strong><br />
exercise <strong>of</strong> an SXG Opti<strong>on</strong>, immediately up<strong>on</strong>, and in any event no later than 2 Business<br />
Days after, the SXG Shares are issued and allotted. When issued <strong>on</strong> exercise <strong>of</strong> an SXG<br />
Opti<strong>on</strong>, any SXG Shares must be <strong>of</strong> the same class, and rank equally <strong>with</strong>, other SXG<br />
Shares <strong>on</strong> issue as at that date.<br />
13. In the event <strong>of</strong> any rec<strong>on</strong>structi<strong>on</strong> (including c<strong>on</strong>solidati<strong>on</strong>, subdivisi<strong>on</strong>, reducti<strong>on</strong> or return)<br />
<strong>of</strong> the issued capital <strong>of</strong> the Company after the issue <strong>of</strong> SXG Opti<strong>on</strong>s but before the expiry or<br />
exercise <strong>of</strong> any SXG Opti<strong>on</strong>s, the number <strong>of</strong> SXG Opti<strong>on</strong>s to which the SXG Opti<strong>on</strong>holder<br />
is entitled or the Exercise Price <strong>of</strong> the SXG Opti<strong>on</strong>s or both will be rec<strong>on</strong>structed (as<br />
appropriate) in accordance <strong>with</strong> the ASX Listing Rules. For the avoidance <strong>of</strong> doubt, the<br />
rights <strong>of</strong> an SXG Opti<strong>on</strong>holder may be changed to the extent (but <strong>on</strong>ly to the extent)<br />
necessary to comply <strong>with</strong> the ASX Listing Rules applying to a reorganisati<strong>on</strong> <strong>of</strong> capital at<br />
the time <strong>of</strong> the reorganisati<strong>on</strong>.<br />
14. There are no participating rights or entitlements inherent in the SXG Opti<strong>on</strong>s and the SXG<br />
Opti<strong>on</strong>holder will not be entitled to participate in new issues <strong>of</strong> capital <strong>of</strong>fered to SXG<br />
Shareholders during the currency <strong>of</strong> the SXG Opti<strong>on</strong>s until those SXG Opti<strong>on</strong>s are<br />
exercised and SXG Shares are allotted and issued in accordance <strong>with</strong> the Facility<br />
Agreement and these terms and c<strong>on</strong>diti<strong>on</strong>s. However, the Company will ensure that for the<br />
purpose <strong>of</strong> determining entitlements to any issue <strong>of</strong> capital <strong>of</strong> that kind, the Company will<br />
give the SXG Opti<strong>on</strong>holder 10 Trading Days’ notice <strong>of</strong> any new issue <strong>of</strong> capital before the<br />
record date for determining entitlements to the issue <strong>of</strong> capital in accordance <strong>with</strong> the ASX<br />
Listing Rules. This will give the SXG Opti<strong>on</strong>holder the opportunity to exercise that porti<strong>on</strong> <strong>of</strong><br />
the SXG Opti<strong>on</strong>s which the SXG Opti<strong>on</strong>holder is entitled to exercise before the record date<br />
for determining entitlements to participate in any issue <strong>of</strong> capital.<br />
15. If, after the issue <strong>of</strong> the SXG Opti<strong>on</strong>s but before the expiry <strong>of</strong> any SXG Opti<strong>on</strong>s, the<br />
Company makes an issue <strong>of</strong> SXG Shares to the holders <strong>of</strong> SXG Shares by way <strong>of</strong><br />
capitalisati<strong>on</strong> <strong>of</strong> pr<strong>of</strong>its or reserves (b<strong>on</strong>us issue) other than in lieu <strong>of</strong> a dividend payment,<br />
then <strong>on</strong> exercise <strong>of</strong> the SXG Opti<strong>on</strong>s, the SXG Opti<strong>on</strong>holder will be entitled to have issued<br />
to it (in additi<strong>on</strong> to the SXG Shares which the SXG Opti<strong>on</strong>holder is otherwise entitled to be<br />
issued <strong>on</strong> exercise <strong>of</strong> the SXG Opti<strong>on</strong>s) additi<strong>on</strong>al SXG Shares in the Company. The<br />
number <strong>of</strong> additi<strong>on</strong>al SXG Shares is the number <strong>of</strong> SXG Shares which would have been<br />
issued to the SXG Opti<strong>on</strong>holder under the b<strong>on</strong>us issue (B<strong>on</strong>us SXG Shares) if <strong>on</strong> the date<br />
<strong>on</strong> which entitlements for the b<strong>on</strong>us issue were calculated, it had been registered as the<br />
holder <strong>of</strong> the number <strong>of</strong> SXG Shares as if immediately before that date it had exercised its<br />
SXG Opti<strong>on</strong>s and been issued the SXG Shares. The B<strong>on</strong>us SXG Shares will be paid up by
- 35 -<br />
the Company out <strong>of</strong> pr<strong>of</strong>its or reserves (as the case may be) in the same manner as was<br />
applied in relati<strong>on</strong> to other SXG Shares allotted up<strong>on</strong> exercise <strong>of</strong> the SXG Opti<strong>on</strong>s.<br />
16. Subject to paragraph 17, the SXG Opti<strong>on</strong>holder is entitled to sell, assign or transfer all or<br />
any part <strong>of</strong> the SXG Opti<strong>on</strong>s (and if in part, in minimum transfer amounts <strong>of</strong> 500,000 SXG<br />
Opti<strong>on</strong>s) to any pers<strong>on</strong> or pers<strong>on</strong>s provided that the transferee <strong>of</strong> the SXG Opti<strong>on</strong>s is a<br />
pers<strong>on</strong> to whom an <strong>of</strong>fer <strong>of</strong> SXG Opti<strong>on</strong>s may be made <strong>with</strong>out a disclosure document in<br />
accordance <strong>with</strong> Chapter 6D <strong>of</strong> the Corporati<strong>on</strong>s Act.<br />
17. An SXG Opti<strong>on</strong>holder will have the right to attend, but (subject to the Corporati<strong>on</strong>s Act) not<br />
to vote at, general meetings <strong>of</strong> SXG Shareholders.
- 36 -<br />
Schedule 3 – Competent pers<strong>on</strong>s’ statement<br />
The Informati<strong>on</strong> in this Explanatory Memorandum that relates to the Company’s Ore<br />
Reserves and Mineral Resources is based <strong>on</strong> informati<strong>on</strong> compiled by:<br />
(a)<br />
(b)<br />
(c)<br />
in respect <strong>of</strong> Ore Reserves at the Marda Gold Project, Mr Denis Grubic, a Member <strong>of</strong><br />
the Australasian Institute <strong>of</strong> Mining and Metallurgy and an independent c<strong>on</strong>sultant<br />
employed by Rock Team Pty Ltd, who has sufficient experience which is relevant to<br />
the style <strong>of</strong> mineralisati<strong>on</strong> and type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and to the activity<br />
which he is undertaking to qualify him as a Competent Pers<strong>on</strong> as defined in the 2004<br />
Editi<strong>on</strong> <strong>of</strong> the ‘Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results, Mineral<br />
Resources and Ore Reserves’;<br />
in respect <strong>of</strong> Mineral Resources at the Marda Gold Project, Mr Richard Simm<strong>on</strong>s, a<br />
Member <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy and SXG’s Explorati<strong>on</strong><br />
Manager, who has sufficient experience which is relevant to the type <strong>of</strong> deposit under<br />
c<strong>on</strong>siderati<strong>on</strong> and to the activity which he is undertaking to qualify him as a<br />
Competent Pers<strong>on</strong> as defined in the 2004 Editi<strong>on</strong> <strong>of</strong> the ‘Australasian Code for<br />
Reporting <strong>of</strong> Explorati<strong>on</strong> Results, Mineral Resources and Ore Reserves’; and<br />
in respect <strong>of</strong> Mineral Resources at the Sandst<strong>on</strong>e Project, Mr David Otterman, a<br />
Fellow <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy, Chartered Pr<strong>of</strong>essi<strong>on</strong>al<br />
(Geology) and an independent c<strong>on</strong>sultant, who has sufficient experience which is<br />
relevant to the style <strong>of</strong> mineralisati<strong>on</strong> and type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and to<br />
the activity which he is undertaking to qualify him as a Competent Pers<strong>on</strong> as defined<br />
in the 2004 Editi<strong>on</strong> <strong>of</strong> the ‘Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results,<br />
Mineral Resources and Ore Reserves’.<br />
Each <strong>of</strong> Messrs Grubic, Simm<strong>on</strong>s and Otterman c<strong>on</strong>sents to the inclusi<strong>on</strong> in this Explanatory<br />
Memorandum <strong>of</strong> the statements based <strong>on</strong> his informati<strong>on</strong> in the form and c<strong>on</strong>text in which<br />
they appear.<br />
The Informati<strong>on</strong> in this Explanatory Memorandum that relates to <strong>Polymetals</strong>’ Ore Reserves<br />
or Mineral Resources is based <strong>on</strong> informati<strong>on</strong> compiled by:<br />
(a)<br />
(b)<br />
in respect <strong>of</strong> Ore Reserves at the Mt Boppy Project, Messrs Sean Buxt<strong>on</strong> and Andrew<br />
Lawry, Members <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy and former<br />
employees <strong>of</strong> <strong>Polymetals</strong>, who have sufficient experience which is relevant to the<br />
style <strong>of</strong> mineralisati<strong>on</strong> and type <strong>of</strong> deposit under c<strong>on</strong>siderati<strong>on</strong> and to the activity<br />
which they are undertaking to qualify them as Competent Pers<strong>on</strong>s as defined in the<br />
2004 Editi<strong>on</strong> <strong>of</strong> the ‘Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results, Mineral<br />
Resources and Ore Reserves’; and<br />
in respect <strong>of</strong> Mineral Resources at the Mt Boppy Project and Turner River Project, Mt<br />
Troy Lowien, a Member <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy and a<br />
<strong>Polymetals</strong> employee, who has sufficient experience which is relevant to the type <strong>of</strong><br />
deposit under c<strong>on</strong>siderati<strong>on</strong> and to the activity which he is undertaking to qualify him<br />
as a Competent Pers<strong>on</strong> as defined in the 2004 Editi<strong>on</strong> <strong>of</strong> the ‘Australasian Code for<br />
Reporting <strong>of</strong> Explorati<strong>on</strong> Results, Mineral Resources and Ore Reserves’.<br />
Each <strong>of</strong> Messrs Buxt<strong>on</strong>, Lawry and Lowien c<strong>on</strong>sents to the inclusi<strong>on</strong> in this Explanatory<br />
Memorandum <strong>of</strong> the statements based <strong>on</strong> his informati<strong>on</strong> in the form and c<strong>on</strong>text in which<br />
they appear.
- 37 -<br />
Glossary<br />
In this Explanatory Memorandum, the following terms have the following meaning unless the<br />
c<strong>on</strong>text otherwise requires:<br />
A$ Australian dollars.<br />
Announcement Date<br />
ASIC<br />
Associate<br />
ASX<br />
Board<br />
Business Day<br />
Chairman<br />
The date <strong>of</strong> the announcement that the Company and<br />
<strong>Polymetals</strong> had entered into the Scheme Implementati<strong>on</strong><br />
Agreement, being 8 April 2013.<br />
The Australian Securities and Investments Commissi<strong>on</strong>.<br />
Has the meaning given to that term by secti<strong>on</strong>s 10 to 17 <strong>of</strong> the<br />
Corporati<strong>on</strong>s Act.<br />
ASX Limited ACN 008 624 691 and its Related Bodies<br />
Corporate, or the financial market known as the Australian<br />
Securities Exchange, as the c<strong>on</strong>text requires.<br />
The board <strong>of</strong> Directors.<br />
A day in Brisbane, Australia that is not a Saturday, Sunday or<br />
public holiday and <strong>on</strong> which banks and ASX are open for<br />
trading.<br />
The chairman <strong>of</strong> the <strong>Meeting</strong>.<br />
Company or SXG Southern Cross Goldfields Ltd ACN 124 374 321.<br />
Company Secretary<br />
C<strong>on</strong>stituti<strong>on</strong><br />
Corporati<strong>on</strong>s Act<br />
Court<br />
Deed Poll<br />
Director<br />
Explanatory<br />
Memorandum<br />
General <strong>Meeting</strong> or<br />
<strong>Meeting</strong><br />
Glossary<br />
Indemnity C<strong>on</strong>siderati<strong>on</strong><br />
The joint company secretaries <strong>of</strong> the Company at the time <strong>of</strong><br />
the <strong>Meeting</strong>, Mr Dennis Wilkins and Ms Fi<strong>on</strong>a Lawe Davies.<br />
The c<strong>on</strong>stituti<strong>on</strong> <strong>of</strong> the Company.<br />
Corporati<strong>on</strong>s Act 2001 (Cth).<br />
The Federal Court <strong>of</strong> Australia, Brisbane Registry.<br />
The deed poll executed by the Company whereby the<br />
Company agrees to issue the Scheme C<strong>on</strong>siderati<strong>on</strong> <strong>on</strong> the<br />
Scheme Implementati<strong>on</strong> Date.<br />
A director <strong>of</strong> the Company.<br />
This explanatory memorandum which accompanies and forms<br />
part <strong>of</strong> the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong>.<br />
The general meeting <strong>of</strong> SXG Shareholders, or any meeting<br />
adjourned there<strong>of</strong>, c<strong>on</strong>vened by the <strong>Notice</strong>.<br />
This glossary <strong>of</strong> terms.<br />
1,939,058 <strong>Polymetals</strong> Shares and $300,000 to Meadowhead<br />
Investments as c<strong>on</strong>siderati<strong>on</strong> for the provisi<strong>on</strong> <strong>of</strong> the<br />
Meadowhead Indemnity.
- 38 -<br />
Independent Expert or<br />
BDO Corporate Finance<br />
Independent Expert’s<br />
Report<br />
BDO Corporate Finance (WA) Pty Ltd ACN 124 031 045.<br />
The report at Annexure A to this <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> prepared by<br />
the Independent Expert.<br />
JORC Code, 2004 Editi<strong>on</strong> The Australasian Joint Ore Reserves Committee’s 2004 editi<strong>on</strong><br />
<strong>of</strong> the “Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results,<br />
Mineral Resources and Ore Reserves”.<br />
JORC Code, 2012 Editi<strong>on</strong> The Australasian Joint Ore Reserves Committee’s 2012 editi<strong>on</strong><br />
<strong>of</strong> the “Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results,<br />
Mineral Resources and Ore Reserves”.<br />
Listing Rules<br />
The listing rules <strong>of</strong> ASX.<br />
Loan Funded Share Plan <strong>Polymetals</strong>’ l<strong>on</strong>g term incentive scheme under which 914,407<br />
<strong>Polymetals</strong> Shares have been issued.<br />
Meadowhead Indemnity<br />
Meadowhead<br />
Investments<br />
<strong>Merger</strong><br />
Merged Group<br />
A full indemnity issued by Meadowhead Investments in favour<br />
<strong>of</strong> <strong>Polymetals</strong> in relati<strong>on</strong> to any costs that may arise out <strong>of</strong> the<br />
Peak Litigati<strong>on</strong>.<br />
Meadowhead Investments Pty Ltd ACN 003 122 870.<br />
The proposed merger by scheme <strong>of</strong> arrangement between<br />
<strong>Polymetals</strong> and the <strong>Polymetals</strong> Shareholders whereby the<br />
Company will acquire all <strong>of</strong> the issued share capital <strong>of</strong><br />
<strong>Polymetals</strong> and <strong>Polymetals</strong> will become a wholly owned<br />
subsidiary <strong>of</strong> the Company, to be implemented in accordance<br />
<strong>with</strong> the Scheme Implementati<strong>on</strong> Agreement.<br />
The Company and its subsidiaries (including <strong>Polymetals</strong>)<br />
following implementati<strong>on</strong> <strong>of</strong> the Scheme.<br />
Mineral Resource (a) In respect <strong>of</strong> the Company, as defined by the JORC<br />
Code, 2004 Editi<strong>on</strong>; and<br />
(b)<br />
In respect <strong>of</strong> <strong>Polymetals</strong>, as defined by the JORC Code,<br />
2012 Editi<strong>on</strong>.<br />
New SXG Shares<br />
N<strong>on</strong>-associated<br />
Shareholders<br />
<strong>Notice</strong> or <strong>Notice</strong> <strong>of</strong><br />
<strong>Meeting</strong><br />
SXG Shares to be issued <strong>on</strong> successful completi<strong>on</strong> <strong>of</strong> the<br />
Scheme.<br />
SXG Shareholders other than the Sproule Interests.<br />
The notice <strong>of</strong> General <strong>Meeting</strong> which accompanies this<br />
Explanatory Memorandum.<br />
Ore Reserve (a) In respect <strong>of</strong> the Company, as defined by the JORC<br />
Code, 2004 Editi<strong>on</strong>; and<br />
(b)<br />
In respect <strong>of</strong> <strong>Polymetals</strong>, as defined by the JORC Code,<br />
2012 Editi<strong>on</strong>.
- 39 -<br />
Peak Litigati<strong>on</strong> The litigati<strong>on</strong> brought by Peak Gold Mines Pty Ltd ACN 001<br />
533 777 against <strong>Polymetals</strong> in the Supreme Court <strong>of</strong> New<br />
South Wales.<br />
Placement<br />
Placement Share<br />
The placement <strong>of</strong> 1,323,769 SXG Shares at an issue price <strong>of</strong><br />
A$0.045, as set out in the Explanatory Memorandum.<br />
An SXG Share issued pursuant to the Placement.<br />
<strong>Polymetals</strong> <strong>Polymetals</strong> Mining Limited ACN 075 664 961.<br />
<strong>Polymetals</strong> Share<br />
<strong>Polymetals</strong> Shareholder<br />
Proxy Form<br />
Record Date<br />
Register<br />
Related Body Corporate<br />
Resoluti<strong>on</strong><br />
RMB<br />
Scheme<br />
Scheme Booklet<br />
Scheme C<strong>on</strong>diti<strong>on</strong>s<br />
Scheme C<strong>on</strong>siderati<strong>on</strong><br />
Scheme Implementati<strong>on</strong><br />
Agreement<br />
Scheme Implementati<strong>on</strong><br />
Date<br />
Scheme Share<br />
Scheme Shareholder<br />
A fully paid ordinary share in the capital <strong>of</strong> <strong>Polymetals</strong>.<br />
A holder <strong>of</strong> <strong>Polymetals</strong> Shares.<br />
The proxy form accompanying the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong>.<br />
5:00pm <strong>on</strong> the fifth Business Day (or such other Business Day<br />
as the parties agree in writing) following the day <strong>of</strong> the coming<br />
into effect, under secti<strong>on</strong> 411(10) <strong>of</strong> the Corporati<strong>on</strong>s Act, <strong>of</strong> the<br />
orders <strong>of</strong> the Court made under secti<strong>on</strong> 411(4)(b) <strong>of</strong> the<br />
Corporati<strong>on</strong>s Act in relati<strong>on</strong> to the Scheme.<br />
<strong>Polymetals</strong>’ register <strong>of</strong> <strong>Polymetals</strong> Shareholders, kept in<br />
accordance <strong>with</strong> the Corporati<strong>on</strong>s Act.<br />
Has the same meaning as given to that term in the<br />
Corporati<strong>on</strong>s Act.<br />
A resoluti<strong>on</strong> set out in the <strong>Notice</strong>.<br />
RMB Australia Holdings Limited.<br />
The proposed scheme <strong>of</strong> arrangement pursuant to Part 5.1 <strong>of</strong><br />
the Corporati<strong>on</strong>s Act between <strong>Polymetals</strong> and <strong>Polymetals</strong><br />
Shareholders.<br />
The document sent to <strong>Polymetals</strong> Shareholders providing<br />
details <strong>of</strong> the Scheme.<br />
The c<strong>on</strong>diti<strong>on</strong>s precedent the satisfacti<strong>on</strong> or waiver <strong>of</strong> which<br />
must be achieved for implementati<strong>on</strong> <strong>of</strong> the Scheme to occur.<br />
In respect <strong>of</strong> each Scheme Share held by a Scheme<br />
Shareholder as at the Record Date, 11 New SXG Shares.<br />
The scheme implementati<strong>on</strong> agreement between the Company<br />
and <strong>Polymetals</strong> dated 7 April 2013.<br />
The date <strong>on</strong> which all <strong>Polymetals</strong> Shares held by Scheme<br />
Shareholders will be transferred to the Company.<br />
A <strong>Polymetals</strong> Share held by a Scheme Shareholder as at the<br />
Record Date.<br />
A holder <strong>of</strong> <strong>Polymetals</strong> Shares recorded in the Register as at<br />
the Record Date.
- 40 -<br />
Sproule Interests (a) Meadowhead Investments – 12,143,564 <strong>Polymetals</strong><br />
Shares;<br />
(b) Jane Christine Sproule – 8,390,635 <strong>Polymetals</strong> Shares;<br />
(c) David & Jane Sproule – 60,000 <strong>Polymetals</strong> Shares; and<br />
(d) Elizabeth Sproule - 45,000 <strong>Polymetals</strong> Shares.<br />
Superior Proposal<br />
A b<strong>on</strong>a fide proposal or <strong>of</strong>fer (which relates to the proposed<br />
acquisiti<strong>on</strong> <strong>of</strong> 100% <strong>of</strong> SXG Shares) which a majority <strong>of</strong> the<br />
Board (except any Director who is required to abstain due to a<br />
c<strong>on</strong>flict <strong>of</strong> interest or duty), acting reas<strong>on</strong>ably and in good faith<br />
and supported by advice from SXG’s legal and corporate<br />
advisers, determine is:<br />
(a) reas<strong>on</strong>ably capable <strong>of</strong> being valued, taking into account all<br />
aspects <strong>of</strong> the proposal and the pers<strong>on</strong> making it;<br />
(b) reas<strong>on</strong>ably capable <strong>of</strong> being completed in a timely manner<br />
taking into account all aspects <strong>of</strong> the proposal; and<br />
(c) is more favourable to SXG Shareholders than the <strong>Merger</strong>,<br />
taking into account all <strong>of</strong> the terms and c<strong>on</strong>diti<strong>on</strong>s <strong>of</strong> the<br />
proposal.<br />
SXG Opti<strong>on</strong><br />
SXG Share<br />
SXG Shareholder<br />
An opti<strong>on</strong> to acquire an SXG Share.<br />
A fully paid ordinary share in the capital <strong>of</strong> the Company.<br />
A holder <strong>of</strong> SXG Shares.<br />
Technical Specialist AMC C<strong>on</strong>sultants Pty Ltd ACN 008 129 164.<br />
Technical Specialist’s<br />
Report<br />
WST<br />
The valuati<strong>on</strong> report at Annexure B to this <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong><br />
prepared by the Technical Specialist.<br />
Western Standard Time, being the time in Perth, Western<br />
Australia.
- 41 -<br />
Annexure A<br />
Refer enclosed Independent Expert’s Report
SOUTHERN CROSS GOLDFIELDS LTD<br />
Independent Expert’s Report<br />
Opini<strong>on</strong>: The Transacti<strong>on</strong> is fair & reas<strong>on</strong>able<br />
to SXG shareholders<br />
21 June 2013
Financial Services Guide<br />
21 June 2013<br />
BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 (“we” or “us” or “ours” as appropriate) has<br />
been engaged by Southern Cross Goldfields Limited (“SXG”) to provide an independent expert’s report<br />
<strong>on</strong> the proposal to issue SXG shares to <strong>Polymetals</strong> Mining Limited (“PLY”) shareholders as a result <strong>of</strong><br />
the merger <strong>of</strong> the two companies under a Scheme <strong>of</strong> Arrangement. You will be provided <strong>with</strong> a copy<br />
<strong>of</strong> our report as a retail client because you are a shareholder <strong>of</strong> SXG.<br />
Financial Services Guide<br />
In the above circumstances we are required to issue to you, as a retail client, a Financial Services<br />
Guide (“FSG”). This FSG is designed to help retail clients make a decisi<strong>on</strong> as to their use <strong>of</strong> the<br />
general financial product advice and to ensure that we comply <strong>with</strong> our obligati<strong>on</strong>s as financial<br />
services licensees.<br />
This FSG includes informati<strong>on</strong> about:<br />
♦<br />
♦<br />
♦<br />
♦<br />
♦<br />
Who we are and how we can be c<strong>on</strong>tacted;<br />
The services we are authorised to provide under our Australian Financial Services Licence, Licence<br />
No. 316158;<br />
Remunerati<strong>on</strong> that we and/or our staff and any associates receive in c<strong>on</strong>necti<strong>on</strong> <strong>with</strong> the general<br />
financial product advice;<br />
Any relevant associati<strong>on</strong>s or relati<strong>on</strong>ships we have; and<br />
Our internal and external complaints handling procedures and how you may access them.<br />
Informati<strong>on</strong> about us<br />
BDO Corporate Finance (WA) Pty Ltd is a member firm <strong>of</strong> the BDO network in Australia, a nati<strong>on</strong>al<br />
associati<strong>on</strong> <strong>of</strong> separate entities (each <strong>of</strong> which has appointed BDO (Australia) Limited ACN 050 110 275<br />
to represent it in BDO Internati<strong>on</strong>al). The financial product advice in our report is provided by BDO<br />
Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities<br />
provide services primarily in the areas <strong>of</strong> audit, tax, c<strong>on</strong>sulting and financial advisory services.<br />
We do not have any formal associati<strong>on</strong>s or relati<strong>on</strong>ships <strong>with</strong> any entities that are issuers <strong>of</strong> financial<br />
products. However, you should note that we and BDO (and its related entities) might from time to<br />
time provide pr<strong>of</strong>essi<strong>on</strong>al services to financial product issuers in the ordinary course <strong>of</strong> business.<br />
Financial services we are licensed to provide<br />
We hold an Australian Financial Services Licence that authorises us to provide general financial<br />
product advice for securities to retail and wholesale clients.<br />
When we provide the authorised financial services we are engaged to provide expert reports in<br />
c<strong>on</strong>necti<strong>on</strong> <strong>with</strong> the financial product <strong>of</strong> another pers<strong>on</strong>. Our reports indicate who has engaged us and<br />
the nature <strong>of</strong> the report we have been engaged to provide. When we provide the authorised services<br />
we are not acting for you.<br />
General Financial Product Advice<br />
We <strong>on</strong>ly provide general financial product advice, not pers<strong>on</strong>al financial product advice. Our report<br />
does not take into account your pers<strong>on</strong>al objectives, financial situati<strong>on</strong> or needs. You should c<strong>on</strong>sider<br />
the appropriateness <strong>of</strong> this general advice having regard to your own objectives, financial situati<strong>on</strong><br />
and needs before you act <strong>on</strong> the advice.<br />
BDO CORPORATE FINANCE (WA) PTY LTD
Financial Services Guide<br />
Page 2<br />
Fees, commissi<strong>on</strong>s and other benefits that we may receive<br />
We charge fees for providing reports, including this report. These fees are negotiated and agreed <strong>with</strong><br />
the pers<strong>on</strong> who engages us to provide the report. Fees are agreed <strong>on</strong> an hourly basis or as a fixed<br />
amount depending <strong>on</strong> the terms <strong>of</strong> the agreement. The fee payable to BDO Corporate Finance (WA)<br />
Pty Ltd for this engagement is approximately $50,000.<br />
Except for the fees referred to above, neither BDO, nor any <strong>of</strong> its directors, employees or related<br />
entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in c<strong>on</strong>necti<strong>on</strong><br />
<strong>with</strong> the provisi<strong>on</strong> <strong>of</strong> the report.<br />
Remunerati<strong>on</strong> or other benefits received by our employees<br />
All our employees receive a salary. Our employees are eligible for b<strong>on</strong>uses based <strong>on</strong> overall<br />
productivity but not directly in c<strong>on</strong>necti<strong>on</strong> <strong>with</strong> any engagement for the provisi<strong>on</strong> <strong>of</strong> a report. We have<br />
received a fee from SXG for our pr<strong>of</strong>essi<strong>on</strong>al services in providing this report. That fee is not linked in<br />
any way <strong>with</strong> our opini<strong>on</strong> as expressed in this report.<br />
Referrals<br />
We do not pay commissi<strong>on</strong>s or provide any other benefits to any pers<strong>on</strong> for referring customers to us in<br />
c<strong>on</strong>necti<strong>on</strong> <strong>with</strong> the reports that we are licensed to provide.<br />
Complaints resoluti<strong>on</strong><br />
Internal complaints resoluti<strong>on</strong> process<br />
As the holder <strong>of</strong> an Australian Financial Services Licence, we are required to have a system for<br />
handling complaints from pers<strong>on</strong>s to whom we provide financial product advice. All complaints must<br />
be in writing addressed to The Complaints Officer, BDO Corporate Finance (WA) Pty Ltd, PO Box 700<br />
West Perth WA 6872.<br />
When we receive a written complaint we will record the complaint, acknowledge receipt <strong>of</strong> the<br />
complaint <strong>with</strong>in 15 days and investigate the issues raised. As so<strong>on</strong> as practical, and not more than<br />
45 days after receiving the written complaint, we will advise the complainant in writing <strong>of</strong> our<br />
determinati<strong>on</strong>.<br />
Referral to External Dispute Resoluti<strong>on</strong> Scheme<br />
A complainant not satisfied <strong>with</strong> the outcome <strong>of</strong> the above process, or our determinati<strong>on</strong>, has the<br />
right to refer the matter to the Financial Ombudsman Service (“FOS”). FOS is an independent<br />
organisati<strong>on</strong> that has been established to provide free advice and assistance to c<strong>on</strong>sumers to help in<br />
resolving complaints relating to the financial service industry. FOS will be able to advise you as to<br />
whether or not they can be <strong>of</strong> assistance in this matter. Our FOS Membership Number is 12561.<br />
Further details about FOS are available at the FOS website www.fos.org.au or by c<strong>on</strong>tacting them<br />
directly via the details set out below.<br />
Financial Ombudsman Service<br />
GPO Box 3<br />
Melbourne VIC 3001<br />
Toll free: 1300 78 08 08<br />
Facsimile: (03) 9613 6399<br />
Email: info@fos.org.au<br />
C<strong>on</strong>tact details<br />
You may c<strong>on</strong>tact us using the details set out <strong>on</strong> page 1 <strong>of</strong> the accompanying report.
TABLE OF CONTENTS<br />
1. Introducti<strong>on</strong> 1<br />
2. Summary and Opini<strong>on</strong> 2<br />
3. Scope <strong>of</strong> the Report 5<br />
4. Outline <strong>of</strong> the Transacti<strong>on</strong> 6<br />
5. Pr<strong>of</strong>ile <strong>of</strong> Southern Cross Goldfields Limited 9<br />
6. Pr<strong>of</strong>ile <strong>of</strong> <strong>Polymetals</strong> Mining Limited 17<br />
7. Ec<strong>on</strong>omic analysis 23<br />
8. Industry analysis 23<br />
9. Valuati<strong>on</strong> approach adopted 26<br />
10. Valuati<strong>on</strong> <strong>of</strong> SXG 31<br />
11. Valuati<strong>on</strong> <strong>of</strong> the Merged Entity 53<br />
12. Is the Transacti<strong>on</strong> fair 72<br />
13. Is the Transacti<strong>on</strong> reas<strong>on</strong>able 72<br />
14. C<strong>on</strong>clusi<strong>on</strong> 75<br />
15. Sources <strong>of</strong> informati<strong>on</strong> 76<br />
16. Independence 76<br />
17. Qualificati<strong>on</strong>s 77<br />
18. Disclaimers and c<strong>on</strong>sents 77<br />
Appendix 1 – Glossary <strong>of</strong> Terms 79<br />
Appendix 2 – Valuati<strong>on</strong> Methodologies 82<br />
Appendix 3 – Discount Rates 84<br />
Appendix 4 – Technical Specialist Valuati<strong>on</strong> – AMC C<strong>on</strong>sultants 92
21 June 2013<br />
The Directors<br />
Southern Cross Goldfields Limited<br />
PO Box 708<br />
West Perth WA 6872<br />
Dear Sirs<br />
INDEPENDENT EXPERT’S REPORT<br />
1. Introducti<strong>on</strong><br />
On 8 April 2013, Southern Cross Goldfields Limited (“SXG” or the “Company”) and <strong>Polymetals</strong> Mining<br />
Limited (“PLY”) announced that they had agreed to merge the two companies (the “<strong>Merger</strong>” resulting in<br />
the “Merged Entity”) by way <strong>of</strong> a scheme <strong>of</strong> arrangement under which SXG will <strong>of</strong>fer 11 SXG shares for<br />
every <strong>on</strong>e PLY share <strong>on</strong> issue (“The Scheme”).<br />
An outline <strong>of</strong> the Scheme is presented in Secti<strong>on</strong> 4 <strong>with</strong> a discussi<strong>on</strong> <strong>of</strong> the merits <strong>of</strong> the Scheme included<br />
in Secti<strong>on</strong>s 11, 12, 13 and 14. Whilst this report does not address the benefits <strong>of</strong> the <strong>Merger</strong> itself an<br />
understanding <strong>of</strong> the process <strong>of</strong> the Scheme and the merits <strong>of</strong> the <strong>Merger</strong> is important in assessing the<br />
matters to be discussed in this report.<br />
PLY’s largest shareholder, Meadowhead Investments and Mr & Mrs D Sproule (together the “Sproule<br />
Interests”) collectively holds 48.8% <strong>of</strong> the issued capital <strong>of</strong> PLY. On successful implementati<strong>on</strong> <strong>of</strong> the<br />
Scheme, SXG will issue 458,537,981 new shares to PLY shareholders including 227,031,189 SXG shares to<br />
the Sproule Interests, representing 26.17% <strong>of</strong> the issued capital <strong>of</strong> the Merged Entity.<br />
Under the terms <strong>of</strong> the <strong>Merger</strong> and as a result <strong>of</strong> the implementati<strong>on</strong> <strong>of</strong> the Scheme, SXG shares will be<br />
issued to the Sproule Interests (“the Transacti<strong>on</strong>”) which will result in the Sproule Interests holding more<br />
than 20% <strong>of</strong> the issued capital in the Merged Entity. As such, the approval <strong>of</strong> SXG shareholders is required<br />
under item 7 <strong>of</strong> secti<strong>on</strong> 611 <strong>of</strong> the Corporati<strong>on</strong>s Act.<br />
We note that Transacti<strong>on</strong> is integral to the <strong>Merger</strong> as the implementati<strong>on</strong> <strong>of</strong> the Scheme is c<strong>on</strong>diti<strong>on</strong>al <strong>on</strong><br />
the Transacti<strong>on</strong> being approved by SXG shareholders, the Scheme being approved by PLY shareholders and<br />
the court and the other c<strong>on</strong>diti<strong>on</strong>s <strong>of</strong> the Scheme being satisfied. The Transacti<strong>on</strong> itself will not occur<br />
unless the Scheme is approved and implemented.<br />
BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member <strong>of</strong> a nati<strong>on</strong>al associati<strong>on</strong> <strong>of</strong> independent entities which are all members <strong>of</strong> BDO<br />
(Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members <strong>of</strong> BDO Internati<strong>on</strong>al<br />
Ltd, a UK company limited by guarantee, and form part <strong>of</strong> the internati<strong>on</strong>al BDO network <strong>of</strong> independent member firms. Liability limited by a scheme approved under<br />
Pr<strong>of</strong>essi<strong>on</strong>al Standards Legislati<strong>on</strong> (other than for the acts or omissi<strong>on</strong>s <strong>of</strong> financial services licensees) in each State or Territory other than Tasmania.
2. Summary and Opini<strong>on</strong><br />
2.1 Purpose <strong>of</strong> the report<br />
The directors <strong>of</strong> SXG have requested that BDO Corporate Finance (WA) Pty Ltd (“BDO”) prepare an<br />
independent expert’s report (“our Report”) to express an opini<strong>on</strong> as to whether or not the Transacti<strong>on</strong> is<br />
fair and reas<strong>on</strong>able to the n<strong>on</strong>-associated shareholders <strong>of</strong> SXG (“Shareholders”).<br />
Our Report is prepared pursuant to secti<strong>on</strong> 611 <strong>of</strong> the Corporati<strong>on</strong>s Act and is to be included in the<br />
Explanatory Memorandum for SXG in order to assist the Shareholders in their decisi<strong>on</strong> whether to approve<br />
the Transacti<strong>on</strong>.<br />
2.2 Approach<br />
Our Report has been prepared having regard to Australian Securities and Investments Commissi<strong>on</strong> (“ASIC”)<br />
Regulatory Guide 111 (“RG 111”), ‘C<strong>on</strong>tent <strong>of</strong> Expert’s Reports’ and Regulatory Guide 112 (“RG 112”)<br />
‘Independence <strong>of</strong> Experts’.<br />
In arriving at our opini<strong>on</strong>, we have assessed the terms <strong>of</strong> the Transacti<strong>on</strong> as outlined in the body <strong>of</strong> this<br />
report. We have c<strong>on</strong>sidered:<br />
• How the value <strong>of</strong> an SXG share <strong>on</strong> a c<strong>on</strong>trol basis prior to the Transacti<strong>on</strong> compares to the value <strong>of</strong> a<br />
share in the Merged Entity <strong>on</strong> a minority basis following the Transacti<strong>on</strong>;<br />
• Other factors which we c<strong>on</strong>sider to be relevant to the Shareholders in their assessment <strong>of</strong> the<br />
Transacti<strong>on</strong>; and<br />
• The positi<strong>on</strong> <strong>of</strong> Shareholders should the Transacti<strong>on</strong> not proceed, either because the Scheme is not<br />
approved or the Transacti<strong>on</strong> is not approved.<br />
2.3 Opini<strong>on</strong><br />
We have c<strong>on</strong>sidered the terms <strong>of</strong> the Transacti<strong>on</strong> as outlined in the body <strong>of</strong> this report and have<br />
c<strong>on</strong>cluded that the Transacti<strong>on</strong> is fair and reas<strong>on</strong>able to Shareholders.<br />
2.4 Fairness<br />
In Secti<strong>on</strong> 12 we determined how the value <strong>of</strong> an SXG share <strong>on</strong> a c<strong>on</strong>trol basis prior to the Transacti<strong>on</strong><br />
compares to the value <strong>of</strong> a share in the Merged Entity <strong>on</strong> a minority basis following the Transacti<strong>on</strong>, as<br />
detailed hereunder.<br />
Ref<br />
Low<br />
$<br />
Midpoint<br />
$<br />
High<br />
$<br />
Value <strong>of</strong> an SXG share prior to the Transacti<strong>on</strong> (c<strong>on</strong>trol basis) 10.4 0.031 0.038 0.044<br />
Value <strong>of</strong> a share in the Merged Entity (minority interest basis) 11.3 0.032 0.038 0.045<br />
The above valuati<strong>on</strong> ranges are graphically presented below:<br />
2
Value <strong>of</strong> an SXG share prior to the<br />
Transacti<strong>on</strong> (c<strong>on</strong>trol basis)<br />
Value <strong>of</strong> a share in the Merged Entity<br />
(minority interest basis)<br />
$0.02 $0.03 $0.04 $0.05<br />
The above pricing indicates that, as the value <strong>of</strong> an SXG share <strong>on</strong> a c<strong>on</strong>trol basis prior to the Transacti<strong>on</strong><br />
is equivalent to the value <strong>of</strong> a share in the merged entity <strong>on</strong> a minority basis, the Transacti<strong>on</strong> is fair for<br />
Shareholders.<br />
For the informati<strong>on</strong> <strong>of</strong> Shareholders we have also provided a comparis<strong>on</strong> <strong>on</strong> a ‘like for like’ basis <strong>on</strong> a<br />
minority basis. We have therefore also calculated the value <strong>of</strong> an SXG share prior to the Transacti<strong>on</strong><br />
excluding a premium for c<strong>on</strong>trol. To do this we have deducted a minority interest discount <strong>of</strong> 20% - 26%<br />
and the resulting value range is shown in the table and graph below:<br />
Value <strong>of</strong> an SXG share prior to the Transacti<strong>on</strong> (minority interest<br />
basis)<br />
Value <strong>of</strong> a share in the Merged Entity (minority interest basis)<br />
Low Preferred High<br />
$ $ $<br />
0.023 0.029 0.035<br />
0.032 0.038 0.045<br />
Value <strong>of</strong> an SXG share prior to the Transacti<strong>on</strong><br />
(minority interest basis)<br />
Value <strong>of</strong> a share in the Merged Entity<br />
(minority interest basis)<br />
$0.02 $0.03 $0.04 $0.05<br />
2.5 Reas<strong>on</strong>ableness<br />
We have c<strong>on</strong>sidered the analysis in Secti<strong>on</strong> 13 <strong>of</strong> this report, in terms <strong>of</strong> both:<br />
• advantages and disadvantages <strong>of</strong> the Transacti<strong>on</strong>; and<br />
• other c<strong>on</strong>siderati<strong>on</strong>s, including the positi<strong>on</strong> <strong>of</strong> Shareholders if the Transacti<strong>on</strong> does not proceed<br />
and the c<strong>on</strong>sequences <strong>of</strong> not approving the Transacti<strong>on</strong>.<br />
In our opini<strong>on</strong>, the positi<strong>on</strong> <strong>of</strong> Shareholders if the Transacti<strong>on</strong> is approved is more advantageous than the<br />
positi<strong>on</strong> if the Transacti<strong>on</strong> is not approved. Accordingly, in the absence <strong>of</strong> any other relevant informati<strong>on</strong>,<br />
we believe that the Transacti<strong>on</strong> is reas<strong>on</strong>able for Shareholders.<br />
3
The respective advantages and disadvantages in relati<strong>on</strong> to the Transacti<strong>on</strong> and <strong>Merger</strong> are summarised<br />
below:<br />
ADVANTAGES AND DISADVANTAGES<br />
Secti<strong>on</strong> Advantages Secti<strong>on</strong> Disadvantages<br />
13.4 The Transacti<strong>on</strong> is fair. 13.5 There will be a new substantial SXG<br />
shareholder<br />
13.4 The Proposed Merged Entity will be <strong>of</strong><br />
a significantly larger scale than the<br />
existing SXG<br />
13.4 The Scheme is a merger <strong>of</strong> two<br />
similar sized entities <strong>with</strong> equal<br />
Board representati<strong>on</strong> in the Merged<br />
Entity<br />
13.5 Diluti<strong>on</strong> <strong>of</strong> existing shareholders’<br />
interests<br />
13.5 SXG Shareholders will be exposed to the<br />
risk <strong>of</strong> PLY’s assets<br />
13.4 Access to the cash reserves <strong>of</strong> PLY<br />
13.4 Potential for synergies<br />
13.4 Str<strong>on</strong>ger more diversified<br />
development pipeline<br />
13.4 Shareholders may benefit from<br />
increased market relevance and<br />
liquidity <strong>of</strong> shares<br />
13.4 The Merged Entity may benefit from<br />
the expertise <strong>of</strong> the Sproule Interest<br />
13.4 The Merged Entity will hold a larger<br />
pool <strong>of</strong> assets giving the Merged<br />
Entity greater flexibility to divest or<br />
develop a number <strong>of</strong> projects<br />
Other key matters we have c<strong>on</strong>sidered include:<br />
Secti<strong>on</strong><br />
Descripti<strong>on</strong><br />
13.1 Alternate proposals<br />
13.2 Practical level <strong>of</strong> c<strong>on</strong>trol<br />
13.3 C<strong>on</strong>sequences <strong>of</strong> not approving the Transacti<strong>on</strong><br />
4
3. Scope <strong>of</strong> the Report<br />
3.1 Purpose <strong>of</strong> the Report<br />
Secti<strong>on</strong> 606 <strong>of</strong> the Corporati<strong>on</strong>s Act Regulati<strong>on</strong>s prohibits the acquisiti<strong>on</strong> <strong>of</strong> shares by a party if that<br />
acquisiti<strong>on</strong> will result in that pers<strong>on</strong> (or some<strong>on</strong>e else) holding an interest in 20% or more <strong>of</strong> the issued<br />
shares <strong>of</strong> a public company, unless a full takeover <strong>of</strong>fer is made to all shareholders.<br />
However, item 7 <strong>of</strong> Secti<strong>on</strong> 611 permits such an acquisiti<strong>on</strong> if the shareholders <strong>of</strong> that entity have agreed<br />
to the issue <strong>of</strong> such shares. This agreement must be by resoluti<strong>on</strong> passed at a general meeting at which<br />
no votes are cast in favour <strong>of</strong> the resoluti<strong>on</strong> by any party who is associated <strong>with</strong> the party acquiring the<br />
shares, or by the party acquiring the shares. Secti<strong>on</strong> 611 states that shareholders <strong>of</strong> the company must be<br />
given all informati<strong>on</strong> that is material to the decisi<strong>on</strong> <strong>on</strong> how to vote at the meeting.<br />
Whilst the Scheme may be characterised as a merger <strong>of</strong> equals, we c<strong>on</strong>sider the Transacti<strong>on</strong> to be a<br />
c<strong>on</strong>trol transacti<strong>on</strong> as it will result in the Sproule Interests holding approximately 26% <strong>of</strong> the issued capital<br />
in the Merged Entity. No other shareholder will have an interest in the Merged Entity greater than 5%.<br />
Regulatory Guide 74 issued by ASIC deals <strong>with</strong> "Acquisiti<strong>on</strong>s Agreed to by Shareholders". It states that the<br />
obligati<strong>on</strong> to supply shareholders <strong>with</strong> all informati<strong>on</strong> that is material can be satisfied by the n<strong>on</strong>associated<br />
directors <strong>of</strong> SXG, by either:<br />
• undertaking a detailed examinati<strong>on</strong> <strong>of</strong> the Transacti<strong>on</strong> themselves, if they c<strong>on</strong>sider that they have<br />
sufficient expertise; or<br />
• by commissi<strong>on</strong>ing an Independent Expert's Report.<br />
The directors <strong>of</strong> SXG have commissi<strong>on</strong>ed this Independent Expert's Report to satisfy this obligati<strong>on</strong>.<br />
3.2 Regulatory guidance<br />
Neither the Listing Rules nor the Corporati<strong>on</strong>s Act defines the meaning <strong>of</strong> “fair and reas<strong>on</strong>able”. In<br />
determining whether the Transacti<strong>on</strong> is fair and reas<strong>on</strong>able, we have had regard to the views expressed by<br />
ASIC in RG 111. This regulatory guide provides guidance as to what matters an independent expert should<br />
c<strong>on</strong>sider to assist security holders to make informed decisi<strong>on</strong>s about transacti<strong>on</strong>s.<br />
This regulatory guide suggests that where the transacti<strong>on</strong> is a c<strong>on</strong>trol transacti<strong>on</strong>, the expert should focus<br />
<strong>on</strong> the substance <strong>of</strong> the c<strong>on</strong>trol transacti<strong>on</strong> rather than the legal mechanism to affect it. RG 111 suggests<br />
that where a transacti<strong>on</strong> is a c<strong>on</strong>trol transacti<strong>on</strong>, it should be analysed <strong>on</strong> a basis c<strong>on</strong>sistent <strong>with</strong> a<br />
takeover bid.<br />
In our opini<strong>on</strong>, the Transacti<strong>on</strong> is a c<strong>on</strong>trol transacti<strong>on</strong> as defined by RG 111 and we have therefore<br />
assessed the Transacti<strong>on</strong> as a c<strong>on</strong>trol transacti<strong>on</strong> to c<strong>on</strong>sider whether, in our opini<strong>on</strong>, it is fair and<br />
reas<strong>on</strong>able to Shareholders.<br />
3.3 Adopted basis <strong>of</strong> evaluati<strong>on</strong><br />
RG 111 states that a transacti<strong>on</strong> is fair if the value <strong>of</strong> the <strong>of</strong>fer price or c<strong>on</strong>siderati<strong>on</strong> is greater than the<br />
value <strong>of</strong> the securities subject <strong>of</strong> the <strong>of</strong>fer. This comparis<strong>on</strong> should be made assuming a knowledgeable<br />
and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at<br />
arm’s length. When c<strong>on</strong>sidering the value <strong>of</strong> the securities subject <strong>of</strong> the <strong>of</strong>fer in a c<strong>on</strong>trol transacti<strong>on</strong><br />
the expert should c<strong>on</strong>sider this value inclusive <strong>of</strong> a c<strong>on</strong>trol premium. Further to this, RG 111 states that<br />
a transacti<strong>on</strong> is reas<strong>on</strong>able if it is fair. It might also be reas<strong>on</strong>able if despite being ‘not fair’ the expert<br />
5
elieves that there are sufficient reas<strong>on</strong>s for security holders to accept the <strong>of</strong>fer in the absence <strong>of</strong> any<br />
higher bid.<br />
Having regard to the above, BDO has completed this comparis<strong>on</strong> in two parts:<br />
• A comparis<strong>on</strong> between the value <strong>of</strong> an SXG share <strong>on</strong> a c<strong>on</strong>trol basis prior to the Transacti<strong>on</strong> and the<br />
value <strong>of</strong> a share in the Merged Entity <strong>on</strong> a minority basis following the Transacti<strong>on</strong> (fairness – see<br />
Secti<strong>on</strong> 12 “Is the Transacti<strong>on</strong> Fair”); and<br />
• An investigati<strong>on</strong> into other significant factors to which Shareholders might give c<strong>on</strong>siderati<strong>on</strong>, prior to<br />
approving the Transacti<strong>on</strong>, after reference to the value derived above (reas<strong>on</strong>ableness – see Secti<strong>on</strong><br />
13 “Is the Transacti<strong>on</strong> Reas<strong>on</strong>able”).<br />
This assignment is a Valuati<strong>on</strong> Engagement as defined by Accounting Pr<strong>of</strong>essi<strong>on</strong>al & Ethical Standards<br />
Board pr<strong>of</strong>essi<strong>on</strong>al standard APES 225 ‘Valuati<strong>on</strong> Services’ (“APES 225”).<br />
A Valuati<strong>on</strong> Engagement is defined by APES 225 as follows:<br />
“an Engagement or Assignment to perform a Valuati<strong>on</strong> and provide a Valuati<strong>on</strong> Report where the Valuer<br />
is free to employ the Valuati<strong>on</strong> Approaches, Valuati<strong>on</strong> Methods, and Valuati<strong>on</strong> Procedures that a<br />
reas<strong>on</strong>able and informed third party would perform taking into c<strong>on</strong>siderati<strong>on</strong> all the specific facts and<br />
circumstances <strong>of</strong> the Engagement or Assignment available to the Valuer at that time.”<br />
This Valuati<strong>on</strong> Engagement has been undertaken in accordance <strong>with</strong> the requirements set out in APES 225.<br />
4. Outline <strong>of</strong> the Transacti<strong>on</strong><br />
Announcement<br />
On 8 April 2013 Southern Cross Goldfields and <strong>Polymetals</strong> Mining Limited announced that they had entered<br />
into an agreement to combine the two companies.<br />
The <strong>Merger</strong> will be implemented as a ‘merger <strong>of</strong> equals’ through a scheme <strong>of</strong> arrangement under which<br />
SXG will <strong>of</strong>fer 11 SXG shares for every <strong>on</strong>e PLY share <strong>on</strong> issue.<br />
Following the Transacti<strong>on</strong> SXG shareholders will hold approximately 47% <strong>of</strong> the shares in the Merged Entity<br />
and PLY will hold approximately 53% <strong>of</strong> the shares in the Merged Entity.<br />
The <strong>Merger</strong> will create a merged entity <strong>with</strong> a diversified Australian gold and base metals portfolio<br />
including the Marda Project in Western Australia and the Mt Boppy Project in New South Wales.<br />
Board and Management<br />
The Board <strong>of</strong> the proposed Merged Entity will c<strong>on</strong>sist <strong>of</strong> six directors, <strong>of</strong> whom three will be current<br />
directors <strong>of</strong> SXG and three will be current directors <strong>of</strong> PLY. The Chairpers<strong>on</strong> will be Samantha Tough<br />
(current Chairpers<strong>on</strong> <strong>of</strong> SXG) and Glenn Jardine (current Managing Director <strong>of</strong> SXG) will be the Chief<br />
Executive Officer.<br />
C<strong>on</strong>diti<strong>on</strong>s Precedent<br />
Implementati<strong>on</strong> <strong>of</strong> the Scheme is dependent <strong>on</strong> a number <strong>of</strong> c<strong>on</strong>diti<strong>on</strong>s, including:<br />
• SXG Shareholders approving the Transacti<strong>on</strong>;<br />
• <strong>Polymetals</strong> obtaining <strong>Polymetals</strong>’ shareholder approval for:<br />
6
o<br />
o<br />
a selective capital reducti<strong>on</strong> <strong>of</strong> the Loan Funded Shares, being PLY shares issued under<br />
PLY’s l<strong>on</strong>g term incentive schemes; and<br />
the issue <strong>of</strong> the Indemnity C<strong>on</strong>siderati<strong>on</strong>, being 1,939,058 PLY shares and $300,000 cash to<br />
Meadowhead Investments Pty Ltd (“Meadowhead”) as c<strong>on</strong>siderati<strong>on</strong> for the provisi<strong>on</strong> <strong>of</strong><br />
the Meadowhead Indemnity. Where Meadowhead Indemnity is defined as: a full indemnity<br />
granted by Meadowhead in favour <strong>of</strong> PLY in relati<strong>on</strong> to any costs that may arise out <strong>of</strong> the<br />
Peak Litigati<strong>on</strong>. Peak Litigati<strong>on</strong>: the litigati<strong>on</strong> brought by Peak Gold Mines Pty Ltd against<br />
PLY, in the Supreme Court <strong>of</strong> New South Wales;<br />
• the satisfacti<strong>on</strong> or waiver <strong>of</strong> a number <strong>of</strong> c<strong>on</strong>diti<strong>on</strong>s precedent comprising the Scheme C<strong>on</strong>diti<strong>on</strong>s.<br />
See the attached <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> and the Scheme Implementati<strong>on</strong> Agreement released to the ASX <strong>on</strong> 8<br />
April 2013 for the full c<strong>on</strong>diti<strong>on</strong>s.<br />
Capital Structure<br />
The Scheme will result in existing PLY shareholders acquiring 458,537,981 SXG shares, representing<br />
approximately 53% <strong>of</strong> the proposed Merged Entity.<br />
The following table shows the capital structure <strong>of</strong> the Merged Entity <strong>with</strong> the Sproule Interests holding<br />
approximately 26% <strong>of</strong> SXG.<br />
Existing SXG shareholders will hold approximately 47% <strong>of</strong> the issued capital in the Merged Entity.<br />
Following the Scheme becoming effective but prior to the issue <strong>of</strong> SXG shares, PLY will:<br />
- cancel or buy-back 914,407 PLY shares currently <strong>on</strong> issue under the PLY Loan Fund Share Scheme;<br />
- issue 2,375,000 shares up<strong>on</strong> the vesting <strong>of</strong> performance rights under the PLY Performance Rights<br />
Plan as a result <strong>of</strong> the Scheme; and<br />
- issue 1,939,058 shares to Meadowhead Investments Pty Ltd (“Meadowhead”) in c<strong>on</strong>siderati<strong>on</strong> for<br />
Meadowhead granting the <strong>Polymetals</strong> Indemnity.<br />
7
Existing SXG<br />
PLY<br />
Capital structure <strong>of</strong> the Merged Entity<br />
shareholders shareholders* Sproule Interest Total<br />
Current number <strong>of</strong> PLY shares <strong>on</strong> issue - 19,585,479 18,700,141 38,285,620<br />
Adjustments per the SIA<br />
Loan funded shares to be bought back by PLY and cancelled - (914,407) - 0<br />
Issue <strong>of</strong> shares up<strong>on</strong> the vesting <strong>of</strong> PLY performance rights - 2,375,000 - 2,375,000<br />
Issue <strong>of</strong> shares in c<strong>on</strong>siderati<strong>on</strong> for granting the PLY Indemnity - - 1,939,058 1,939,058<br />
Total PLY shares <strong>on</strong> issue following the SIA adjustments - 21,046,072 20,639,199 41,685,271<br />
% holding in PLY 0.00% 50.49% 49.51% 100.00%<br />
Ratio for new SXG shares to be issued 11:01<br />
Number <strong>of</strong> new SXG shares to be issued - 231,506,792 227,031,189 458,537,981<br />
Existing SXG shares <strong>on</strong> issue 408,912,834 - - -<br />
Shares in the Merged Entity 408,912,834 231,506,792 227,031,189 867,450,815<br />
% holding in the Merged Entity 47.14% 26.69% 26.17% 100.00%<br />
Equity interest held by SXG shareholders 47.1%<br />
Equity interest held by existing PLY shareholders 52.9%<br />
Total 100.00%<br />
* Excludes the Sproule Interest<br />
8
5. Pr<strong>of</strong>ile <strong>of</strong> Southern Cross Goldfields Limited<br />
5.1 History<br />
SXG was incorporated <strong>on</strong> 12 March 2007 and was listed <strong>on</strong> the ASX <strong>on</strong> 20 March 2008. The Company is<br />
involved in the explorati<strong>on</strong> and producti<strong>on</strong> <strong>of</strong> gold projects in Western Australia. SXG also has interests in<br />
base metals and a nickel project through an agreement <strong>with</strong> Western Areas NL. The flagship project for<br />
SXG is the Marda Gold Project.<br />
During December 2012, SXG acquired the Sandst<strong>on</strong>e Gold Project assets from Troy Resources Limited.<br />
In August 2012, SXG raised $5.2 milli<strong>on</strong> following a 2 for 5 renounceable rights issue at $0.045 per share.<br />
The current Board <strong>of</strong> Directors <strong>of</strong> SXG comprises:<br />
• Samantha Tough – N<strong>on</strong>-Executive Chairman<br />
• Glenn Jardine – Managing Director<br />
• Graham Brock – N<strong>on</strong>-Executive Director<br />
• John Rowe – N<strong>on</strong>-Executive Director<br />
5.2 Projects<br />
Marda Gold Project<br />
The Marda Gold Project is located 450 km north-east <strong>of</strong> Perth in Western Australia and is 100% owned by<br />
SXG. SXG has tenement holdings covering more than 2,900km 2 and JORC compliant measured resources <strong>of</strong><br />
2.8Mt, indicated resources <strong>of</strong> 2.6Mt and inferred resources <strong>of</strong> 3.1Mt for approximately 720,000oz <strong>of</strong> gold.<br />
The SXG tenements comprise:<br />
• 26 mining leases.<br />
• 91 explorati<strong>on</strong> licences.<br />
• 92 prospecting licences.<br />
• 1 general purpose leases.<br />
• 11 miscellaneous licences.<br />
• 2 retenti<strong>on</strong> leases.<br />
A feasibility study was completed <strong>on</strong> the project in 2012.<br />
Marda comprises two areas: Northern Deposits and Southern Deposits. The Northern Deposits include the<br />
Marda Central deposits, the Red Legs and Die Hardy Deposits, King Brown and Golden Orb. The Southern<br />
Deposits comprise Battler and British Hill.<br />
In August 2011, SXG entered into an opti<strong>on</strong> agreement <strong>with</strong> Barranco Resources NL (“Barranco”) to<br />
acquire the Red Legs and Die Hardy deposits. If SXG elects to exercise the opti<strong>on</strong>, it will pay $0.5 milli<strong>on</strong><br />
in cash and issue 20 milli<strong>on</strong> SXG shares to Barranco. The opti<strong>on</strong> expires in August 2013 and SXG have<br />
advised us that they intend <strong>on</strong> exercising the opti<strong>on</strong>.<br />
9
Sandst<strong>on</strong>e Explorati<strong>on</strong> Potential<br />
In December 2012, SXG entered into an agreement to acquire the Sandst<strong>on</strong>e Project assets from Troy<br />
Resources Limited. The c<strong>on</strong>siderati<strong>on</strong> for these assets comprised:<br />
• $5 milli<strong>on</strong> cash ($2.7 milli<strong>on</strong> <strong>of</strong> which goes towards the replacement <strong>of</strong> existing envir<strong>on</strong>mental<br />
b<strong>on</strong>ds);<br />
• A 2% net smelter royalty <strong>on</strong> all n<strong>on</strong>-nickel producti<strong>on</strong> from the Sandst<strong>on</strong>e tenements; and<br />
• 43.665 milli<strong>on</strong> unlisted opti<strong>on</strong>s <strong>with</strong> an exercise price <strong>of</strong> $0.10 and a term <strong>of</strong> 5 years.<br />
The cash comp<strong>on</strong>ent <strong>of</strong> the Sandst<strong>on</strong>e acquisiti<strong>on</strong> was financed through a $7 milli<strong>on</strong> finance facility from<br />
RMB Australia Holdings Limited.<br />
The Sandst<strong>on</strong>e project tenements are located near the town <strong>of</strong> Sandst<strong>on</strong>e, approximately 730 kms north<br />
east <strong>of</strong> Perth.<br />
Included in the Sandst<strong>on</strong>e Project assets are a 600,000 t<strong>on</strong>nes per annum gold processing plant and a 100<br />
pers<strong>on</strong> camp <strong>with</strong>in a 985km 2 explorati<strong>on</strong> portfolio. SXG relocated the Sandst<strong>on</strong>e plant to the Marda Gold<br />
Project. Through the acquisiti<strong>on</strong> <strong>of</strong> the processing plant, SXG’s capital expenditure requirement in<br />
relati<strong>on</strong> to the Marda Project has reduced.<br />
The increased resources acquired from Sandst<strong>on</strong>e result in SXG’s total measured resource <strong>of</strong> 204,000<br />
ounces, indicated <strong>of</strong> 301,000 ounces and inferred <strong>of</strong> 762,000 increasing total resources to 1.27 milli<strong>on</strong><br />
ounces <strong>with</strong> the total tenement holdings increasing to 3,900km 2 .<br />
Marda Explorati<strong>on</strong> Potential<br />
A review <strong>of</strong> explorati<strong>on</strong> in 2011 and 2012 indentified high priority targets al<strong>on</strong>g the Evanst<strong>on</strong> Shear Z<strong>on</strong>e<br />
and Andromeda Trend.<br />
Explorati<strong>on</strong> in the March 2013 quarter resulted in two new explorati<strong>on</strong> projects being identified, the<br />
Thresher Prospect and the White Pointer Prospect. Thresher is located approximately 60km north <strong>of</strong> the<br />
proposed gold treatment facility at Marda whilst White Pointer is located 40km north-west <strong>of</strong> the proposed<br />
facility.<br />
Red Boomerang is a gold explorati<strong>on</strong> target located approximately 500m north-west <strong>of</strong> previously drilled<br />
sites which had encouraging results.<br />
The Lancelot prospect lies north <strong>of</strong> the Gwendolyn tenement which is currently being drilled by Vector<br />
Resources. Drilling results reported by Vector in May 2012 included a high grade intercept <strong>of</strong> 1m @<br />
1,165g/t from 26m which lies <strong>with</strong>in an overall intercept <strong>of</strong> 5m @ 253.3g/t from 24m. Additi<strong>on</strong>al drilling is<br />
planned for this site throughout 2013.<br />
Copper Bore<br />
The Copper Bore project is located approximately 400km north-east <strong>of</strong> Perth at the northern end <strong>of</strong> the<br />
Marda regi<strong>on</strong>. SXG holds tenement interests for base metals across an area <strong>of</strong> approximately 2,900km 2 and<br />
in 2012 it announced the discovery <strong>of</strong> a VMS base metal system at Copper Bore. A follow up drilling<br />
campaign has been planned for 2013 however the Company’s primary focus is the development <strong>of</strong> the<br />
Marda Gold Project.<br />
10
Western Areas NL Nickel Joint Venture<br />
In August 2011, SXG entered into an agreement <strong>with</strong> Western Areas NL whereby Western Areas acquired<br />
70% <strong>of</strong> SXG’s nickel rights across a substantial porti<strong>on</strong> <strong>of</strong> the Company’s tenements package. Western<br />
Areas acquired this interest for a cash c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> $1.5 milli<strong>on</strong>. The agreement also requires a<br />
minimum funding commitment <strong>of</strong> $1 milli<strong>on</strong> <strong>on</strong> nickel sulphide explorati<strong>on</strong> during the first year following<br />
completi<strong>on</strong> <strong>of</strong> the agreement, $250,000 minimum annual expenditure commitments to year five and<br />
$300,000 thereafter.<br />
SXG stated that it undertook this venture so that it could focus <strong>on</strong> the development <strong>of</strong> the Marda Gold<br />
Project, but still have the potential to gain from any findings through its remaining 30% interest.<br />
Further, and more detailed, informati<strong>on</strong> <strong>on</strong> SXG’s projects may be found in Appendix 4.<br />
11
5.3 Historical Balance Sheet<br />
Southern Cross Goldfields Limited Unaudited as at Reviewed as at Audited as at Audited as at<br />
31-Mar-13 31-Dec-12 30-Jun-12 30-Jun-11<br />
Statement <strong>of</strong> Financial Positi<strong>on</strong> $ $ $ $<br />
CURRENT ASSETS<br />
Cash and cash equivalents 3,361,085 4,072,745 2,215,018 1,658,993<br />
Trade and other receivables - 185,159 143,263 1,489,428<br />
Other financial assets - - 150,000 -<br />
Prepayments 87,668 - - -<br />
TOTAL CURRENT ASSETS 3,448,753 4,257,904 2,508,281 3,148,421<br />
NON-CURRENT ASSETS<br />
Trade and other receivables 2,825,000 101,000 106,000 106,000<br />
Property, plant and equipment 197,836 227,518 290,256 289,748<br />
Tenement acquisiti<strong>on</strong> costs 5,612,873 3,331,873 3,378,222 3,355,775<br />
TOTAL NON-CURRENT ASSETS 8,635,709 3,660,391 3,774,478 3,751,523<br />
TOTAL ASSETS 12,084,462 7,918,295 6,282,759 6,899,944<br />
CURRENT LIABILITIES<br />
Trade and other payables 1,068,971 1,842,991 700,977 1,612,543<br />
Provisi<strong>on</strong>s 100,338 81,468 66,889 64,682<br />
Sandst<strong>on</strong>e Acquisiti<strong>on</strong> Facility 7,000,000 - - -<br />
TOTAL CURRENT LIABILITIES 8,169,309 1,924,459 767,866 1,677,225<br />
NON-CURRENT LIABILITIES<br />
Provisi<strong>on</strong>s - 16,089 14,480 15,523<br />
TOTAL NON-CURRENT LIABILITIES - 16,089 14,480 15,523<br />
TOTAL LIABILITES 8,169,309 1,940,548 782,346 1,692,748<br />
NET ASSETS 3,915,153 5,977,747 5,500,413 5,207,196<br />
EQUITY<br />
C<strong>on</strong>tributed equity 30,381,465 30,381,465 25,539,853 19,805,958<br />
Reserves 3,167,559 3,167,559 3,103,686 2,805,924<br />
Accumulated losses (29,633,872) (27,571,277) (23,143,126) (17,404,686)<br />
TOTAL EQUITY 3,915,153 5,977,747 5,500,413 5,207,196<br />
Source: SXG’s audited annual 2011 and 2012 annual reports, reviewed financial statements for the 6 m<strong>on</strong>th period until 31 December<br />
2012 and unaudited management accounts for the nine m<strong>on</strong>ths period ended 31 March 2013.<br />
12
5.4 Historical Statement <strong>of</strong> Comprehensive Income<br />
Southern Cross Goldfields Limited<br />
Unaudited for the<br />
nine m<strong>on</strong>ths<br />
ended 31 M arch<br />
2013<br />
Reviewed for the<br />
half-year ended<br />
31 December 12<br />
Audited for the<br />
year ended 30<br />
June 2012<br />
Audited for the<br />
year ended 30<br />
June 2011<br />
Statement <strong>of</strong> Comprehensive Income $ $ $ $<br />
Revenue<br />
Gain <strong>on</strong> sale <strong>of</strong> tenements 39,228 1,100 1,933,907 1,830,105<br />
Other income 83,705 89,767 203,057 123,349<br />
Expenses<br />
Depreciati<strong>on</strong> (95,874) (66,192) (128,549) (97,192)<br />
Salaries and employee benefits - - (950,299) (363,007)<br />
Explorati<strong>on</strong> (2,392,918) (1,624,064) (5,205,431) (6,335,047)<br />
Pre-development expenditure (2,702,603) (1,577,044) - -<br />
Impairment <strong>of</strong> explorati<strong>on</strong> expenditure - (66,349) (113,887) (110,478)<br />
Corporate expenses - - (878,063) (591,462)<br />
Administrati<strong>on</strong> expenses (1,358,411) (1,121,496) (312,999) (235,583)<br />
Share based payments expense (63,873) (63,873) (286,176) (412,652)<br />
Loss from c<strong>on</strong>tinuing operati<strong>on</strong>s before<br />
income tax (6,490,746) (4,428,151) (5,738,440) (6,191,967)<br />
Income tax expense - - - -<br />
Total comprehensive loss for the<br />
year/period (6,490,746) (4,428,151) (5,738,440) (6,191,967)<br />
Source: SXG’s audited annual 2011 and 2012 annual reports, reviewed financial statements for the 6 m<strong>on</strong>th period until<br />
31 December 2012 and unaudited management accounts for the nine m<strong>on</strong>ths period ended 31 March 2013.<br />
We have not undertaken a review <strong>of</strong> SXG’s unaudited accounts in accordance <strong>with</strong> Australian Auditing and<br />
Assurance Standard 2405 “Review <strong>of</strong> Historical Financial Informati<strong>on</strong>” and do not express an opini<strong>on</strong> <strong>on</strong><br />
this financial informati<strong>on</strong>. However nothing has come to our attenti<strong>on</strong> as a result <strong>of</strong> our procedures that<br />
would suggest the financial informati<strong>on</strong> <strong>with</strong>in the management accounts has not been prepared <strong>on</strong> a<br />
reas<strong>on</strong>able basis.<br />
Commentary <strong>on</strong> financial statements<br />
In the period 30 June 2011 to 31 March 2013, SXG’s net asset positi<strong>on</strong> fell by 25% from $5.21 milli<strong>on</strong> to<br />
$3.92 milli<strong>on</strong>. This has been driven by a $6.48 milli<strong>on</strong> increase in total liabilities and partially <strong>of</strong>fset by a<br />
$5.18 milli<strong>on</strong> increase in total assets.<br />
The increase in liabilities at 31 March 2013 is due to the negotiati<strong>on</strong> <strong>of</strong> a $7 milli<strong>on</strong> financing facility<br />
provided by RMB Australia Holdings Limited in relati<strong>on</strong> to SXG’s acquisiti<strong>on</strong> <strong>of</strong> the Sandst<strong>on</strong>e Project<br />
assets.<br />
The increase in cash for the period ended 31 December 2012 was driven by a rights issue in August 2012,<br />
the proceeds from which raised $5.2 milli<strong>on</strong>; part <strong>of</strong> the proceeds have been used in the <strong>on</strong>going<br />
operati<strong>on</strong>s <strong>of</strong> the business. The $2.72 milli<strong>on</strong> increase in trade and other receivables relates to SXG’s<br />
acquisiti<strong>on</strong> <strong>of</strong> an envir<strong>on</strong>mental b<strong>on</strong>d in relati<strong>on</strong> to the Sandst<strong>on</strong>e acquisiti<strong>on</strong>. The $2.26 milli<strong>on</strong> increase<br />
13
in tenement acquisiti<strong>on</strong> costs also relates to the Sandst<strong>on</strong>e acquisiti<strong>on</strong> and the related 985km 2 explorati<strong>on</strong><br />
portfolio acquired through that acquisiti<strong>on</strong>.<br />
In the nine m<strong>on</strong>ths to 31 March 2013, SXG has recorded a loss <strong>of</strong> $6.49 milli<strong>on</strong> which equates to $8.65<br />
milli<strong>on</strong> <strong>on</strong> an annualised basis. This represents a 40% increase in the loss recorded at 30 June 2011 and a<br />
51% increase in the loss recorded for the 30 June 2012 financial year.<br />
The primary reas<strong>on</strong>s for the increase in the loss are a reducti<strong>on</strong> in revenue from the sale <strong>of</strong> tenements and<br />
an increase in explorati<strong>on</strong> and development expenditure. Gains <strong>on</strong> the sale <strong>of</strong> tenements generated $1.83<br />
milli<strong>on</strong> in 2011 and $1.93 milli<strong>on</strong> in 2012 but <strong>on</strong>ly $0.04 milli<strong>on</strong> in the nine m<strong>on</strong>ths to 31 March 2013.<br />
Explorati<strong>on</strong> and pre-development expenditure increased from $6.34 milli<strong>on</strong> for the year ended 30 June<br />
2011 to $6.79 milli<strong>on</strong>, annualised, for the financial year 2013. This expenditure increase is driven by the<br />
increased activity at the Marda Gold project and following the completi<strong>on</strong> <strong>of</strong> the definitive feasibility<br />
study in May 2012 the Marda Gold project is moving into a pre-development stage which results in the<br />
segregati<strong>on</strong> <strong>of</strong> expenses in the pr<strong>of</strong>it and loss between explorati<strong>on</strong> and pre-development.<br />
Corporate expenses and salaries and employee benefits expense have been classified as administrati<strong>on</strong><br />
expenses at 31 December 2012 and 31 March 2013.<br />
5.5 Capital Structure<br />
The share structure <strong>of</strong> SXG as at 30 April 2013 is outlined below:<br />
Number<br />
Total ordinary shares <strong>on</strong> issue 408,912,834<br />
Top 20 shareholders 157,558,531<br />
Top 20 shareholders - % <strong>of</strong> shares <strong>on</strong> issue 38.53%<br />
Source: Computershare<br />
The range <strong>of</strong> shares held in SXG as at 30 April 2013 is as follows:<br />
Number <strong>of</strong> Ordinary Number <strong>of</strong> Ordinary Percentage <strong>of</strong> Issued<br />
Range <strong>of</strong> Shares Held<br />
Shareholders<br />
Shares<br />
Shares (%)<br />
1 - 1,000 375 139,399 0.03%<br />
1,001 - 5,000 343 825,574 0.20%<br />
5,001 - 10,000 164 1,308,732 0.32%<br />
10,001 - 100,000 829 36,152,761 8.84%<br />
100,001 - and over 531 370,486,368 90.60%<br />
TOTAL 2,242 408,912,834 100.00%<br />
Source: Computershare<br />
14
The ordinary shares held by the most significant shareholders as at 30 April 2013 are detailed below:<br />
Name<br />
Polaris Metals Pty Ltd & Mineral Resources Limited<br />
Number <strong>of</strong> Ordinary<br />
Shares Held<br />
36,056,221<br />
Percentage <strong>of</strong> Issued<br />
Shares (%)<br />
8.82%<br />
Mr Siang Hai Teoh 18,888,867 4.62%<br />
Western Areas NL 14,739,721 3.60%<br />
Strata Drilling WA Pty Ltd 9,500,000 2.32%<br />
Subtotal 79,184,809 19.36%<br />
Others 329,728,025 80.64%<br />
Total ordinary shares <strong>on</strong> Issue 408,912,834 100.00%<br />
Source: Computershare<br />
15
The current SXG unlisted opti<strong>on</strong>s <strong>on</strong> issue are outlined below:<br />
Opti<strong>on</strong> Holder Number <strong>of</strong> opti<strong>on</strong>s Exercise price<br />
Cash raised if<br />
Vesting C<strong>on</strong>diti<strong>on</strong>s Issue Date Expiry Date Escrowed Until<br />
exercised<br />
Samantha Jane Tough 1,000,000 $0.250 $250,000 No 12/03/2008 12/03/2014 20/03/2010<br />
Samantha Jane Tough 1,000,000 $0.300 $300,000 No 12/03/2008 12/03/2014 20/03/2010<br />
AJ Truelove & BL Bailey ATF Tr 2,000,000 $0.250 $500,000 No 12/03/2008 12/03/2014 20/03/2010<br />
AJ Truelove & BL Bailey ATF Tr 2,000,000 $0.300 $600,000 No 12/03/2008 12/03/2014 20/03/2010<br />
Hazurn Pty Ltd ATF Buchhorn S 1,000,000 $0.250 $250,000 No 12/03/2008 12/03/2014 20/03/2010<br />
Hazurn Pty Ltd ATF Buchhorn S 1,000,000 $0.300 $300,000 No 12/03/2008 12/03/2014 20/03/2010<br />
Goldmark Investments Pty Ltd 1,000,000 $0.250 $250,000 No 12/03/2008 12/03/2014 20/03/2010<br />
Goldmark Investments Pty Ltd 1,000,000 $0.300 $300,000 No 12/03/2008 12/03/2014 20/03/2010<br />
RJ Simm<strong>on</strong>s 500,000 $0.250 $125,000 No 12/03/2008 12/03/2014 N/A<br />
RJ Simm<strong>on</strong>s 500,000 $0.300 $150,000 No 12/03/2008 12/03/2014 N/A<br />
Kalgara Pty Ltd AFT Rosedale S 250,000 $0.250 $62,500 No 12/03/2008 12/03/2014 N/A<br />
Kalgara Pty Ltd AFT Rosedale S 250,000 $0.300 $75,000 No 12/03/2008 12/03/2014 N/A<br />
DH Calvert 250,000 $0.250 $62,500 No 12/03/2008 12/03/2014 N/A<br />
DH Calvert 250,000 $0.300 $75,000 No 12/03/2008 12/03/2014 N/A<br />
Graham Brock 250,000 $0.250 $62,500 No 20/09/2009 12/03/2014 N/A<br />
John Rowe 250,000 $0.250 $62,500 No 18/11/2010 12/03/2014 N/A<br />
Graham Brock 250,000 $0.300 $75,000 No 20/112009 12/03/2014 N/A<br />
John Rowe 250,000 $0.300 $75,000 No 18/11/2010 12/03/2014 N/A<br />
Ken Quirk 25,000 $0.250 $6,250 No 2/07/2008 2/07/2014 N/A<br />
Ken Quirk 25,000 $0.300 $7,500 No 2/07/2008 2/07/2014 N/A<br />
M airi Walsh 100,000 $0.250 $25,000 No 21/07/2009 21/07/2014 N/A<br />
M airi Walsh 100,000 $0.300 $30,000 No 21/07/2009 21/07/2014 N/A<br />
Andrea J<strong>on</strong>es 1,000,000 $0.100 $100,000 No 1/08/2011 31/07/2014 N/A<br />
Andrea J<strong>on</strong>es 500,000 $0.200 $100,000 No 1/08/2011 31/07/2014 N/A<br />
Andrea J<strong>on</strong>es 500,000 $0.250 $125,000 No 1/08/2011 31/07/2014 N/A<br />
RJ Simm<strong>on</strong>s 500,000 $0.100 $50,000 No 1/08/2011 31/07/2014 N/A<br />
CC Joyce 500,000 $0.100 $50,000 No 1/08/2011 31/07/2014 N/A<br />
M Walsh 200,000 $0.100 $20,000 No 1/08/2011 31/07/2014 N/A<br />
Glenn Jardine 2,000,000 $0.200 $400,000 No 18/11/2010 1/10/2014 N/A<br />
Glenn Jardine 1,000,000 $0.250 $250,000 No 18/11/2010 1/10/2014 N/A<br />
Glenn Jardine 1,000,000 $0.300 $300,000 No 18/11/2010 1/10/2014 N/A<br />
Glenn Jardine 1,000,000 $0.400 $400,000 No 18/11/2010 1/10/2014 N/A<br />
Glenn Jardine 1,500,000 $0.100 $150,000 No 20/12/2012 23/11/2017 N/A<br />
Samantha Jane Tough 1,500,000 $0.100 $150,000 No 20/12/2012 23/11/2017 N/A<br />
Lynda Joan Brock 1,000,000 $0.100 $100,000 No 20/12/2012 23/11/2017 N/A<br />
John Rowe 1,000,000 $0.100 $100,000 No 20/12/2012 23/11/2017 N/A<br />
Renaissance 10,000,000 $0.100 $1,000,000 No 25/02/2012 24/02/2015 N/A<br />
Troy 43,665,000 $0.100 $4,366,500 Yes 10/10/2012 10/10/2017 N/A<br />
PCF 2,500,000 $0.100 $250,000 Yes 10/10/2012 10/10/2015 N/A<br />
RM B 34,255,319 $0.047 $1,610,000 No 22/03/2013 21/03/2015 N/A<br />
Total 116,870,319 $13,165,250<br />
Source: SXG Management<br />
We have been advised that there will be no changes to the terms or c<strong>on</strong>diti<strong>on</strong>s <strong>of</strong> the current opti<strong>on</strong>s <strong>on</strong><br />
issue following the implementati<strong>on</strong> <strong>of</strong> the Scheme.<br />
16
6. Pr<strong>of</strong>ile <strong>of</strong> <strong>Polymetals</strong> Mining Limited<br />
6.1 History<br />
<strong>Polymetals</strong> Mining Limited is a base and precious metals producer and explorer who listed <strong>on</strong> the ASX in<br />
May 2011 after the completi<strong>on</strong> <strong>of</strong> a $7 milli<strong>on</strong> IPO (7 milli<strong>on</strong> shares at $1 per share). PLY has a number <strong>of</strong><br />
projects focusing <strong>on</strong> various commodities including gold, zinc, copper, uranium, silver, lead, platinum and<br />
ir<strong>on</strong> ore however its flagship project is the Mt Boppy Gold Mine.<br />
The current Board <strong>of</strong> Directors comprise <strong>of</strong> PLY is:<br />
• David Sproule – N<strong>on</strong>-Executive Chairman<br />
• Frank Terranova – Managing Director<br />
• J<strong>on</strong> Parker – N<strong>on</strong>-Executive Director<br />
• David Carland – N<strong>on</strong>-Executive Director<br />
6.2 Projects<br />
Canbelego - Mt Boppy Gold Mine<br />
Mt Boppy is a l<strong>on</strong>g standing gold mine located 46km east <strong>of</strong> Cobar in NSW. PLY holds approximately 204km 2<br />
<strong>of</strong> tenements in the Lachlan Ford Belt, a regi<strong>on</strong> which has produced in excess <strong>of</strong> 5 milli<strong>on</strong> ounces <strong>of</strong> gold.<br />
The Mt Boppy mine operated from 1901 to 1923 and produced approximately 417,000 ounces <strong>of</strong> gold <strong>with</strong><br />
a grade <strong>of</strong> 15 g/t. After sporadic producti<strong>on</strong> <strong>of</strong> 7,000 ounces <strong>of</strong> gold in the years to 2002, PLY made the<br />
decisi<strong>on</strong> to reopen the mine. In the four years to 2005 the mine produced some 68,000 ounces at a grade<br />
<strong>of</strong> 5.29 g/t.<br />
PLY undertook a definitive feasibility study in 2012 and in January 2013 announced the results <strong>of</strong> the<br />
study which indicated a $27 milli<strong>on</strong> net present value (before tax) and 100% internal rate <strong>of</strong> return <strong>on</strong><br />
the project (the study assumed a gold price for the study <strong>of</strong> A$1,600). Unit costs <strong>of</strong> producti<strong>on</strong> were<br />
anticipated to be $1,091 per ounce. The expected capital costs for the project were approximately<br />
$26.6 milli<strong>on</strong> <strong>with</strong> approximately 64,630 ounces <strong>of</strong> gold to be recovered. The mined ore will be processed<br />
at the existing Mt Boppy plant which will be upgraded to treat 300,000 t<strong>on</strong>nes <strong>of</strong> ore per annum.<br />
In January 2013, PLY also secured a mining license and envir<strong>on</strong>mental protecti<strong>on</strong> license over the<br />
Mt Boppy mine. PLY is currently undertaking the process <strong>of</strong> securing financing for the project <strong>with</strong> a<br />
number <strong>of</strong> proposals having already been received.<br />
Resource and reserve estimates at Mt Boppy and Boppy South are shown in the table below:<br />
Measured & indicated Inferred Total<br />
Grade (Au<br />
Ounces (Au<br />
Grade (Au<br />
Ounces (Au<br />
Grade (Au<br />
Ounces (Au<br />
Deposit<br />
T<strong>on</strong>nes (Kt)<br />
g/t)<br />
koz) T<strong>on</strong>nes (Kt)<br />
g/t)<br />
koz) T<strong>on</strong>nes (Kt)<br />
g/t)<br />
koz)<br />
PLY - Mt Boppy &<br />
Boppy South 684 4.2 92 82 3.9 10 766 4.1 102<br />
Explorati<strong>on</strong> around the Mt Boppy regi<strong>on</strong> c<strong>on</strong>tinues <strong>with</strong> PLY commencing a diam<strong>on</strong>d drilling campaign in<br />
the March 2013 quarter at a cost <strong>of</strong> approximately $0.3 milli<strong>on</strong>.<br />
17
Drew Hill - White Dam Gold Project<br />
On 28 May 2013, PLY announced it had divested its 50% interest in White Dam and associated Drew Hill<br />
explorati<strong>on</strong> tenements to joint venture partner Exco Resources Limited.<br />
The White Dam Gold Project was a 50% joint venture between PLY and Exco Resources Limited, a<br />
subsidiary <strong>of</strong> ASX-listed, Washingt<strong>on</strong> H. Soul Pattins<strong>on</strong> and Company Limited. White Dam is located in the<br />
Curnam<strong>on</strong>a Province approximately 85km west <strong>of</strong> Broken Hill. PLY was the operator and manager <strong>of</strong> the<br />
joint venture which comprises the White Dam Gold Mine and 728km 2 <strong>of</strong> explorati<strong>on</strong> tenements surrounding<br />
the mine. Washingt<strong>on</strong> H. Soul Pattins<strong>on</strong> and Company Limited holds 2 milli<strong>on</strong> shares in PLY.<br />
Turner River (Farm-in)<br />
In September 2012, PLY entered into an agreement <strong>with</strong> Lansdowne Resources Pty Ltd to acquire 100% <strong>of</strong><br />
the shares in that company and the associated rights to earn a 75% interest in the Turner River gold and<br />
base metals projects which were owned by De Grey Mining Ltd. The Turner River projects are located<br />
approximately 60 km south <strong>of</strong> Port Hedland, Western Australia.<br />
In the March 2013 quarter, PLY completed the $2 milli<strong>on</strong> earn-in obligati<strong>on</strong> for the gold project and has<br />
advised De Grey that it will be assuming management <strong>of</strong> the joint venture in the June quarter. De Grey<br />
will retain its 25% interest in the joint venture.<br />
To date, PLY has spent $0.6 milli<strong>on</strong> <strong>of</strong> the necessary $1.5 milli<strong>on</strong> required for an earn-in <strong>on</strong> the base<br />
metals project.<br />
At March 2013, total resources for the Turner River Gold project were approximately 5.1Mt at 1.6 g/t for<br />
268,000 ounces <strong>of</strong> gold.<br />
Further, and more detailed, informati<strong>on</strong> <strong>on</strong> PLY’s projects may be found in Appendix 4.<br />
18
6.3 Historical Balance Sheet<br />
<strong>Polymetals</strong> Mining Limited Unaudited as at Reviewed as at Audited as at Audited as at<br />
31-M ar-13 31-Dec-12 30-Jun-12 30-Jun-11<br />
Statement <strong>of</strong> Financial Positi<strong>on</strong> $'000 $'000 $'000 $'000<br />
CURRENT ASSETS<br />
Cash and cash equivalents 9,654 11,016 12,177 15,971<br />
Receivables 168 752 1,172 1,366<br />
Inventories 18 668 1,967 894<br />
Other financial assets - 637 672 283<br />
Other 1,598 71 159 95<br />
TOTAL CURRENT ASSETS 11,438 13,144 16,147 18,609<br />
NON-CURRENT ASSETS<br />
Receivables 334 - - 334<br />
Property, plant and equipment 2,826 3,455 3,125 2,525<br />
Other financial assets 233 1,031 997 532<br />
Explorati<strong>on</strong> and development costs 15,290 17,421 10,684 2,654<br />
Capitalised mining development costs 537 1,338 1,655 1,813<br />
Available for sale financial assets 316 - - -<br />
TOTAL NON-CURRENT ASSETS 19,536 23,245 16,461 7,858<br />
TOTAL ASSETS 30,974 36,389 32,608 26,467<br />
CURRENT LIABILITIES<br />
Trade and other payables 996 2,604 2,363 2,135<br />
Current tax liabilities 112 112 - 3,033<br />
Deferred tax liability 3,797 - - -<br />
Provisi<strong>on</strong>s 979 1,256 1,807 610<br />
Other - 1,063 - -<br />
Deferred c<strong>on</strong>siderati<strong>on</strong> 1,941 - - -<br />
TOTAL CURRENT LIABILITIES 7,825 5,035 4,170 5,778<br />
NON-CURRENT LIABILITIES<br />
Deferred tax liabilities - 2,714 2,169 37<br />
Provisi<strong>on</strong>s 77 480 412 683<br />
Other - 877 - -<br />
TOTAL NON-CURRENT LIABILITIES 77 4,071 2,581 720<br />
TOTAL LIABILITES 7,902 9,106 6,751 6,498<br />
NET ASSETS 23,072 27,283 25,857 19,969<br />
EQUITY<br />
C<strong>on</strong>tributed equity 8,012 8,302 7,552 7,552<br />
Reserves 337 456 338 116<br />
Accumulated losses 14,723 18,525 17,967 12,301<br />
TOTAL EQUITY 23,072 27,283 25,857 19,969<br />
Source: PLY’s audited annual 2011 and 2012 annual reports, reviewed financial statements for the 6 m<strong>on</strong>th period until<br />
31 December 2012 and unaudited management accounts for the nine m<strong>on</strong>ths period ended 31 March 2013. The balance sheet as<br />
at 31 March 2013 excludes assets and liabilities relating to White Dam and Drew Hill.<br />
19
6.4 Historical Statement <strong>of</strong> Comprehensive Income<br />
<strong>Polymetals</strong> Mining Limited<br />
Source: PLY’s audited annual 2011 and 2012 annual reports, reviewed financial statements for the 6 m<strong>on</strong>th period until<br />
31 December 2012 and unaudited management accounts for the nine m<strong>on</strong>ths period ended 31 March 2013.<br />
We have not undertaken a review <strong>of</strong> <strong>Polymetals</strong>’ unaudited accounts in accordance <strong>with</strong> Australian<br />
Auditing and Assurance Standard 2405 “Review <strong>of</strong> Historical Financial Informati<strong>on</strong>” and do not express an<br />
opini<strong>on</strong> <strong>on</strong> this financial informati<strong>on</strong>. However nothing has come to our attenti<strong>on</strong> as a result <strong>of</strong> our<br />
procedures that would suggest the financial informati<strong>on</strong> <strong>with</strong>in the management accounts has not been<br />
prepared <strong>on</strong> a reas<strong>on</strong>able basis.<br />
Commentary <strong>on</strong> financial statements<br />
Unaudited for the<br />
9 m<strong>on</strong>ths ended<br />
31-M ar-13<br />
Reviewed for the<br />
year ended 31-<br />
half Audited for the Audited for the<br />
Dec-12<br />
year ended 30-<br />
Jun-12<br />
year ended 30-<br />
Statement <strong>of</strong> Comprehensive Income $'000 $'000 $'000 $'000<br />
Revenue<br />
Revenue 7,680 6,702 14,741 28,180<br />
We note that the balance sheet as at 31 March 2013 excludes assets and liabilities that relate to White<br />
Dam as PLY announced <strong>on</strong> 28 May 2013 that it had divested its 50% interest in White Dam and associated<br />
Drew Hill explorati<strong>on</strong> tenements. The cash balance has not been adjusted for the c<strong>on</strong>siderati<strong>on</strong> to be<br />
received.<br />
In the period 30 June 2011 to 31 March 2013 PLY’s net asset positi<strong>on</strong> has strengthened, increasing from<br />
$19.97 milli<strong>on</strong> to $23.07 milli<strong>on</strong>.<br />
Jun-11<br />
Other income 485 - 1,878 1,959<br />
Expenses<br />
Depreciati<strong>on</strong> (923) (750) (1,305) (3,309)<br />
Salaries and employee benefits (2,266) (1,837) (3,337) (3,930)<br />
Producti<strong>on</strong> (2,650) (1,879) (4,927) (7,568)<br />
Impairment <strong>of</strong> explorati<strong>on</strong> expenditure - - (658)<br />
Royalty expenses (338) (332) (632) (924)<br />
Rehabilitati<strong>on</strong> expense (209) (186) - -<br />
Administrati<strong>on</strong> expenses (1,223) (877) (1,834) (2,024)<br />
Gain/(Loss) <strong>on</strong> derivatives 21 - - 236<br />
Pr<strong>of</strong>it from c<strong>on</strong>tinuing operati<strong>on</strong>s before income tax 577 841 4,584 11,962<br />
Income tax expense (295) (283) (936) (3,609)<br />
Pr<strong>of</strong>it from c<strong>on</strong>tinuing operati<strong>on</strong>s after income tax 282 558 3,648 8,353<br />
Pr<strong>of</strong>it from disc<strong>on</strong>tinued operati<strong>on</strong>s before income tax<br />
- - 2,018 -<br />
Pr<strong>of</strong>it for the year 282 558 5,666 8,353<br />
Other comprehensive income (change in the fair value<br />
<strong>of</strong> available-for-sale financial assets) - 44 (69) 166<br />
Income tax relating to comp<strong>on</strong>ents <strong>of</strong> other<br />
comprehensive income - - 21 (50)<br />
Total comprehensive pr<strong>of</strong>it for the year 282 602 5,618 8,469<br />
20
Cash and cash equivalents has decreased from $15.97 milli<strong>on</strong> at 30 June 2011 to $9.65 milli<strong>on</strong> at 31 March<br />
2013. Cash has been used in the c<strong>on</strong>tinuing development <strong>of</strong> PLY’s projects including $2 milli<strong>on</strong> spent in<br />
relati<strong>on</strong> to the earn-in agreement for the Turner River project and additi<strong>on</strong>al spending in relati<strong>on</strong> to the<br />
definitive feasibility study undertaken at Mt Boppy.<br />
The decrease in receivables and inventory between 30 June 2011 and 31 March 2013 is in line <strong>with</strong> the<br />
cessati<strong>on</strong> <strong>of</strong> mining operati<strong>on</strong>s at White Dam in May 2012. As such, inventory stores are now being utilised<br />
but not replenished which has caused the balance to fall.<br />
Other current assets <strong>of</strong> $1.59 milli<strong>on</strong> at 31 March 2013 relate to deferred tax assets.<br />
Investment in plant and equipment has seen the balance <strong>of</strong> fixed asset increase since 30 June 2011. This<br />
increase is largely attributable to the $1.14 milli<strong>on</strong> increase in c<strong>on</strong>structed assets at White Dam in 2012<br />
when PLY equity increase in White Dam from 25% to 50%.<br />
The largest increase has been in explorati<strong>on</strong> and development costs which have increased from $2.65<br />
milli<strong>on</strong> in June 2011 to $15.29 milli<strong>on</strong> at March 2013. This primarily relates to the significant investment<br />
in the Mt Boppy project which has included definitive feasibility studies. Significant investments were also<br />
made at PLY’s Drew Hill project.<br />
Current liabilities increased approximately $2.8 milli<strong>on</strong> from 31 December 2012 to 31 March 2013<br />
following the recogniti<strong>on</strong> <strong>of</strong> a $4.68 milli<strong>on</strong> deferred tax liability relating to the accelerated write <strong>of</strong>fs <strong>of</strong><br />
explorati<strong>on</strong> expenditure across all explorati<strong>on</strong> assets and $1.94 milli<strong>on</strong> deferred c<strong>on</strong>siderati<strong>on</strong> relating to<br />
the farm-in agreement at Turner River.<br />
Deferred c<strong>on</strong>siderati<strong>on</strong> comprises $0.75 milli<strong>on</strong> payable up<strong>on</strong> decisi<strong>on</strong> to mine at the gold project, $0.75<br />
milli<strong>on</strong> payable up<strong>on</strong> first producti<strong>on</strong> at the gold project, $1.0 milli<strong>on</strong> up<strong>on</strong> definiti<strong>on</strong> <strong>of</strong> a 0.75 milli<strong>on</strong><br />
ounce gold equivalent resource in the base metals project and $1.0 milli<strong>on</strong> payable up<strong>on</strong> electi<strong>on</strong> <strong>of</strong><br />
decisi<strong>on</strong> to mine at the base metals project. These amounts have then been probability weighted by PLY<br />
to arrive at the $1.94 milli<strong>on</strong>.<br />
At 31 March 2013 n<strong>on</strong>-current liabilities related to provisi<strong>on</strong>s for employee benefits.<br />
The c<strong>on</strong>tributed equity balance increased to $8.3 milli<strong>on</strong> in 2012 following the vesting <strong>of</strong> performance<br />
rights and then decreased to $8.01 milli<strong>on</strong> following PLY’s share buyback under the terms <strong>of</strong> the Scheme<br />
Implementati<strong>on</strong> Agreement.<br />
The above movements result in PLY’s 31 March 2013 balance sheet having a str<strong>on</strong>g asset base <strong>with</strong> no<br />
interest bearing debt.<br />
The 2012 financial year saw PLY’s revenue decrease 48% from $28.18 milli<strong>on</strong> to $14.74 milli<strong>on</strong>. This<br />
decrease was caused by mining <strong>of</strong> small and tight areas <strong>of</strong> the Hannaford and Lloyd pits in the White Dam<br />
mine and the subsequent completi<strong>on</strong> <strong>of</strong> mining at the Hannaford pit in early 2012. This decrease in<br />
revenue resulted in a 56% reducti<strong>on</strong> in pr<strong>of</strong>it from c<strong>on</strong>tinuing operati<strong>on</strong>s which fell from $8.35 milli<strong>on</strong> to<br />
$5.67 milli<strong>on</strong>.<br />
The reducti<strong>on</strong> in pr<strong>of</strong>it was partially <strong>of</strong>fset by a $2.02 milli<strong>on</strong> pr<strong>of</strong>it from disc<strong>on</strong>tinued operati<strong>on</strong>s which<br />
related to the disposal <strong>of</strong> PLY’ subsidiary, PLY (WA) Pty Ltd which held the Boorara project.<br />
Depreciati<strong>on</strong> expense for the year ended 30 June 2012 was down 61% compared to 2011 and producti<strong>on</strong><br />
expenses fell 35% as a result <strong>of</strong> the reduced mining activity in 2012.<br />
21
At 31 March 2013, PLY have recorded revenue <strong>of</strong> $7.68 milli<strong>on</strong> which is approximately $4.5 milli<strong>on</strong> down<br />
<strong>on</strong> 2012 revenue <strong>on</strong> an annualised basis as a result <strong>of</strong> the scaling back <strong>of</strong> mining operati<strong>on</strong>s at White Dam<br />
following the cessati<strong>on</strong> <strong>of</strong> operati<strong>on</strong>s in May 2012.<br />
Producti<strong>on</strong> expenditure is 28% lower <strong>on</strong> an annualised basis and this is in line <strong>with</strong> expectati<strong>on</strong>s given the<br />
reduced mining activity at White Dam. The 9% reducti<strong>on</strong> (annualised basis) in salaries and employee<br />
benefits at March 2013 is attributable to PLY electing to outsource some <strong>of</strong> its administrati<strong>on</strong> functi<strong>on</strong>s.<br />
6.5 Capital Structure<br />
The share structure <strong>of</strong> PLY as at 22 May 2013 is outlined below:<br />
Source: Link Market Services<br />
The range <strong>of</strong> shares held in PLY as at 22 May 2013 is as follows:<br />
Source: Link Market Services<br />
The ordinary shares held by the most significant shareholders as at 22 May 2013 are detailed below. Note<br />
that Meadowhead Investments Pty Ltd and Mrs Jane Christine Sproule are associated:<br />
Source: Link Market Services<br />
Number<br />
Total ordinary shares <strong>on</strong> issue 38,285,620<br />
Top 20 shareholders 32,168,139<br />
Top 20 shareholders - % <strong>of</strong> shares <strong>on</strong> issue 84.02%<br />
Range <strong>of</strong> Shares Held<br />
1 - 1,000 21 12,875 0.03%<br />
1,001 - 5,000 142 470,517 1.23%<br />
5,001 - 10,000 98 847,506 2.21%<br />
10,001 - 100,000 90 3,129,345 8.17%<br />
100,001 - and over 31 33,825,377 88.35%<br />
TOTAL 382 38,285,620 100.00%<br />
Unmarketable parcel 44 44,025<br />
Name<br />
Number <strong>of</strong> Ordinary<br />
Shareholders<br />
Number <strong>of</strong> Ordinary<br />
Number <strong>of</strong> Ordinary<br />
Shares Held<br />
Shares<br />
Percentage <strong>of</strong> Issued<br />
Percentage <strong>of</strong> Issued<br />
Shares (%)<br />
MEADOWHEAD INVESTMENTS PTY LTD 10,204,506 26.65%<br />
MR D SPROULE & MRS J SPROULE & CHILD 8,495,635 22.19%<br />
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED 2,000,000 5.22%<br />
RICHLARK PTY LTD 1,953,159 5.10%<br />
Subtotal 22,653,300 59.17%<br />
Others 15,632,320 40.83%<br />
Total ordinary shares <strong>on</strong> Issue 38,285,620 100.00%<br />
Shares (%)<br />
22
7. Ec<strong>on</strong>omic analysis<br />
Commodity prices have declined from their peaks but, overall, remain at high levels by historical<br />
standards. Inflati<strong>on</strong> has generally moderated over recent m<strong>on</strong>ths and m<strong>on</strong>etary policy has been eased<br />
further in a number <strong>of</strong> countries.<br />
Financial c<strong>on</strong>diti<strong>on</strong>s internati<strong>on</strong>ally are very accommodative. Despite the recent rise in sovereign b<strong>on</strong>d<br />
yields, funding c<strong>on</strong>diti<strong>on</strong>s for sovereigns, well-rated corporates and most financial instituti<strong>on</strong>s remain very<br />
favourable.<br />
In Australia, growth over the past year has been a bit below trend. The outlook published by the Reserve<br />
Bank <strong>of</strong> Australia (“RBA”) last m<strong>on</strong>th is for a similar performance in the near term and recent data are<br />
c<strong>on</strong>sistent <strong>with</strong> this. The unemployment rate has edged higher over the past year and growth in labour<br />
costs has moderated. Inflati<strong>on</strong> has been c<strong>on</strong>sistent <strong>with</strong> the medium-term target and is expected to<br />
remain so over the next <strong>on</strong>e to two years.<br />
The easing in m<strong>on</strong>etary policy over the past 18 m<strong>on</strong>ths has supported interest-sensitive areas <strong>of</strong> spending<br />
and has been reflected in portfolio shifts by savers and higher asset values. Further effects can be<br />
expected over time. The pace <strong>of</strong> borrowing has thus far remained relatively subdued, though recently<br />
there have been some signs <strong>of</strong> increased demand for finance by households. The exchange rate has<br />
depreciated since the previous RBA Board meeting, although, as the RBA Board has noted for some time, it<br />
remains high c<strong>on</strong>sidering the decline in export prices that has taken place over the past year and a half.<br />
Source: www.rba.gov.au Statement by Glenn Stevens, Governor: M<strong>on</strong>etary Policy Decisi<strong>on</strong> 4 June 2013<br />
8. Industry analysis<br />
Gold is both a commodity and an internati<strong>on</strong>al store <strong>of</strong> m<strong>on</strong>etary value. Once mined, gold c<strong>on</strong>tinues to<br />
exist indefinitely, <strong>of</strong>ten melted down and recycled to produce alternative or replacement products. This<br />
characteristic means that gold demand is supported by both mine producti<strong>on</strong> and gold recycling.<br />
As illustrated in the chart below, gold mine producti<strong>on</strong> was approximately 2,842 metric t<strong>on</strong>nes in 2012 and<br />
gold c<strong>on</strong>sumpti<strong>on</strong> was 4,484 metric t<strong>on</strong>nes. Demand for gold has c<strong>on</strong>sistently exceeded supply over the<br />
last 10 years, and the escalated level <strong>of</strong> ec<strong>on</strong>omic and financial uncertainly during the past three years<br />
has caused investors to move capital from risky assets to gold assets, which are perceived to be a good<br />
store <strong>of</strong> m<strong>on</strong>etary value. As a result, total gold demand increased by approximately 12% between 2008 and<br />
2012, <strong>with</strong> demand as a percentage <strong>of</strong> supply remaining at over 150% for the same period.<br />
23
Gold Demand/Supply Mined<br />
Metric t<strong>on</strong>nes<br />
5000<br />
4000<br />
3000<br />
2000<br />
1000<br />
0<br />
Gold Supply and Demand<br />
170%<br />
165%<br />
160%<br />
155%<br />
150%<br />
145%<br />
140%<br />
135%<br />
Demand as % Supply<br />
Gold Mine Supply Gold Demand Demand as % Supply<br />
Source: Bloomberg and BDO Analysis<br />
Until the late 1980’s, South Africa produced approximately half <strong>of</strong> the total gold produced. More recently<br />
however, gold producti<strong>on</strong> has become geographically segmented, as shown in the chart below, <strong>with</strong><br />
producti<strong>on</strong> dominated by China, Australia and the United States.<br />
Producti<strong>on</strong> by Country - 2012<br />
16%<br />
China<br />
Australia<br />
34%<br />
10%<br />
United States<br />
Russia<br />
South Africa<br />
4%<br />
4%<br />
7%<br />
8%<br />
7%<br />
10%<br />
Peru<br />
Mexico<br />
Canada<br />
Others<br />
Source: Bloomberg and BDO Analysis<br />
Gold prices<br />
The price <strong>of</strong> gold fluctuates <strong>on</strong> a daily basis depending <strong>on</strong> global demand and supply factors. The price<br />
trend over the last two years is reflective <strong>of</strong> weak global ec<strong>on</strong>omic c<strong>on</strong>diti<strong>on</strong>s driving demand. As can be<br />
seen in the graph below, the value <strong>of</strong> gold peaked at US$1,900 per ounce <strong>on</strong> 5 September 2011. This peak<br />
was largely caused by the recent debt market crisis in Europe, but it was also driven by the Standard and<br />
Poor’s downgrade <strong>of</strong> the US credit rating. This sent global stock markets tumbling and a flood <strong>of</strong> investors<br />
towards safer havens such as gold. Prices c<strong>on</strong>tracted in December 2011 reaching a low <strong>of</strong> US$1,545 per<br />
24
ounce; however 2012 a recovery <strong>of</strong> the gold price <strong>with</strong> it reaching US$1,790 per ounce <strong>on</strong> 4 October 2012,<br />
before declining to US$1,675 per ounce at 31 December 2012. Gold price have declined in 2013 which has<br />
seen the price fall below US$1,400 per ounce in April 2013.<br />
Gold prices are forecast to fall over the next three years to below US$1,500 per ounce in 2016.<br />
Nevertheless, growth in global m<strong>on</strong>ey supply, U.S dollar depreciati<strong>on</strong> and overall uncertainty in global<br />
financial markets may c<strong>on</strong>tinue to drive investors toward using precious metals as a store <strong>of</strong> value. This<br />
could be further fuelled by the rapidly increasing appetite for precious metals from China.<br />
2,000<br />
Gold Pricing<br />
1,800<br />
1,600<br />
1,400<br />
US$/Ounce<br />
1,200<br />
1,000<br />
800<br />
600<br />
400<br />
200<br />
-<br />
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br />
Gold spot price Forecast Forward<br />
Source: Bloomberg and BDO Analysis<br />
Recent gold transacti<strong>on</strong>s<br />
The emergence <strong>of</strong> a new generati<strong>on</strong> <strong>of</strong> mid-tier miners and the resurgent gold price in 2012 drove the<br />
increase in the number <strong>of</strong> announced gold acquisiti<strong>on</strong>s in 2012.<br />
In the last half <strong>of</strong> 2012, several large deals have been announced to the market involving gold companies:<br />
• On 29 June 2012 it was announced that Allied Gold Mining Plc and St Barbara Ltd had reached an<br />
agreement in which the two companies would merge, worth $594 milli<strong>on</strong>. This deal was completed<br />
<strong>on</strong> 7 September 2012.<br />
• In August 2012, Zijin Mining Group announced that it had made a cash <strong>of</strong>fer to acquire its<br />
remaining 83.02% share in Nort<strong>on</strong> Gold Fields Ltd for $198 milli<strong>on</strong>. This deal was completed <strong>on</strong><br />
21 August 2012.<br />
• On 6 August 2012, Silver Lake Resources announced it planned to merge <strong>with</strong> Integra Mining Ltd<br />
in a deal worth $417 milli<strong>on</strong>. The merger between Integra and Silver Lake was completed <strong>on</strong><br />
11 January 2013.<br />
25
• On 9 August 2012, Regis Resources Limited announced it had executed a letter <strong>of</strong> agreement to<br />
acquire the McPhillamys Gold Project from joint venture owners, Newm<strong>on</strong>t Explorati<strong>on</strong> Pty Ltd<br />
and Alkane Resources Limited. The c<strong>on</strong>siderati<strong>on</strong> to be paid is $150 milli<strong>on</strong> to be satisfied by the<br />
issue <strong>of</strong> Regis shares based <strong>on</strong> an issue price <strong>of</strong> $4.20 per share.<br />
• On 19 September 2012, CGA Mining Limited and B2Gold Corp announced they had entered into a<br />
<strong>Merger</strong> Implementati<strong>on</strong> Agreement to combine the two companies. The transacti<strong>on</strong> was valued at<br />
$939 milli<strong>on</strong>.<br />
• On 20 September 2012, Focus Minerals Ltd announced it had entered into an agreement <strong>with</strong><br />
Shand<strong>on</strong>g Gold Internati<strong>on</strong>al Mining Corporati<strong>on</strong> Ltd, under which Shand<strong>on</strong>g Gold Internati<strong>on</strong>al<br />
Mining Corporati<strong>on</strong> Ltd agreed to subscribe to new fully paid shares to raise A$225.1 milli<strong>on</strong>.<br />
• On 27 September 2012, Noble Mineral Resources Ltd announced that a major n<strong>on</strong>-government<br />
Chinese mining and investment group, Zh<strong>on</strong>grun, will invest A$84.7 milli<strong>on</strong> in Noble Mineral<br />
Resources Ltd via a placement <strong>of</strong> shares.<br />
• On 28 September 2012, Cort<strong>on</strong>a Resources Ltd and Unity Mining Ltd announced they had agreed to<br />
a merger via a Scheme <strong>of</strong> Arrangement in which Cort<strong>on</strong>a Resources Limited shareholders will<br />
receive 0.734 Unity Mining Ltd shares for every <strong>on</strong>e share they hold.<br />
• On 24 October 2012, Resolute Mining Ltd announced it executed c<strong>on</strong>diti<strong>on</strong>al share sale agreements<br />
to acquire 19.99% <strong>of</strong> Noble Mineral Resources Ltd, in competiti<strong>on</strong> <strong>with</strong> Zh<strong>on</strong>grun, in a A$85 milli<strong>on</strong><br />
financing <strong>of</strong>fer.<br />
• On 13 December 2012, Primero Mining Corp, a Canada based mining corporati<strong>on</strong> announced that it<br />
had signed a definite agreement to acquire Cerro Resources, an Australian based mining company<br />
that specialised in global gold and silver explorati<strong>on</strong> in a deal worth $111 milli<strong>on</strong>.<br />
9. Valuati<strong>on</strong> approach adopted<br />
There are a number <strong>of</strong> methodologies which can be used to value a business or the shares in a company.<br />
The principal methodologies which can be used are as follows:<br />
• Capitalisati<strong>on</strong> <strong>of</strong> future maintainable earnings (“FME”)<br />
• Discounted cash flow (“DCF”)<br />
• Quoted market price basis (“QMP”)<br />
• Net asset value (“NAV”)<br />
• Market based assessment, such as a resource multiple<br />
A summary <strong>of</strong> each <strong>of</strong> these methodologies is outlined in Appendix 2.<br />
Different methodologies are appropriate in valuing particular companies, based <strong>on</strong> the individual<br />
circumstances <strong>of</strong> that company and available informati<strong>on</strong>.<br />
Valuati<strong>on</strong> <strong>of</strong> Southern Cross Goldfields Limited<br />
In our assessment <strong>of</strong> the value <strong>of</strong> SXG, we have chosen to employ the following methodologies:<br />
• Sum <strong>of</strong> parts method as our primary method, being the NAV methodology incorporating the DCF<br />
methodology to value the Marda Project; and<br />
• QMP approach as our sec<strong>on</strong>dary method.<br />
26
• We have also used the resource multiple valuati<strong>on</strong> as a cross-check to our sum-<strong>of</strong> parts and QMP<br />
valuati<strong>on</strong>s.<br />
We have chosen these methodologies for the following reas<strong>on</strong>s:<br />
• Sum-<strong>of</strong>-parts<br />
The sum <strong>of</strong> parts method estimates the market value <strong>of</strong> a company by separately valuing each asset and<br />
liability <strong>of</strong> the company. The value <strong>of</strong> each asset may be determined using different methods. As SXG is<br />
a mining and explorati<strong>on</strong> company its core value is in the cash and mineral assets that it holds. The<br />
comp<strong>on</strong>ent parts <strong>of</strong> SXG are valued using NAV as our primary methodology, complemented by the DCF<br />
methodology in respect <strong>of</strong> the Marda Project and the technical valuati<strong>on</strong> <strong>of</strong> the other mineral assets<br />
<strong>of</strong> SXG.<br />
We have assessed that the most appropriate methodology in valuing the Marda Project is the DCF method<br />
for the following reas<strong>on</strong>s:<br />
• The Marda Project has a declared reserve;<br />
• SXG has completed reliable cash flow forecasts based <strong>on</strong> the life <strong>of</strong> mine for the Marda Project;<br />
• The Marda Project is forecast to start producing in 2014; and<br />
• The Marda Project has a finite life and is suited to applying the DCF approach.<br />
We have instructed AMC C<strong>on</strong>sultants Pty Ltd (“AMC”) to provide a technical assessment report to c<strong>on</strong>firm<br />
that SXG has a reas<strong>on</strong>able basis up<strong>on</strong> which to base the assumpti<strong>on</strong>s and mining inputs used in the cash<br />
flow forecasts <strong>of</strong> the Marda Project. The technical assessment is in accordance <strong>with</strong> the Code <strong>of</strong><br />
Technical Assessment and Valuati<strong>on</strong> <strong>of</strong> Mineral and Petroleum Assets and Securities for Independent<br />
Expert Reports (“the Valmin Code”) and the Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results,<br />
Mineral Resources and Ore Reserves (“JORC Code”).<br />
In particular we have instructed AMC to provide an assessment <strong>on</strong> the following:<br />
• An assessment <strong>on</strong> the reas<strong>on</strong>ableness <strong>of</strong> the reserves, resources and life <strong>of</strong> mine used in the<br />
preparati<strong>on</strong> <strong>of</strong> the financial model used to value the Marda Project;<br />
• Mining physicals (producti<strong>on</strong> schedule, recovery and grade);<br />
• Operating costs; and<br />
• Capital costs (mining capital costs, general and administrati<strong>on</strong>, restorati<strong>on</strong> and rehabilitati<strong>on</strong><br />
provisi<strong>on</strong>s).<br />
Under the sum-<strong>of</strong>-parts methodology, a NAV multiple is applied to the value <strong>of</strong> the Marda Project under<br />
the DCF approach as gold mining companies <strong>of</strong>ten trade at a market capitalisati<strong>on</strong> greater than their DCF<br />
value.<br />
We have also instructed AMC to value SXG’s other mineral assets in accordance <strong>with</strong> the Valmin Code and<br />
the JORC Code. We are satisfied <strong>with</strong> the valuati<strong>on</strong> methodologies adopted by AMC which we believe are<br />
in accordance <strong>with</strong> industry practices and compliant <strong>with</strong> the requirements <strong>of</strong> the Valmin Code.<br />
Grant Thornt<strong>on</strong> has been appointed as independent expert to provide an opini<strong>on</strong> to PLY shareholders <strong>on</strong><br />
the Scheme. AMC was initially engaged by Grant Thornt<strong>on</strong> to provide a valuati<strong>on</strong> report <strong>on</strong> SXG and PLY in<br />
relati<strong>on</strong> to the Scheme. We have subsequently engaged AMC to provide us <strong>with</strong> substantially the same<br />
27
eport to be used in our report. At the time we engaged AMC, they had commenced preparati<strong>on</strong> <strong>of</strong> their<br />
report for Grant Thornt<strong>on</strong> but not yet completed it.<br />
We are satisfied <strong>with</strong> the use <strong>of</strong> AMC’s report, for the purpose <strong>of</strong> our report, for the following reas<strong>on</strong>s:<br />
- BDO reviewed and was satisfied <strong>with</strong> the competence <strong>of</strong> AMC and its independence from SXG and<br />
PLY;<br />
- BDO reviewed the initial instructi<strong>on</strong>s given to AMC by Grant Thornt<strong>on</strong> and were satisfied that the<br />
instructi<strong>on</strong>s were substantially the same as those that would have been given by BDO;<br />
- BDO issued its own instructi<strong>on</strong>s to AMC in accordance <strong>with</strong> the Valmin Code and RG 112;<br />
- BDO critically reviewed AMC’s draft report and c<strong>on</strong>siders the assumpti<strong>on</strong>s and methodologies to<br />
be reas<strong>on</strong>able and the source data drawn <strong>on</strong> to be appropriate;<br />
- AMC amended its draft report following BDO’s review;<br />
- AMC did not issue its final report until BDO was satisfied <strong>with</strong> the c<strong>on</strong>tent <strong>of</strong> the report;<br />
- AMC’s report is dated close to the date <strong>of</strong> our report; and<br />
- Based <strong>on</strong> our review, we have reas<strong>on</strong>able grounds for believing the specialist report is not false or<br />
misleading.<br />
A copy <strong>of</strong> AMC’s report is attached in Appendix 4.<br />
• QMP<br />
SXG is listed <strong>on</strong> the ASX. This means there is a regulated and observable market where SXG’s shares can<br />
be traded. However, in order for the QMP methodology to be c<strong>on</strong>sidered appropriate, SXG’s shares should<br />
be liquid and the market should be fully informed as to SXG’s activities. We have c<strong>on</strong>sidered these factors<br />
in secti<strong>on</strong> 11.2.<br />
• Resource multiple: cross-check<br />
As a cross check to our sum-<strong>of</strong>-parts and QMP valuati<strong>on</strong>s, we have analysed the resource multiple observed<br />
for companies listed <strong>on</strong> the ASX <strong>with</strong> gold projects as their primary focus.<br />
Note that we have not employed the FME methodology as SXG has made losses over the past few years.<br />
Therefore there are no historic pr<strong>of</strong>its that could be used to represent future earnings. This means that<br />
the use <strong>of</strong> the FME valuati<strong>on</strong> methodology is not appropriate.<br />
Valuati<strong>on</strong> <strong>of</strong> the Merged Entity<br />
In our assessment <strong>of</strong> the value <strong>of</strong> the Merged Entity, we have chosen to employ the sum <strong>of</strong> parts<br />
methodology.<br />
The Merged Entity is valued by combining the sum <strong>of</strong> parts value <strong>of</strong> each company as derived in secti<strong>on</strong><br />
and adjusted for any forecast synergies in the Merged Entity.<br />
Valuati<strong>on</strong> <strong>of</strong> SXG<br />
We have adopted the DCF value <strong>of</strong> the Marda Project as set out in secti<strong>on</strong> 10.1 and discounted the value<br />
<strong>of</strong> the cash flows <strong>of</strong> the project <strong>with</strong> the forecast discount rate <strong>of</strong> the Merged Entity. We have adopted<br />
the other assets and liabilities as set out in the sum <strong>of</strong> parts valuati<strong>on</strong> in secti<strong>on</strong> 10.1.<br />
28
Valuati<strong>on</strong> <strong>of</strong> PLY<br />
In our assessment <strong>of</strong> the value <strong>of</strong> PLY, we have chosen to employ the following methodology:<br />
• Sum <strong>of</strong> parts method as our primary method being essentially the NAV methodology incorporating the<br />
DCF methodology to value the Mt Boppy Project.<br />
We have chosen this methodology for the following reas<strong>on</strong>:<br />
• Sum-<strong>of</strong>-parts<br />
The sum <strong>of</strong> parts method estimates the market value <strong>of</strong> a company by separately valuing each asset and<br />
liability <strong>of</strong> the company. The value <strong>of</strong> each asset may be determined using different methods. As PLY is a<br />
mining and explorati<strong>on</strong> company, its core value is in the cash and mineral assets that it holds. The<br />
comp<strong>on</strong>ent parts <strong>of</strong> PLY are valued using NAV as our primary methodology, complemented by the DCF<br />
methodology in respect <strong>of</strong> the Mt Boppy Project and the technical specialist valuati<strong>on</strong> <strong>of</strong> the other mineral<br />
assets <strong>of</strong> PLY.<br />
We have assessed that the most appropriate methodology in valuing the Mt Boppy Project is the DCF<br />
method for the following reas<strong>on</strong>s:<br />
• PLY has completed cash flow forecasts based <strong>on</strong> the life <strong>of</strong> mine for the Mt Boppy Project;<br />
• The Mt Boppy Project is in producti<strong>on</strong> and there is historical informati<strong>on</strong> available <strong>on</strong> which to<br />
reas<strong>on</strong>ably base forecasts;<br />
• The majority <strong>of</strong> the capital expenditure has been incurred at the Mt Boppy Project; and<br />
• The Mt Boppy Project has a finite life and is suited to applying the DCF approach.<br />
We have instructed AMC to provide a technical assessment report to c<strong>on</strong>firm that PLY has a reas<strong>on</strong>able<br />
basis up<strong>on</strong> which to base the assumpti<strong>on</strong>s and mining inputs used in the cash flow forecasts <strong>of</strong> the Mt<br />
Boppy Project. The technical assessment is in accordance <strong>with</strong> the Valmin Code and the JORC Code.<br />
In particular we have instructed AMC to provide an assessment <strong>on</strong> the following:<br />
• An assessment <strong>on</strong> the reas<strong>on</strong>ableness <strong>of</strong> the reserves, resources and life <strong>of</strong> mine used in the<br />
preparati<strong>on</strong> <strong>of</strong> the financial model used to value the Mt Boppy Project;<br />
• Mining physicals (producti<strong>on</strong> schedule, recovery and grade);<br />
• Operating costs; and<br />
• Capital costs (mining capital costs, general and administrati<strong>on</strong>, restorati<strong>on</strong> and rehabilitati<strong>on</strong><br />
provisi<strong>on</strong>s).<br />
Under the sum-<strong>of</strong>-parts methodology, a NAV multiple is applied to the value <strong>of</strong> the Mt Boppy Project under<br />
the DCF approach as gold mining companies <strong>of</strong>ten trade at a market capitalisati<strong>on</strong> greater than their<br />
DCF value.<br />
We have also instructed AMC to value PLY’s other mineral assets in accordance <strong>with</strong> the Valmin Code and<br />
the JORC Code. We are satisfied <strong>with</strong> the valuati<strong>on</strong> methodologies adopted by AMC which we believe are<br />
in accordance <strong>with</strong> industry practices and compliant <strong>with</strong> the requirements <strong>of</strong> the Valmin Code.<br />
Grant Thornt<strong>on</strong> has been appointed as independent expert to provide an opini<strong>on</strong> to PLY shareholders <strong>on</strong><br />
the Scheme. AMC was initially engaged by Grant Thornt<strong>on</strong> to provide a valuati<strong>on</strong> report <strong>on</strong> SXG and PLY in<br />
relati<strong>on</strong> to the Scheme. We have subsequently engaged AMC to provide us <strong>with</strong> substantially the same<br />
29
eport to be used in our report. At the time we engaged AMC, they had commenced preparati<strong>on</strong> <strong>of</strong> their<br />
report for Grant Thornt<strong>on</strong> but not yet completed it.<br />
We are satisfied <strong>with</strong> the use <strong>of</strong> AMC’s report, for the purpose <strong>of</strong> our report, for the following reas<strong>on</strong>s:<br />
- BDO reviewed and was satisfied <strong>with</strong> the competence <strong>of</strong> AMC and its independence from SXG and<br />
PLY;<br />
- BDO reviewed the initial instructi<strong>on</strong>s given to AMC by Grant Thornt<strong>on</strong> and were satisfied that the<br />
instructi<strong>on</strong>s were substantially the same as those that would have been given by BDO;<br />
- BDO issued its own instructi<strong>on</strong>s to AMC in accordance <strong>with</strong> the Valmin Code and RG 112;<br />
- BDO critically reviewed AMC’s draft report and c<strong>on</strong>siders the assumpti<strong>on</strong>s and methodologies to<br />
be reas<strong>on</strong>able and the source data drawn <strong>on</strong> to be appropriate;<br />
- AMC amended its draft report following BDO’s review;<br />
- AMC did not issue its final report until BDO was satisfied <strong>with</strong> the c<strong>on</strong>tent <strong>of</strong> the report;<br />
- AMC’s report is dated close to the date <strong>of</strong> our report; and<br />
Based <strong>on</strong> our review, we have reas<strong>on</strong>able grounds for believing the specialist report is not false or<br />
misleading. A copy <strong>of</strong> AMC’s report is attached in Appendix 4.<br />
30
10. Valuati<strong>on</strong> <strong>of</strong> SXG<br />
10.1. Sum-<strong>of</strong>-parts valuati<strong>on</strong> <strong>of</strong> SXG<br />
10.1.1. DCF Valuati<strong>on</strong> <strong>of</strong> the Marda Project<br />
We elected to use the DCF approach in valuing SXG’s Marda Gold Project (“the Marda Project”). The DCF<br />
approach estimates the fair market value by discounting the future cash flows arising from the project to<br />
their net present value. Performing a DCF valuati<strong>on</strong> requires the determinati<strong>on</strong> <strong>of</strong> the following:<br />
• The expected future cash flows that the project is expected to generate; and<br />
• An appropriate discount rate to apply to the cash flows <strong>of</strong> the project to c<strong>on</strong>vert them to present<br />
value equivalent.<br />
A cash flow model for the Marda Project was prepared by SXG (“the Marda Model”). The Marda Model<br />
estimates the future cash flows expected from gold producti<strong>on</strong> at the Marda Project based <strong>on</strong> determined<br />
JORC compliant reserves. The Marda Model depicts forecasts <strong>of</strong> real, post-tax cash flows over the life <strong>of</strong><br />
mine <strong>on</strong> a m<strong>on</strong>thly basis.<br />
The Marda Model has been adjusted by us to reflect any changes to technical assumpti<strong>on</strong>s as a result <strong>of</strong><br />
AMC’s review and any changes to the ec<strong>on</strong>omic and other input assumpti<strong>on</strong>s from our research (“the<br />
Adjusted Marda Model”). We have adjusted the Marda Model to reflect cash flows <strong>on</strong> an annual basis.<br />
The main assumpti<strong>on</strong>s underlying the Adjusted Marda Model include:<br />
• Mining and producti<strong>on</strong> volumes;<br />
• Commodity prices;<br />
• Operating costs;<br />
• Sustaining capital expenditure;<br />
• Foreign exchange rates;<br />
• Royalties;<br />
• Funding; and<br />
• Discount rate.<br />
Limitati<strong>on</strong>s<br />
Since forecasts relate to the future, they may be affected by unforeseen events and they depend, in part,<br />
<strong>on</strong> the effectiveness <strong>of</strong> management’s acti<strong>on</strong>s in implementing the plans <strong>on</strong> which the forecasts are based.<br />
Accordingly, actual results may vary materially from the forecasts, as it is <strong>of</strong>ten the case that some events<br />
and circumstances frequently do not occur as expected, or are not anticipated, and those differences may<br />
be material.<br />
Revenue assumpti<strong>on</strong>s<br />
Revenue has been estimated as the product <strong>of</strong> annual saleable gold and the forecast gold prices. The<br />
Adjusted Marda Model has been based <strong>on</strong> forecast real gold prices and exchange rates.<br />
31
Funding assumpti<strong>on</strong>s<br />
SXG has received two n<strong>on</strong>-binding indicative debt funding <strong>of</strong>fers to finance the Marda Project. We have<br />
valued the Marda Project <strong>on</strong> the basis that it will be funded by debt <strong>of</strong> $32 milli<strong>on</strong> and equity <strong>of</strong> between<br />
$9 milli<strong>on</strong> and $11 milli<strong>on</strong>. SXG will also refinance the Sandst<strong>on</strong>e Project loan facility to $5 milli<strong>on</strong>. We<br />
have assessed this asserti<strong>on</strong> in light <strong>of</strong> our industry knowledge and the debt funding <strong>of</strong>fers received by SXG<br />
and c<strong>on</strong>sider this to be reas<strong>on</strong>able.<br />
Ec<strong>on</strong>omic assumpti<strong>on</strong>s<br />
Inflati<strong>on</strong><br />
We have applied an inflati<strong>on</strong> rate to c<strong>on</strong>vert the forecast nominal gold prices into real terms.<br />
In our assessment <strong>of</strong> the inflati<strong>on</strong> rate, we have c<strong>on</strong>sidered forecasts prepared by ec<strong>on</strong>omic analysts and<br />
other publicly available informati<strong>on</strong> including broker c<strong>on</strong>sensus to arrive at our inflati<strong>on</strong> rate assumpti<strong>on</strong>s.<br />
From our analysis, target inflati<strong>on</strong> is in the range <strong>of</strong> 2% to 3% which is c<strong>on</strong>sistent <strong>with</strong> the Reserve Bank <strong>of</strong><br />
Australia’s target inflati<strong>on</strong> rate range. We have adopted an inflati<strong>on</strong> rate <strong>of</strong> 3% to c<strong>on</strong>vert the cash flows<br />
expressed in nominal terms to real terms.<br />
Foreign exchange rate<br />
All commodity prices are stated in United States Dollars (“USD”) and the forecasts in the Adjusted Marda<br />
Model are in Australian Dollars (“AUD”). USD to AUD c<strong>on</strong>versi<strong>on</strong>s were undertaken using the following<br />
foreign exchange rate assumpti<strong>on</strong>s:<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021<br />
Exchange rate<br />
(USD:AUD) 1.00 1.01 0.93 0.90 0.87 0.85 0.84 0.82 0.82<br />
Source: Bloomberg<br />
Royalties and tax<br />
Royalties<br />
The Western Australian State Government royalty is included in the Adjusted Marda Model. This is<br />
calculated as 2.5% <strong>of</strong> revenue.<br />
Corporate tax<br />
The Adjusted Marda Model assumes a corporate tax rate <strong>of</strong> 30% over the period <strong>of</strong> the forecasts, after<br />
taking into account any tax losses carried forward.<br />
DCF Valuati<strong>on</strong> – Discount rate<br />
We have selected a real after tax discount rate <strong>of</strong> 6.5% to discount the forecasts to their present value.<br />
In selecting this range <strong>of</strong> discount rates we c<strong>on</strong>sidered the following:<br />
• The rates <strong>of</strong> return for comparable listed Australian gold companies;<br />
• The risk pr<strong>of</strong>ile <strong>of</strong> SXG as compared to other listed Australian gold companies;<br />
• The current and forecast debt to equity ratio <strong>of</strong> SXG;<br />
• SXG’s forecast cost <strong>of</strong> debt as advised by SXG;<br />
32
• AMC’s assessment <strong>of</strong> the relative risk <strong>of</strong> the Marda Project compared <strong>with</strong> the Mt Boppy Project.<br />
Details <strong>on</strong> our discount rate determinati<strong>on</strong> are provided in Appendix 3.<br />
Commodity prices<br />
In obtaining projected gold prices we have c<strong>on</strong>sidered:<br />
• Historical spot and forward prices from Bloomberg; and<br />
• Most recent C<strong>on</strong>sensus Ec<strong>on</strong>omics price forecasts.<br />
Based <strong>on</strong> our analysis, we adopted the following projected gold prices (in real terms):<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021<br />
Gold price<br />
(real) 1,600 1,525 1,420 1,300 1,180 1,185 1,185 1,185 1,185<br />
Source: C<strong>on</strong>sensus Ec<strong>on</strong>omics & Bloomberg<br />
The Adjusted Marda Model<br />
We undertook the following analysis <strong>on</strong> the Adjusted Marda Model:<br />
• A review <strong>of</strong> the mathematical structure and internal c<strong>on</strong>sistency;<br />
• Appointed AMC as the technical expert to assess the reas<strong>on</strong>ableness <strong>of</strong> the resources, capital and<br />
operating cost and other mining inputs used in the preparati<strong>on</strong> <strong>of</strong> the life <strong>of</strong> mine;<br />
• C<strong>on</strong>ducted independent research <strong>on</strong> certain ec<strong>on</strong>omic and other inputs such as commodity prices,<br />
foreign exchange rates, inflati<strong>on</strong> and discount rate applicable to the future cash flows <strong>of</strong> the<br />
Marda Project;<br />
• Held discussi<strong>on</strong>s <strong>with</strong> SXG’s management regarding the preparati<strong>on</strong> <strong>of</strong> the cash flow forecasts in<br />
the Marda Model and its views;<br />
• Adjusted the Marda Model to reflect any changes to the technical assumpti<strong>on</strong>s as a result <strong>of</strong> AMC’s<br />
review and any changes to the ec<strong>on</strong>omic and other input assumpti<strong>on</strong>s from our research; and<br />
• Performed a sensitivity analysis <strong>on</strong> the value <strong>of</strong> the Marda Project as a result <strong>of</strong> flexing selected<br />
assumpti<strong>on</strong>s and inputs.<br />
Appointment <strong>of</strong> a technical expert<br />
AMC, a mining technical specialist was engaged to prepare a report providing an assessment <strong>on</strong> the<br />
following inputs used in the preparati<strong>on</strong> <strong>of</strong> the Marda Model;<br />
• The reas<strong>on</strong>ableness <strong>of</strong> the resources used in the preparati<strong>on</strong> <strong>of</strong> the Marda Model;<br />
• Mining physicals (life <strong>of</strong> mine, producti<strong>on</strong> schedule, recovery and grade);<br />
• Operating costs (mining operati<strong>on</strong>, surface haulage, processing, accommodati<strong>on</strong> and messing,<br />
royalties and general and administrati<strong>on</strong>);<br />
• Capital costs (mining capital costs, processing capital costs, resource definiti<strong>on</strong>, general and<br />
administrati<strong>on</strong>); and<br />
• Restorati<strong>on</strong> and rehabilitati<strong>on</strong> provisi<strong>on</strong>s.<br />
33
AMC modelled two cases for the Marda Project based <strong>on</strong> different forecasts for mining and processing<br />
t<strong>on</strong>nages, gold grades and costs.<br />
• Case 1, ore producti<strong>on</strong>, is primarily based <strong>on</strong> the feasibility study scenario using Ore Reserves, and<br />
that part <strong>of</strong> Minerals Resources included in the mine plan provided to AMC. AMC added additi<strong>on</strong>al<br />
ore to the producti<strong>on</strong> case in years 5 and 6 <strong>of</strong> the schedule based <strong>on</strong> the likelihood <strong>of</strong> c<strong>on</strong>versi<strong>on</strong><br />
<strong>of</strong> near mine Mineral Resources to Ore Reserves and explorati<strong>on</strong> success also c<strong>on</strong>tributing to<br />
additi<strong>on</strong>al Ore Reserves.<br />
• Case 2, ore producti<strong>on</strong>, includes that scheduled in Case 1, <strong>with</strong> the additi<strong>on</strong> <strong>of</strong> two years’<br />
producti<strong>on</strong> simulated to reflect the likely c<strong>on</strong>versi<strong>on</strong> <strong>of</strong> additi<strong>on</strong>al minerals resources to ore<br />
reserves and the likely success <strong>with</strong> explorati<strong>on</strong> in the Marda regi<strong>on</strong>. AMC has included additi<strong>on</strong>al<br />
producti<strong>on</strong> to extend the life <strong>of</strong> mine for two years to reflect further explorati<strong>on</strong> success.<br />
The two cases have been provided as a lower and upper range <strong>of</strong> likely outcomes for the Marda Project.<br />
For the purposes <strong>of</strong> our valuati<strong>on</strong>, we have adopted both cases to form the basis for our lower and upper<br />
value ranges <strong>of</strong> the Marda Project derived from the Adjusted Marda Model.<br />
A copy <strong>of</strong> AMC’s report is included in Appendix 4.<br />
Mining Physicals<br />
Marda Case 1<br />
Set out below is a summary <strong>of</strong> the mining and processing activity included in the Adjusted Marda Model.<br />
Marda Project Case 1 Units 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19<br />
Mining<br />
Ore T<strong>on</strong>nes Mined t - 163,307 501,732 580,539 540,904 454,567 118,190<br />
Waste T<strong>on</strong>nes Mined t - 941,569 3,398,268 3,319,461 3,359,096 3,445,433 548,531<br />
Total Movement t - 1,104,876 3,900,000 3,900,000 3,900,000 3,900,000 666,721<br />
Grade Mined g/t - 2.13 2.66 2.33 2.27 2.07 4.75<br />
Processing<br />
T<strong>on</strong>nes Processed t - 96,990 545,000 509,980 546,425 505,000 500,000<br />
Grade Processed g/t - 2.11 2.47 2.39 2.14 2.31 2.31<br />
C<strong>on</strong>tained oz oz - 6,567 43,210 39,246 37,571 37,505 37,134<br />
Recovery % - 94% 94% 94% 95% 95% 95%<br />
Recovered oz oz - 6,173 40,618 36,892 35,692 35,630 35,277<br />
Source: The Adjusted Marda Model<br />
34
600,000<br />
Marda Project (t<strong>on</strong>nes processed)<br />
500,000<br />
400,000<br />
300,000<br />
200,000<br />
100,000<br />
0<br />
2013 2014 2015 2016 2017 2018 2019<br />
Gold processed (t<strong>on</strong>nes)<br />
Source: The Adjusted Marda Model<br />
Key aspects <strong>of</strong> AMC's case 1 model are:<br />
• The mine schedule and processing schedule are essentially based <strong>on</strong> the 5 year LOM plan provided<br />
in the feasibility study <strong>with</strong> a limited amount <strong>of</strong> ore added to the end <strong>of</strong> the mine life.<br />
• Project development commences in the last quarter <strong>of</strong> 2013.<br />
• Operating and capital costs are based <strong>on</strong> those provided in the feasibility study.<br />
• Average unit mining costs <strong>of</strong> $3.24/t <strong>of</strong> material moved are used.<br />
• Average processing costs <strong>of</strong> $30.21/t ore processed are assumed.<br />
• Total ore processed is 2.7 Mt at a head grade <strong>of</strong> 2.3 g/t.<br />
• AMC adjusted the head grade to reflect a lower grade <strong>of</strong> diluting material than that assumed in<br />
the feasibility study based <strong>on</strong> the AMC review <strong>of</strong> the Resource model, this had the effect <strong>of</strong><br />
lowering the head grade from 2.36 g/t to 2.31 g/t over the life <strong>of</strong> the Project.<br />
• AMC adjusted the metallurgical recovery for the project in the first three years from 95% to 94%<br />
compared to the feasibility study based <strong>on</strong> AMC’s review <strong>of</strong> the test work.<br />
• Total gold producti<strong>on</strong> <strong>of</strong> 190 koz <strong>of</strong> gold.<br />
• Initial capital expenditure <strong>of</strong> $38.2M based <strong>on</strong> the feasibility study. This capital is principally<br />
associated <strong>with</strong> site establishment and relocati<strong>on</strong> and refurbishment <strong>of</strong> the processing facilities<br />
and camp from Sandst<strong>on</strong>e to Marda.<br />
• Closure costs increased by $1.2M compared to the feasibility study to <strong>of</strong>fset the assumed residual<br />
value <strong>of</strong> the mining equipment.<br />
Marda Case 2<br />
Set out below is a summary <strong>of</strong> the mining and processing activity included in the Adjusted Marda Model.<br />
35
Marda Project Case 2 Units 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21<br />
Mining<br />
Ore T<strong>on</strong>nes Mined t - 163,307 501,732 580,539 540,904 454,567 501,732 501,732 118,190<br />
Waste T<strong>on</strong>nes Mined t - 941,569 3,398,268 3,319,461 3,359,096 3,445,433 3,398,268 3,398,268 548,531<br />
Total Movement t - 1,104,876 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 666,721<br />
Grade Mined g/t - 2.13 2.66 2.33 2.27 2.07 2.71 2.36 2.36<br />
Processing<br />
T<strong>on</strong>nes Processed t - 96,990 545,000 509,980 546,425 505,000 500,000 500,000 276,679<br />
Grade Processed g/t - 2.11 2.47 2.39 2.14 2.31 2.56 2.31 2.31<br />
C<strong>on</strong>tained oz oz - 6,567 43,210 39,246 37,571 37,505 41,176 37,134 20,548<br />
Recovery % - 94% 94% 94% 95% 95% 93% 92% 92%<br />
Recovered oz oz - 6,173 40,618 36,892 35,692 35,630 38,393 34,163 18,905<br />
Source: The Adjusted Marda Model<br />
600,000<br />
Marda Project (t<strong>on</strong>nes processed)<br />
500,000<br />
400,000<br />
300,000<br />
200,000<br />
100,000<br />
0<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021<br />
Gold processed (t<strong>on</strong>nes)<br />
Source: The Adjusted Marda Model<br />
Key aspects <strong>of</strong> AMC's case 2 model are:<br />
• Assumpti<strong>on</strong>s as in case 1 for the first 4 years <strong>of</strong> producti<strong>on</strong>.<br />
• An additi<strong>on</strong>al 1 milli<strong>on</strong> t<strong>on</strong>nes <strong>of</strong> ore at a grade 2.31 g/t is added to the end <strong>of</strong> the mine life. AMC<br />
has assumed that operating costs are the same as those incurred in year 2014 for the extensi<strong>on</strong><br />
period. The head grade is based <strong>on</strong> the project average. The 1 Mt represents 50% <strong>of</strong> the Marda<br />
Inferred Resource c<strong>on</strong>verting to Ore Reserves. The average project head grade has been applied.<br />
• Processing recoveries are assumed to be 92% in the extensi<strong>on</strong> years to reflect a lower c<strong>on</strong>fidence<br />
in the recovery characteristics for this material.<br />
• Total gold producti<strong>on</strong> <strong>of</strong> 246 koz <strong>of</strong> gold.<br />
36
• A higher capital expenditure over the extensi<strong>on</strong> period is assumed compared to case 1 due to costs<br />
that would be associated <strong>with</strong> starting or extending open pits.<br />
Operating Costs<br />
Operating costs included in the Adjusted Marda Model c<strong>on</strong>sist <strong>of</strong> salaries and labour, reagents and<br />
operating c<strong>on</strong>sumables, power, maintenance, general administrati<strong>on</strong> and flights and accommodati<strong>on</strong> for<br />
mine staff. The tables below shows the forecast operating costs per annum for the remaining life <strong>of</strong> mine.<br />
Marda Case 1<br />
Marda Project Case 1 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19<br />
$ $ $ $ $ $ $<br />
Mining - 2,513,978 11,668,042 11,599,472 11,743,251 13,103,516 10,570,702<br />
Mining Equipment Lease Cost - 739,881 3,053,768 3,053,752 3,054,406 434,844 156,388<br />
Processing - 3,187,890 16,204,233 15,434,282 16,235,555 15,324,801 15,545,830<br />
General Administrati<strong>on</strong> - 1,033,549 4,176,206 4,186,622 4,257,236 4,364,912 2,308,722<br />
Total Project Cost - 7,475,298 35,102,249 34,274,128 35,290,448 33,228,073 28,581,642<br />
Source: The Adjusted Marda Model<br />
Marda Case 2<br />
Marda Project Case 2<br />
31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21<br />
$ $ $ $ $ $ $ $<br />
Mining - 2,513,978 11,668,042 11,599,472 11,743,251 13,103,516 11,668,042 11,668,042 5,570,702<br />
Mining Equipment Lease - 739,881 3,053,768 3,053,752 3,054,406 434,844 3,053,768 3,053,768 156,388<br />
Processing - 3,187,890 16,204,233 15,434,282 16,235,555 15,324,801 16,204,233 16,204,233 8,545,830<br />
General Administrati<strong>on</strong> - 1,033,549 4,176,206 4,186,622 4,257,236 4,364,912 4,176,206 4,176,206 2,308,722<br />
Total Project Cost - 7,475,298 35,102,249 34,274,128 35,290,448 33,228,073 35,102,249 35,102,249 16,581,642<br />
Source: The Adjusted Marda Model<br />
Capital Expenditure<br />
The table below shows the forecast capital costs per annum for the remaining life <strong>of</strong> mine.<br />
Marda Case 1<br />
Marda Project Case 1 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19<br />
$ $ $ $ $ $ $<br />
Capital Expenditure - 38,155,619 1,761,294 1,407,438 357,438 5,953,438 (881,851)<br />
Source: The Adjusted Marda Model<br />
Marda Case 2<br />
31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21<br />
Marda Project Case 2<br />
$ $ $ $ $ $ $ $<br />
Capital Expenditure - 38,155,619 1,761,294 1,407,438 357,438 5,953,438 2,000,000 2,000,000 (881,581)<br />
Source: The Adjusted Marda Model<br />
Capital expenditure for the Adjusted Marda Model c<strong>on</strong>sists <strong>of</strong> the removal, refurbishment, relocati<strong>on</strong> and<br />
installati<strong>on</strong> <strong>of</strong> plant and equipment as well as infrastructure items including camp, roads and airstrip,<br />
37
uildings and water supply. The $38.16 milli<strong>on</strong> capital expenditure for 2014 mainly relates to plant and<br />
infrastructure costs incurred in establishing the mine for the six m<strong>on</strong>ths to 31 December 2014. The cash<br />
inflow <strong>of</strong> $0.88 milli<strong>on</strong> for 2019 in Case 1 and 2021 in Case 2 relates to the sale <strong>of</strong> plant and equipment <strong>of</strong><br />
$2.08 milli<strong>on</strong>, <strong>of</strong>fset by mine closure costs <strong>of</strong> $1.2 milli<strong>on</strong>.<br />
DCF Valuati<strong>on</strong> – sensitivities<br />
The estimated value <strong>of</strong> the Marda Project is derived under the DCF approach. Our valuati<strong>on</strong> is most<br />
sensitive to changes in the forecast gold prices and exchange rate. We have therefore included an analysis<br />
to c<strong>on</strong>sider the value <strong>of</strong> the Marda Project under various pricing scenarios and in applying:<br />
• A change <strong>of</strong> +/- 5% to commodity prices<br />
• A change <strong>of</strong> +/- 5% to exchange rate<br />
• A change <strong>of</strong> +/- 5% to recovery percentage<br />
• A change <strong>of</strong> +/- 5% to operating expense<br />
• A change <strong>of</strong> +/- 5% to sustaining capital expenditure<br />
• A real discount rate in the range <strong>of</strong> 5.0% to 8.0%.<br />
The following tables sets out the valuati<strong>on</strong> outcomes from our DCF analysis.<br />
Marda Case 1<br />
Flex NPV ($m) NPV ($m) NPV ($m) NPV ($m) NPV ($m)<br />
Commodity<br />
Price<br />
Sensitivity analysis<br />
Exchange<br />
rates<br />
Recovery<br />
(%)<br />
Operating<br />
costs<br />
Capital<br />
expenditure<br />
-5% 18.18 37.01 17.60 34.26 30.25<br />
-4% 20.19 35.38 19.72 33.24 29.85<br />
-3% 22.20 33.79 21.85 32.16 29.44<br />
-2% 24.21 32.23 23.97 30.85 29.03<br />
-1% 26.21 30.25 26.10 29.54 28.63<br />
0% 28.22 28.22 28.22 28.22 28.22<br />
1% 30.23 26.23 30.35 26.91 27.82<br />
2% 32.17 24.29 32.34 25.59 27.41<br />
3% 33.65 22.37 33.91 24.28 27.00<br />
4% 35.14 20.50 35.48 22.97 26.60<br />
5% 36.62 18.66 37.06 21.65 26.19<br />
Source: BDO Analysis<br />
38
Discount rate NPV ($m)<br />
5.0% 29.93<br />
5.5% 29.34<br />
6.0% 28.77<br />
6.5% 28.22<br />
7.0% 27.69<br />
7.5% 27.17<br />
8.0% 26.67<br />
Source: BDO Analysis<br />
Marda Case 2<br />
Sensitivity analysis<br />
Flex NPV ($m) NPV ($m) NPV ($m) NPV ($m) NPV ($m)<br />
Commodity<br />
Exchange<br />
Recovery<br />
Project<br />
Capital<br />
Price<br />
rates<br />
(%)<br />
costs<br />
expenditure<br />
-5% 25.14 52.56 24.32 46.76 39.17<br />
-4% 27.63 49.21 26.97 44.70 38.64<br />
-3% 30.12 45.92 29.62 42.66 38.12<br />
-2% 32.33 42.72 32.08 40.62 37.59<br />
-1% 34.22 39.60 34.10 38.58 37.07<br />
0% 36.55 36.55 36.55 36.55 36.55<br />
1% 39.57 34.24 39.77 34.84 36.02<br />
2% 42.60 32.41 42.99 33.58 35.50<br />
3% 45.64 30.33 46.24 32.31 35.07<br />
4% 48.70 28.01 49.50 30.90 34.73<br />
5% 51.76 25.74 52.76 29.23 34.38<br />
Source: BDO Analysis<br />
Discount rate NPV ($m)<br />
5.0% 38.97<br />
5.5% 38.13<br />
6.0% 37.33<br />
6.5% 36.55<br />
7.0% 35.79<br />
7.5% 35.07<br />
8.0% 34.36<br />
Source: BDO Analysis<br />
39
C<strong>on</strong>sidering the valuati<strong>on</strong> outcomes above, we estimate the fair market value <strong>of</strong> the Marda Project to be<br />
in the range <strong>of</strong> $28.22 milli<strong>on</strong> to $36.55 milli<strong>on</strong>, <strong>with</strong> a midpoint value <strong>of</strong> $32.39 milli<strong>on</strong>.<br />
10.1.2. Other Explorati<strong>on</strong> Assets<br />
We instructed AMC to provide a market valuati<strong>on</strong> <strong>of</strong> the major explorati<strong>on</strong> assets <strong>of</strong> SXG including Copper<br />
Bore and the Evanst<strong>on</strong> Shear Z<strong>on</strong>e.<br />
Marda tenement area<br />
We have instructed AMC to value the Marda tenement area under the Valmin Code which does not host<br />
any Mineral Resources but remains prospective for gold and base metals. AMC has deemed that the most<br />
reliable method to value these resources in using the Comparable Transacti<strong>on</strong>s method.<br />
AMC have c<strong>on</strong>cluded that the value is between $0.65 milli<strong>on</strong> and $1.3 milli<strong>on</strong>.<br />
Sandst<strong>on</strong>e<br />
In valuing SXG’s Sandst<strong>on</strong>e Project, AMC has relied <strong>on</strong> the Comparable Transacti<strong>on</strong>s valuati<strong>on</strong> methodology<br />
and the Yardstick valuati<strong>on</strong> methodology. We are satisfied <strong>with</strong> the valuati<strong>on</strong> methodologies adopted by<br />
AMC which are in accordance <strong>with</strong> industry practices and compliant <strong>with</strong> the requirements <strong>of</strong> the Valmin<br />
Code.<br />
AMC valued the Sandst<strong>on</strong>e Project to be between $3.4 milli<strong>on</strong> and $8.3 milli<strong>on</strong>. We have adopted the<br />
midpoint value <strong>of</strong> $5.85 milli<strong>on</strong> in our preferred valuati<strong>on</strong> scenario.<br />
SXG has advised us that a potential opti<strong>on</strong> to fund the Marda Project would be to sell the Sandst<strong>on</strong>e<br />
tenements. For the purpose <strong>of</strong> our valuati<strong>on</strong>, we have assumed that the Sandst<strong>on</strong>e tenements are sold at<br />
the values determined by AMC above.<br />
A copy <strong>of</strong> AMC’s report is attached at Appendix 4.<br />
10.1.3. NAV multiple<br />
The value per share <strong>of</strong> gold mining companies when valued using the DCF valuati<strong>on</strong> methodology,<br />
including the value <strong>of</strong> explorati<strong>on</strong> assets, is <strong>of</strong>ten lower than the value <strong>of</strong> the trading price per share.<br />
It is comm<strong>on</strong> practice to apply a NAV multiple to the DCF value and value <strong>of</strong> the explorati<strong>on</strong> assets to<br />
arrive at the value <strong>of</strong> a company.<br />
Possible reas<strong>on</strong>s for a difference between the value <strong>of</strong> the mineral assets per share and the traded price<br />
are:<br />
• The potential upside at existing operating or development sites that would allow for an extensi<strong>on</strong><br />
<strong>of</strong> the life <strong>of</strong> mine and higher volumes, outside <strong>of</strong> the announced reserve and resource;<br />
• The potential for actual gold prices exceeding the l<strong>on</strong>g-term forecast prices used in the DCF<br />
valuati<strong>on</strong>s;<br />
• Gold being perceived as a safe asset investment; and<br />
• The value attributable to the str<strong>on</strong>g management <strong>of</strong> a company.<br />
40
We have analysed a number <strong>of</strong> broker reports reporting <strong>on</strong> ASX listed gold companies <strong>with</strong> their main<br />
operati<strong>on</strong>s in Australia. The broker reports indicated that NAV multiples range between 0.85 and 1.53.<br />
In determining an appropriate NAV multiple to apply to SXG, we have had regard to:<br />
• SXG’s medium-high volatility;<br />
• SXG’s development stage – forecasting to start producti<strong>on</strong> in August 2014; and<br />
• The current management team.<br />
Based <strong>on</strong> the results <strong>of</strong> our analysis, we c<strong>on</strong>sider a NAV multiple <strong>of</strong> 1.0 to be appropriate for valuing SXG.<br />
10.1.4. Other Assets and Liabilities<br />
Other assets and liabilities represent the assets and liabilities which have not been specifically adjusted.<br />
From review <strong>of</strong> these other assets and liabilities, outlined in the table below, we do not believe that there<br />
is a material difference between their book value and their fair value unless an adjustment has been<br />
noted below. The table below represents a summary <strong>of</strong> the assets and liabilities identified:<br />
41
Southern Cross Goldfields Limited<br />
Value <strong>of</strong> other<br />
assets and<br />
Value <strong>of</strong> other<br />
assets and<br />
Unaudited as at liabilities as at liabilities as at<br />
31-M ar-13 31-M ar-13 31-M ar-13<br />
Low<br />
High<br />
Statement <strong>of</strong> Financial Positi<strong>on</strong> Note $ $ $<br />
CURRENT ASSETS<br />
Cash and cash equivalents a 3,361,085 13,261,085 20,161,085<br />
Prepayments 87,668 87,668 87,668<br />
TOTAL CURRENT ASSETS 3,448,753 13,348,753 20,248,753<br />
NON-CURRENT ASSETS<br />
Trade and other receivables b 2,825,000 106,000 106,000<br />
Property, plant and equipment c 197,836 - -<br />
Tenement acquisiti<strong>on</strong> costs d 5,612,873 - -<br />
TOTAL NON-CURRENT ASSETS 8,635,709 106,000 106,000<br />
TOTAL ASSETS 12,084,462 13,454,753 20,354,753<br />
CURRENT LIABILITIES<br />
Trade and other payables 1,068,971 1,068,971 1,068,971<br />
Provisi<strong>on</strong>s 100,338 100,338 100,338<br />
Sandst<strong>on</strong>e Acquisiti<strong>on</strong> Facility e 7,000,000 - -<br />
RMB new finance facility e 5,000,000 5,000,000<br />
TOTAL CURRENT LIABILITIES 8,169,309 6,169,309 6,169,309<br />
TOTAL LIABILITES 8,169,309 6,169,309 6,169,309<br />
NET ASSETS 3,915,153 7,285,444 14,185,444<br />
Note a: Cash and cash equivalents<br />
The Marda Project has been funded <strong>on</strong> the assumpti<strong>on</strong> that SXG raises between $9 milli<strong>on</strong> and $11 milli<strong>on</strong><br />
in equity funding.<br />
We have c<strong>on</strong>sidered the discount at which shares and opti<strong>on</strong>s have been issued by ASX listed mining<br />
companies, <strong>with</strong> market capitalisati<strong>on</strong> between $5 milli<strong>on</strong> and $25 milli<strong>on</strong>, when compared <strong>with</strong> the<br />
companies’ share prices the day prior to the announcement <strong>of</strong> the placements.<br />
The average discount at which shares were issued by ASX listed metals and mining companies in 2012 <strong>with</strong><br />
market capitalisati<strong>on</strong> between $5 milli<strong>on</strong> and $25 milli<strong>on</strong> was 13.6%. This indicates that any fund raising<br />
<strong>on</strong> the ASX is likely to be at this level <strong>of</strong> discount to the prevailing listed market price.<br />
We have based our calculati<strong>on</strong> <strong>on</strong> the assumpti<strong>on</strong> that SXG issues between 333 milli<strong>on</strong> and 407 milli<strong>on</strong><br />
shares at $0.027 to raise between $9 milli<strong>on</strong> and $11 milli<strong>on</strong>. The capital raising price is at a 15% discount<br />
to our preferred value per share <strong>of</strong> $0.032 under the quoted market price method as set out in secti<strong>on</strong><br />
42
10.2. We c<strong>on</strong>sider a discount <strong>of</strong> 15% to be appropriate given the equity funding required compared to the<br />
current market capitalisati<strong>on</strong> <strong>of</strong> SXG and our research.<br />
We have valued SXG <strong>on</strong> the basis that the Sandst<strong>on</strong>e tenements are sold and that any proceeds are used to<br />
fund the Marda Project. We have added back the tenement values <strong>of</strong> between $3.4 milli<strong>on</strong> and $8.3<br />
milli<strong>on</strong> as derived by AMC.<br />
The Sandst<strong>on</strong>e facility will be re-financed following the sale <strong>of</strong> Sandst<strong>on</strong>e to be a new $5 milli<strong>on</strong> facility<br />
from RMB Australia Holdings Limited. The net effect <strong>on</strong> the balance sheet is a reducti<strong>on</strong> <strong>of</strong> $2 milli<strong>on</strong> in<br />
cash. We have adjusted the cash balance for this net effect.<br />
In August 2011, SXG entered into an opti<strong>on</strong> agreement <strong>with</strong> Barranco to acquire the Red Legs and Die<br />
Hardy deposits. The opti<strong>on</strong> expires in August 2013 and SXG have advised us that they intend <strong>on</strong> exercising<br />
the opti<strong>on</strong>. The c<strong>on</strong>siderati<strong>on</strong> payable to Barranco <strong>on</strong> the exercise <strong>of</strong> the opti<strong>on</strong> is $0.5 milli<strong>on</strong> in cash and<br />
20 milli<strong>on</strong> SXG shares. We have deducted $0.5 milli<strong>on</strong> from the cash balance.<br />
Note b: Trade and other receivables<br />
Trade and other receivables relate to cash <strong>on</strong> deposit for envir<strong>on</strong>mental b<strong>on</strong>ds. The Sandst<strong>on</strong>e b<strong>on</strong>d <strong>of</strong><br />
$2.719m has been deducted <strong>on</strong> the basis that the Sandst<strong>on</strong>e tenements are sold to fund the Marda<br />
Project.<br />
Note c: Plant and Equipment<br />
Plant and equipment relates to the Marda Project and has been excluded from the other assets and<br />
liabilities as it forms an integral part in the value <strong>of</strong> that project.<br />
Note d: Tenement acquisiti<strong>on</strong> costs<br />
The Company’s tenement acquisiti<strong>on</strong> expenditure has been reflected through the DCF valuati<strong>on</strong> under<br />
secti<strong>on</strong> 11.1.1 and the other explorati<strong>on</strong> assets valuati<strong>on</strong> under secti<strong>on</strong>s 11.1.2 and 11.1.3 and has<br />
therefore been excluded in the valuati<strong>on</strong> <strong>of</strong> other assets and liabilities.<br />
Note e: Sandst<strong>on</strong>e Acquisiti<strong>on</strong> Facility and RMB facility<br />
The Sandst<strong>on</strong>e facility will be re-financed following the sale <strong>of</strong> Sandst<strong>on</strong>e, and subsequent repayment <strong>of</strong><br />
the facility, to be a new $5 milli<strong>on</strong> facility from RMB Australia Holdings Limited.<br />
10.1.5. Corporate costs<br />
Low M id High<br />
Equity capital raising $ 9,000,000 $ 10,000,000 $ 11,000,000<br />
Share price $ 0.032 $ 0.032 $ 0.032<br />
Discount 15.0% 15.0% 15.0%<br />
Issue price $ 0.027 $ 0.027 $ 0.027<br />
Shares issued 333,333,334 370,370,371 407,407,408<br />
For the half-year ended 31 December 2012, corporate costs for SXG totalled approximately $1.12 milli<strong>on</strong><br />
and were approximately $2.14 milli<strong>on</strong> in the 2012 financial year. SXG has advised us that the forecast<br />
annual corporate costs are $2.25 milli<strong>on</strong>.<br />
43
We calculated the corporate costs over the LOM in case 1 and case 2 <strong>of</strong> the Adjusted Marda Model based<br />
<strong>on</strong> $2.25 milli<strong>on</strong> per annum. The net present value <strong>of</strong> future corporate costs is between $12.01 milli<strong>on</strong> and<br />
$14.69 milli<strong>on</strong>.<br />
10.1.6. Transacti<strong>on</strong> costs<br />
Transacti<strong>on</strong> costs in relati<strong>on</strong> to the Scheme and Transacti<strong>on</strong> <strong>of</strong> $500,000 have been deducted. These costs<br />
will be incurred regardless <strong>of</strong> whether or not the Transacti<strong>on</strong> is approved.<br />
10.1.7. Shares <strong>on</strong> Issue<br />
In determining a value per share for SXG, we applied the number <strong>of</strong> SXG shares <strong>on</strong> issue at the date <strong>of</strong> this<br />
report, being 408,912,834 plus the SXG shares that would be issued if the Company were to raise between<br />
$9 milli<strong>on</strong> $11 milli<strong>on</strong> via equity funding and the shares issued to Barranco <strong>on</strong> the exercise <strong>of</strong> the Red Legs<br />
and Die Hardy opti<strong>on</strong>.<br />
10.1.8. Sum-<strong>of</strong>-parts valuati<strong>on</strong> for SXG<br />
We have assessed the c<strong>on</strong>trol value per share using the sum-<strong>of</strong>-parts method to be between $0.031 and<br />
$0.044, <strong>with</strong> a midpoint value <strong>of</strong> $0.038.<br />
Southern Cross Goldfields Limited Low Preferred High<br />
Summary <strong>of</strong> assessment Reference $ (milli<strong>on</strong>s) $ (milli<strong>on</strong>s) $ (milli<strong>on</strong>s)<br />
DCF value <strong>of</strong> the M arda Project 10.1.1 28.22 32.39 36.55<br />
Value <strong>of</strong> the M arda Project's explorati<strong>on</strong> potential 10.1.2 0.65 0.98 1.30<br />
Value <strong>of</strong> the Sandst<strong>on</strong>e Project 10.1.2 - - -<br />
Value <strong>of</strong> mineral assets 28.87 33.37 37.85<br />
NAV multiple 10.1.3 1.00 1.00 1.00<br />
Total value <strong>of</strong> SXG's mineral assets 28.87 33.37 37.85<br />
Other assets 10.1.4 13.45 16.90 20.35<br />
Other liabilities 10.1.4 (6.17) (6.17) (6.17)<br />
Corporate costs 10.1.5 (12.01) (13.35) (14.69)<br />
Transacti<strong>on</strong> costs 10.1.6 (.50) (.50) (.50)<br />
Value <strong>of</strong> SXG 23.64 30.25 36.84<br />
Current shares <strong>on</strong> issue 10.1.7 408,912,834 408,912,834 408,912,834<br />
Shares issued to Barranco Resources 10.1.4 20,000,000 20,000,000 20,000,000<br />
Shares issued through equity funding 10.1.4 333,333,334 370,370,371 407,407,408<br />
Shares <strong>on</strong> issue following the capital raising 762,246,168 799,283,205 836,320,242<br />
Value <strong>of</strong> an SXG share <strong>on</strong> a c<strong>on</strong>trol basis 0.031 0.038 0.044<br />
We note that we have not diluted for the exercise <strong>of</strong> any SXG opti<strong>on</strong>s <strong>on</strong> issue as they are c<strong>on</strong>sidered to be<br />
‘out <strong>of</strong> the m<strong>on</strong>ey’ based <strong>on</strong> our assessed value per share above.<br />
44
10.2. Quoted Market Prices for SXG securities<br />
To provide a comparis<strong>on</strong> to the valuati<strong>on</strong> <strong>of</strong> SXG in Secti<strong>on</strong> 11.1, we have also assessed the quoted market<br />
price for an SXG share.<br />
The quoted market value <strong>of</strong> a company’s shares is reflective <strong>of</strong> a minority interest. A minority interest is<br />
an interest in a company that is not significant enough for the holder to have an individual influence in the<br />
operati<strong>on</strong>s and value <strong>of</strong> that company.<br />
RG 111.11 suggests that when c<strong>on</strong>sidering the value <strong>of</strong> a company’s shares for the purposes <strong>of</strong> approval<br />
under Item 7 <strong>of</strong> s611 the expert should c<strong>on</strong>sider a premium for c<strong>on</strong>trol. An acquirer could be expected to<br />
pay a premium for c<strong>on</strong>trol due to the advantages they will receive should they obtain 100% c<strong>on</strong>trol <strong>of</strong><br />
another company. These advantages include the following:<br />
• c<strong>on</strong>trol over decisi<strong>on</strong> making and strategic directi<strong>on</strong>;<br />
• access to underlying cash flows;<br />
• c<strong>on</strong>trol over dividend policies; and<br />
• access to potential tax losses.<br />
Whilst the Sproule Interest will not be obtaining 100% <strong>of</strong> SXG, RG 111 states that the expert should<br />
calculate the value <strong>of</strong> a target’s shares as if 100% c<strong>on</strong>trol were being obtained. RG 111.13 states that the<br />
expert can then c<strong>on</strong>sider an acquirer’s practical level <strong>of</strong> c<strong>on</strong>trol when c<strong>on</strong>sidering reas<strong>on</strong>ableness.<br />
Reas<strong>on</strong>ableness has been c<strong>on</strong>sidered in Secti<strong>on</strong> 13.<br />
Therefore, our calculati<strong>on</strong> <strong>of</strong> the quoted market price <strong>of</strong> an SXG share including a premium for c<strong>on</strong>trol has<br />
been prepared in two parts. The first part is to calculate the quoted market price <strong>on</strong> a minority interest<br />
basis. The sec<strong>on</strong>d part is to add a premium for c<strong>on</strong>trol to the minority interest value to arrive at a quoted<br />
market price value that includes a premium for c<strong>on</strong>trol.<br />
Minority interest value<br />
Our analysis <strong>of</strong> the quoted market price <strong>of</strong> an SXG share is based <strong>on</strong> the pricing prior to the announcement<br />
<strong>of</strong> the Transacti<strong>on</strong>. This is because the value <strong>of</strong> a share after the announcement may include the effects<br />
<strong>of</strong> any change in value as a result <strong>of</strong> the Transacti<strong>on</strong>. However, we have c<strong>on</strong>sidered the value <strong>of</strong> an SXG<br />
share following the announcement when we have c<strong>on</strong>sidered reas<strong>on</strong>ableness in Secti<strong>on</strong> 13.<br />
Informati<strong>on</strong> <strong>on</strong> the Scheme and Transacti<strong>on</strong> was announced to the market <strong>on</strong> 8 April 2013. Therefore, the<br />
following chart provides a summary <strong>of</strong> the share price movement over the 12 m<strong>on</strong>ths to 5 April 2013 which<br />
was the last trading day prior to the announcement.<br />
45
SXG share price and trading volume history<br />
Share Price ($)<br />
0.08<br />
0.06<br />
0.04<br />
0.02<br />
0.00<br />
5.0<br />
4.0<br />
3.0<br />
2.0<br />
1.0<br />
-<br />
Volume (milli<strong>on</strong>s)<br />
Volume<br />
Closing share price<br />
Source: Bloomberg<br />
The daily closing price <strong>of</strong> SXG shares for the year to 5 April 2013 has ranged from a low <strong>of</strong> $0.026 <strong>on</strong><br />
5 April 2013 to a high <strong>of</strong> $0.069 <strong>on</strong> 23 August 2012.<br />
The largest movements in the SXG share price occurred between 14 August 2012 and 30 August 2012. On<br />
14 August 2012 SXG closed at $0.051 and by 16 August 2012 the share price had reached $0.069. During<br />
this period SXG had announced its acquisiti<strong>on</strong> <strong>of</strong> the Sandst<strong>on</strong>e Gold Project from Troy Resources Limited.<br />
Subsequently the share price declined from a high <strong>of</strong> $0.069 to a low <strong>of</strong> $0.046 <strong>on</strong> 30 August 2012<br />
following the announcement <strong>of</strong> the rights issue <strong>on</strong> 24 August 2012.<br />
SXG experienced a spike in trading volume <strong>on</strong> 22 November 2012 <strong>with</strong> 4.15 milli<strong>on</strong> shares traded <strong>on</strong> this<br />
day. No announcements were made to the market to support this increase in trading volume, however SXG<br />
announced an update <strong>on</strong> the status <strong>of</strong> its projects <strong>on</strong> 23 November 2012.<br />
46
Over the year to 5 April 2013 a number <strong>of</strong> announcements were made to the market. The key<br />
announcements are set out below:<br />
Date<br />
Announcement<br />
Closing Share Price<br />
Following<br />
Announcement<br />
Closing Share Price<br />
Three Days After<br />
Announcement<br />
$ (movement) $ (movement)<br />
4/04/2013 Trading Halt 0.026 (16%) 0.026 (-)<br />
27/03/2013 SXG Completes Acquisiti<strong>on</strong> <strong>of</strong> Sandst<strong>on</strong>e Gold Project 0.033 (3%) 0.032 (3%)<br />
28/02/2013 Another Significant New Gold Target Identified at M arda 0.037 (9%) 0.035 (5%)<br />
18/02/2013 New Gold Target Identified North <strong>of</strong> M arda 0.038 (-) 0.036 (5%)<br />
31/01/2013 Quarterly Activities and Cashflow Report 0.039 (-) 0.039 (-)<br />
10/12/2012 SXG Signs Formal Agreement for Sandst<strong>on</strong>e, Receives Finance 0.043 (2%) 0.040 (7%)<br />
23/11/2012 <str<strong>on</strong>g>Update</str<strong>on</strong>g> <strong>on</strong> WA Gold Projects 0.043 (7%) 0.043 (-)<br />
31/10/2012 Quarterly Activities and Cashflow Report 0.045 (2%) 0.046 (2%)<br />
24/10/2012 RM B M andated to Finance Sandst<strong>on</strong>e Project Acquisiti<strong>on</strong> 0.048 (4%) 0.048 (-)<br />
22/10/2012 Sandst<strong>on</strong>e acquisiti<strong>on</strong> and debt funding update 0.046 (5%) 0.049 (7%)<br />
26/09/2012 SXG to progress gold producti<strong>on</strong> plans following Rights issue 0.05 (6%) 0.050 (-)<br />
19/09/2012 New Gold Corridor Highlights Growth Potential at M arda 0.048 (2%) 0.053 (10%)<br />
17/09/2012 SXG appoints PCF as debt advisors for WA Gold Projects 0.047 (2%) 0.049 (4%)<br />
24/08/2012 Prospectus 0.064 (7%) 0.054 (16%)<br />
24/08/2012 SXG Rights Issue to Underpin Transiti<strong>on</strong> To Gold Producti<strong>on</strong> 0.064 (7%) 0.054 (16%)<br />
24/08/2012 Reinstatement to Official Quotati<strong>on</strong> 0.064 (7%) 0.054 (16%)<br />
22/08/2012 Suspensi<strong>on</strong> from Official Quotati<strong>on</strong> 0.069 (-) 0.054 (22%)<br />
20/08/2012 Trading Halt 0.069 (-) 0.069 (-)<br />
17/08/2012 M arda Enhancements Provide Compelling Investment Case 0.069 (6%) 0.069 (-)<br />
14/08/2012 SXG to Double Resources and Halve M arda Project Capital<br />
Cost<br />
0.051 (4%) 0.069 (35%)<br />
9/08/2012 New Drill Targets Identified At Copper Bore VMS Project 0.05 (9%) 0.049 (2%)<br />
2/08/2012 M arda Gold Project <str<strong>on</strong>g>Update</str<strong>on</strong>g> 0.045 (13%) 0.045 (-)<br />
25/07/2012 Quarterly Activities and Cashflow Report 0.035 (-) 0.040 (14%)<br />
10/07/2012 COPPER BORE VM S copper gold project explorati<strong>on</strong> update 0.038 (-) 0.038 (-)<br />
28/06/2012 New massive sulphide intersecti<strong>on</strong> enhances copper bore 0.036 (3%) 0.037 (3%)<br />
21/06/2012 New discoveries upgrade regi<strong>on</strong>al gold potential at Marda 0.04 (5%) 0.040 (-)<br />
10/05/2012 SXG set to open up new WA gold province <strong>with</strong> M arda gold 0.044 (4%) 0.047 (7%)<br />
30/04/2012 Quarterly Activities and Cashflow Report 0.052 (-) 0.050 (4%)<br />
26/04/2012 SXG extends base metal mineralizati<strong>on</strong> at Copper Bore 0.058 (4%) 0.052 (10%)<br />
On 27 March 2013 SXG announced the completi<strong>on</strong> <strong>of</strong> its acquisiti<strong>on</strong> <strong>of</strong> the Sandst<strong>on</strong>e Gold Project. The<br />
acquisiti<strong>on</strong> more than doubled SXG’s gold resource inventory and provided SXG <strong>with</strong> the plant, camp and<br />
infrastructure required to fast track its transiti<strong>on</strong> to gold producti<strong>on</strong>. The share price <strong>of</strong> SXG increased 3%<br />
following this announcement.<br />
47
On 28 February 2013 SXG announced the discovery <strong>of</strong> a new gold target at its Marda Gold Project. The<br />
market viewed this positively <strong>with</strong> the share price increasing 9% following the announcement. The market<br />
adjusted its positive reacti<strong>on</strong> to this announcement <strong>with</strong> the share price declining 5% for the subsequent<br />
three days after the date <strong>of</strong> the announcement.<br />
On 18 February 2013 SXG announced the identificati<strong>on</strong> <strong>of</strong> a new gold target approximately 60km north <strong>of</strong><br />
the gold treatment facility at Marda. The share price was unchanged following this announcement, <strong>with</strong><br />
an unexplained 5% decrease in the share price for the three days following the announcement.<br />
On 23 November 2012 SXG announced to the market an update <strong>on</strong> the status <strong>of</strong> its Western Australian gold<br />
projects. The major highlights from the announcement related to the progressi<strong>on</strong> <strong>of</strong> the deal <strong>with</strong> Troy<br />
Resources to acquire the Sandst<strong>on</strong>e Gold Project and the c<strong>on</strong>tinued auger drilling immediately north <strong>of</strong> its<br />
Lancelot prospect. Following this announcement the share price <strong>of</strong> SXG increased 7%.<br />
On 24 August 2012 SXG was reinstated to <strong>of</strong>ficial quotati<strong>on</strong> after being suspended <strong>on</strong> 22 August 2012<br />
pending a capital raising announcement. SXG also announced a rights issue, <strong>with</strong> the accompanying<br />
Prospectus, to raise $5.2 milli<strong>on</strong> to fund the transiti<strong>on</strong> to producti<strong>on</strong> <strong>of</strong> its Marda Gold Project. Following<br />
this announcement the share price <strong>of</strong> SXG decreased 7%, and a further 16% in the three days after the<br />
announcement.<br />
On 14 August 2012 SXG announced its acquisiti<strong>on</strong> <strong>of</strong> the Sandst<strong>on</strong>e Gold project from Troy Resources,<br />
which was intended to provide a clear pathway to gold producti<strong>on</strong> and significantly reduce plant<br />
c<strong>on</strong>structi<strong>on</strong> and scheduling risk for its Marda Gold Project. The market reacted positively to this news<br />
<strong>with</strong> the share price increasing 4% following the announcement. The share price c<strong>on</strong>tinued to increase<br />
<strong>with</strong> the share price increasing 35% in the three days following the announcement.<br />
On 9 August 2012 new drill targets were identified at the Copper Bore VMS Project. The market reacted<br />
positively to this news <strong>with</strong> the share price increasing 9% following the announcement.<br />
On 2 August 2012 SXG released an update <strong>on</strong> the Marda Gold Project, <strong>with</strong> the major highlights including<br />
the progressi<strong>on</strong> <strong>of</strong> discussi<strong>on</strong>s <strong>with</strong> project financiers and a proposed reducti<strong>on</strong> in capital costs <strong>of</strong><br />
approximately $51 milli<strong>on</strong>. Following this announcement the share price increased 13%.<br />
To provide further analysis <strong>of</strong> the market prices for an SXG share, we have also c<strong>on</strong>sidered the volume<br />
weighted average market price for 10, 30, 60 and 90 trading day periods to 7 April 2013.<br />
5-Apr-13 10 Days 30 Days 60 Days 90 Days<br />
Closing Price $0.026<br />
Volume Weighted Average Price $0.032 $0.033 $0.036 $0.038<br />
The above weighted average prices are prior to the date <strong>of</strong> the announcement <strong>of</strong> the Transacti<strong>on</strong>, to avoid<br />
the influence <strong>of</strong> any increase in price <strong>of</strong> SXG shares that has occurred since the Transacti<strong>on</strong> was<br />
announced.<br />
An analysis <strong>of</strong> the volume <strong>of</strong> trading in SXG shares for the twelve m<strong>on</strong>ths to 5 April 2013 is set out below:<br />
48
This table indicates that SXG’s shares display a low level <strong>of</strong> liquidity, <strong>with</strong> 21% <strong>of</strong> the Company’s current<br />
issued capital being traded in a twelve m<strong>on</strong>th period. For the quoted market price methodology to be<br />
reliable there needs to be a ‘deep’ market in the shares. RG 111.69 indicates that a ‘deep’ market should<br />
reflect a liquid and active market. We c<strong>on</strong>sider the following characteristics to be representative <strong>of</strong> a<br />
deep market:<br />
• Regular trading in a company’s securities;<br />
• Approximately 1% <strong>of</strong> a company’s securities are traded <strong>on</strong> a weekly basis;<br />
• The spread <strong>of</strong> a company’s shares must not be so great that a single minority trade can significantly<br />
affect the market capitalisati<strong>on</strong> <strong>of</strong> a company; and<br />
• There are no significant but unexplained movements in share price.<br />
Share price Share price Cumulative volume As a % <strong>of</strong><br />
low high traded Issued capital<br />
1 Trading Day $0.026 $0.026 - 0.00%<br />
10 Trading Days $0.026 $0.035 2,501,413 0.61%<br />
30 Trading Days $0.026 $0.038 6,776,391 1.66%<br />
60 Trading Days $0.026 $0.043 11,601,340 2.84%<br />
90 Trading Days $0.026 $0.044 24,675,336 6.03%<br />
180 Trading Days $0.026 $0.070 71,808,701 17.56%<br />
1 Year $0.026 $0.070 87,769,957 21.46%<br />
A company’s shares should meet all <strong>of</strong> the above criteria to be c<strong>on</strong>sidered ‘deep’, however, failure <strong>of</strong> a<br />
company’s securities to exhibit all <strong>of</strong> the above characteristics does not necessarily mean that the value<br />
<strong>of</strong> its shares cannot be c<strong>on</strong>sidered relevant.<br />
In the case <strong>of</strong> SXG, we c<strong>on</strong>sider the shares to display a low level <strong>of</strong> liquidity, <strong>with</strong> less than 3% <strong>of</strong> issued<br />
capital traded in 60 trading days prior to 5 April 2013.<br />
Our assessment is that a range <strong>of</strong> values for SXG shares based <strong>on</strong> market pricing, after disregarding post<br />
announcement pricing, is between $0.026 and $0.038, <strong>with</strong> a midpoint <strong>of</strong> $0.032.<br />
49
C<strong>on</strong>trol Premium<br />
The c<strong>on</strong>cept <strong>of</strong> a premium for c<strong>on</strong>trol reflects the additi<strong>on</strong>al value that is attached to a c<strong>on</strong>trolling<br />
interest. We have reviewed the announced c<strong>on</strong>trol premiums paid by acquirers <strong>of</strong> gold mining companies<br />
listed <strong>on</strong> the ASX since 2006. We have summarised our findings below:<br />
Year<br />
Number <strong>of</strong><br />
Transacti<strong>on</strong>s<br />
Average Deal Value<br />
(A$m)<br />
Average C<strong>on</strong>trol<br />
Premium (%)<br />
2012 9 247.99 34.03<br />
2011 8 1,119.33 22.56<br />
2010 10 1,364.83 56.11<br />
2009 13 128.61 21.39<br />
2008 3 446.27 28.54<br />
2007 10 191.36 29.36<br />
2006 9 62.96 12.99<br />
Median 247.99 28.54<br />
Mean 508.76 29.28<br />
Source: BDO Analysis and Bloomberg<br />
In arriving at an appropriate c<strong>on</strong>trol premium to apply we note that observed c<strong>on</strong>trol premiums can vary<br />
due to the:<br />
• Nature and magnitude <strong>of</strong> n<strong>on</strong>-operating assets;<br />
• Nature and magnitude <strong>of</strong> discreti<strong>on</strong>ary expenses;<br />
• Perceived quality <strong>of</strong> existing management;<br />
• Nature and magnitude <strong>of</strong> business opportunities not currently being exploited;<br />
• Ability to integrate the acquiree into the acquirer’s business;<br />
• Level <strong>of</strong> pre-announcement speculati<strong>on</strong> <strong>of</strong> the transacti<strong>on</strong>;<br />
• Level <strong>of</strong> liquidity in the trade <strong>of</strong> the acquiree’s securities.<br />
Taking the factors above into c<strong>on</strong>siderati<strong>on</strong> in a applying a c<strong>on</strong>trol premium to SXG’s quoted market share<br />
price we believe an appropriate range to be 25% - 35%, <strong>with</strong> a midpoint value <strong>of</strong> 30%.<br />
Low Preferred High<br />
Quoted market prices $0.026 $0.032 $0.038<br />
C<strong>on</strong>trol premium 25% 30% 35%<br />
Quoted market price including a premium for c<strong>on</strong>trol $0.033 $0.042 $0.051<br />
50
10.3. Resource multiple valuati<strong>on</strong> cross-check<br />
As a further cross check to our primary and sec<strong>on</strong>dary valuati<strong>on</strong>s, we have analysed the resource multiple<br />
observed for companies listed <strong>on</strong> the ASX <strong>with</strong> gold projects in Australia as their primary focus.<br />
We have calculated SXG’s market capitalisati<strong>on</strong> based <strong>on</strong> the preferred value per share as derived using<br />
the sum-<strong>of</strong>-parts method being $0.038 and applied a minority discount. To this value we have added the<br />
current net debt <strong>of</strong> SXG to arrive at its enterprise value <strong>of</strong> $15.5 milli<strong>on</strong>.<br />
The table below shows that the median enterprise value per unit <strong>of</strong> inferred, indicated and measured<br />
resource is $53.06 per ounce.<br />
We have also analysed the median enterprise value per unit <strong>of</strong> inferred, indicated and measured resource<br />
when excluding companies <strong>with</strong> a market capitalisati<strong>on</strong> above $200 milli<strong>on</strong>. We have d<strong>on</strong>e this to exclude<br />
companies that are substantially larger than SXG. The median enterprise value per unit <strong>of</strong> inferred,<br />
indicated and measured resource when excluding the larger companies is $36.00 per ounce.<br />
Resource multiple<br />
Company name<br />
Enterprise<br />
value Resources<br />
EV/resource<br />
multiple<br />
5 April 2013<br />
$m milli<strong>on</strong> oz $/oz<br />
Southern Cross Goldfields Limited 15.5 0.5 28.39<br />
Regis Resources Limited* 1,947.9 10.1 192.29<br />
Tanami Gold NL 115.9 3.1 37.07<br />
Evoluti<strong>on</strong> M ining Limited* 937.9 7.7 121.81<br />
Silver Lake Resources Limited* 642.6 4.6 140.31<br />
Rand Mining Limited 20.1 0.1 167.17<br />
BCD Resources NL 1.1 0.1 11.56<br />
Kalnorth Gold Mines Limited 40.9 1.2 34.92<br />
Octag<strong>on</strong>al Resources Limited 11.9 0.2 48.59<br />
Ramelius Resources Limited 56.9 2.8 20.08<br />
Excelsior Gold Limited 66.2 1.2 57.53<br />
Average 83.13<br />
Median 53.06<br />
Average*<br />
Median*<br />
50.66<br />
36.00<br />
* We have excluded companies <strong>with</strong> a market capitalisati<strong>on</strong> above $200 milli<strong>on</strong><br />
The multiples range between $11.56/ounce and $57.53/ounce when excluding the larger comparable<br />
companies.<br />
51
We note that SXG’s EV/resource multiple <strong>of</strong> $28.39 per ounce falls <strong>with</strong>in the range <strong>of</strong> multiples <strong>of</strong> the<br />
comparable companies which implies that our value derived under the sum-<strong>of</strong>-parts methodology is<br />
reas<strong>on</strong>able.<br />
A brief descripti<strong>on</strong> <strong>of</strong> the comparable companies is set out below:<br />
Company name<br />
Regis Resources Limited<br />
Tanami Gold NL<br />
Evoluti<strong>on</strong> Mining Limited<br />
Silver Lake Resources<br />
Limited<br />
Rand Mining Limited<br />
BCD Resources NL<br />
Kalnorth Gold Mines<br />
Limited<br />
Octag<strong>on</strong>al Resources<br />
Limited<br />
Ramelius Resources<br />
Limited<br />
Excelsior Gold Limited<br />
Descripti<strong>on</strong><br />
Regis Resources Limited is a mineral explorati<strong>on</strong> and gold producti<strong>on</strong> company. Regis mines for gold,<br />
nickel and copper and currently has two producing gold mines being the Moolart Well Project and the<br />
Garden Well Project. Both these project are located in Western Australia.<br />
Tanami Gold NL acquires, explores for and produces gold in central Western Australia and the<br />
Northern Territory. The Tanami's prospects include Highland Rocks, the West Australian Joint Venture<br />
and Harts Range.<br />
Evoluti<strong>on</strong> Mining Ltd is a gold explorati<strong>on</strong> and producti<strong>on</strong> company <strong>with</strong> operati<strong>on</strong>s in Western<br />
Australia and Queensland. Evoluti<strong>on</strong> owns the following gold mines - Cracow, Edna May, Mt Rawd<strong>on</strong> and<br />
Pajingo - and the Mt Carlt<strong>on</strong> development project.<br />
Silver Lake Resources is a mineral explorati<strong>on</strong> and producti<strong>on</strong> company currently in the ASX 200. Silver<br />
Lake is focused <strong>on</strong> gold explorati<strong>on</strong> in Western Australia focussing <strong>on</strong> Mount M<strong>on</strong>ger, and Murchis<strong>on</strong><br />
Goldfields and the Great Southern District <strong>of</strong> Western Australia.<br />
Rand Mining Limited is involved in mineral explorati<strong>on</strong>, development and producti<strong>on</strong> activities at its<br />
gold interests in Kalgoorlie. Its main focus is the East Kundana joint venture in Western Australia.<br />
BCD Resources NL is a mining company focusing <strong>on</strong> gold and copper. It holds interests in copper and<br />
gold projects in Victoria and gold projects in Tasmania.<br />
Kalnorth Gold Mines Limited (formerly Carrick Gold Limited) is a gold explorati<strong>on</strong> and development<br />
company <strong>with</strong> a portfolio <strong>of</strong> projects located in Western Australia. It focuses <strong>on</strong> four main projects:<br />
Lindsay’s, Kalpini, Mt Jewell and Kurnalpi (collectively the LKK Project).<br />
Octag<strong>on</strong>al Resources is a gold explorer focusing in the Eastern Goldfields Province <strong>of</strong> the Yilgarn<br />
Crat<strong>on</strong> in Western Australia and the Bendigo Z<strong>on</strong>e <strong>of</strong> the Lachlan Fold Belt in Victoria.<br />
Ramelius Resources Limited is a gold mining and producti<strong>on</strong> which operates two main projects, Wattle<br />
Dam Gold Mine and Mt Magnet Gold Mine, in Western Australia. It also holds a portfolio <strong>of</strong> explorati<strong>on</strong><br />
and development projects located in Australia and USA.<br />
Excelsior Gold Limited (formerly Atom Energy Limited) is engaged in the gold explorati<strong>on</strong> and<br />
development. Its main project is the Kalgoorlie North Gold Project, located 45kms north <strong>of</strong> Kalgoorlie.<br />
10.4. Assessment <strong>of</strong> SXG’s value<br />
The results <strong>of</strong> the valuati<strong>on</strong>s performed are summarised in the table below:<br />
Low<br />
$<br />
Preferred<br />
$<br />
High<br />
$<br />
Sum-<strong>of</strong>-parts (Secti<strong>on</strong> 10.1) $0.031 $0.038 0.044<br />
Quoted market prices (Secti<strong>on</strong> 10.2) $0.033 $0.042 $0.051<br />
We c<strong>on</strong>sider that the sum-<strong>of</strong>-parts methodology to be the most reliable due to the core value <strong>of</strong> SXG being<br />
in the mineral assets that it holds in its balance sheet, being the Marda and Sandst<strong>on</strong>e Projects. We do not<br />
52
c<strong>on</strong>sider the QMP method to be as reliable due to the low level <strong>of</strong> liquidity over the past 12 m<strong>on</strong>ths. We<br />
note however that the value per share derived under the QMP method supports the value derived using<br />
the sum-<strong>of</strong>-parts method.<br />
We have therefore based our valuati<strong>on</strong> <strong>of</strong> an SXG share primarily <strong>on</strong> the sum-<strong>of</strong>-parts methodology and<br />
c<strong>on</strong>sider the value <strong>of</strong> an SXG share prior to the Transacti<strong>on</strong> and including a premium for c<strong>on</strong>trol to be<br />
between $0.031 and $0.044, <strong>with</strong> a preferred value <strong>of</strong> $0.038.<br />
11. Valuati<strong>on</strong> <strong>of</strong> the Merged Entity<br />
To determine if the Transacti<strong>on</strong> is fair and reas<strong>on</strong>able it is necessary to c<strong>on</strong>duct a valuati<strong>on</strong> <strong>of</strong> the Merged<br />
Entity that will result from approval and implementati<strong>on</strong> <strong>of</strong> the Scheme, including the requirement for<br />
approval <strong>of</strong> the Transacti<strong>on</strong> by SXG Shareholders.<br />
In our assessment <strong>of</strong> the value <strong>of</strong> the Merged Entity, we have chosen to employ the sum <strong>of</strong> parts<br />
methodology.<br />
The Merged Entity is valued by combining the sum <strong>of</strong> parts value <strong>of</strong> each company and adjusted for any<br />
forecast synergies in the Merged Entity.<br />
SXG have advised us that if the <strong>Merger</strong> proceeds, the primary intenti<strong>on</strong> <strong>of</strong> the Merged Entity is to progress<br />
regulatory approvals and financing for the development <strong>of</strong> the Marda Project. On that basis, the valuati<strong>on</strong><br />
<strong>of</strong> the Merged Entity has been prepared <strong>with</strong> producti<strong>on</strong> at the Mt Boppy Project being delayed by 12<br />
m<strong>on</strong>ths to 2015 to enable the Merged Entity to focus <strong>on</strong> bringing the Marda Project into producti<strong>on</strong> in<br />
2014. SXG have advised us that the Mt Boppy Project will be prioritised for development as sufficient cash<br />
reserves become available.<br />
11.1. Sum <strong>of</strong> parts valuati<strong>on</strong> <strong>of</strong> the Merged Entity<br />
11.1.1. DCF valuati<strong>on</strong> <strong>of</strong> the Mt Boppy Project<br />
We elected to use the DCF approach in valuing PLY’s Mt Boppy Project (“the Mt Boppy Project”). The DCF<br />
approach estimates the fair market value by discounting the future cash flows arising from the project to<br />
their net present value using the forecast discount rate <strong>of</strong> the Merged Entity. Performing a DCF valuati<strong>on</strong><br />
requires the determinati<strong>on</strong> <strong>of</strong> the following:<br />
• The expected future cash flows that the project is expected to generate; and<br />
• An appropriate discount rate to apply to the cash flows <strong>of</strong> the project to c<strong>on</strong>vert them to present<br />
value equivalent.<br />
A cash flow model for the Mt Boppy Project was prepared by PLY (“the Mt Boppy Model”). The Mt Boppy<br />
Model estimates the future cash flows expected from gold producti<strong>on</strong> at the Mt Boppy Project based <strong>on</strong><br />
determined JORC compliant reserves. The Mt Boppy Model depicts forecasts <strong>of</strong> real, post-tax cash flows<br />
over the life <strong>of</strong> mine <strong>on</strong> a m<strong>on</strong>thly basis.<br />
The Mt Boppy Model has been adjusted by us to reflect any changes to technical assumpti<strong>on</strong>s as a result<br />
<strong>of</strong> AMC’s review and any changes to the ec<strong>on</strong>omic and other input assumpti<strong>on</strong>s from our research (“the<br />
Adjusted Mt Boppy Model”). We have adjusted the Mt Boppy Model to reflect cash flows <strong>on</strong> an<br />
annual basis.<br />
53
The Adjusted Mt Boppy Model was prepared based <strong>on</strong>:<br />
• Estimates <strong>of</strong> producti<strong>on</strong> pr<strong>of</strong>ile, operating costs and sustaining capital expenditure.<br />
The main assumpti<strong>on</strong>s underlying the Adjusted Mt Boppy Model include:<br />
• Mining and producti<strong>on</strong> volumes;<br />
• Commodity prices;<br />
• Operating costs;<br />
• Sustaining capital expenditure;<br />
• Foreign exchange rates;<br />
• Royalties; and<br />
• Discount rate.<br />
Limitati<strong>on</strong>s<br />
Since forecasts relate to the future, they may be affected by unforeseen events and they depend, in part,<br />
<strong>on</strong> the effectiveness <strong>of</strong> management’s acti<strong>on</strong>s in implementing the plans <strong>on</strong> which the forecasts are based.<br />
Accordingly, actual results may vary materially from the forecasts, as it is <strong>of</strong>ten the case that some events<br />
and circumstances frequently do not occur as expected, or are not anticipated, and those differences may<br />
be material.<br />
Revenue assumpti<strong>on</strong>s<br />
Revenue has been estimated as the product <strong>of</strong> annual saleable gold and the forecast gold prices. The<br />
Adjusted Mt Boppy Model has been based <strong>on</strong> forecast real gold prices and exchange rates.<br />
Funding assumpti<strong>on</strong>s<br />
We have valued the Mt Boppy Project based <strong>on</strong> SXG’s and PLY’s assessment <strong>of</strong> the likely funding structure<br />
<strong>of</strong> the Merged Entity. We have valued the Mt Boppy Project <strong>on</strong> the basis that it will be funded by the cash<br />
flows generated from the Marda Project and by an equity raising <strong>of</strong> up to $3 milli<strong>on</strong>.<br />
Ec<strong>on</strong>omic assumpti<strong>on</strong>s<br />
Inflati<strong>on</strong><br />
We have applied an inflati<strong>on</strong> rate to c<strong>on</strong>vert the forecast nominal gold prices into real terms.<br />
In our assessment <strong>of</strong> the inflati<strong>on</strong> rate, we have c<strong>on</strong>sidered forecasts prepared by ec<strong>on</strong>omic analysts and<br />
other publicly available informati<strong>on</strong> including broker c<strong>on</strong>sensus to arrive at our inflati<strong>on</strong> rate assumpti<strong>on</strong>s.<br />
From our analysis, target inflati<strong>on</strong> is in the range <strong>of</strong> 2% to 3% which is c<strong>on</strong>sistent <strong>with</strong> the Reserve Bank <strong>of</strong><br />
Australia’s target inflati<strong>on</strong> rate range. We have adopted an inflati<strong>on</strong> rate <strong>of</strong> 3% to c<strong>on</strong>vert the cash flows<br />
expressed in nominal terms to real terms.<br />
Foreign exchange rate<br />
All commodity prices are stated in United States Dollars (“USD”) and the forecasts in the Adjusted Mt<br />
Boppy are in Australian Dollars (“AUD”). USD to AUD c<strong>on</strong>versi<strong>on</strong>s were undertaken using the following<br />
foreign exchange rate assumpti<strong>on</strong>s:<br />
54
2013 2014 2015 2016 2017 2018<br />
Exchange rate (USD:AUD) 1.00 1.01 0.93 0.90 0.87 0.85<br />
Source: Bloomberg<br />
Royalties and tax<br />
Royalties<br />
The following royalty expenses are included in the Adjusted Mt Boppy Model:<br />
• A 3% royalty payable to Golden Cross Resources Ltd. The 3% is calculated <strong>on</strong> revenue less refining<br />
costs. We note that PLY has prepaid $333,619 <strong>of</strong> this royalty.<br />
• A New South Wales royalty <strong>of</strong> 4% <strong>of</strong> revenue less deductible expenses is payable by PLY.<br />
Deductible expenses include processing costs, depreciati<strong>on</strong> and 33.33% <strong>of</strong> <strong>on</strong>site administrati<strong>on</strong><br />
costs. The basis for deducting expenses was sourced from “Mining Royalties and Statistics in NSW<br />
Guidelines for Compliance” as provided by PLY management.<br />
• An annual payment <strong>of</strong> $10,000 to the Ngiyampaa People in accordance <strong>with</strong> Aboriginal traditi<strong>on</strong>al<br />
law and native title rights <strong>of</strong> the project area.<br />
• A 0.5% Net Smelter Return royalty also payable to the Ngiyampaa People. The 0.5% is calculated<br />
<strong>on</strong> actual revenue less processing costs, transportati<strong>on</strong> costs and extracti<strong>on</strong> taxes.<br />
Corporate tax<br />
The Adjusted Mt Boppy Model assumes a corporate tax rate <strong>of</strong> 30% over the period <strong>of</strong> the forecasts, after<br />
taking into account any tax losses carried forward.<br />
DCF Valuati<strong>on</strong> – Discount rate<br />
We have selected a real after tax discount rate <strong>of</strong> 6.5% to discount the forecasts to their present value.<br />
The discount rate has been calculated <strong>on</strong> a Merged Entity basis.<br />
In selecting this range <strong>of</strong> discount rates we c<strong>on</strong>sidered the following:<br />
• The rates <strong>of</strong> return for comparable listed Australian gold companies;<br />
• The risk pr<strong>of</strong>ile <strong>of</strong> the Merged Entity as compared to other listed Australian gold companies;<br />
• The current and forecast debt to equity ratio <strong>of</strong> the Merged Entity;<br />
• Merged Entity’s forecast cost <strong>of</strong> debt as advised by SXG; and<br />
• AMC’s assessment <strong>of</strong> the relative risk <strong>of</strong> the Mt Boppy Project compared <strong>with</strong> the Marda Project.<br />
Details <strong>on</strong> our discount rate determinati<strong>on</strong> are provided in Appendix 3.<br />
Commodity prices<br />
In obtaining projected gold prices we have c<strong>on</strong>sidered:<br />
• Historical spot and forward prices from Bloomberg; and<br />
• Most recent C<strong>on</strong>sensus Ec<strong>on</strong>omics price forecasts.<br />
Based <strong>on</strong> our analysis, we adopted the following projected gold prices (in real terms):<br />
55
2013 2014 2015 2016 2017 2018<br />
Gold price (real) 1,600 1,525 1,420 1,300 1,180 1,185<br />
Source: C<strong>on</strong>sensus Ec<strong>on</strong>omics & Bloomberg<br />
The Adjusted Mt Boppy Model<br />
We undertook the following analysis <strong>on</strong> the Adjusted Mt Boppy Model:<br />
• A review <strong>of</strong> the mathematical structure and internal c<strong>on</strong>sistency;<br />
• Appointed AMC as the technical expert to assess the reas<strong>on</strong>ableness <strong>of</strong> the resources, capital and<br />
operating costs and other mining inputs used in the preparati<strong>on</strong> <strong>of</strong> the life <strong>of</strong> mine;<br />
• C<strong>on</strong>ducted independent research <strong>on</strong> certain ec<strong>on</strong>omic and other inputs such as commodity prices,<br />
foreign exchange rates, inflati<strong>on</strong> and discount rate applicable to the future cash flows <strong>of</strong> the Mt<br />
Boppy Project;<br />
• Held discussi<strong>on</strong>s <strong>with</strong> PLY’s management regarding the preparati<strong>on</strong> <strong>of</strong> the cash flow forecasts in<br />
the Mt Boppy Model and its views;<br />
• Adjusted the Mt Boppy Model to reflect any changes to the technical assumpti<strong>on</strong>s as a result <strong>of</strong><br />
AMC’s review and any changes to the ec<strong>on</strong>omic and other input assumpti<strong>on</strong>s from our research;<br />
• We have delayed producti<strong>on</strong> by <strong>on</strong>e year to the first quarter <strong>of</strong> 2015, based <strong>on</strong> SXG’s advice <strong>of</strong> the<br />
intenti<strong>on</strong>s <strong>of</strong> the Merged Entity, should the Transacti<strong>on</strong> proceed; and<br />
• Performed a sensitivity analysis <strong>on</strong> the value <strong>of</strong> the Mt Boppy Project as a result <strong>of</strong> flexing<br />
selected assumpti<strong>on</strong>s and inputs.<br />
Appointment <strong>of</strong> a technical expert<br />
AMC, expert technical specialist, was engaged to prepare a report providing an assessment <strong>on</strong> the<br />
following inputs used in the preparati<strong>on</strong> <strong>of</strong> the Mt Boppy Model;<br />
• The reas<strong>on</strong>ableness <strong>of</strong> the resources used in the preparati<strong>on</strong> <strong>of</strong> the Mt Boppy Model;<br />
• Mining physicals (life <strong>of</strong> mine, producti<strong>on</strong> schedule, recovery and grade);<br />
• Operating costs (mining operati<strong>on</strong>, surface haulage, processing, accommodati<strong>on</strong> and messing,<br />
royalties and general and administrati<strong>on</strong>);<br />
• Capital costs (mining capital costs, processing capital costs, resource definiti<strong>on</strong>, general and<br />
administrati<strong>on</strong>); and<br />
• Restorati<strong>on</strong> and rehabilitati<strong>on</strong> provisi<strong>on</strong>s.<br />
AMC modelled two cases for the Mt Boppy Project based <strong>on</strong> different projecti<strong>on</strong>s for mining and processing<br />
t<strong>on</strong>nages, gold grades and costs.<br />
• Case 1, ore producti<strong>on</strong>, is primarily based <strong>on</strong> the pit optimisati<strong>on</strong> study scenario using mainly the<br />
Ore Reserves and a small volume <strong>of</strong> Inferred Mineral Resource also in the producti<strong>on</strong> case as<br />
presented by PLY.<br />
• Case 2, ore producti<strong>on</strong>, includes that scheduled in Case 1, <strong>with</strong> the additi<strong>on</strong> <strong>of</strong> 35 kt <strong>of</strong> ore added<br />
to the end <strong>of</strong> the mine lie to simulate the likely c<strong>on</strong>versi<strong>on</strong> <strong>of</strong> mineral resources to ore reserves<br />
56
and likely success <strong>with</strong> explorati<strong>on</strong> in the project area. The Mineral Resources defined at Mt Boppy<br />
outside the development case proposed by PLY are limited.<br />
AMC believes the two producti<strong>on</strong> cases provide a low and high value range <strong>on</strong> the Mineral Resources and<br />
explorati<strong>on</strong> potential for the greater Mt Boppy Project by simulating the range <strong>of</strong> likely outcomes <strong>of</strong> the<br />
project.<br />
For the purposes <strong>of</strong> our valuati<strong>on</strong>, we have adopted both cases to derive our value range <strong>of</strong> the project.<br />
A copy <strong>of</strong> AMC’s report is included in Appendix 4.<br />
Mining Physicals<br />
Mt Boppy Case 1<br />
Set out below is a summary <strong>of</strong> the mining and processing activity included in the Adjusted Mt Boppy<br />
Model.<br />
Mt Boppy Project Case 1<br />
Mining<br />
Units 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18<br />
Ore T<strong>on</strong>nes Mined t - - 136,847 450,164 - -<br />
Waste T<strong>on</strong>nes Mined t - - - 925,057 - -<br />
Total Movement t - - 136,847 1,375,221 - -<br />
Grade Mined g/t - - 4.43 4.23 - -<br />
Processing<br />
T<strong>on</strong>nes Processed t - - 82,500 300,000 204,511 -<br />
Grade Processed g/t - - 4.21 4.50 3.98 -<br />
C<strong>on</strong>tained oz oz - - 11,160 43,449 26,179 -<br />
Recovery % - - 80% 80% 80% -<br />
Recovered oz oz - - 8,928 34,759 20,943 -<br />
Source: The Adjusted Mt Boppy Model<br />
40,000<br />
35,000<br />
30,000<br />
25,000<br />
20,000<br />
15,000<br />
10,000<br />
5,000<br />
Gold processed (t<strong>on</strong>nes)<br />
-<br />
2013 2014 2015 2016 2017 2018<br />
Mt Boppy (t<strong>on</strong>nes processed)<br />
Source: The Adjusted Mt Boppy Model<br />
57
AMC and management <strong>of</strong> PLY advise that ore is predominantly mined upfr<strong>on</strong>t and is stockpiled and<br />
processed over the life <strong>of</strong> the Project.<br />
Mt Boppy Case 1<br />
Key aspects <strong>of</strong> AMC's Case 1 model are:<br />
• The mining and processing schedules are based <strong>on</strong> the LOM plan provided in the feasibility study<br />
and financial model.<br />
• 587 kt <strong>of</strong> ore at a head grade <strong>of</strong> 4.28 g/t is mined and processed over a 25 m<strong>on</strong>th period. This<br />
represents all <strong>of</strong> the Ore Reserves and approximately 40 kt <strong>of</strong> the Inferred Mineral Resource.<br />
• A total <strong>of</strong> 64 koz <strong>of</strong> gold are produced.<br />
• AMC increased the estimated mining period by six m<strong>on</strong>ths to effectively lower the assumed mining<br />
productivities and fast development rates in the supplied model.<br />
• Project commences in the first quarter <strong>of</strong> 2014. However, SXG advise that producti<strong>on</strong> is likely to<br />
be delayed until the first quarter <strong>of</strong> 2015, therefore we have valued the Mt Boppy Project <strong>on</strong> this<br />
basis.<br />
• Average unit mining costs <strong>of</strong> $3.90/t <strong>of</strong> material moved are used.<br />
• Average processing costs <strong>of</strong> $33.48/t ore processed.<br />
• AMC added an allowance <strong>of</strong> $0.7M for additi<strong>on</strong>al closure costs.<br />
• AMC added a c<strong>on</strong>tingency <strong>of</strong> $1M to the capital estimate relating to the assumed availability <strong>of</strong><br />
sec<strong>on</strong>d-hand equipment.<br />
Mt Boppy Case 2<br />
Set out below is a summary <strong>of</strong> the mining and processing activity included in the Adjusted Mt Boppy<br />
Model.<br />
Mt Boppy Project Case 2<br />
Mining<br />
Units 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18<br />
Ore T<strong>on</strong>nes Mined t - - 136,847 450,164 - -<br />
Waste T<strong>on</strong>nes Mined t - - 4,753,767 925,057 - -<br />
Total Movement t - - 4,890,614 1,375,221 - -<br />
Grade Mined g/t - - 4.43 4.23 - -<br />
Processing<br />
T<strong>on</strong>nes Processed t - - 82,500 300,000 239,500 -<br />
Grade Processed g/t - - 4.21 4.50 3.98 -<br />
C<strong>on</strong>tained oz oz - - 11,160 43,449 30,656 -<br />
Recovery % - - 80% 80% 80% -<br />
Recovered oz oz - - 8,928 34,759 24,525 -<br />
Source: The Adjusted Mt Boppy Model<br />
58
350,000<br />
Gold processed (t<strong>on</strong>nes)<br />
300,000<br />
250,000<br />
200,000<br />
150,000<br />
100,000<br />
50,000<br />
-<br />
2013 2014 2015 2016 2017 2018<br />
Gold processed (t<strong>on</strong>nes)<br />
Source: The Adjusted Mt Boppy Model<br />
Key aspects <strong>of</strong> AMC's Case 2 model are:<br />
• Assumpti<strong>on</strong>s as in Case 1 initial producti<strong>on</strong> period.<br />
• An additi<strong>on</strong>al 35 kt <strong>of</strong> ore at a grade 3.98 g/t is added to the end <strong>of</strong> the mine life. The t<strong>on</strong>nage is<br />
based <strong>on</strong> the assumpti<strong>on</strong> that 50% <strong>of</strong> the remaining resource outside the pit or equivalent<br />
explorati<strong>on</strong> success elsewhere c<strong>on</strong>verts to Ore Reserve at the head grade produced at the end <strong>of</strong><br />
the mine life. AMC has assumed that operating costs are the same as those incurred in the last<br />
m<strong>on</strong>ths <strong>of</strong> the financial model provided and have added these to the schedule.<br />
• AMC notes there is <strong>on</strong>ly limited additi<strong>on</strong>al Mineral Resource outside the current mine plan<br />
proposed by PLY.<br />
• A total <strong>of</strong> 68,200 oz <strong>of</strong> gold are produced.<br />
Operating Costs<br />
Operating costs included in the Adjusted Mt Boppy Model c<strong>on</strong>sist <strong>of</strong> labour, reagents and c<strong>on</strong>sumables,<br />
power, maintenance, refining and camp costs.<br />
Mt Boppy Case 1<br />
Mt Boppy Project Case 1<br />
31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18<br />
$ $ $ $<br />
Mining - - 14,918,399 7,926,751 1,590,190 -<br />
Administrati<strong>on</strong> - - 2,458,618 2,965,120 2,202,933 69,620<br />
Processing - - 2,626,232 9,516,447 7,336,007 173,465<br />
Total project costs - - 20,003,249 20,408,318 11,129,131 243,085<br />
Source: The Adjusted Mt Boppy Model<br />
59
Mt Boppy Case 2<br />
Mt Boppy Project Case 2<br />
31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18<br />
$ $ $ $ $ $<br />
Mining - - 14,918,399 7,926,751 3,734,135 -<br />
Administrati<strong>on</strong> - - 2,458,618 2,965,120 1,864,712 338,221<br />
Processing - - 2,626,232 9,516,447 7,350,271 -<br />
Total project costs - - 20,003,249 20,408,318 12,949,118 338,221<br />
Source: The Adjusted Mt Boppy Model<br />
Capital Expenditure<br />
The Capital expenditure required in the Adjusted Mt Boppy Model is based <strong>on</strong> the assumpti<strong>on</strong> that PLY is<br />
to make use <strong>of</strong> rec<strong>on</strong>diti<strong>on</strong>ed plant and equipment. Where possible, the management <strong>of</strong> PLY obtained<br />
quotes for sec<strong>on</strong>d hand equipment to justify its capital expenditures assumpti<strong>on</strong>s. A c<strong>on</strong>tingency<br />
allowance <strong>of</strong> $1 milli<strong>on</strong> has been made in the case <strong>of</strong> sec<strong>on</strong>d hand equipment not being available.<br />
Mt Boppy Case 1<br />
31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18<br />
Mt Boppy Project Case 1<br />
$ $ $ $<br />
Capital Expenditure - - 14,718,454 - - 700,000<br />
Mt Boppy Case 2<br />
31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18<br />
Mt Boppy Project Case 2<br />
$ $ $ $ $ $<br />
Capital Expenditure - - 14,718,454 - - 700,000<br />
The $14.72 milli<strong>on</strong> outflow in 2015 predominantly relates to plant and infrastructure costs incurred in<br />
redeveloping the Mt Boppy Project. The $0.70 milli<strong>on</strong> capital expenditure in 2018 relates to closure costs<br />
estimated by AMC.<br />
DCF Valuati<strong>on</strong> – sensitivities<br />
The estimated value <strong>of</strong> the Mt Boppy Project is derived under the DCF approach. Our valuati<strong>on</strong> is most<br />
sensitive to changes in the forecast gold prices and exchange rate. We have therefore included an analysis<br />
to c<strong>on</strong>sider the value <strong>of</strong> the Mt Boppy Project under various pricing scenarios and in applying:<br />
• A change <strong>of</strong> +/- 5% to commodity prices<br />
• A change <strong>of</strong> +/- 5% to exchange rate<br />
• A change <strong>of</strong> +/- 5% to recovery percentage<br />
• A change <strong>of</strong> +/- 5% to operating expense<br />
• A change <strong>of</strong> +/- 5% to sustaining capital expenditure<br />
• A real discount rate in the range <strong>of</strong> 5.0% to 8.0%.<br />
The following tables sets out the valuati<strong>on</strong> outcomes from our DCF analysis.<br />
60
Mt Boppy Case 1<br />
Sensitivity analysis<br />
Flex NPV ($m) NPV ($m) NPV ($m) NPV ($m) NPV ($m)<br />
Commodity Exchange Recovery<br />
Capital<br />
Project costs<br />
Price rates (%)<br />
expenditure<br />
-5% 10.71 15.88 9.88 14.86 13.82<br />
-4% 11.38 15.35 10.71 14.56 13.72<br />
-3% 11.93 14.84 11.55 14.26 13.63<br />
-2% 12.40 14.34 12.17 13.96 13.54<br />
-1% 12.88 13.84 12.76 13.66 13.45<br />
0% 13.36 13.36 13.36 13.36 13.36<br />
1% 13.84 12.89 13.96 13.06 13.27<br />
2% 14.32 12.42 14.56 12.76 13.18<br />
3% 14.80 11.97 15.15 12.46 13.09<br />
4% 15.27 11.48 15.75 12.16 13.00<br />
5% 15.75 10.87 16.35 11.86 12.91<br />
Source: BDO Analysis<br />
Discount<br />
rate NPV ($m)<br />
5.0% 14.50<br />
5.5% 14.11<br />
6.0% 13.73<br />
6.5% 13.36<br />
7.0% 13.00<br />
7.5% 12.65<br />
8.0% 12.31<br />
Source: BDO Analysis<br />
61
Mt Boppy Case 2<br />
Sensitivity analysis<br />
Flex NPV ($m) NPV ($m) NPV ($m) NPV ($m) NPV ($m)<br />
Commodity Exchange Recovery<br />
Capital<br />
Project costs<br />
Price rates (%)<br />
expenditure<br />
-5% 11.70 16.85 11.07 15.75 14.66<br />
-4% 12.20 16.30 11.70 15.44 14.57<br />
-3% 12.70 15.76 12.32 15.13 14.48<br />
-2% 13.20 15.23 12.95 14.82 14.39<br />
-1% 13.70 14.71 13.58 14.52 14.30<br />
0% 14.21 14.21 14.21 14.21 14.21<br />
1% 14.71 13.71 14.83 13.90 14.12<br />
2% 15.21 13.22 15.46 13.59 14.02<br />
3% 15.71 12.74 16.09 13.28 13.93<br />
4% 16.21 12.28 16.71 12.97 13.84<br />
5% 16.71 11.82 17.34 12.66 13.75<br />
Source: BDO Analysis<br />
Discount<br />
rate NPV ($m)<br />
5.0% 15.40<br />
5.5% 14.99<br />
6.0% 14.59<br />
6.5% 14.21<br />
7.0% 13.83<br />
7.5% 13.46<br />
8.0% 13.11<br />
Source: BDO Analysis<br />
C<strong>on</strong>sidering the valuati<strong>on</strong> outcomes above, we estimate the fair market value <strong>of</strong> the Mt Boppy Project to<br />
be in the range <strong>of</strong> $13.36 milli<strong>on</strong> to $14.21 milli<strong>on</strong>, <strong>with</strong> a midpoint value <strong>of</strong> $13.79 milli<strong>on</strong>.<br />
11.1.2. Value <strong>of</strong> the resources, not included in the Mt Boppy Model<br />
We have instructed AMC to value all <strong>of</strong> the resources at the Mt Boppy Project under the Valmin Code that<br />
are not included in the Adjusted Mt Boppy Model. AMC has deemed that the most reliable method to value<br />
these resources in using the Comparable Transacti<strong>on</strong> method.<br />
AMC have c<strong>on</strong>cluded that the value <strong>of</strong> the resources at Mt Boppy and not included in the model is<br />
$0.2 milli<strong>on</strong><br />
62
11.1.3. Other Explorati<strong>on</strong> Assets<br />
We instructed AMC to provide a market valuati<strong>on</strong> <strong>of</strong> the additi<strong>on</strong>al explorati<strong>on</strong> assets <strong>of</strong> PLY.<br />
Turner River base metals project<br />
In valuing PLY’s Turner River base metals project, AMC has relied <strong>on</strong> the Joint Venture Terms Method <strong>with</strong><br />
regard to the farm-in agreement <strong>with</strong> Lansdowne Resources Pty Ltd (“Lansdowne”) to acquire 100% <strong>of</strong> the<br />
shares in the company and the associated rights to earn a 75% interest in the Turner River gold and base<br />
metals projects which were owned by De Grey Mining Ltd (“De Grey”). We are satisfied <strong>with</strong> the valuati<strong>on</strong><br />
methodologies adopted by AMC which are in accordance <strong>with</strong> industry practices and compliant <strong>with</strong> the<br />
requirements <strong>of</strong> the Valmin Code.<br />
AMC valued PLY’s current beneficial interest <strong>of</strong> 55% in the Turner River tenements to be between $0.11<br />
milli<strong>on</strong> and $0.26 milli<strong>on</strong>. We have adopted the midpoint value <strong>of</strong> $0.19 milli<strong>on</strong> in our preferred valuati<strong>on</strong><br />
scenario.<br />
Turner River gold project tenements<br />
The Turner River gold project was the subject <strong>of</strong> a farm-in arrangement between Lansdowne and De Grey<br />
whereby Lansdowne could earn a 75% interest in the tenements by spending $2 milli<strong>on</strong> over three years.<br />
PLY acquired Lansdowne in September 2012 and completed the farm-in expenditure in March 2013.<br />
<strong>Polymetals</strong> has completed the farm-in expenditure and holds 75% <strong>of</strong> the rights in these tenements.<br />
In valuing PLY’s Turner River gold project, AMC has relied <strong>on</strong> the Yardstick method and Comparable<br />
Transacti<strong>on</strong> method. AMC valued PLY’s current beneficial interest <strong>of</strong> 75% in the Turner River gold project<br />
to be between $2.1 milli<strong>on</strong> and $4.2 milli<strong>on</strong>. We have adopted the midpoint value <strong>of</strong> $3.15 milli<strong>on</strong> in our<br />
preferred valuati<strong>on</strong> scenario.<br />
A copy <strong>of</strong> AMC’s report is attached at Appendix 4.<br />
11.1.4. Other Assets and Liabilities<br />
Other assets and liabilities represent the assets and liabilities which have not been specifically adjusted.<br />
From review <strong>of</strong> these other assets and liabilities, outlined in the table below, we do not believe that there<br />
is a material difference between their book value and their fair value unless an adjustment has been<br />
noted below. The table below represents a summary <strong>of</strong> the assets and liabilities identified:<br />
63
<strong>Polymetals</strong> Mining Limited<br />
Value <strong>of</strong> other<br />
assets and<br />
Value <strong>of</strong> other<br />
assets and<br />
Unaudited as at liabilities as at liabilities as at<br />
31-Mar-13 31-Mar-13 31-M ar-13<br />
Low<br />
High<br />
Statement <strong>of</strong> Financial Positi<strong>on</strong> Note $'000 $'000 $'000<br />
CURRENT ASSETS<br />
Cash and cash equivalents a 9,654 12,861 13,469<br />
Receivables 168 168 168<br />
Inventories 18 18 18<br />
Deferred tax asset 1,598 1,598 1,598<br />
TOTAL CURRENT ASSETS 11,438 14,645 15,253<br />
NON-CURRENT ASSETS<br />
Receivables b 334 - -<br />
Property, plant and equipment c 2,826 - -<br />
Other financial assets d 233 - -<br />
Explorati<strong>on</strong> and development costs e 15,290 - -<br />
Capitalised mining development costs e 537 - -<br />
Available for sale financial assets f 316 270 270<br />
TOTAL NON-CURRENT ASSETS 19,536 270 270<br />
TOTAL ASSETS 30,974 14,915 15,523<br />
CURRENT LIABILITIES<br />
Trade and other payables 996 996 996<br />
Current tax liability g 112 - -<br />
Deferred tax liability 3,797 3,797 3,797<br />
Provisi<strong>on</strong>s h 979 531 531<br />
Deferred c<strong>on</strong>siderati<strong>on</strong> 1,941 - -<br />
TOTAL CURRENT LIABILITIES 7,825 5,324 5,324<br />
NON-CURRENT LIABILITIES<br />
Provisi<strong>on</strong>s 77 77 77<br />
TOTAL NON-CURRENT LIABILITIES 77 77 77<br />
TOTAL LIABILITES 7,902 5,401 5,401<br />
NET ASSETS 23,072 9,514 10,122<br />
Note a: Cash and cash equivalents<br />
On 28 May 2013, PLY announced it had divested its 50% interest in White Dam and associated Drew Hill<br />
explorati<strong>on</strong> tenements to joint venture partner Exco Resources Limited. In c<strong>on</strong>siderati<strong>on</strong> for these assets,<br />
PLY will receive $1.44 milli<strong>on</strong>. We have adjusted the cash balance as at 31 March 2013 to reflect this<br />
64
disposal <strong>of</strong> assets. PLY advised us that they are in the process <strong>of</strong> selling the White Dam camp assets. We<br />
have added $550,000 to the cash balance, being the expected sale value.<br />
PLY is in the process <strong>of</strong> selling its head <strong>of</strong>fice premises in Queensland. The property has recently been<br />
independently valued at $860,000 however the Company expects to receive between $1 milli<strong>on</strong> and<br />
$2 milli<strong>on</strong>. We have valued the property as range <strong>of</strong> $860,000 to $1.5 milli<strong>on</strong> less an assumed 5% selling<br />
costs. We have added this value to the cash balance <strong>on</strong> the assumpti<strong>on</strong> that the property will be sold.<br />
We have deducted $300,000 in relati<strong>on</strong> to the Indemnity C<strong>on</strong>siderati<strong>on</strong> payable by PLY to Meadowhead<br />
under the SIA.<br />
PLY is in the process <strong>of</strong> lodging its 2012 tax return which will result in a receivable <strong>of</strong> $700,000, net <strong>of</strong> the<br />
current tax liability, as a result <strong>of</strong> a research and development rebate.<br />
Note b: Receivables<br />
Receivables relate to a prepaid royalty in relati<strong>on</strong> to the Mt Boppy Project. We have excluded the royalty<br />
as it has been included in our DCF valuati<strong>on</strong> <strong>of</strong> the Mt Boppy Project.<br />
Note c: Property, plant and Equipment<br />
Plant and equipment relating to the Mt Boppy Project and has been excluded from the other assets and<br />
liabilities as it forms an integral part in the value <strong>of</strong> the project.<br />
The remaining plant and equipment relates to head <strong>of</strong>fice property and has been excluded from the<br />
balance sheet <strong>on</strong> the assumpti<strong>on</strong> that it is so<strong>on</strong> to be sold.<br />
Note d: Security deposits<br />
The security deposits are related to Mt Boppy. We have excluded them for our valuati<strong>on</strong> as the Mt Boppy<br />
security deposits are incorporated in the DCF value <strong>of</strong> the project.<br />
Note e: Explorati<strong>on</strong> and development costs & Capitalised mining development costs<br />
PLY’s explorati<strong>on</strong> and development expenditure has been reflected through the DCF valuati<strong>on</strong> under<br />
secti<strong>on</strong>s 11.1.1 and the other explorati<strong>on</strong> assets valuati<strong>on</strong> and has therefore been excluded in the<br />
valuati<strong>on</strong> <strong>of</strong> other assets and liabilities.<br />
Note f: Available for sale assets<br />
PLY holds 982,000 listed shares in Macphers<strong>on</strong>s Resources Limited. We have valued the shares using a<br />
30 day VWAP as at 5 April 2013, being $0.275 per share.<br />
Note g: Current tax liability<br />
We have excluded the current tax liability <strong>on</strong> the basis that it will be netted <strong>of</strong>f <strong>with</strong> the receivable as a<br />
result <strong>of</strong> a research and development rebate that PLY will receive <strong>on</strong> lodgement <strong>of</strong> its 2012 tax return.<br />
Note h: Provisi<strong>on</strong>s<br />
Of the total provisi<strong>on</strong>, $448,000 relates to a rehabilitati<strong>on</strong> provisi<strong>on</strong> at Mt Boppy. We have excluded this<br />
porti<strong>on</strong> <strong>of</strong> the provisi<strong>on</strong> as it is included in our DCF valuati<strong>on</strong> <strong>of</strong> the Mt Boppy Project.<br />
Note i: Deferred c<strong>on</strong>siderati<strong>on</strong><br />
The deferred c<strong>on</strong>siderati<strong>on</strong> relates to potential additi<strong>on</strong>al payments to Lansdowne Resources shareholders<br />
if and when development and producti<strong>on</strong> milest<strong>on</strong>es are met <strong>on</strong> the Turner River gold and base metals<br />
65
projects. PLY has discounted the total c<strong>on</strong>siderati<strong>on</strong> based <strong>on</strong> its assessed probability <strong>of</strong> the liability being<br />
paid.<br />
AMC has valued the Turner River projects based <strong>on</strong> its current announced resources and stage <strong>of</strong><br />
development. We have excluded the liability as we c<strong>on</strong>sider AMC’s value to reflect the current value <strong>of</strong><br />
the projects and it does not include the potential upside <strong>of</strong> the project’s value if the milest<strong>on</strong>es were to<br />
be met.<br />
11.1.5. NAV multiple<br />
The value per share <strong>of</strong> gold mining companies when valued using the DCF valuati<strong>on</strong> methodology,<br />
including the value <strong>of</strong> explorati<strong>on</strong> assets, is <strong>of</strong>ten lower than the value <strong>of</strong> the trading price per share.<br />
It is comm<strong>on</strong> practice to apply a NAV multiple to the DCF value and value <strong>of</strong> the explorati<strong>on</strong> assets to<br />
arrive at the value <strong>of</strong> a company.<br />
Possible reas<strong>on</strong>s for a difference between the value <strong>of</strong> the mineral assets per share and the traded price<br />
are:<br />
• The potential upside at existing operating or development sites that would allow for an extensi<strong>on</strong><br />
<strong>of</strong> the life <strong>of</strong> mine and higher volumes, outside <strong>of</strong> the announced reserve and resource;<br />
• The potential for actual gold prices exceeding the l<strong>on</strong>g-term forecast prices used in the DCF<br />
valuati<strong>on</strong>s;<br />
• Gold being perceived as a safe asset investment; and<br />
• The value attributable to the str<strong>on</strong>g management <strong>of</strong> a company.<br />
We have analysed a number <strong>of</strong> broker reports reporting <strong>on</strong> ASX listed gold companies <strong>with</strong> their main<br />
operati<strong>on</strong>s in Australia. The broker reports indicated that NAV multiples range between 0.85 and 1.53.<br />
In determining an appropriate NAV multiple to apply to Merged Entity, we have had regard to:<br />
• The funding requirements to realise the value <strong>of</strong> the Marda and Mt Boppy Projects;<br />
• The volatilities <strong>of</strong> SXG and PLY prior to the <strong>Merger</strong>; and<br />
• The proposed management team <strong>of</strong> the Merged Entity.<br />
Based <strong>on</strong> the results <strong>of</strong> our analysis, we c<strong>on</strong>sider a NAV multiple <strong>of</strong> 1.0 to be appropriate for valuing the<br />
Merged Entity.<br />
11.1.6. Sum-<strong>of</strong>-parts value <strong>of</strong> the Merged Entity<br />
We have valued the Merged Entity by combining the sum <strong>of</strong> parts value <strong>of</strong> each <strong>of</strong> SXG and PLY as derived<br />
in secti<strong>on</strong>s 10.1 for SXG and secti<strong>on</strong>s 11.1.1 to 11.1.5 for PLY.<br />
The valuati<strong>on</strong> <strong>of</strong> the Merged Entity has been prepared <strong>on</strong> the basis that the Merged Entity will focus its<br />
cash and resources <strong>on</strong> bringing the Marda Project into producti<strong>on</strong> in 2014 followed by the Mt Boppy<br />
Project in 2015. The Marda and Mt Boppy Project cashflows have been discounted using the forecast<br />
discount rate for the Merged Entity <strong>of</strong> 6.5% as set out in Appendix 3.<br />
66
The projects will be funded <strong>with</strong> $32 milli<strong>on</strong> <strong>of</strong> new debt funding and up to $3 milli<strong>on</strong> in equity funding.<br />
We have adjusted for corporate cost synergies in the Merged Entity forecast to result from the<br />
c<strong>on</strong>solidati<strong>on</strong> <strong>of</strong> corporate overheads. We note that these synergies would be available to any similar<br />
merger partner.<br />
As required by RG 111.31, our valuati<strong>on</strong> includes a minority discount as existing SXG shareholders will have<br />
a minority interest in the Merged Entity following the Transacti<strong>on</strong>.<br />
We have assessed the value <strong>of</strong> a share in the Merged Entity <strong>on</strong> a minority interest basis to be between<br />
$0.032 and $0.045, <strong>with</strong> a preferred valued <strong>of</strong> $0.038 as shown in the table below.<br />
67
The Merged Entity - SXG Low Preferred High<br />
Summary <strong>of</strong> assessment Note $ (milli<strong>on</strong>s) $ (milli<strong>on</strong>s) $ (milli<strong>on</strong>s)<br />
DCF value <strong>of</strong> the Marda Project 28.22 32.39 36.55<br />
Value <strong>of</strong> SXG's explorati<strong>on</strong> assets - Marda tenement area 0.65 0.98 1.30<br />
Value <strong>of</strong> the Sandst<strong>on</strong>e Project - - -<br />
Value <strong>of</strong> SXG's mineral assets 28.87 33.37 37.85<br />
DCF value <strong>of</strong> the Mt Boppy Project 13.36 13.79 14.21<br />
Value <strong>of</strong> the M t Boppy Project's explorati<strong>on</strong> potential 0.20 0.20 0.20<br />
Value <strong>of</strong> the Turner River base metals project 0.11 0.19 0.26<br />
Value <strong>of</strong> the Turner River gold project 2.10 3.15 4.20<br />
Value <strong>of</strong> PLY's mineral assets 15.77 17.32 18.87<br />
Total value <strong>of</strong> the Merged Entities' minerals assets 44.64 50.69 56.72<br />
NAV multiple 1.00 1.00 1.00<br />
Total value <strong>of</strong> the Merged Entities' mineral assets 44.64 50.69 56.72<br />
SXG's other assets a 4.45 6.90 9.35<br />
SXG's other liabilities (6.17) (6.17) (6.17)<br />
PLY's other assets 14.92 15.22 15.52<br />
PLY"s other liabilities (5.40) (5.40) (5.40)<br />
Corporate costs <strong>of</strong> the Merged Entity b (13.03) (14.38) (15.72)<br />
Transacti<strong>on</strong> costs c (1.00) (1.00) (1.00)<br />
Equity funding required d - 1.50 3.00<br />
Value <strong>of</strong> the Merged Entity 38.41 47.37 56.31<br />
Number <strong>of</strong> shares <strong>on</strong> issue in the Merged Entity e 887,450,815 887,450,815 887,450,815<br />
Number <strong>of</strong> shares issued via equity funding e - 55,555,556 111,111,111<br />
Diluted number <strong>of</strong> shares <strong>on</strong> issue 887,450,815 943,006,371 998,561,926<br />
Value <strong>of</strong> a Merged Entity share <strong>on</strong> a c<strong>on</strong>trol basis 0.043 0.050 0.056<br />
Minority discount f -26% -23% -20%<br />
Value <strong>of</strong> a share in the Merged Entity <strong>on</strong> a minority<br />
interest basis<br />
0.032 0.038 0.045<br />
Note a: SXG’s other assets<br />
We note that the other assets <strong>of</strong> SXG exclude the equity raising <strong>of</strong> between $9 milli<strong>on</strong> and $11 milli<strong>on</strong> that<br />
was adjusted for in secti<strong>on</strong> 10.1. We have addressed the equity funding requirements <strong>of</strong> the Merged Entity<br />
in note d.<br />
Note b: Corporate costs<br />
We have been advised by SXG that there will be synergy cost savings in the Merged Entity such as a shared<br />
<strong>of</strong>fice, <strong>on</strong>e shared Managing Director as well as a reducti<strong>on</strong> in accounting pers<strong>on</strong>nel. SXG estimate the<br />
corporate costs <strong>of</strong> the Merged Entity to be approximately $2.52 milli<strong>on</strong> per annum.<br />
68
We calculated the corporate costs over the Marda case 1 and 2 life <strong>of</strong> mines based <strong>on</strong> $2.52 milli<strong>on</strong> per<br />
annum over the period when both Mt Boppy and Marda are in producti<strong>on</strong> and reduced the corporate costs<br />
to $2.25 milli<strong>on</strong> per annum following the cessati<strong>on</strong> <strong>of</strong> the Mt Boppy Project. $2.25 milli<strong>on</strong> per annum<br />
represents SXG’s current corporate costs. The net present value is between $13.03 milli<strong>on</strong> and $15.72<br />
milli<strong>on</strong>.<br />
Note c: Transacti<strong>on</strong> costs<br />
The estimated transacti<strong>on</strong> costs for the Merged Entity in relati<strong>on</strong> to the Scheme and Transacti<strong>on</strong> are<br />
approximately $1 milli<strong>on</strong>.<br />
Note d: Equity funding<br />
The projects will be funded <strong>with</strong> $32 milli<strong>on</strong> <strong>of</strong> new debt funding and up to $3 milli<strong>on</strong> in equity funding.<br />
We have c<strong>on</strong>sidered the discount at which shares and opti<strong>on</strong>s have been issued by ASX listed mining<br />
companies, <strong>with</strong> market capitalisati<strong>on</strong> between $5 milli<strong>on</strong> and $25 milli<strong>on</strong>, when compared <strong>with</strong> the<br />
companies’ share prices the day prior to the announcement <strong>of</strong> the placements.<br />
The average discount at which shares were issued by ASX listed metals and mining companies in 2012 <strong>with</strong><br />
market capitalisati<strong>on</strong> between $5 milli<strong>on</strong> and $25 milli<strong>on</strong> was 13.6%. This indicates that any fund raising<br />
<strong>on</strong> the ASX is likely to be at this level <strong>of</strong> discount to the prevailing listed market price.<br />
We have based our calculati<strong>on</strong> <strong>on</strong> the assumpti<strong>on</strong> that the Merged Entity issues between nil and 111<br />
milli<strong>on</strong> shares at $0.027 to raise up to $3 milli<strong>on</strong>. The capital raising price is at a 15% discount to our<br />
preferred value per SXG share <strong>of</strong> $0.032 under the quoted market price method as set out in secti<strong>on</strong> 10.2.<br />
As the Scheme has been structured as a ‘merger <strong>of</strong> equals’, theoretically, the quoted market price <strong>of</strong> a<br />
share in the Merged Entity should be similar to the quoted market price <strong>of</strong> an SXG share prior to the<br />
Scheme. We therefore c<strong>on</strong>sider the assessed value per share <strong>of</strong> an SXG share prior to the <strong>Merger</strong> using the<br />
QMP method to be a reas<strong>on</strong>able basis for the equity raising price per share for the Merged Entity.<br />
We c<strong>on</strong>sider a discount <strong>of</strong> 15% to be appropriate given the equity funding required compared to the<br />
estimated market capitalisati<strong>on</strong> <strong>of</strong> the Merged Entity.<br />
Proposed equity funding Low Mid High<br />
Equity funding required $0 $1,500,000 $3,000,000<br />
Share price - $0.032 $0.032<br />
Discount 15% 15% 15%<br />
Capital raising price per share - $0.027 $0.027<br />
Total merged entity shares issued nil 55,555,556 111,111,111<br />
Note e: Shares <strong>on</strong> issue<br />
In determining a valuati<strong>on</strong> per share for the Merged Entity, we applied the number <strong>of</strong> Merged Entity shares<br />
<strong>of</strong> 867,450,815 as determined in secti<strong>on</strong> four <strong>of</strong> this report together <strong>with</strong> the 20 milli<strong>on</strong> shares that SXG<br />
will issue to Barranco <strong>on</strong> the exercise <strong>of</strong> the Red Legs and Die Hardy opti<strong>on</strong> and then diluted the number<br />
<strong>of</strong> shares for the forecast capital raisings required to fund the projects <strong>of</strong> the Merged Entity as set out in<br />
note d above.<br />
69
Note f: Minority discount<br />
Following the Transacti<strong>on</strong>, SXG shareholders will hold a minority interest in the Merged Entity. We have<br />
therefore applied a minority discount to the value derived under the sum-<strong>of</strong>-parts method to arrive at a<br />
minority interest value per share as required by RG 111.31.<br />
We have applied the inverse <strong>of</strong> the c<strong>on</strong>trol premium <strong>of</strong> between 25% and 35% as set out in secti<strong>on</strong> 10.2 <strong>of</strong><br />
this report. The inverse discount is between 20% and 26%.<br />
11.2. Resource multiple cross-check<br />
As a cross check to the sum-<strong>of</strong> parts valuati<strong>on</strong>, we have analysed the resource multiple observed for<br />
companies listed <strong>on</strong> the ASX <strong>with</strong> gold projects in Australia as their primary focus.<br />
We have also analysed the median enterprise value per unit <strong>of</strong> inferred, indicated and measured resource<br />
when excluding companies <strong>with</strong> a market capitalisati<strong>on</strong> above $200 milli<strong>on</strong>. We have d<strong>on</strong>e this to exclude<br />
the companies that are substantially larger than the Merged Entity.<br />
The median enterprise value per unit <strong>of</strong> inferred, indicated and measured resource when excluding the<br />
larger companies is $36.00 per ounce.<br />
Resource multiple<br />
Company name<br />
Enterprise<br />
value Resources<br />
EV/resource<br />
multiple<br />
5 April 2013<br />
$m milli<strong>on</strong> oz $/oz<br />
Regis Resources Limited* 1,947.9 10.1 192.29<br />
Tanami Gold NL 115.9 3.1 37.07<br />
Evoluti<strong>on</strong> M ining Limited* 937.9 7.7 121.81<br />
Silver Lake Resources Limited* 642.6 4.6 140.31<br />
Rand Mining Limited 20.1 0.1 167.17<br />
BCD Resources NL 1.1 0.1 11.56<br />
Kalnorth Gold Mines Limited 40.9 1.2 34.92<br />
Octag<strong>on</strong>al Resources Limited 11.9 0.2 48.59<br />
Ramelius Resources Limited 56.9 2.8 20.08<br />
Excelsior Gold Limited 66.2 1.2 57.53<br />
Average 83.13<br />
Median 53.06<br />
Average*<br />
50.85<br />
Median*<br />
36.00<br />
* We have excluded companies <strong>with</strong> a market capitalisati<strong>on</strong> above $200 milli<strong>on</strong><br />
70
We have applied the average and median multiples to the resources <strong>of</strong> the Merged Entity to arrive at an<br />
inferred value per share. Combined, the Merged Entity will have a total <strong>of</strong> 1.626 milli<strong>on</strong> ounces <strong>of</strong><br />
measured, indicated and inferred resources.<br />
The inferred value per share using the resource multiple methodology is <strong>on</strong> a minority interest basis.<br />
Resource<br />
multiple<br />
Merged Entities<br />
measured,<br />
indicated &<br />
inferred<br />
resources (M<br />
oz)<br />
Inferred<br />
Enterprise<br />
Value ($) Net debt ($)<br />
Equity value<br />
($) Shares <strong>on</strong> issue<br />
Assessed value<br />
per share ($)<br />
Average 50.9 1.626 82,763,400 23,940,000 58,823,400 923,006,371 0.064<br />
Median 36.0 1.626 58,536,000 23,940,000 34,596,000 923,006,371 0.037<br />
11.3. Assessed value <strong>of</strong> a Merged Entity share<br />
We c<strong>on</strong>sider the sum-<strong>of</strong>-parts methodology to be the most appropriate in our valuati<strong>on</strong> <strong>of</strong> a share in the<br />
Merged Entity. We c<strong>on</strong>sider the value per Merged Entity share <strong>on</strong> a minority interest basis to be between<br />
$0.032 and $0.045 <strong>with</strong> a midpoint value <strong>of</strong> $0.038.<br />
We note that this value is supported by our resource multiple cross-check as the assessed mid-point value<br />
per share falls <strong>with</strong>in the $0.037 to $0.064 range <strong>of</strong> inferred values under the resource multiple method.<br />
71
12. Is the Transacti<strong>on</strong> fair<br />
In assessing if the Transacti<strong>on</strong> is fair BDO have assumed that approval <strong>of</strong> the Transacti<strong>on</strong> by SXG will result<br />
in successful implementati<strong>on</strong> <strong>of</strong> the Scheme and completi<strong>on</strong> <strong>of</strong> the <strong>Merger</strong>.<br />
The value <strong>of</strong> an SXG share <strong>on</strong> a c<strong>on</strong>trol basis prior to the Transacti<strong>on</strong> compared to the value <strong>of</strong> a share in<br />
the Merged Entity <strong>on</strong> a minority interest basis is shown below:<br />
Ref<br />
Low<br />
$<br />
Midpoint<br />
$<br />
High<br />
$<br />
Value <strong>of</strong> an SXG share prior to the Transacti<strong>on</strong> (c<strong>on</strong>trol basis) 10.4 0.031 0.038 0.044<br />
Value <strong>of</strong> a share in the Merged Entity (minority interest basis) 11.3 0.032 0.038 0.045<br />
We note from the table above that the preferred value <strong>of</strong> a share in SXG falls <strong>with</strong>in the value range <strong>of</strong> a<br />
Merged Entity share following the Transacti<strong>on</strong>. Therefore, we c<strong>on</strong>sider that the Transacti<strong>on</strong> is fair.<br />
13. Is the Transacti<strong>on</strong> reas<strong>on</strong>able<br />
In assessing if the Transacti<strong>on</strong> is reas<strong>on</strong>able BDO have assumed that approval <strong>of</strong> the Transacti<strong>on</strong> by SXG<br />
will result in successful implementati<strong>on</strong> <strong>of</strong> the Scheme and completi<strong>on</strong> <strong>of</strong> the <strong>Merger</strong>. Failure to approve<br />
the Transacti<strong>on</strong> will result in an inability to successfully implement the Scheme and the <strong>Merger</strong> will not<br />
occur. There are other requirements for the implementati<strong>on</strong> <strong>of</strong> the Scheme which if not met will result in<br />
the Transacti<strong>on</strong> not proceeding.<br />
13.1 Alternative Proposals<br />
We are unaware <strong>of</strong> any alternative proposal that might <strong>of</strong>fer the Shareholders <strong>of</strong> SXG a premium over the<br />
value ascribed to resulting from the Transacti<strong>on</strong>.<br />
13.2 Practical Level <strong>of</strong> C<strong>on</strong>trol<br />
Post Scheme<br />
If the Transacti<strong>on</strong> is approved then the shareholders <strong>of</strong> PLY will together hold an interest <strong>of</strong> approximately<br />
52.9% in SXG as the Proposed Merged Entity.<br />
When shareholders are required to approve an issue that relates to a company there are two types <strong>of</strong><br />
approval levels. These are general resoluti<strong>on</strong>s and special resoluti<strong>on</strong>s. A general resoluti<strong>on</strong> requires 50%<br />
<strong>of</strong> shares to be voted in favour to approve a matter and a special resoluti<strong>on</strong> requires 75% <strong>of</strong> shares <strong>on</strong> issue<br />
to be voted in favour to approve a matter. If the Scheme is approved then together the existing<br />
shareholders <strong>of</strong> PLY will be able to block special and general resoluti<strong>on</strong>s and pass general resoluti<strong>on</strong>s.<br />
The Proposed Merged Entity’s Board will comprise six directors <strong>of</strong> whom three are from PLY which means<br />
that the PLY sourced directors will make up 50% <strong>of</strong> the Board.<br />
72
Post Transacti<strong>on</strong><br />
If the Transacti<strong>on</strong> is approved, the Sproule Interests will hold approximately 26% <strong>of</strong> the issued capital <strong>of</strong><br />
the Merged Entity allowing them to block special resoluti<strong>on</strong>s. The Sproule Interests will be the largest<br />
shareholder <strong>of</strong> the Merged Entity. C<strong>on</strong>sequently, a premium for c<strong>on</strong>trol should be expected in this<br />
Transacti<strong>on</strong>. A single shareholding block <strong>of</strong> this size may also deter any potential bidders from making a<br />
takeover <strong>of</strong>fer for the Merged Entity, thereby depriving Shareholders from receiving a takeover premium<br />
for their shares.<br />
13.3 C<strong>on</strong>sequences <strong>of</strong> not Approving the Transacti<strong>on</strong><br />
Potential decline in share price<br />
We have analysed movements in SXG’s share price since the Transacti<strong>on</strong> was announced. A graph <strong>of</strong> SXG’s<br />
share price since the announcement is set out below.<br />
SXG share price and trading volume history<br />
Share Price ($)<br />
0.04<br />
0.04<br />
0.03<br />
0.03<br />
0.02<br />
0.02<br />
0.01<br />
0.01<br />
0.00<br />
1.8<br />
1.6<br />
1.4<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
-<br />
Volume (milli<strong>on</strong>s)<br />
Volume<br />
Closing share price<br />
Source: Bloomberg<br />
On the day <strong>of</strong> the Scheme was announced <strong>on</strong> 8 April 2013, SXG shares closed 15% higher at $0.030 and<br />
c<strong>on</strong>tinued to increase in the days following, closing at $0.034 <strong>on</strong> 12 April 2013. Since 12 April 2013, the<br />
share price has steadily declined closing at $0.017 <strong>on</strong> 28 May 2013.<br />
Over the three m<strong>on</strong>th period analysed above, SXG’s share price has declined by 51% from $0.035 <strong>on</strong> 1<br />
March 2013 to $0.017 <strong>on</strong> 28 May 2013 compared to a 12% decline in the gold spot price over the same<br />
period from approximately US$1,576 per ounce to US$1,390 per ounce.<br />
Given the above analysis it is possible that if the Transacti<strong>on</strong> is not approved then SXG’s share price is<br />
unlikely to decline.<br />
13.4 Advantages <strong>of</strong> Approving the Transacti<strong>on</strong><br />
Shareholder approval <strong>of</strong> the Transacti<strong>on</strong> is a c<strong>on</strong>diti<strong>on</strong> precedent <strong>of</strong> the Scheme and will be an important<br />
factor in determining whether the <strong>Merger</strong> proceeds. We have c<strong>on</strong>sidered the following advantages when<br />
assessing whether the Transacti<strong>on</strong> is reas<strong>on</strong>able.<br />
The Transacti<strong>on</strong> is fair<br />
73
As set out in secti<strong>on</strong> 12, the Transacti<strong>on</strong> is fair. RG 111 states that an <strong>of</strong>fer is reas<strong>on</strong>able if it is fair.<br />
The Proposed Merged Entity will be <strong>of</strong> a significantly larger scale than the existing SXG<br />
It is anticipated that the combined producti<strong>on</strong> from the Marda and Mt Boppy Projects could reach 69,000<br />
ounces per annum. The Proposed Merged Entity will create a company <strong>with</strong> a bigger, more diversified<br />
portfolio <strong>of</strong> gold and base metals assets.<br />
The larger scale <strong>of</strong> the Merged Entity may make it easier to raise funds in the future through debt or<br />
equity funding.<br />
The Scheme is a merger <strong>of</strong> two similar sized entities <strong>with</strong> equal Board representati<strong>on</strong> in the Merged<br />
Entity<br />
Following the implementati<strong>on</strong> <strong>of</strong> the Scheme, SXG will hold approximately 47% <strong>of</strong> the Merged Entity<br />
shares, <strong>with</strong> PLY shareholders holding the remaining 53% <strong>of</strong> the shares. This weighting <strong>of</strong> shares is similar<br />
to size <strong>of</strong> the companies based <strong>on</strong> market capitalisati<strong>on</strong> prior to the announcement <strong>of</strong> the Scheme.<br />
Share price as at<br />
The Board <strong>of</strong> the proposed Merged Entity will c<strong>on</strong>sist <strong>of</strong> six directors, <strong>of</strong> whom three will be current<br />
directors <strong>of</strong> SXG and three will be current directors <strong>of</strong> PLY. The Chairpers<strong>on</strong> will be Samantha Tough<br />
(current Chairpers<strong>on</strong> <strong>of</strong> SXG) and Glenn Jardine (current Managing Director <strong>of</strong> SXG) will be the Chief<br />
Executive Officer.<br />
The Merged Group Board will c<strong>on</strong>sist <strong>of</strong> the following current members <strong>of</strong> the SXG Board:<br />
• Samantha Tough, as n<strong>on</strong>-executive Chairman;<br />
• John Rowe, as n<strong>on</strong>-executive director; and<br />
• Graham Brock, as n<strong>on</strong>-executive director,<br />
<strong>with</strong> the additi<strong>on</strong> <strong>of</strong> the following current members <strong>of</strong> the PLY Board:<br />
• Frank Terranova, as n<strong>on</strong>-executive director;<br />
• David Sproule, as n<strong>on</strong>-executive director; and<br />
• J<strong>on</strong> Parker, as n<strong>on</strong>-executive director.<br />
Access to the cash reserves <strong>of</strong> PLY<br />
The significant cash reserves <strong>of</strong> PLY will be available to the combined entity to provide funding certainty<br />
for the Marda Project and to allow immediate pursuit <strong>of</strong> those development projects prioritised by the<br />
directors (which may be from the existing SXG and PLY portfolios).<br />
Potential for synergies<br />
3 April 2013 Shares <strong>on</strong> issue<br />
Market<br />
capitalisati<strong>on</strong><br />
% <strong>of</strong> combined<br />
market<br />
capitalisati<strong>on</strong><br />
SXG $0.031 408,912,834 $12,676,298 47.9%<br />
PLY $0.360 38,285,620 $13,782,823 52.1%<br />
Total combined market capitalisati<strong>on</strong><br />
$26,459,121<br />
Combining the companies should allow efficiencies to be realised in terms <strong>of</strong> c<strong>on</strong>solidating the Western<br />
Australia based activities and corporate and administrative costs. SXG has advised us that the forecast<br />
74
corporate cost savings <strong>of</strong> the Merged Entity will be approximately $1.95 milli<strong>on</strong> per annum before any tax<br />
shields.<br />
Str<strong>on</strong>ger more diversified development pipeline<br />
In additi<strong>on</strong> to the operating mines at Marda and Mt Boppy, both SXG and PLY have a portfolio <strong>of</strong> potential<br />
projects giving the directors significant choice in the projects to be prioritised.<br />
Shareholders will benefit from increased market relevance and liquidity <strong>of</strong> shares<br />
The combined entity will have a more significant market presence and there is likely to be greater<br />
liquidity making it easier for shareholders to realise the value <strong>of</strong> their shares should they choose to sell.<br />
Technical expertise <strong>of</strong> the Sproule Interest<br />
David Sproule, PLY’s current n<strong>on</strong>-executive Chairman will bring technical expertise to the Merged Entity<br />
including expertise in refurbishing and rec<strong>on</strong>structing small gold plants and operating small gold plants.<br />
The Sproule Interests also bring <strong>with</strong> them a committed visi<strong>on</strong> for growing small companies as well as cash<br />
reserves.<br />
Diversified and larger group <strong>of</strong> assets<br />
The Merged Entity will hold a larger pool <strong>of</strong> assets providing the company <strong>with</strong> greater flexibility and more<br />
opti<strong>on</strong>s to divest or develop a number <strong>of</strong> projects.<br />
13.5 Disadvantages <strong>of</strong> Approving the Transacti<strong>on</strong><br />
If the Transacti<strong>on</strong> is approved, in our opini<strong>on</strong>, the potential disadvantages to Shareholders include those<br />
listed below:<br />
There will be a new substantial SXG shareholder<br />
Following the Transacti<strong>on</strong>, the Sproule Interests and its members will have a voting power in the Company<br />
<strong>of</strong> approximately 26%. A single shareholding block <strong>of</strong> this size may also deter any potential bidders from<br />
making a takeover <strong>of</strong>fer for the Merged Entity, thereby depriving Shareholders from receiving a takeover<br />
premium for their shares.<br />
Diluti<strong>on</strong> <strong>of</strong> existing shareholders’ interests<br />
The Transacti<strong>on</strong> (and successful implementati<strong>on</strong> <strong>of</strong> the Scheme) will see 458,537,981 shares issued to PLY<br />
shareholders which will reduce the combined holding <strong>of</strong> existing shareholders from 100% to 47.1%<br />
SXG Shareholders will be exposed to the risk <strong>of</strong> PLY’s assets<br />
Through holding shares in the Merged Entity, SXG shareholders will be exposed to the risks <strong>of</strong> the Mt Boppy<br />
Project, the Turner River Gold Project and Turner River Base Metals Project.<br />
14. C<strong>on</strong>clusi<strong>on</strong><br />
We have c<strong>on</strong>sidered the terms <strong>of</strong> the Transacti<strong>on</strong> as outlined in the body <strong>of</strong> this report and have<br />
c<strong>on</strong>cluded that the Transacti<strong>on</strong> is fair and reas<strong>on</strong>able to the Shareholders <strong>of</strong> SXG.<br />
75
15. Sources <strong>of</strong> informati<strong>on</strong><br />
This report has been based <strong>on</strong> the following informati<strong>on</strong>:<br />
• Draft <strong>Notice</strong> <strong>of</strong> General <strong>Meeting</strong> and Explanatory Statement <strong>on</strong> or about the date <strong>of</strong> this report;<br />
• Scheme Implementati<strong>on</strong> Agreement;<br />
• Audited financial statements <strong>of</strong> SXG for the years ended 30 June 2011, 30 June 2012 and half-year<br />
reviewed financial statements for period ended 31 December 2012;<br />
• Unaudited management accounts <strong>of</strong> SXG for the nine m<strong>on</strong>th period ended 31 March 2013;<br />
• Audited financial statements <strong>of</strong> PLY for the years ended 30 June 2011, 30 June 2012 and half-year<br />
reviewed financial statements for period ended 31 December 2012;<br />
• Unaudited management accounts <strong>of</strong> PLY for the nine m<strong>on</strong>th period ended 31 March 2013;<br />
• Technical Specialist Assessment and Valuati<strong>on</strong> Report <strong>of</strong> SXG’s and PLY’s mineral assets dated 19 June<br />
2013 performed by AMC C<strong>on</strong>sultants Pty Ltd;<br />
• Share registry informati<strong>on</strong>;<br />
• Informati<strong>on</strong> in the public domain; and<br />
• Discussi<strong>on</strong>s <strong>with</strong> Directors and Management <strong>of</strong> SXG and PLY.<br />
16. Independence<br />
BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee <strong>of</strong> $50,000 (excluding GST and<br />
reimbursement <strong>of</strong> out <strong>of</strong> pocket expenses). Except for this fee, BDO Corporate Finance (WA) Pty Ltd has<br />
not received and will not receive any pecuniary or other benefit whether direct or indirect in c<strong>on</strong>necti<strong>on</strong><br />
<strong>with</strong> the preparati<strong>on</strong> <strong>of</strong> this report.<br />
BDO Corporate Finance (WA) Pty Ltd has been indemnified by SXG in respect <strong>of</strong> any claim arising from BDO<br />
Corporate Finance (WA) Pty Ltd's reliance <strong>on</strong> informati<strong>on</strong> provided by SXG, including the n<strong>on</strong> provisi<strong>on</strong> <strong>of</strong><br />
material informati<strong>on</strong>, in relati<strong>on</strong> to the preparati<strong>on</strong> <strong>of</strong> this report.<br />
Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has c<strong>on</strong>sidered its independence<br />
<strong>with</strong> respect to SXG and PLY and any <strong>of</strong> their respective associates <strong>with</strong> reference to ASIC Regulatory<br />
Guide 112 “Independence <strong>of</strong> Experts”. In BDO Corporate Finance (WA) Pty Ltd’s opini<strong>on</strong> it is independent<br />
<strong>of</strong> SXG and PLY.<br />
Neither the two signatories to this report nor BDO Corporate Finance (WA) Pty Ltd, have had <strong>with</strong>in the<br />
past two years, any pr<strong>of</strong>essi<strong>on</strong>al relati<strong>on</strong>ship <strong>with</strong> SXG, other than in c<strong>on</strong>necti<strong>on</strong> <strong>with</strong> the preparati<strong>on</strong> <strong>of</strong><br />
this Report.<br />
A draft <strong>of</strong> this Report was provided to SXG and its advisors for c<strong>on</strong>firmati<strong>on</strong> <strong>of</strong> the factual accuracy <strong>of</strong> its<br />
c<strong>on</strong>tents. No significant changes were made to this Report as a result <strong>of</strong> this review.<br />
BDO is the brand name for the BDO Internati<strong>on</strong>al network and for each <strong>of</strong> the BDO Member firms.<br />
BDO (Australia) Ltd, an Australian company limited by guarantee, is a member <strong>of</strong> BDO Internati<strong>on</strong>al<br />
Limited, a UK company limited by guarantee, and forms part <strong>of</strong> the internati<strong>on</strong>al BDO network <strong>of</strong><br />
Independent Member Firms. BDO in Australia, is a nati<strong>on</strong>al associati<strong>on</strong> <strong>of</strong> separate entities (each <strong>of</strong> which<br />
has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO Internati<strong>on</strong>al).<br />
76
17. Qualificati<strong>on</strong>s<br />
BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provisi<strong>on</strong> <strong>of</strong> corporate finance<br />
advice, particularly in respect <strong>of</strong> takeovers, mergers and acquisiti<strong>on</strong>s.<br />
BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian<br />
Securities and Investment Commissi<strong>on</strong> for giving expert reports pursuant to the Listing rules <strong>of</strong> the ASX<br />
and the Corporati<strong>on</strong>s Act.<br />
The pers<strong>on</strong>s specifically involved in preparing and reviewing this report were Sherif Andrawes and Adam<br />
Myers <strong>of</strong> BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparati<strong>on</strong> <strong>of</strong><br />
independent expert reports, valuati<strong>on</strong>s and mergers and acquisiti<strong>on</strong>s advice across a wide range <strong>of</strong><br />
industries in Australia and were supported by other BDO staff.<br />
Sherif Andrawes is a Fellow <strong>of</strong> the Institute <strong>of</strong> Chartered Accountants in England & Wales and a Member <strong>of</strong><br />
the Institute <strong>of</strong> Chartered Accountants in Australia. He has over twenty five years experience working in<br />
the audit and corporate finance fields <strong>with</strong> BDO and its predecessor firms in L<strong>on</strong>d<strong>on</strong> and Perth. He has<br />
been resp<strong>on</strong>sible for over 200 public company independent expert’s reports under the Corporati<strong>on</strong>s Act or<br />
ASX Listing Rules. These experts’ reports cover a wide range <strong>of</strong> industries in Australia <strong>with</strong> a focus <strong>on</strong><br />
companies in the natural resources sector. Sherif Andrawes is the Chairman <strong>of</strong> BDO in Western Australia,<br />
Corporate Finance Practice Group Leader <strong>of</strong> BDO in Western Australia and the Natural Resources Leader<br />
for BDO in Australia.<br />
Adam Myers is a member <strong>of</strong> the Australian Institute <strong>of</strong> Chartered Accountants. Adam’s career spans 15<br />
years in the Audit and Assurance and Corporate Finance areas. Adam has c<strong>on</strong>siderable experience in the<br />
preparati<strong>on</strong> <strong>of</strong> independent expert reports and valuati<strong>on</strong>s in general for companies in a wide number <strong>of</strong><br />
industry sectors.<br />
18. Disclaimers and c<strong>on</strong>sents<br />
This report has been prepared at the request <strong>of</strong> SXG for inclusi<strong>on</strong> in the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> and Explanatory<br />
Memorandum which will be sent to all SXG Shareholders. SXG engaged BDO Corporate Finance (WA) Pty<br />
Ltd to prepare an independent expert report to c<strong>on</strong>sider the proposal for SXG to issue approximately 459<br />
milli<strong>on</strong> new ordinary shares to PLY shareholders.<br />
BDO Corporate Finance (WA) Pty Ltd hereby c<strong>on</strong>sents to this report accompanying the above <strong>Notice</strong> <strong>of</strong><br />
<strong>Meeting</strong> and Explanatory Memorandum. Apart from such use, neither the whole nor any part <strong>of</strong> this<br />
report, nor any reference thereto may be included in or <strong>with</strong>, or attached to any document, circular<br />
resoluti<strong>on</strong>, statement or letter <strong>with</strong>out the prior written c<strong>on</strong>sent <strong>of</strong> BDO Corporate Finance (WA) Pty Ltd.<br />
BDO Corporate Finance (WA) Pty Ltd takes no resp<strong>on</strong>sibility for the c<strong>on</strong>tents <strong>of</strong> the <strong>Notice</strong> <strong>of</strong> <strong>Meeting</strong> and<br />
Explanatory Memorandum other than this report.<br />
BDO Corporate Finance (WA) Pty Ltd has not independently verified the informati<strong>on</strong> and explanati<strong>on</strong>s<br />
supplied to us, nor has it c<strong>on</strong>ducted anything in the nature <strong>of</strong> an audit or review <strong>of</strong> SXG in accordance <strong>with</strong><br />
standards issued by the Auditing and Assurance Standards Board. However, we have no reas<strong>on</strong> to believe<br />
that any <strong>of</strong> the informati<strong>on</strong> or explanati<strong>on</strong>s so supplied are false or that material informati<strong>on</strong> has been<br />
<strong>with</strong>held. It is not the role <strong>of</strong> BDO Corporate Finance (WA) Pty Ltd acting as an independent expert to<br />
perform any due diligence procedures <strong>on</strong> behalf <strong>of</strong> the Company. The Directors <strong>of</strong> the Company are<br />
77
esp<strong>on</strong>sible for c<strong>on</strong>ducting appropriate due diligence in relati<strong>on</strong> to PLY. BDO Corporate Finance (WA) Pty<br />
Ltd provides no warranty as to the adequacy, effectiveness or completeness <strong>of</strong> the due diligence process.<br />
The opini<strong>on</strong> <strong>of</strong> BDO Corporate Finance (WA) Pty Ltd is based <strong>on</strong> the market, ec<strong>on</strong>omic and other c<strong>on</strong>diti<strong>on</strong>s<br />
prevailing at the date <strong>of</strong> this Report. Such c<strong>on</strong>diti<strong>on</strong>s can change significantly over short periods <strong>of</strong> time.<br />
With respect to taxati<strong>on</strong> implicati<strong>on</strong>s it is recommended that individual Shareholders obtain their own<br />
taxati<strong>on</strong> advice, in respect <strong>of</strong> the Transacti<strong>on</strong>, tailored to their own particular circumstances.<br />
Furthermore, the advice provided in this Report does not c<strong>on</strong>stitute legal or taxati<strong>on</strong> advice to the<br />
Shareholders <strong>of</strong> SXG, or any other party.<br />
BDO Corporate Finance (WA) Pty Ltd has also c<strong>on</strong>sidered and relied up<strong>on</strong> technical specialist valuati<strong>on</strong>s for<br />
mineral assets held by SXG and PLY.<br />
The valuer engaged for the mineral asset valuati<strong>on</strong>, AMC, possesses the appropriate qualificati<strong>on</strong>s and<br />
experience in the industry to make such assessments. The approaches adopted and assumpti<strong>on</strong>s made, in<br />
arriving at their valuati<strong>on</strong>s are c<strong>on</strong>sidered appropriate for this report. We have received c<strong>on</strong>sent from the<br />
valuer for the use <strong>of</strong> their valuati<strong>on</strong> report in the preparati<strong>on</strong> <strong>of</strong> this report and to append a copy <strong>of</strong> their<br />
report to this Report.<br />
The statements and opini<strong>on</strong>s included in this report are given in good faith and in the belief that they are<br />
not false, misleading or incomplete.<br />
The terms <strong>of</strong> this engagement are such that BDO Corporate Finance (WA) Pty Ltd has no obligati<strong>on</strong> to<br />
update this report for events occurring subsequent to the date <strong>of</strong> this Report.<br />
Yours faithfully<br />
BDO CORPORATE FINANCE (WA) PTY LTD<br />
Sherif Andrawes<br />
Director<br />
Adam Myers<br />
Director<br />
78
APPENDIX 1 – GLOSSARY OF TERMS<br />
Reference<br />
The Act<br />
The Adjusted Marda Model<br />
The Adjusted Mt Boppy<br />
Model<br />
AMC<br />
Definiti<strong>on</strong><br />
The Corporati<strong>on</strong>s Act<br />
The life <strong>of</strong> mine DCF Marda Project model prepared by SXG and adjusted by AMC and<br />
BDO<br />
The life <strong>of</strong> mine DCF Mt Boppy Project model prepared by PLY and adjusted by AMC<br />
and BDO<br />
AMC C<strong>on</strong>sultants Pty Ltd<br />
APES 225 Accounting Pr<strong>of</strong>essi<strong>on</strong>al & Ethical Standards Board pr<strong>of</strong>essi<strong>on</strong>al standard APES 225<br />
‘Valuati<strong>on</strong> Services’<br />
ASIC<br />
ASX<br />
Au<br />
AUD or A$<br />
Barranco<br />
BDO<br />
The Company<br />
DCF<br />
EBIT<br />
EBITDA<br />
FME<br />
Indemnity C<strong>on</strong>siderati<strong>on</strong><br />
JORC Code<br />
Loan Funded Shares<br />
The Marda Model<br />
Australian Securities and Investments Commissi<strong>on</strong><br />
Australian Securities Exchange<br />
Gold<br />
Australian dollars<br />
Barranco Resources NL<br />
BDO Corporate Finance (WA) Pty Ltd<br />
Southern Cross Goldfields Limited<br />
Discounted Future Cash Flows<br />
Earnings before interest and tax<br />
Earnings before interest, tax, depreciati<strong>on</strong> and amortisati<strong>on</strong><br />
Future Maintainable Earnings<br />
1,939,058 <strong>Polymetals</strong> Shares and $300,000 to Meadowhead Investments as<br />
c<strong>on</strong>siderati<strong>on</strong> for the provisi<strong>on</strong> <strong>of</strong> the Meadowhead Indemnity<br />
The Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results, Mineral Resources and Ore<br />
Reserves<br />
<strong>Polymetals</strong> Shares issued under <strong>Polymetals</strong>’ l<strong>on</strong>g term incentive scheme<br />
The life <strong>of</strong> mine DCF Marda Project model prepared by SXG<br />
79
Meadowhead<br />
Meadowhead Indemnity<br />
The <strong>Merger</strong><br />
The Merged Entity<br />
NAV<br />
Our Report<br />
Oz<br />
Peak Litigati<strong>on</strong><br />
PLY<br />
RBA<br />
Meadowhead Investments Pty Ltd<br />
A full indemnity granted by Meadowhead Investments in favour <strong>of</strong> <strong>Polymetals</strong> in<br />
relati<strong>on</strong> to any costs that may arise out <strong>of</strong> the Peak Litigati<strong>on</strong><br />
The merger <strong>of</strong> SXG and PLY by way <strong>of</strong> a scheme <strong>of</strong> arrangement<br />
SXG and PLY following the <strong>Merger</strong><br />
Net Asset Value<br />
This Independent Expert’s Report prepared by BDO<br />
Ounce<br />
The litigati<strong>on</strong> brought by Peak Gold Mines Pty Ltd against PLY, in the Supreme<br />
Court <strong>of</strong> New South Wales.<br />
<strong>Polymetals</strong> Mining Limited<br />
The Reserve Bank <strong>of</strong> Australia<br />
RG111 C<strong>on</strong>tent <strong>of</strong> expert reports (March 2011)<br />
RG112 Independence <strong>of</strong> experts (March 2011)<br />
The Transacti<strong>on</strong><br />
The Scheme<br />
The proposal to issue SXG shares to the Sproule Interests up<strong>on</strong> implementati<strong>on</strong> <strong>of</strong> the<br />
Scheme which will result in the Sproule Interests holding approximately 26% <strong>of</strong> the<br />
issued capital in the Merged Entity (SXG).<br />
A proposed scheme <strong>of</strong> arrangement pursuant to the Corporati<strong>on</strong>s Act between PLY and<br />
PLY shareholders , pursuant to which SXG will issue 11 SXG shares for every 1 PLY<br />
share <strong>on</strong> issue (if the Scheme is approved and implemented) to effect the <strong>Merger</strong>.<br />
Scheme C<strong>on</strong>diti<strong>on</strong>s<br />
Shareholders<br />
SIA<br />
Sproule Interests<br />
SXG<br />
USD<br />
the Valmin Code<br />
The c<strong>on</strong>diti<strong>on</strong>s precedent the satisfacti<strong>on</strong> or waiver <strong>of</strong> which must be achieved for<br />
implementati<strong>on</strong> <strong>of</strong> the Scheme.<br />
Shareholders <strong>of</strong> SXG not associated <strong>with</strong> PLY<br />
Scheme Implementati<strong>on</strong> Agreement<br />
PLY’s largest associated shareholders, Meadowhead Investments, Mr D Sproule and<br />
Mrs J Sproule<br />
Southern Cross Goldfields Limited<br />
US dollars<br />
Code for the Technical Assessment and valuati<strong>on</strong> <strong>of</strong> Mineral Petroleum Assets and<br />
80
Securities for Independent Expert Reports<br />
VWAP<br />
Valuati<strong>on</strong> Engagement<br />
Volume Weighted Average Price<br />
An Engagement or Assignment to perform a Valuati<strong>on</strong> and provide a Valuati<strong>on</strong> Report<br />
where the Valuer is free to employ the Valuati<strong>on</strong> Approaches, Valuati<strong>on</strong> Methods, and<br />
Valuati<strong>on</strong> Procedures that a reas<strong>on</strong>able and informed third party would perform taking<br />
into c<strong>on</strong>siderati<strong>on</strong> all the specific facts and circumstances <strong>of</strong> the Engagement or<br />
Assignment available to the Valuer at that time.<br />
81
APPENDIX 2 – VALUATION METHODOLOGIES<br />
Methodologies comm<strong>on</strong>ly used for valuing assets and businesses are as follows:<br />
1 Net asset value (“NAV”)<br />
Asset based methods estimate the market value <strong>of</strong> an entity’s securities based <strong>on</strong> the realisable value <strong>of</strong><br />
its identifiable net assets. Asset based methods include:<br />
• Orderly realisati<strong>on</strong> <strong>of</strong> assets method<br />
• Liquidati<strong>on</strong> <strong>of</strong> assets method<br />
• Net assets <strong>on</strong> a going c<strong>on</strong>cern method<br />
The orderly realisati<strong>on</strong> <strong>of</strong> assets method estimates fair market value by determining the amount that<br />
would be distributed to entity holders, after payment <strong>of</strong> all liabilities including realisati<strong>on</strong> costs and<br />
taxati<strong>on</strong> charges that arise, assuming the entity is wound up in an orderly manner.<br />
The liquidati<strong>on</strong> method is similar to the orderly realisati<strong>on</strong> <strong>of</strong> assets method except the liquidati<strong>on</strong><br />
method assumes the assets are sold in a shorter time frame. Since wind up or liquidati<strong>on</strong> <strong>of</strong> the entity<br />
may not be c<strong>on</strong>templated, these methods in their strictest form may not be appropriate. The net assets<br />
<strong>on</strong> a going c<strong>on</strong>cern method estimates the market values <strong>of</strong> the net assets <strong>of</strong> an entity but does not take<br />
into account any realisati<strong>on</strong> costs.<br />
Net assets <strong>on</strong> a going c<strong>on</strong>cern basis are usually appropriate where the majority <strong>of</strong> assets c<strong>on</strong>sist <strong>of</strong> cash,<br />
passive investments or projects <strong>with</strong> a limited life. All assets and liabilities <strong>of</strong> the entity are valued at<br />
market value under this alternative and this combined market value forms the basis for the entity’s<br />
valuati<strong>on</strong>.<br />
Often the FME and DCF methodologies are used in valuing assets forming part <strong>of</strong> the overall Net assets <strong>on</strong><br />
a going c<strong>on</strong>cern basis. This is particularly so for explorati<strong>on</strong> and mining companies where investments are<br />
in finite life producing assets or prospective explorati<strong>on</strong> areas.<br />
These asset based methods ignore the possibility that the entity’s value could exceed the realisable value<br />
<strong>of</strong> its assets as they do not recognise the value <strong>of</strong> intangible assets such as management, intellectual<br />
property and goodwill. Asset based methods are appropriate when an entity is not making an adequate<br />
return <strong>on</strong> its assets, a significant proporti<strong>on</strong> <strong>of</strong> the entity’s assets are liquid or for asset holding<br />
companies.<br />
2 Quoted Market Price Basis (“QMP”)<br />
A valuati<strong>on</strong> approach that can be used in c<strong>on</strong>juncti<strong>on</strong> <strong>with</strong> (or as a replacement for) other valuati<strong>on</strong><br />
methods is the quoted market price <strong>of</strong> listed securities. Where there is a ready market for securities such<br />
as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be<br />
taken as the market value per share. Such market value includes all factors and influences that impact<br />
up<strong>on</strong> the ASX. The use <strong>of</strong> ASX pricing is more relevant where a security displays regular high volume<br />
trading, creating a “deep” market in that security.<br />
3 Capitalisati<strong>on</strong> <strong>of</strong> future maintainable earnings (“FME”)<br />
This method places a value <strong>on</strong> the business by estimating the likely FME, capitalised at an appropriate rate<br />
which reflects business outlook, business risk, investor expectati<strong>on</strong>s, future growth prospects and other<br />
entity specific factors. This approach relies <strong>on</strong> the availability and analysis <strong>of</strong> comparable market data.<br />
82
The FME approach is the most comm<strong>on</strong>ly applied valuati<strong>on</strong> technique and is particularly applicable to<br />
pr<strong>of</strong>itable businesses <strong>with</strong> relatively steady growth histories and forecasts, regular capital expenditure<br />
requirements and n<strong>on</strong>-finite lives.<br />
The FME used in the valuati<strong>on</strong> can be based <strong>on</strong> net pr<strong>of</strong>it after tax or alternatives to this such as earnings<br />
before interest and tax (“EBIT”) or earnings before interest, tax, depreciati<strong>on</strong> and amortisati<strong>on</strong><br />
(“EBITDA”). The capitalisati<strong>on</strong> rate or "earnings multiple" is adjusted to reflect which base is being used<br />
for FME.<br />
4 Discounted future cash flows (“DCF”)<br />
The DCF methodology is based <strong>on</strong> the generally accepted theory that the value <strong>of</strong> an asset or business<br />
depends <strong>on</strong> its future net cash flows, discounted to their present value at an appropriate discount rate<br />
(<strong>of</strong>ten called the weighted average cost <strong>of</strong> capital). This discount rate represents an opportunity cost <strong>of</strong><br />
capital reflecting the expected rate <strong>of</strong> return which investors can obtain from investments having<br />
equivalent risks.<br />
C<strong>on</strong>siderable judgement is required to estimate the future cash flows which must be able to be reliably<br />
estimated for a sufficiently l<strong>on</strong>g period to make this valuati<strong>on</strong> methodology appropriate.<br />
A terminal value for the asset or business is calculated at the end <strong>of</strong> the future cash flow period and this is<br />
also discounted to its present value using the appropriate discount rate.<br />
DCF valuati<strong>on</strong>s are particularly applicable to businesses <strong>with</strong> limited lives, experiencing growth, that are<br />
in a start up phase, or experience irregular cash flows.<br />
5 Market Based Assessment<br />
The market based approach seeks to arrive at a value for a business by reference to comparable<br />
transacti<strong>on</strong>s involving the sale <strong>of</strong> similar businesses. This is based <strong>on</strong> the premise that companies <strong>with</strong><br />
similar characteristics, such as operating in similar industries, command similar values. In performing this<br />
analysis it is important to acknowledge the differences between the comparable companies being analysed<br />
and the company that is being valued and then to reflect these differences in the valuati<strong>on</strong>.<br />
The resource multiple is a market based approach which seeks to arrive at a value for a company by<br />
reference to its total reported resources and to the enterprise value per t<strong>on</strong>ne/lb <strong>of</strong> the reported<br />
resources <strong>of</strong> comparable listed companies. The resource multiple represents the value placed <strong>on</strong> the<br />
resources <strong>of</strong> comparable companies by a liquid market.<br />
83
APPENDIX 3 – DISCOUNT RATES<br />
SXG<br />
We have derived a discount rate for SXG to apply to the future cash flows <strong>of</strong> the Marda Project prior to<br />
the Transacti<strong>on</strong> <strong>on</strong> a stand al<strong>on</strong>e basis as set out below.<br />
Determining the correct discount rate, or cost <strong>of</strong> capital, for a business requires the identificati<strong>on</strong> and<br />
c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> a number <strong>of</strong> factors that affect the returns and risks <strong>of</strong> a business, as well as the<br />
applicati<strong>on</strong> <strong>of</strong> widely accepted methodologies for determining the returns <strong>of</strong> a business.<br />
The discount rate applied to the forecast cash flows from a business represents the financial return that<br />
an investor would require if they were to acquire (or invest in) the business.<br />
The capital asset pricing model (“CAPM”) is comm<strong>on</strong>ly used in determining the market rates <strong>of</strong> return for<br />
equity type investments and project evaluati<strong>on</strong>s. In determining a business’ weighted average cost <strong>of</strong><br />
capital (“WACC”) the CAPM results are combined <strong>with</strong> the cost <strong>of</strong> debt funding. WACC represents the<br />
return required <strong>on</strong> the business, whilst CAPM provides the required return <strong>on</strong> an equity investment.<br />
Cost <strong>of</strong> Equity and Capital Asset Pricing Model<br />
CAPM is based <strong>on</strong> the theory that a rati<strong>on</strong>al investor would price an investment so that the expected<br />
return is equal to the risk free rate <strong>of</strong> return plus an appropriate premium for risk. CAPM assumes that<br />
there is a positive relati<strong>on</strong>ship between risk and return, that is, investors are risk averse and demand a<br />
higher return for accepting a higher level <strong>of</strong> risk.<br />
CAPM calculates the cost <strong>of</strong> equity and is calculated as follows:<br />
CAPM<br />
K e = R f + β x (R m – R f )<br />
Where:<br />
K e<br />
R f<br />
R m<br />
R m – R f<br />
β<br />
= expected equity investment return or cost <strong>of</strong> equity in nominal terms<br />
= risk free rate <strong>of</strong> return<br />
= expected market return<br />
= market risk premium<br />
= equity beta<br />
The individual comp<strong>on</strong>ents <strong>of</strong> CAPM are discussed below.<br />
Risk Free Rate (R f )<br />
The risk free rate is normally approximated by reference to a l<strong>on</strong>g term government b<strong>on</strong>d <strong>with</strong> a maturity<br />
equivalent to the timeframe over which the returns from the assets are expected to be received. Having<br />
regard to the period <strong>of</strong> the operati<strong>on</strong>s we have used the current yield to maturity <strong>on</strong> the 10 year<br />
Comm<strong>on</strong>wealth Government B<strong>on</strong>d which was 3.27% per annum as at 27 May 2013.<br />
Market Risk Premium (R m – R f )<br />
The market risk premium represents the additi<strong>on</strong>al return that investors expect from an investment in a<br />
well-diversified portfolio <strong>of</strong> assets. It is comm<strong>on</strong> to use a historical risk premium, as expectati<strong>on</strong>s are not<br />
observable in practice.<br />
We have noted that the current market risk premium is 6%. This has been sourced from Bloomberg. The<br />
market risk premium is derived <strong>on</strong> the basis <strong>of</strong> capital weighted average return <strong>of</strong> all members <strong>of</strong> the S&P<br />
200 Index minus the risk free rate is dependent <strong>on</strong> the ten year government b<strong>on</strong>d rates. For the purpose<br />
<strong>of</strong> our report we have adopted a market risk premium <strong>of</strong> 6%.<br />
84
Equity Beta<br />
Beta is a measure <strong>of</strong> the expected correlati<strong>on</strong> <strong>of</strong> an investment’s return over and above the risk free rate,<br />
relative to the return over and above the risk free rate <strong>of</strong> the market as a whole. A beta greater than <strong>on</strong>e<br />
implies that an investment’s return will outperform the market’s average return in a rising market and<br />
underperform the market’s average return in a falling market. On the other hand, a beta less than <strong>on</strong>e<br />
implies that the business’ performance compared to that <strong>of</strong> a business whose beta is greater than <strong>on</strong>e will<br />
provide an inverse relati<strong>on</strong>ship in terms <strong>of</strong> the market’s average return.<br />
Equity betas are normally either an historical beta or an adjusted beta. The historical beta is obtained<br />
from the linear regressi<strong>on</strong> <strong>of</strong> a stock’s historical data and is based <strong>on</strong> the observed relati<strong>on</strong>ship between<br />
the security’s return and the returns <strong>on</strong> an index. An adjusted beta is calculated based <strong>on</strong> the assumpti<strong>on</strong><br />
that the relative risk <strong>of</strong> the past will c<strong>on</strong>tinue into the future, and hence derived from the historical data.<br />
It is then modified by the assumpti<strong>on</strong> that a stock will move towards the market over time, taking into<br />
c<strong>on</strong>siderati<strong>on</strong> the industry risk factors which make the operating risk <strong>of</strong> the investment project greater or<br />
less risky than comparable listed companies when assessing the equity beta for an investment project.<br />
It is important to note that it is not possible to compare the equity betas <strong>of</strong> different companies <strong>with</strong>out<br />
having regard to their gearing levels. Thus, a more valid analysis <strong>of</strong> betas can be achieved by “ungearing”<br />
the equity beta (β a ) by applying the following formula:<br />
β a = β / (1+(D/E x (1-t))<br />
In order to assess the appropriate equity beta for the Marda Project we have had regard to the equity<br />
betas <strong>of</strong> listed companies involved in similar activities in similar industry sectors. The geared betas below<br />
have been calculated against the All Ordinaries Index.<br />
Company Market Capitalisati<strong>on</strong> ($) Geared beta Gross debt/equity Ungeared beta<br />
Rand Mining Ltd 21,294,422 1.28 9% 1.20<br />
BCD Resources NL 4,557,416 0.78 1% 0.77<br />
Kalnorth Gold Mines Limited 23,787,399 0.86 0% 0.86<br />
Octag<strong>on</strong>al Resources Limited 11,665,280 0.93 0% 0.93<br />
Ramelius Resources Limited 70,927,429 1.06 2% 1.04<br />
Excelsior Gold Limited 55,900,589 1.01 0% 1.01<br />
Tanami Gold NL 48,766,525 1.04 71% 0.69<br />
Mean 0.93<br />
Median 0.93<br />
Source: Bloomberg<br />
Selected Beta (β)<br />
In selecting an appropriate Beta for the Projects, we have c<strong>on</strong>sidered the similarities between the<br />
Projects and the comparable companies selected above. The comparable similarities and differences<br />
noted are:<br />
• the comparable companies’ mining and explorati<strong>on</strong> assets have varying risk pr<strong>of</strong>iles depending <strong>on</strong><br />
the maturity <strong>of</strong> the assets and the stages and locati<strong>on</strong> <strong>of</strong> producti<strong>on</strong>; and<br />
• several companies having been producing for a c<strong>on</strong>siderable time period.<br />
85
Having regard to the above we c<strong>on</strong>sider that an appropriate ungeared beta to apply to the Projects is<br />
between 0.95 and 1.15. We have selected our beta from the top end <strong>of</strong> the range <strong>of</strong> comparable company<br />
betas to reflect the higher risk that is associated <strong>with</strong> SXG not having commenced producti<strong>on</strong>. We c<strong>on</strong>sider<br />
it reas<strong>on</strong>able that a forward looking ungeared beta for SXG will reflect that <strong>of</strong> its peers.<br />
We understand that the current capital structure <strong>of</strong> SXG reflects approximately 64% debt and 36% equity.<br />
We c<strong>on</strong>sider it reas<strong>on</strong>able to assume that the shareholders <strong>of</strong> SXG determine their required rate <strong>of</strong> return,<br />
for a particular project, by viewing the risks associated <strong>with</strong> the future cash flows <strong>of</strong> the project. We have<br />
assumed that SXG will obtain both debt and equity funding to advance the Marda Project. The financing <strong>of</strong><br />
the Marda Project will render SXG <strong>with</strong> a capital structure c<strong>on</strong>sisting <strong>of</strong> 73% debt and 27% equity. We have<br />
regeared the project beta to 2.72 to 3.29.<br />
Cost <strong>of</strong> Equity<br />
On this basis we have assessed the cost <strong>of</strong> equity to be:<br />
Input<br />
Value Adopted<br />
Risk free rate <strong>of</strong> return 3. 27% 3.27%<br />
Low<br />
High<br />
Equity market risk premium 6.00% 6.00%<br />
Beta (geared) 2.72 3.29<br />
Cost <strong>of</strong> Equity 19.58% 23.01%<br />
Weighted Average Cost <strong>of</strong> Capital<br />
The WACC represents the market return required <strong>on</strong> the assets <strong>of</strong> the undertaking by debt and equity<br />
providers. WACC is used to assess the appropriate commercial rate <strong>of</strong> return <strong>on</strong> the capital invested in the<br />
business, acknowledging that normally funds invested c<strong>on</strong>sist <strong>of</strong> a mixture <strong>of</strong> debt and equity funds.<br />
Accordingly, the discount rate should reflect the proporti<strong>on</strong>ate levels <strong>of</strong> debt and equity relative to the<br />
level <strong>of</strong> security and risk attributable to the investment.<br />
In calculating WACC there are a number <strong>of</strong> different formulae which are based <strong>on</strong> the definiti<strong>on</strong> <strong>of</strong> cash<br />
flows (i.e., pre-tax or post-tax), the treatment <strong>of</strong> the tax benefit arising through the deductibility <strong>of</strong><br />
interest expenses (included in either the cash flow or discount rate), and the manner and extent to which<br />
they adjust for the effects <strong>of</strong> dividend imputati<strong>on</strong>. The comm<strong>on</strong>ly used WACC formula is the post-tax<br />
WACC, <strong>with</strong>out adjustment for dividend imputati<strong>on</strong>, which is detailed in the below table.<br />
86
CAPM<br />
WACC = E K e + D K d (1– t)<br />
Where:<br />
K e<br />
K d<br />
T<br />
E<br />
D<br />
E+D<br />
D+E<br />
= expected return or discount rate <strong>on</strong> equity<br />
= interest rate <strong>on</strong> debt (pre-tax)<br />
= corporate tax rate<br />
= market value <strong>of</strong> equity<br />
= market value <strong>of</strong> debt<br />
(1- t) = tax adjustment<br />
Gearing<br />
Before WACC can be determined, the proporti<strong>on</strong> <strong>of</strong> funding provided by debt and equity (i.e., gearing<br />
ratio) must be determined. The gearing ratio adopted should represent the level <strong>of</strong> debt that the asset<br />
can reas<strong>on</strong>ably sustain (i.e., the higher the expected volatility <strong>of</strong> cash flows, the lower the debt levels<br />
which can be supported). The optimum level <strong>of</strong> gearing will differentiate between assets and will include:<br />
• the variability in earnings streams;<br />
• working capital requirements;<br />
• the level <strong>of</strong> investment in tangible assets; and<br />
• the nature and risk pr<strong>of</strong>ile <strong>of</strong> the tangible assets.<br />
As described earlier, we understand the capital <strong>of</strong> structure <strong>of</strong> SXG to be made up <strong>of</strong> approximately 73%<br />
debt and 27% equity. We have been informed by the Company that the current anticipated cost <strong>of</strong> debt is<br />
in the range <strong>of</strong> 7.5% to 8.0%.<br />
Calculati<strong>on</strong> <strong>of</strong> WACC<br />
Based <strong>on</strong> the above inputs we have calculated the real WACC to be between 6.0% and 7.1%.<br />
WACC<br />
Value Adopted<br />
Low<br />
High<br />
Cost <strong>of</strong> equity, K e 19.6% 23.0%<br />
Cost <strong>of</strong> debt, K d 7.5% 8.0%<br />
Proporti<strong>on</strong> <strong>of</strong> equity ((E/(E+D)) 27.3% 27.3%<br />
Proporti<strong>on</strong> <strong>of</strong> debt ((D/(E+D)) 72.7% 72.7%<br />
Weighted average cost <strong>of</strong> capital (nominal) 9.2% 10.4%<br />
Weighted average cost <strong>of</strong> capital (real)* 6.0 7.1<br />
* We have c<strong>on</strong>verted the nominal WACC to a real WACC using an inflati<strong>on</strong> rate <strong>of</strong> 3% as per the following formula:<br />
()<br />
( ) = − 1<br />
<br />
Based <strong>on</strong> the table above our preferred discount rate for the Marda Project is 6.5%.<br />
87
Merged Entity<br />
Determining the correct discount rate, or cost <strong>of</strong> capital, for a business requires the identificati<strong>on</strong> and<br />
c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> a number <strong>of</strong> factors that affect the returns and risks <strong>of</strong> a business, as well as the<br />
applicati<strong>on</strong> <strong>of</strong> widely accepted methodologies for determining the returns <strong>of</strong> a business.<br />
The discount rate applied to the forecast cash flows from a business represents the financial return that<br />
an investor would require if they were to acquire (or invest in) the business.<br />
The capital asset pricing model (“CAPM”) is comm<strong>on</strong>ly used in determining the market rates <strong>of</strong> return for<br />
equity type investments and project evaluati<strong>on</strong>s. In determining a business’ weighted average cost <strong>of</strong><br />
capital (“WACC”) the CAPM results are combined <strong>with</strong> the cost <strong>of</strong> debt funding. WACC represents the<br />
return required <strong>on</strong> the business, whilst CAPM provides the required return <strong>on</strong> an equity investment.<br />
Cost <strong>of</strong> Equity and Capital Asset Pricing Model<br />
CAPM is based <strong>on</strong> the theory that a rati<strong>on</strong>al investor would price an investment so that the expected<br />
return is equal to the risk free rate <strong>of</strong> return plus an appropriate premium for risk. CAPM assumes that<br />
there is a positive relati<strong>on</strong>ship between risk and return, that is, investors are risk averse and demand a<br />
higher return for accepting a higher level <strong>of</strong> risk.<br />
CAPM calculates the cost <strong>of</strong> equity and is calculated as follows:<br />
CAPM<br />
K e = R f + β x (R m – R f )<br />
Where:<br />
K e<br />
R f<br />
R m<br />
R m – R f<br />
β<br />
= expected equity investment return or cost <strong>of</strong> equity in nominal terms<br />
= risk free rate <strong>of</strong> return<br />
= expected market return<br />
= market risk premium<br />
= equity beta<br />
The individual comp<strong>on</strong>ents <strong>of</strong> CAPM are discussed below.<br />
Risk Free Rate (R f )<br />
The risk free rate is normally approximated by reference to a l<strong>on</strong>g term government b<strong>on</strong>d <strong>with</strong> a maturity<br />
equivalent to the timeframe over which the returns from the assets are expected to be received. Having<br />
regard to the period <strong>of</strong> the operati<strong>on</strong>s we have used the current yield to maturity <strong>on</strong> the 10 year<br />
Comm<strong>on</strong>wealth Government B<strong>on</strong>d which was 3.27% per annum as at 27 May 2013.<br />
Market Risk Premium (R m – R f )<br />
The market risk premium represents the additi<strong>on</strong>al return that investors expect from an investment in a<br />
well-diversified portfolio <strong>of</strong> assets. It is comm<strong>on</strong> to use a historical risk premium, as expectati<strong>on</strong>s are not<br />
observable in practice.<br />
We have noted that the current market risk premium is 6%. This has been sourced from Bloomberg. The<br />
market risk premium is derived <strong>on</strong> the basis <strong>of</strong> capital weighted average return <strong>of</strong> all members <strong>of</strong> the S&P<br />
200 Index minus the risk free rate is dependent <strong>on</strong> the ten year government b<strong>on</strong>d rates. For the purpose<br />
<strong>of</strong> our report we have adopted a market risk premium <strong>of</strong> 6%.<br />
Equity Beta<br />
Beta is a measure <strong>of</strong> the expected correlati<strong>on</strong> <strong>of</strong> an investment’s return over and above the risk free rate,<br />
relative to the return over and above the risk free rate <strong>of</strong> the market as a whole. A beta greater than <strong>on</strong>e<br />
implies that an investment’s return will outperform the market’s average return in a rising market and<br />
88
underperform the market’s average return in a falling market. On the other hand, a beta less than <strong>on</strong>e<br />
implies that the business’ performance compared to that <strong>of</strong> a business whose beta is greater than <strong>on</strong>e will<br />
provide an inverse relati<strong>on</strong>ship in terms <strong>of</strong> the market’s average return.<br />
Equity betas are normally either an historical beta or an adjusted beta. The historical beta is obtained<br />
from the linear regressi<strong>on</strong> <strong>of</strong> a stock’s historical data and is based <strong>on</strong> the observed relati<strong>on</strong>ship between<br />
the security’s return and the returns <strong>on</strong> an index. An adjusted beta is calculated based <strong>on</strong> the assumpti<strong>on</strong><br />
that the relative risk <strong>of</strong> the past will c<strong>on</strong>tinue into the future, and hence derived from the historical data.<br />
It is then modified by the assumpti<strong>on</strong> that a stock will move towards the market over time, taking into<br />
c<strong>on</strong>siderati<strong>on</strong> the industry risk factors which make the operating risk <strong>of</strong> the investment project greater or<br />
less risky than comparable listed companies when assessing the equity beta for an investment project.<br />
It is important to note that it is not possible to compare the equity betas <strong>of</strong> different companies <strong>with</strong>out<br />
having regard to their gearing levels. Thus, a more valid analysis <strong>of</strong> betas can be achieved by “ungearing”<br />
the equity beta (β a ) by applying the following formula:<br />
β a = β / (1+(D/E x (1-t))<br />
In order to assess the appropriate equity beta for the Merged Entity we have had regard to the equity<br />
betas <strong>of</strong> listed companies involved in similar activities in similar industry sectors. The geared betas below<br />
have been calculated against the All Ordinaries Index.<br />
Company Market Capitalisati<strong>on</strong> ($) Geared beta Gross debt/equity Ungeared beta<br />
<strong>Polymetals</strong> Mining Limited 6,891,412 0.81 0% 0.81<br />
Rand Mining Limited 21,294,422 1.28 9% 1.20<br />
BCD Resources NL 3,622,562 0.78 1% 0.77<br />
Kalnorth Gold Mines Limited 20,389,200 0.86 0% 0.86<br />
Octag<strong>on</strong>al Resources Limited 10,604,800 0.93 0% 0.93<br />
Ramelius Resources Limited 64,172,432 1.06 2% 1.04<br />
Excelsior Gold Limited 53,830,193 1.01 0% 1.01<br />
Tanami Gold NL 48,766,525 1.04 71% 0.69<br />
Selected Beta (β)<br />
In selecting an appropriate Beta for the Merged Entity, we have c<strong>on</strong>sidered the similarities between the<br />
projects and the comparable companies selected above. The comparable similarities and differences<br />
noted are:<br />
• the comparable companies’ mining and explorati<strong>on</strong> assets have varying risk pr<strong>of</strong>iles depending <strong>on</strong><br />
the maturity <strong>of</strong> the assets and the stages and locati<strong>on</strong> <strong>of</strong> producti<strong>on</strong>; and<br />
• several companies having been producing for a c<strong>on</strong>siderable time period.<br />
Mean 0.92<br />
Median 0.90<br />
Having regard to the above we c<strong>on</strong>sider that an appropriate ungeared beta to apply to the Merged Entity<br />
is between 0.90 and 1.20. We c<strong>on</strong>sider it reas<strong>on</strong>able that a forward looking ungeared beta for the Merged<br />
Entity will reflect that <strong>of</strong> its peers. The median beta <strong>of</strong> the comparable companies was selected as the<br />
low end <strong>of</strong> the beta range. The high end <strong>of</strong> the beta range <strong>of</strong> 1.20 was selected to reflect the higher risk<br />
89
associated (relative to the comparable companies) <strong>with</strong> the Merged Entity as a result <strong>of</strong> producti<strong>on</strong> being<br />
scheduled to commence in 2014.<br />
We have calculated the debt to equity structure <strong>of</strong> the Merged Entity based <strong>on</strong> the pre-transacti<strong>on</strong> capital<br />
structures <strong>of</strong> SXG and PLY and the funding assumpti<strong>on</strong>s for the Marda Project and Mt Boppy Project as<br />
outlined in Secti<strong>on</strong>s 10.1.1 and 11.1.1 respectively. We have based our discount rate assessment <strong>on</strong> the<br />
Merged Entity having a capital structure comprising 65% debt and 35% equity.<br />
We c<strong>on</strong>sider it reas<strong>on</strong>able to assume that the shareholders <strong>of</strong> the Merged Entity will determine their<br />
required rate <strong>of</strong> return, for a particular project, by viewing the risks associated <strong>with</strong> the future cash flows<br />
<strong>of</strong> the project. We have regeared the project beta to 2.06 to 2.75 based <strong>on</strong> the 65% debt and 35% equity<br />
structure.<br />
Cost <strong>of</strong> Equity<br />
On this basis we have assessed the cost <strong>of</strong> equity to be:<br />
Input<br />
Value Adopted<br />
Risk free rate <strong>of</strong> return 3.27% 3.27%<br />
Low<br />
High<br />
Equity market risk premium 6.00% 6.00%<br />
Beta (geared) 2.06 2.75<br />
Cost <strong>of</strong> Equity 15.63% 19.75%<br />
Weighted Average Cost <strong>of</strong> Capital<br />
The WACC represents the market return required <strong>on</strong> the assets <strong>of</strong> the undertaking by debt and equity<br />
providers. WACC is used to assess the appropriate commercial rate <strong>of</strong> return <strong>on</strong> the capital invested in the<br />
business, acknowledging that normally funds invested c<strong>on</strong>sist <strong>of</strong> a mixture <strong>of</strong> debt and equity funds.<br />
Accordingly, the discount rate should reflect the proporti<strong>on</strong>ate levels <strong>of</strong> debt and equity relative to the<br />
level <strong>of</strong> security and risk attributable to the investment.<br />
In calculating WACC there are a number <strong>of</strong> different formulae which are based <strong>on</strong> the definiti<strong>on</strong> <strong>of</strong> cash<br />
flows (i.e., pre-tax or post-tax), the treatment <strong>of</strong> the tax benefit arising through the deductibility <strong>of</strong><br />
interest expenses (included in either the cash flow or discount rate), and the manner and extent to which<br />
they adjust for the effects <strong>of</strong> dividend imputati<strong>on</strong>. The comm<strong>on</strong>ly used WACC formula is the post-tax<br />
WACC, <strong>with</strong>out adjustment for dividend imputati<strong>on</strong>, which is detailed in the below table.<br />
CAPM<br />
WACC = E K e + D K d (1– t)<br />
Where:<br />
K e<br />
K d<br />
T<br />
E<br />
D<br />
E+D<br />
D+E<br />
= expected return or discount rate <strong>on</strong> equity<br />
= interest rate <strong>on</strong> debt (pre-tax)<br />
= corporate tax rate<br />
= market value <strong>of</strong> equity<br />
= market value <strong>of</strong> debt<br />
(1- t) = tax adjustment<br />
90
Gearing<br />
Before WACC can be determined, the proporti<strong>on</strong> <strong>of</strong> funding provided by debt and equity (i.e., gearing<br />
ratio) must be determined. The gearing ratio adopted should represent the level <strong>of</strong> debt that the asset<br />
can reas<strong>on</strong>ably sustain (i.e., the higher the expected volatility <strong>of</strong> cash flows, the lower the debt levels<br />
which can be supported). The optimum level <strong>of</strong> gearing will differentiate between assets and will include:<br />
• the variability in earnings streams;<br />
• working capital requirements;<br />
• the level <strong>of</strong> investment in tangible assets; and<br />
• the nature and risk pr<strong>of</strong>ile <strong>of</strong> the tangible assets.<br />
As described earlier, we understand the capital <strong>of</strong> structure <strong>of</strong> the Merged Entity to be made up <strong>of</strong><br />
approximately 65% debt and 35% equity. We have used a cost <strong>of</strong> debt in the range <strong>of</strong> 7.50% to 8.50% based<br />
<strong>on</strong> the indicative debt funding <strong>of</strong>fers received by SXG and PLY.<br />
Calculati<strong>on</strong> <strong>of</strong> WACC<br />
Based <strong>on</strong> the above inputs we have calculated the real WACC to be between 5.7% and 7.6% as detailed<br />
below.<br />
WACC<br />
Value Adopted<br />
Low<br />
High<br />
Cost <strong>of</strong> equity, K e 15.6% 19.8%<br />
Cost <strong>of</strong> debt, K d 7.50% 8.50%<br />
Proporti<strong>on</strong> <strong>of</strong> equity ((E/(E+D)) 35.2% 35.2%<br />
Proporti<strong>on</strong> <strong>of</strong> debt ((D/(E+D)) 64.8% 64.8%<br />
Weighted average cost <strong>of</strong> capital (nominal) 8.9% 10.8%<br />
Weighted average cost <strong>of</strong> capital (real)* 5.7% 7.6%<br />
* We have c<strong>on</strong>verted the nominal WACC to a real WACC using an inflati<strong>on</strong> rate <strong>of</strong> 3% as per the following formula:<br />
()<br />
( ) = − 1<br />
<br />
Based <strong>on</strong> the table above our preferred discount rate for the Merged Entity is 6.5%. We note that this is<br />
the same as the discount rate used for SXG.<br />
91
APPENDIX 4 – TECHNICAL SPECIALIST VALUATION – AMC<br />
CONSULTANTS<br />
92
- 42 -<br />
Annexure B<br />
Refer enclosed Technical Specialist’s Report
AMC C<strong>on</strong>sultants Pty Ltd<br />
ABN 58 008 129 164<br />
Ground Floor, 9 Havelock Street<br />
WEST PERTH WA 6005<br />
T +61 8 6330 1100<br />
F +61 8 6330 1199<br />
E amcperth@amcc<strong>on</strong>sultants.com<br />
POLYMETALS MINING LIMITED AND<br />
SOUTHERN CROSS GOLDFIELDS LIMITED<br />
TECHNICAL SPECIALIST'S REPORT<br />
BDO CORPORATE FINANCE (WA) PTY LTD<br />
AMC NUMBER 213052<br />
June 2013<br />
ADELAIDE<br />
+61 8 8201 1800<br />
BRISBANE<br />
+61 7 3839 0099<br />
MELBOURNE<br />
+61 3 8601 3300<br />
PERTH<br />
+61 8 6330 1100<br />
TORONTO<br />
+1 416 640 1212<br />
VANCOUVER<br />
+1 604 669 0044<br />
MAIDENHEAD<br />
+44 1628 778 256<br />
www.amcc<strong>on</strong>sultants.com
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
19 June 2013<br />
The Directors<br />
BDO Corporate Finance (WA) Pty Ltd<br />
38 Stati<strong>on</strong> Street<br />
SUBIACO WA 6008<br />
Dear Sirs<br />
POLYMETALS AND SOUTHERN CROSS GOLDFIELDS<br />
TECHNICAL SPECIALIST'S REPORT<br />
On 8 April 2013, <strong>Polymetals</strong> Mining Limited (<strong>Polymetals</strong>) and Southern Cross Goldfields Limited (Southern<br />
Cross) announced, inter alia, that subject to certain c<strong>on</strong>diti<strong>on</strong>s:<br />
• <strong>Polymetals</strong> and Southern Cross have entered into an agreement to combine the two companies<br />
under a merger structured as a <strong>Polymetals</strong> Scheme <strong>of</strong> Arrangement (Scheme).<br />
• The merger will be implemented as a "merger <strong>of</strong> equals" by way <strong>of</strong> the Scheme under which<br />
<strong>Polymetals</strong> shareholders will be <strong>of</strong>fered Southern Cross shares.<br />
As advised by Southern Cross, as a result <strong>of</strong> the Scheme, Southern Cross shares will be issued to<br />
<strong>Polymetals</strong>' largest shareholder which will result in the shareholder and its associates holding more than<br />
20% <strong>of</strong> the issued capital in the Merged Entity (Transacti<strong>on</strong>).<br />
The directors <strong>of</strong> Southern Cross have engaged BDO Corporate Finance (WA) Pty Ltd (BDO) to prepare an<br />
Independent Expert Report (IER) in relati<strong>on</strong> to the Transacti<strong>on</strong>. The IER is to be included <strong>with</strong> a <strong>Notice</strong> <strong>of</strong><br />
<strong>Meeting</strong> to be sent to Southern Cross shareholders.<br />
The directors <strong>of</strong> Southern Cross have also engaged AMC C<strong>on</strong>sultants Pty Ltd (AMC) to provide BDO <strong>with</strong> a<br />
Technical Specialist's Report (TSR) <strong>on</strong> the mineral assets <strong>of</strong> <strong>Polymetals</strong> and Southern Cross (Assets). The<br />
TSR will be appended to the IER.<br />
In relati<strong>on</strong> to the TSR, BDO has instructed AMC to undertake a technical review and prepare a technical<br />
valuati<strong>on</strong> <strong>of</strong> the explorati<strong>on</strong> assets and where appropriate to develop producti<strong>on</strong> cases for the mineral assets<br />
<strong>of</strong> <strong>Polymetals</strong> and Southern Cross.<br />
The scope <strong>of</strong> the TSR as advised by BDO to AMC includes:<br />
• A descripti<strong>on</strong> <strong>of</strong> the mineral assets.<br />
• Examinati<strong>on</strong> <strong>of</strong> geology, Mineral Resources and Ore Reserves, development plans, mining aspects,<br />
processing methods, producti<strong>on</strong> schedules, capital costs and operating costs, and explorati<strong>on</strong><br />
potential for each operati<strong>on</strong> or development project.<br />
• Valuati<strong>on</strong> <strong>of</strong> the explorati<strong>on</strong> properties to the extent they are not covered by the life-<strong>of</strong>-mine producti<strong>on</strong><br />
cases for the operati<strong>on</strong>s and development projects.<br />
Separately and prior to receiving instructi<strong>on</strong> from BDO, <strong>Polymetals</strong> has engaged Grant Thornt<strong>on</strong> Corporate<br />
Finance Pty Ltd (Grant Thornt<strong>on</strong>) to prepare an Independent Expert Report in relati<strong>on</strong> to the proposed<br />
merger. AMC was engaged <strong>on</strong> 18 April 2013 by <strong>Polymetals</strong> to provide an independent technical specialist's<br />
report under instructi<strong>on</strong> from Grant Thornt<strong>on</strong> <strong>on</strong> the mineral assets <strong>of</strong> <strong>Polymetals</strong> and Southern Cross. BDO<br />
has c<strong>on</strong>firmed that it is satisfied <strong>with</strong> the instructi<strong>on</strong> provided by Grant Thornt<strong>on</strong> to AMC in relati<strong>on</strong> to the<br />
TSR, and that this instructi<strong>on</strong> satisfies BDO’s requirements in its role as Expert. The technical c<strong>on</strong>tent <strong>of</strong> this<br />
TSR is essentially the same as the report provided to Grant Thornt<strong>on</strong>. This TSR has been prepared<br />
specifically for the Transacti<strong>on</strong>.<br />
For each <strong>of</strong> the operati<strong>on</strong>s and development projects reviewed, AMC has provided producti<strong>on</strong> cases<br />
including capital and operating cost projecti<strong>on</strong>s, <strong>with</strong> pre-tax revenues to BDO to allow BDO to calculate net<br />
present values for the respective projects. AMC believes the producti<strong>on</strong> cases are based <strong>on</strong> reas<strong>on</strong>able<br />
grounds.<br />
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In general terms, AMC has modelled two producti<strong>on</strong> cases for each operati<strong>on</strong> and development project.<br />
Case 1 is typically based <strong>on</strong> Ore Reserve (JORC Code 1 defined) estimates and that part <strong>of</strong> other Mineral<br />
Resources (JORC Code defined) and explorati<strong>on</strong> potential for which AMC judges there is a high c<strong>on</strong>fidence<br />
<strong>of</strong> future c<strong>on</strong>versi<strong>on</strong> to Ore Reserves.<br />
Case 2 typically adds mining and processing t<strong>on</strong>nages to those <strong>of</strong> Case 1 which AMC judges to represent<br />
potential further additi<strong>on</strong>s to Ore Reserves from existing Mineral Resources and from readily dem<strong>on</strong>strable<br />
explorati<strong>on</strong> potential, but to a lesser c<strong>on</strong>fidence level than in Case 1. Nevertheless, AMC believes that the<br />
Case 2 producti<strong>on</strong> cases are also based <strong>on</strong> reas<strong>on</strong>able grounds.<br />
The producti<strong>on</strong> cases developed by AMC include capital and operating cost schedules based <strong>on</strong> informati<strong>on</strong><br />
provided by <strong>Polymetals</strong> and Southern Cross. Those costs do not include <strong>of</strong>f-site costs such as head <strong>of</strong>fice or<br />
corporate costs, which are to be c<strong>on</strong>sidered by BDO.<br />
AMC has provided BDO <strong>with</strong> valuati<strong>on</strong>s <strong>of</strong> the explorati<strong>on</strong> assets <strong>of</strong> <strong>Polymetals</strong> and Southern Cross that are<br />
located remote from their development projects, or have not been c<strong>on</strong>sidered in producti<strong>on</strong> cases.<br />
For explorati<strong>on</strong> assets, it is not possible to project cash flows and/or producti<strong>on</strong> estimates <strong>with</strong> sufficient<br />
c<strong>on</strong>fidence to rely <strong>on</strong> discounted cash flow methodology. AMC has therefore c<strong>on</strong>sidered other methods to<br />
value the explorati<strong>on</strong> assets. These methods are comm<strong>on</strong>ly used in Australia to value explorati<strong>on</strong> projects<br />
and are discussed in this report.<br />
The VALMIN Code 2 defines a Technical Value as an assessment <strong>of</strong> future net ec<strong>on</strong>omic benefit. And a Fair<br />
Market Value is defined as <strong>on</strong>e which is based <strong>on</strong> an adjusted Technical Value, a premium or discount<br />
relating to market, strategic or other c<strong>on</strong>siderati<strong>on</strong>s. AMC's values <strong>of</strong> explorati<strong>on</strong> assets are Fair Market<br />
Values. Some <strong>of</strong> the explorati<strong>on</strong> valuati<strong>on</strong> methods result in a Technical Value, but AMC does not believe it<br />
appropriate at this time to apply a premium or discount to the values determined for those assets to obtain<br />
Fair Market Value.<br />
<strong>Polymetals</strong> and Southern Cross have provided AMC <strong>with</strong> informati<strong>on</strong> <strong>on</strong> the status <strong>of</strong> their material<br />
tenements. Based <strong>on</strong> that informati<strong>on</strong>, AMC has c<strong>on</strong>cluded that the material tenements <strong>of</strong> <strong>Polymetals</strong> and<br />
Southern Cross are in good standing.<br />
In summary, the range <strong>of</strong> valuati<strong>on</strong>s for the explorati<strong>on</strong> valuati<strong>on</strong>s prepared by AMC are:<br />
<strong>Polymetals</strong><br />
Tables I shows the explorati<strong>on</strong> values for <strong>Polymetals</strong>.<br />
Table I<br />
<strong>Polymetals</strong> – Explorati<strong>on</strong> Values<br />
Locati<strong>on</strong><br />
Low<br />
($M)<br />
High<br />
($M)<br />
Mt Boppy 0.2 0.2<br />
Turner River Gold 2.1 4.2<br />
Turner River Base Metals 0.1 0.3<br />
Total 2.4 4.7<br />
1<br />
2<br />
Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results, Mineral Resources and Ore Reserves, The JORC Code 2004 Editi<strong>on</strong>,<br />
Effective December 2004, Prepared by the Joint Ore Reserves Committee <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy,<br />
Australian Institute <strong>of</strong> Geoscientists and Minerals Council <strong>of</strong> Australia (JORC).<br />
Code for the Technical Assessment and Valuati<strong>on</strong> <strong>of</strong> Mineral and Petroleum Assets and Securities for Independent Expert Reports.<br />
The VALMIN Code 2005 Editi<strong>on</strong>, Prepared by the VALMIN Committee, a joint committee <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and<br />
Metallurgy, the Australian Institute <strong>of</strong> Geoscientists and the Mineral Industry C<strong>on</strong>sultants Associati<strong>on</strong> <strong>with</strong> the participati<strong>on</strong> <strong>of</strong> the<br />
Australian Securities and Investment Commissi<strong>on</strong>, the Australian Stock Exchange Limited, the Minerals Council <strong>of</strong> Australia, the<br />
Petroleum Explorati<strong>on</strong> Society <strong>of</strong> Australia, the Securities Associati<strong>on</strong> <strong>of</strong> Australia and representatives from the Australian finance<br />
sector<br />
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AMC’s combined value for <strong>Polymetals</strong>’ explorati<strong>on</strong> projects is $2.4M to $4.7M.<br />
Southern Cross Goldfields<br />
Tables II shows and explorati<strong>on</strong> values for Southern Cross.<br />
Table II<br />
Southern Cross – Explorati<strong>on</strong> Values<br />
Locati<strong>on</strong><br />
Low<br />
($M)<br />
High<br />
($M)<br />
Marda 0.7 1.3<br />
Sandst<strong>on</strong>e 3.4 8.3<br />
Total 4.1 9.6<br />
AMC’s combined value for Southern Cross's explorati<strong>on</strong> projects is $4.1M to $9.6M.<br />
AMC has completed its engagement as a Specialist in accordance <strong>with</strong> the VALMIN Code to the extent that<br />
the code is relevant to AMC's engagement.<br />
AMC's use, in this report, <strong>of</strong> the terms Mineral Resources and Ore Reserves is in accordance <strong>with</strong> the JORC<br />
Code.<br />
Principal sources <strong>of</strong> informati<strong>on</strong> c<strong>on</strong>sidered by AMC in the preparati<strong>on</strong> <strong>of</strong> this report are listed in Appendix A.<br />
For the purposes <strong>of</strong> preparing this report, AMC has visited the Mt Boppy site and has previously visited the<br />
Marda and Turner River sites. AMC has reviewed material technical reports and management informati<strong>on</strong><br />
and held discussi<strong>on</strong>s <strong>with</strong> management staff <strong>of</strong> <strong>Polymetals</strong> and Southern Cross. AMC has not audited the<br />
informati<strong>on</strong> provided to it, but has aimed to satisfy itself that all <strong>of</strong> the informati<strong>on</strong> has been prepared in<br />
accordance <strong>with</strong> proper industry standards and is based <strong>on</strong> data that AMC c<strong>on</strong>siders to be <strong>of</strong> acceptable<br />
quality and reliability. Where AMC has not been so satisfied, AMC has included comment in this report and<br />
made modificati<strong>on</strong>s to the estimates and forecasts provided by AMC to BDO.<br />
AMC presents the TSR which follows in the form <strong>of</strong>:<br />
• Mineral Assets<br />
• Valuati<strong>on</strong> Methods and Macroec<strong>on</strong>omic Factors<br />
• <strong>Polymetals</strong> Mining Limited<br />
• Southern Cross Goldfields Limited<br />
• Qualificati<strong>on</strong>s.<br />
All m<strong>on</strong>etary figures in this report are expressed in 2013 Australian Dollars ($) or United States Dollars (US$)<br />
unless otherwise noted. Costs are presented <strong>on</strong> a cash cost basis unless otherwise specified.<br />
For definiti<strong>on</strong>s <strong>of</strong> abbreviati<strong>on</strong>s used in this report, refer to Appendix B, and for c<strong>on</strong>tributors to this report,<br />
refer to Appendix C.<br />
Yours faithfully<br />
D Varcoe<br />
MAusIMM<br />
Principal Mining Engineer<br />
L Gillett<br />
FAusIMM (CP)<br />
Director<br />
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CONTENTS<br />
1 MINERAL ASSETS .................................................................................................................................. 1<br />
1.1 <strong>Polymetals</strong> Mining Limited ............................................................................................................. 1<br />
1.2 Southern Cross Goldfields Limited ................................................................................................ 1<br />
2 VALUATION METHODS AND MACROECONOMIC FACTORS ............................................................. 3<br />
2.1 Valuati<strong>on</strong> Methods ......................................................................................................................... 3<br />
2.1.1 Operati<strong>on</strong>s and Development Projects ........................................................................... 3<br />
2.2 Explorati<strong>on</strong> ..................................................................................................................................... 3<br />
3 POLYMETALS MINING LIMITED ............................................................................................................ 5<br />
3.1 Mt Boppy Gold Project ................................................................................................................... 5<br />
3.1.1 Introducti<strong>on</strong> ..................................................................................................................... 5<br />
3.1.2 Geology ........................................................................................................................... 6<br />
3.1.2.1 Mineral Resources ..................................................................................... 7<br />
3.1.2.2 Explorati<strong>on</strong> ................................................................................................. 8<br />
3.1.3 Mining ............................................................................................................................. 9<br />
3.1.4 Ore Reserves ................................................................................................................ 10<br />
3.1.5 Processing Operati<strong>on</strong>s ................................................................................................. 10<br />
3.1.5.1 Proposed Flowsheet ................................................................................ 10<br />
3.1.5.2 Metallurgical Testing ................................................................................ 12<br />
3.1.5.3 Plant Layout ............................................................................................. 12<br />
3.1.5.4 Capital Costs ............................................................................................ 12<br />
3.1.5.5 Operating Costs ....................................................................................... 13<br />
3.1.5.6 Worker's Camps ....................................................................................... 14<br />
3.1.5.7 Water Supply ............................................................................................ 14<br />
3.1.5.8 Power Supply ........................................................................................... 15<br />
3.1.6 Envir<strong>on</strong>ment .................................................................................................................. 15<br />
3.1.6.1 Overview .................................................................................................. 15<br />
3.1.6.2 Statutory Envir<strong>on</strong>mental Approvals .......................................................... 15<br />
3.1.6.3 Biodiversity and C<strong>on</strong>servati<strong>on</strong>.................................................................. 15<br />
3.1.6.4 Acid and Metalliferous Drainage .............................................................. 15<br />
3.1.6.5 Water Management .................................................................................. 16<br />
3.1.6.6 Closure ..................................................................................................... 16<br />
3.1.7 Project Implementati<strong>on</strong> ................................................................................................. 16<br />
3.1.8 AMC Producti<strong>on</strong> Cases ................................................................................................ 17<br />
3.1.9 Opportunities and Risks ................................................................................................ 18<br />
3.2 Turner River ................................................................................................................................. 18<br />
3.2.1 Geology ......................................................................................................................... 20<br />
3.2.2 Turner River Gold Project ............................................................................................. 20<br />
3.2.2.1 Resources ................................................................................................ 21<br />
3.2.2.2 Mining ....................................................................................................... 21<br />
3.2.2.3 Processing ................................................................................................ 22<br />
3.2.2.4 Envir<strong>on</strong>mental .......................................................................................... 22<br />
3.2.2.5 Turner River Explorati<strong>on</strong> .......................................................................... 23<br />
3.2.2.6 Turner River Gold Project Valuati<strong>on</strong> ........................................................ 24<br />
3.2.3 Turner River Base Metals Project ................................................................................. 24<br />
3.2.3.1 Geology .................................................................................................... 25<br />
3.2.3.2 Mineral Resources ................................................................................... 26<br />
3.2.3.3 Valuati<strong>on</strong> .................................................................................................. 26<br />
4 SOUTHERN CROSS GOLDFIELDS LIMITED ...................................................................................... 27<br />
4.1 Marda Gold Project ...................................................................................................................... 27<br />
4.1.1 Introducti<strong>on</strong> ................................................................................................................... 27<br />
4.1.2 Geology ......................................................................................................................... 28<br />
4.1.2.1 Northern Deposits .................................................................................... 28<br />
4.1.2.2 Southern Deposits .................................................................................... 29<br />
4.1.3 Resources ..................................................................................................................... 29<br />
4.1.4 Joint Ventures ............................................................................................................... 30<br />
4.1.4.1 Radio Gold Mine ...................................................................................... 30<br />
4.1.4.2 Dulcie Gold Project .................................................................................. 31<br />
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4.1.4.3 Western Areas NL (Southern Cross 30% Nickel Interest, 100% N<strong>on</strong>nickel<br />
Interest) .......................................................................................... 31<br />
4.1.5 Explorati<strong>on</strong> .................................................................................................................... 31<br />
4.1.5.1 Gold .......................................................................................................... 31<br />
4.1.5.2 Red Boomerang ....................................................................................... 31<br />
4.1.5.3 Lancelot .................................................................................................... 31<br />
4.1.5.4 White Pointer ............................................................................................ 31<br />
4.1.5.5 Thresher ................................................................................................... 31<br />
4.1.5.6 Copper Bore ............................................................................................. 31<br />
4.1.6 Mining ........................................................................................................................... 32<br />
4.1.7 Ore Reserves ................................................................................................................ 32<br />
4.1.8 Metallurgy and Processing ........................................................................................... 33<br />
4.1.8.1 Introducti<strong>on</strong> ............................................................................................... 33<br />
4.1.8.2 Metallurgical Test Work ............................................................................ 33<br />
4.1.8.3 Process Plant ........................................................................................... 34<br />
4.1.8.4 Gold Recovery.......................................................................................... 35<br />
4.1.8.5 Plant Throughput ...................................................................................... 35<br />
4.1.8.6 Capital Estimate Plant and Infrastructure ................................................ 35<br />
4.1.8.7 Operating Cost Estimate .......................................................................... 36<br />
4.1.9 Envir<strong>on</strong>ment .................................................................................................................. 37<br />
4.1.9.1 Overview .................................................................................................. 37<br />
4.1.9.2 Statutory Envir<strong>on</strong>mental Approval............................................................ 37<br />
4.1.10 Flora and Fauna ........................................................................................................... 38<br />
4.1.11 Acid and Metalliferous Drainage ................................................................................... 38<br />
4.1.12 Water Management ...................................................................................................... 39<br />
4.1.13 Rehabilitati<strong>on</strong> and closure ............................................................................................ 39<br />
4.1.14 Project Implementati<strong>on</strong> ................................................................................................. 39<br />
4.1.15 AMC Producti<strong>on</strong> Cases ................................................................................................ 39<br />
4.2 Sandst<strong>on</strong>e Project ........................................................................................................................ 41<br />
4.2.1 Geology ......................................................................................................................... 43<br />
4.2.2 Mineral Resources ........................................................................................................ 45<br />
4.2.3 Explorati<strong>on</strong> .................................................................................................................... 47<br />
4.2.4 Valuati<strong>on</strong> ....................................................................................................................... 47<br />
5 QUALIFICATIONS.................................................................................................................................. 48<br />
TABLES<br />
Table I <strong>Polymetals</strong> – Explorati<strong>on</strong> Values .............................................................................................. ii<br />
Table II Southern Cross – Explorati<strong>on</strong> Values ...................................................................................... iii<br />
Table 1.1 <strong>Polymetals</strong> Gold Mineral Resources ......................................................................................... 1<br />
Table 1.2 <strong>Polymetals</strong> Base Metal Inferred Mineral Resources ................................................................. 1<br />
Table 1.3 <strong>Polymetals</strong> Gold Ore Reserves – Mt Boppy ............................................................................. 1<br />
Table 1.4 Southern Cross Gold Mineral Resources ................................................................................. 2<br />
Table 1.5 Southern Cross Gold Ore Reserves – Marda ........................................................................... 2<br />
Table 3.1 Mt Boppy Mineral Resources at 30 March 2013 (Includes Mt Boppy South) ........................... 7<br />
Table 3.2 Ore Reserves for Mt Boppy .................................................................................................... 10<br />
Table 3.3 Capital Estimate for Mt Boppy Redevelopment ...................................................................... 13<br />
Table 3.4 Basic Design Parameters ....................................................................................................... 14<br />
Table 3.5 Processing Unit Cost .............................................................................................................. 14<br />
Table 3.6 Turner River Gold Project – Mineral Resources at 13 March 2013 ........................................ 21<br />
Table 3.7 Turner River Base Metal Inferred Mineral Resources at 24 April 2013 .................................. 25<br />
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Table 4.1 Marda Gold Project – Mineral Resources as at 25 September 2012 ..................................... 29<br />
Table 4.2 Marda Gold Project – Ore Reserves at October 2012 ............................................................ 33<br />
Table 4.3 Mean Comminuti<strong>on</strong> Test Parameters ..................................................................................... 34<br />
Table 4.4 Southern Cross Capital Estimate Summary ........................................................................... 36<br />
Table 4.5 Marda Operating Cost Estimate .............................................................................................. 36<br />
Table 4.6 Sandst<strong>on</strong>e Mineral Resources at June 2012 .......................................................................... 46<br />
FIGURES<br />
Figure 3.1 Mt Boppy Project Locati<strong>on</strong> ........................................................................................................ 5<br />
Figure 3.2 Canbelego Explorati<strong>on</strong> Licence Locati<strong>on</strong> ................................................................................. 6<br />
Figure 3.3 Mt Boppy Geological Domains .................................................................................................. 8<br />
Figure 3.4 Mt Boppy Proposed Flowsheet ............................................................................................... 11<br />
Figure 3.5 Locati<strong>on</strong> <strong>of</strong> Turner River Projects ........................................................................................... 19<br />
Figure 3.6 Locati<strong>on</strong> <strong>of</strong> Turner River Explorati<strong>on</strong> Licence ......................................................................... 20<br />
Figure 3.7 Turner River Base Metal Project Prospect Locati<strong>on</strong> ............................................................... 25<br />
Figure 4.1 Locati<strong>on</strong> <strong>of</strong> Marda Gold Project .............................................................................................. 27<br />
Figure 4.2 Sandst<strong>on</strong>e Tenement Locati<strong>on</strong> ............................................................................................... 42<br />
Figure 4.3 Sandst<strong>on</strong>e Project Geology .................................................................................................... 43<br />
Figure 4.4 Lord Nels<strong>on</strong> and Lord Henry Geology .................................................................................... 44<br />
Figure 4.5 Two Mile Hill Geology ............................................................................................................. 45<br />
APPENDICES<br />
APPENDIX A PRINCIPAL SOURCES OF INFORMATION<br />
APPENDIX B ABBREVIATIONS<br />
APPENDIX C REPORT CONTRIBUTORS<br />
APPENDIX D POLYMETALS TENEMENTS<br />
APPENDIX E SOUTHERN CROSS TENEMENTS<br />
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1 MINERAL ASSETS<br />
1.1 <strong>Polymetals</strong> Mining Limited<br />
<strong>Polymetals</strong> Mining Limited (<strong>Polymetals</strong>) holds the Mt Boppy Gold Mine located near Canbelego NSW. The<br />
Mt Boppy Gold Mine comprises a Mineral Resource, open pit mine, gold treatment plant and mining and<br />
explorati<strong>on</strong> licences. <strong>Polymetals</strong> also holds granted prospecting licences, and explorati<strong>on</strong> licences in the<br />
Turner River area approximately 60 km south <strong>of</strong> Port Hedland in the Pilbara Regi<strong>on</strong> <strong>of</strong> Western Australia.<br />
<strong>Polymetals</strong>' tenements are listed in Appendix E. <strong>Polymetals</strong> provided AMC <strong>with</strong> current informati<strong>on</strong> <strong>on</strong> the<br />
standing <strong>of</strong> its Western Australian tenements. Based <strong>on</strong> that informati<strong>on</strong>, AMC has assessed <strong>Polymetals</strong><br />
Western Australian tenements to be in good standing and in compliance <strong>with</strong> obligati<strong>on</strong>s and commitments<br />
required under the Mining Act 1987. New South Wales tenements EL5842 GL3255 GL5836 GL5848 GL5898<br />
ML311 and MPL240 are all reported as a single group. Following submissi<strong>on</strong> <strong>of</strong> the 2012 report effective<br />
explorati<strong>on</strong> <strong>on</strong> these tenements has been assessed as satisfactory.<br />
<strong>Polymetals</strong> has a 50% interest in the Drew Hill Project located in SA. This project c<strong>on</strong>sists <strong>of</strong> the White Dam<br />
gold mine and surrounding explorati<strong>on</strong> tenements. <strong>Polymetals</strong> announced <strong>on</strong> 28 May 2013 that agreements<br />
have been signed for the sale <strong>of</strong> the 50% interest in the Drew Hill project. C<strong>on</strong>sequently this project has not<br />
been reviewed or valued by AMC.<br />
<strong>Polymetals</strong> has reported Mineral Resources as listed in Table 1.1 and Table 1.2, and Ore Reserves as listed<br />
in Table 1.3.<br />
Table 1.1<br />
<strong>Polymetals</strong> Gold Mineral Resources<br />
Project Measured Resource Indicated Resource Inferred Resource<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
Mt Boppy (including Mt Boppy South) 40 6.4 650 4.0 80 3.9<br />
Turner River 2,700 1.8 1,100 1.3 2,900 1.5<br />
Total 2,700 1.9 1,800 2.3 3,000 1.6<br />
Note: Totals may not add due to rounding. Turner River is subject to a farm-in agreement see secti<strong>on</strong> 3.2.<br />
Table 1.2<br />
<strong>Polymetals</strong> Base Metal Inferred Mineral Resources<br />
Project<br />
T<strong>on</strong>nes<br />
(kt)<br />
Zn<br />
(%)<br />
Ag<br />
(g/t)<br />
Pb<br />
(%)<br />
Cu<br />
(%)<br />
Au<br />
(g/t)<br />
Turner River 2,600 2.67 89 1.07 0.10 0.70<br />
Table 1.3<br />
<strong>Polymetals</strong> Gold Ore Reserves – Mt Boppy<br />
T<strong>on</strong>nes<br />
(kt)<br />
Proved Probable Total<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
40 5.6 7,636 510 4.2 68,312 550 4.3 75,949<br />
Note : Turner River is subject to a farm-in agreement see secti<strong>on</strong> 3.2.<br />
1.2 Southern Cross Goldfields Limited<br />
Southern Cross Goldfields Limited (Southern Cross) holds granted mining leases, prospecting licences,<br />
explorati<strong>on</strong> licences, miscellaneous licences, and general purpose and retenti<strong>on</strong> leases in the Marda area to<br />
the north <strong>of</strong> Southern Cross in WA and in the Battler and British Hill areas south <strong>of</strong> Southern Cross.<br />
Southern Cross also holds the Sandst<strong>on</strong>e project located near the town <strong>of</strong> Sandst<strong>on</strong>e approximately 730 km<br />
north-east <strong>of</strong> Perth in the East Murchis<strong>on</strong> Mineral Field, WA. The Sandst<strong>on</strong>e project c<strong>on</strong>sists <strong>of</strong> granted<br />
mining leases, prospecting licences, explorati<strong>on</strong> licences, miscellaneous licences and includes a gold<br />
treatment plant. Southern Cross proposes to relocate the gold treatment plant to the Marda project.<br />
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The Southern Cross tenements are listed in Appendix D. <strong>Polymetals</strong> provided AMC <strong>with</strong> current informati<strong>on</strong><br />
<strong>on</strong> the standing <strong>of</strong> the Southern Cross tenements at 5 April 2013. Based <strong>on</strong> that informati<strong>on</strong>, AMC has<br />
assessed the majority <strong>of</strong> Southern Cross’s tenements to be in good standing and in compliance <strong>with</strong><br />
obligati<strong>on</strong>s and commitments required under the Mining Act 1987. A total <strong>of</strong> 34 tenements have outstanding<br />
expenditure and/or rent obligati<strong>on</strong>s. Two tenements are at risk <strong>of</strong> being deemed dead as renewal<br />
applicati<strong>on</strong>s have not been lodged. Southern Cross has reported Mineral Resources as listed in Table 1.4<br />
and Ore Reserves as listed in Table 1.5.<br />
Table 1.4<br />
Southern Cross Gold Mineral Resources<br />
Project Measured Resource Indicated Resource Inferred Resource<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
Marda 2,796 2.3 2,640 1.8 3,052 1.91<br />
Sandst<strong>on</strong>e - - 1,932 2.3 12,586 1.4<br />
Total 2,796 2.3 4,546 2.0 15,371 1.5<br />
Note : Includes resources, the subject <strong>of</strong> an opti<strong>on</strong> agreement over some <strong>of</strong> the Marda tenements refer to secti<strong>on</strong> 4.1.4.<br />
Table 1.5<br />
Southern Cross Gold Ore Reserves – Marda<br />
T<strong>on</strong>nes<br />
(kt)<br />
Proved Probable Total<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(koz Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(koz Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(koz Au)<br />
1,938 2.4 149.2 340 2.7 29.1 2,278 2.4 178.5<br />
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2 VALUATION METHODS AND MACROECONOMIC FACTORS<br />
2.1 Valuati<strong>on</strong> Methods<br />
The methods used by AMC for valuati<strong>on</strong> <strong>of</strong> the mineral assets <strong>of</strong> <strong>Polymetals</strong> and Southern Cross can be<br />
described as follows.<br />
2.1.1 Operati<strong>on</strong>s and Development Projects<br />
Where projecti<strong>on</strong>s <strong>of</strong> producti<strong>on</strong> physicals and related costs can be reas<strong>on</strong>ably determined for an operati<strong>on</strong><br />
or development project, it is accepted industry practice to prepare discounted cash flow (DCF) models to<br />
determine net present value (NPV) estimates. Accordingly, for each <strong>of</strong> the operati<strong>on</strong>s and development<br />
projects reviewed for <strong>Polymetals</strong> and Southern Cross, AMC has prepared producti<strong>on</strong> and capital and<br />
operating cost projecti<strong>on</strong>s ("producti<strong>on</strong> cases"). BDO then prepared DCFs based <strong>on</strong> those projecti<strong>on</strong>s <strong>of</strong><br />
physicals and costs, and macroec<strong>on</strong>omic inputs.<br />
AMC believes the scenarios are based <strong>on</strong> reas<strong>on</strong>able grounds.<br />
2.2 Explorati<strong>on</strong><br />
The valuati<strong>on</strong> <strong>of</strong> explorati<strong>on</strong> projects, particularly those for which it is not possible to quantify Mineral<br />
Resources, is very subjective. There are, however, several generally accepted procedures to value<br />
explorati<strong>on</strong> projects and AMC has used such methods as appropriate to arrive at balanced judgments <strong>of</strong><br />
value.<br />
Where possible, AMC attempts to use more than <strong>on</strong>e method before selecting the valuati<strong>on</strong> appropriate to<br />
that project. Values are rounded, and outliers in c<strong>on</strong>tributing estimates are sometimes excluded.<br />
The Past Expenditure Method<br />
A prospectivity enhancement multiplier (PEM) generally between 0.5 and 3.0 is applied to past expenditure<br />
which AMC judges to be effective in regard to future prospectivity.<br />
The Yardstick Value Method<br />
Rules <strong>of</strong> thumb or yardstick values can be used for properties where a Mineral Resource has been<br />
quantified. A value per c<strong>on</strong>tained metal unit (e.g. ounce <strong>of</strong> gold or gold equivalent) is assigned to an actual<br />
Mineral Resource or to a preliminary mineralisati<strong>on</strong> estimate.<br />
In c<strong>on</strong>sidering transacti<strong>on</strong>s, AMC has determined ranges that reflect the difference in classificati<strong>on</strong> between<br />
Inferred and Indicated Resources and c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> factors including the size <strong>of</strong> the deposit, proximity to<br />
existing operati<strong>on</strong>s, and known metallurgical issues.<br />
Actual or Comparable Transacti<strong>on</strong> Method<br />
A value is determined by reference to either actual transacti<strong>on</strong>s for the property in questi<strong>on</strong> (Actual<br />
Transacti<strong>on</strong> method) or to recent transacti<strong>on</strong>s for projects c<strong>on</strong>sidered to be similar to those under review<br />
(Comparable Transacti<strong>on</strong> method). Comparable Transacti<strong>on</strong>s are c<strong>on</strong>verted to a value per unit area.<br />
Joint Venture Terms Method<br />
Many transacti<strong>on</strong>s <strong>on</strong> explorati<strong>on</strong> tenements are <strong>of</strong> a farm-in nature and AMC assesses a "cash equivalent"<br />
value for them from the terms <strong>of</strong> the "deemed expenditure" <strong>on</strong> the property at the time <strong>of</strong> the deal discounted<br />
by a time and probability factor for the likelihood that the farm-in will complete its earning requirement. AMC<br />
adjusts the resulting value for any other terms <strong>of</strong> the joint venture and/or for the results <strong>of</strong> work carried out<br />
since the commencement <strong>of</strong> the farm-in.<br />
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Expected Value Method<br />
An Expected Value valuati<strong>on</strong> can be applied where there is sufficient informati<strong>on</strong> to enable an indicative NPV<br />
calculati<strong>on</strong>, which takes into account the costs <strong>of</strong> that <strong>on</strong>going explorati<strong>on</strong> and <strong>with</strong> a probability/risk factor<br />
for the chances <strong>of</strong> that explorati<strong>on</strong> being successful.<br />
This method is most relevant when the explorati<strong>on</strong> area is closely associated <strong>with</strong> an existing mining<br />
operati<strong>on</strong> or development project where a producti<strong>on</strong> scenario has been developed.<br />
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3 POLYMETALS MINING LIMITED<br />
3.1 Mt Boppy Gold Project<br />
3.1.1 Introducti<strong>on</strong><br />
The Mt Boppy Gold Mine Project (Mt Boppy) is located in the Lachlan Fold Belt centred around Canbelego,<br />
located 46 km east <strong>of</strong> Cobar in New South Wales (Figure 3.1). The regi<strong>on</strong> has produced in excess <strong>of</strong> 5 Moz<br />
<strong>of</strong> gold.<br />
Figure 3.1<br />
Mt Boppy Project Locati<strong>on</strong><br />
Note: MLA281 is now ML1681<br />
Mt Boppy itself has historical producti<strong>on</strong> <strong>of</strong> 490 koz gold in the period since 1901. <strong>Polymetals</strong> acquired the<br />
mine in 1993 and operated an open pit and processing operati<strong>on</strong> <strong>on</strong> the site between 2002 and 2005. A total<br />
<strong>of</strong> 500 kt <strong>of</strong> ore was treated through the existing treatment plant. The plant has been <strong>on</strong> care and<br />
maintenance since 2005.<br />
<strong>Polymetals</strong> has identified additi<strong>on</strong>al Mineral Resources around and below the existing open pit and has<br />
developed a plan to mine a cutback <strong>on</strong> the open pit. The ore which is predominantly fresh will be treated in<br />
the existing treatment plant following an upgrade to the flowsheet.<br />
AMC c<strong>on</strong>ducted a site visit to Mt Boppy in April 2013.<br />
A formal feasibility document has not yet been developed for the Mt Boppy project. AMC understands that<br />
the majority <strong>of</strong> the design and analytical work required has been completed, however, the lack <strong>of</strong><br />
documentati<strong>on</strong> adds a level <strong>of</strong> risk to the project <strong>with</strong> possible c<strong>on</strong>sequential approvals and financing delays.<br />
The mine and plant are located <strong>on</strong> mining leases and gold leases that are surrounded by explorati<strong>on</strong> licence<br />
EL 5852 also held by <strong>Polymetals</strong>. The deposit was discovered in 1896 and mined by underground methods<br />
up to 1923. Explorati<strong>on</strong> was c<strong>on</strong>ducted up to the 1960s and explorati<strong>on</strong> drilling by <strong>Polymetals</strong> since 2003<br />
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identified additi<strong>on</strong>al gold mineralisati<strong>on</strong> at depth. Treatment <strong>of</strong> tailings and open pit mining <strong>of</strong> oxide<br />
mineralisati<strong>on</strong> was carried out until 2005.<br />
<strong>Polymetals</strong> acquired the tenements covering the mine in 1992 for $110,000. The adjacent explorati<strong>on</strong> licence<br />
(EL 5842) was acquired in 2008 for $0.5M. The Mt Boppy tenements comprise:<br />
• Four gold leases.<br />
• Two mining leases.<br />
• One mining purpose lease.<br />
• One explorati<strong>on</strong> licence.<br />
The leases (Figure 3.1) cover an area <strong>of</strong> 0.7 km 2 and the explorati<strong>on</strong> licence (Figure 3.2) covers 204.6 km 2 .<br />
Figure 3.2<br />
Canbelego Explorati<strong>on</strong> Licence Locati<strong>on</strong><br />
3.1.2 Geology<br />
The Mt Boppy deposit is located in the northern part <strong>of</strong> Dev<strong>on</strong>ian Canbelego-Mineral Hill Rift Z<strong>on</strong>e<br />
surrounded by the flanking Kopyje Shelf in the Palaeozoic Lachlan Fold Belt.<br />
Gold mineralisati<strong>on</strong> occurs <strong>with</strong>in both the Ordovician (Girilamb<strong>on</strong>e Group) and the Dev<strong>on</strong>ian (Baledmund<br />
Formati<strong>on</strong>) rocks. Mineralisati<strong>on</strong> hosted in the Baledmund Formati<strong>on</strong> is characterised by gold <strong>with</strong> minor<br />
zinc, copper and lead hosted in brecciated and silicified sediments and quartz veining in shear z<strong>on</strong>es. The<br />
shear z<strong>on</strong>es are associated <strong>with</strong> a west-dipping normal fault which down throws Baledmund Formati<strong>on</strong> rocks<br />
<strong>on</strong> its western side against Girilamb<strong>on</strong>e Group rocks <strong>on</strong> it eastern side.<br />
The Main Lode, which was mined underground, strikes approximately north-south. The best mineralisati<strong>on</strong><br />
adjacent to the Main Lode occurs in the Baledmund Formati<strong>on</strong>. The Main Lode stopes are filled <strong>with</strong><br />
mineralised material that forms part <strong>of</strong> the Mineral Resource.<br />
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Within the Mt Boppy pit, the Main Lode is a quartz vein developed al<strong>on</strong>g a normal west-dipping fault. The<br />
Main Lode strikes approximately north-south and dips at approximately 80º west; however it shows<br />
c<strong>on</strong>siderable variati<strong>on</strong> in strike and dip. These variati<strong>on</strong>s appear to be associated <strong>with</strong> gold mineralisati<strong>on</strong><br />
development in the wall rock to the lode. The best mineralisati<strong>on</strong> in the wall rocks occurs <strong>with</strong>in the<br />
Baledmund Formati<strong>on</strong> rocks <strong>on</strong> the western side <strong>of</strong> the Main Lode where the lode has a shallower dip.<br />
At the northern end <strong>of</strong> the pit, the Main Lode is truncated at an acute angle by the West Lode fault. The fault<br />
dips to the east and displaces the Girilamb<strong>on</strong>e Group phyllite <strong>on</strong> its western side against the Baledmund<br />
Formati<strong>on</strong> sericitic siltst<strong>on</strong>e <strong>on</strong> its eastern side. The West Lode is about 1 m to 2 m wide and is largely a fault<br />
breccia clasts <strong>of</strong> phyllite, sericitic siltst<strong>on</strong>e and quartz.<br />
The mineralisati<strong>on</strong> at Mt Boppy is hosted by brecciated and silicified fine-grained sediments and quartz<br />
veins. The gold mineralisati<strong>on</strong> c<strong>on</strong>tains minor zinc, copper and lead. Minor carb<strong>on</strong>ate, siderite and dolomite<br />
alterati<strong>on</strong> is associated <strong>with</strong> the mineralisati<strong>on</strong>.<br />
3.1.2.1 Mineral Resources<br />
Mount Boppy Mineral Resources are listed in Table 3.1.<br />
Table 3.1<br />
Mt Boppy Mineral Resources at 30 March 2013 (Includes Mt Boppy South)<br />
Measured Resource Indicated Resource Inferred Resource<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t)<br />
39 6.4 646 4.0 82 3.9<br />
Drilling at Mt Boppy has been carried out in a number <strong>of</strong> campaigns and c<strong>on</strong>sists <strong>of</strong> percussi<strong>on</strong>, RC and<br />
diam<strong>on</strong>d drilling in additi<strong>on</strong> to blast hole drilling in the previously mined open pit. <strong>Polymetals</strong> completed the<br />
most recent drilling programme in 2011 <strong>with</strong> seven RC drillholes and 18 diam<strong>on</strong>d drillholes completed.<br />
Drillhole collars were surveyed and downhole surveys completed. Drillhole collars from older drilling<br />
programmes were resurveyed. Drill cuttings and core were geologically logged and drill logs are available for<br />
older drillholes.<br />
Samples were analysed for gold by fire assay <strong>with</strong> AAS finish. The recent programme was supported by<br />
assay quality c<strong>on</strong>trol protocols.<br />
The resource estimate is based <strong>on</strong> interpretati<strong>on</strong> <strong>of</strong> four geological domains (Figure 3.3):<br />
• Historical stopes.<br />
• Low-grade mineralisati<strong>on</strong> <strong>on</strong> the footwall <strong>of</strong> the Main Lode structure.<br />
• High-grade mineralisati<strong>on</strong> immediately adjacent to the Main Lode structure <strong>on</strong> the hangingwall.<br />
• Low-grade mineralisati<strong>on</strong> <strong>on</strong> the hangingwall to the main lode structure and the high-grade domain.<br />
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Figure 3.3<br />
Mt Boppy Geological Domains<br />
The resource estimate is a c<strong>on</strong>venti<strong>on</strong>al block model <strong>with</strong> grade estimated using ordinary kriging (OK) <strong>with</strong><br />
estimati<strong>on</strong> parameters determined from a study <strong>of</strong> variography. The stope fill was assigned a uniform<br />
average value <strong>of</strong> 3.6 g/t Au reflecting the mean grade <strong>of</strong> drillhole samples intersecting the fill.<br />
Bulk densities were assigned based <strong>on</strong> mean values for oxide, transiti<strong>on</strong> and fresh rock. The resource<br />
estimate is classified as Measured, Indicated and Inferred Resources based <strong>on</strong> c<strong>on</strong>fidence in the geological<br />
and grade c<strong>on</strong>tinuity reflecting drillhole spacing. The Mineral Resources are reported at a 2.5 g/t Au cut-<strong>of</strong>f<br />
grade (COG). The stope fill is classified as Indicated Resource.<br />
The Mt Boppy Mineral Resource has been estimated using accepted industry practice and has been<br />
classified and reported in accordance <strong>with</strong> the JORC Code 3 . AMC c<strong>on</strong>siders it appropriate to assign an<br />
average grade to the stope fill and while it is classified as Indicated Resource, there is greater uncertainty in<br />
local grade estimati<strong>on</strong> in the fill than in the in situ Mineral Resource.<br />
The Boppy South Mineral Resource estimate is based <strong>on</strong> drilling at about 20 m x 20 m spacing completed by<br />
<strong>Polymetals</strong> and previous tenement holders. The resource estimate is a c<strong>on</strong>venti<strong>on</strong>al block model <strong>with</strong> grade<br />
estimated using inverse distance squared. The estimate is classified as Indicated and Inferred Resources<br />
based <strong>on</strong> c<strong>on</strong>fidence in the geological and grade c<strong>on</strong>tinuity reflecting drillhole spacing. The Mineral<br />
Resource is reported at a 1.0 g/t Au COG.<br />
3.1.2.2 Explorati<strong>on</strong><br />
In additi<strong>on</strong> to resource definiti<strong>on</strong> drilling at Mt Boppy, explorati<strong>on</strong> has been carried out <strong>on</strong> other targets in the<br />
explorati<strong>on</strong> licence both by the previous tenement holder and <strong>Polymetals</strong>. <strong>Polymetals</strong> drilled 35 drillholes <strong>on</strong><br />
the other targets in 2012.<br />
3<br />
Australasian Code for Reporting <strong>of</strong> Explorati<strong>on</strong> Results, Mineral Resources and Ore Reserves, The JORC Code 2004 Editi<strong>on</strong>,<br />
Effective December 2004, Prepared by the Joint Ore Reserves Committee <strong>of</strong> the Australasian Institute <strong>of</strong> Mining and Metallurgy,<br />
Australian Institute <strong>of</strong> Geoscientists and Minerals Council <strong>of</strong> Australia (JORC)<br />
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Drilling has been carried out at a number <strong>of</strong> prospects where gold mineralisati<strong>on</strong> had been identified by<br />
previous explorati<strong>on</strong>. Drilling at most prospects generally failed to identify significant mineralisati<strong>on</strong> to<br />
encourage resource delineati<strong>on</strong> drilling. Drilling at Boppy South (about 950 m south <strong>of</strong> Mt Boppy) led to the<br />
estimati<strong>on</strong> <strong>of</strong> a small Mineral Resource.<br />
Reprocessing <strong>of</strong> induced polarisati<strong>on</strong> data collected by previous tenement holders identified three<br />
chargeability anomalies not previously tested that have been recently drilled, awaiting assay results.<br />
3.1.3 Mining<br />
Mt Boppy was previously mined by open pit methods in the period 2002 to 2005. <strong>Polymetals</strong> engaged an<br />
independent technical specialist to undertake a pit optimisati<strong>on</strong> and design study <strong>on</strong> the project in 2012.<br />
Work included a Whittle pit optimisati<strong>on</strong> which developed an optimum pit shell. The shell formed the basis <strong>of</strong><br />
a more detailed mine design. The design represents a cutback to the existing pit <strong>with</strong> a final design depth <strong>of</strong><br />
130 m. Measured, Indicated and Inferred Mineral Resources were used in developing the mine plan.<br />
<strong>Polymetals</strong> pers<strong>on</strong>nel developed a mine schedule and a financial model based <strong>on</strong> the 2012 pit design. AMC<br />
has reviewed the pit design, mine schedule and financial model. Aside from the 2012 report there is no<br />
formal feasibility document describing the project.<br />
<strong>Polymetals</strong> engaged an independent technical specialist to c<strong>on</strong>duct a geotechnical review <strong>of</strong> the proposed<br />
Mt Boppy open pit. In AMC’s opini<strong>on</strong> the geotechnical report is to an acceptable standard. The independent<br />
technical specialist was c<strong>on</strong>cerned about the overall safety associated <strong>with</strong> mining the south-east wall <strong>of</strong> the<br />
open pit due to the proposed steep overall slope and recommended an additi<strong>on</strong>al berm be incorporated into<br />
the design. This advice has not been followed at this stage. Additi<strong>on</strong>al m<strong>on</strong>itoring and mapping would be<br />
required in that area <strong>with</strong> a worst possible outcome <strong>of</strong> slope failure and ore loss.<br />
The Mineral Resource includes an area <strong>of</strong> material previously mined by underground methods and now<br />
assumed to be backfilled. The backfill grade is estimated at a c<strong>on</strong>stant gold grade <strong>of</strong> 3.6 g/t Au. There is a<br />
risk this grade is not c<strong>on</strong>sistent and that the void is not completely filled. AMC has not discounted this<br />
material in its evaluati<strong>on</strong><br />
<strong>Polymetals</strong> engaged independent technical specialist to undertake a hydrogeological review <strong>of</strong> the proposed<br />
Mt Boppy operati<strong>on</strong>. The report viewed was dated June 2012. In this report a likely pit dewatering volume <strong>of</strong><br />
7 L/s to 8 L/s is noted. This is a manageable volume and should not present a significant issue to the<br />
proposed operati<strong>on</strong>. The report also c<strong>on</strong>cludes:<br />
• P<strong>on</strong>ding <strong>of</strong> water would occur <strong>on</strong> the tailings storage facility (TSF) and evaporati<strong>on</strong> dam (at the former<br />
TSF locati<strong>on</strong>).<br />
• Surplus water in excess <strong>of</strong> the TSF and evaporati<strong>on</strong> dam storage capacity would not be generated.<br />
• The evaporati<strong>on</strong> dam will be utilised near the maximum operating level (maximising evaporati<strong>on</strong>) for a<br />
period <strong>of</strong> approximately two years.<br />
• Water in the evaporati<strong>on</strong> dam and TSF will draw down post-closure due to evaporative losses.<br />
In AMC’s opini<strong>on</strong> the water issues are manageable as described by the hydrogeological review.<br />
<strong>Polymetals</strong> developed a mining cost model based <strong>on</strong> a dry hire mining fleet opti<strong>on</strong>. Quotes for dry hire <strong>of</strong><br />
mining equipment were received from local vendors. The mining fleet c<strong>on</strong>sists <strong>of</strong> 120 t class excavators and<br />
85 t<strong>on</strong>ne haul trucks. The support equipment also supplied <strong>on</strong> a dry hire basis is suitable for the project. In<br />
reviewing the mine cost and schedule models AMC has formed the opini<strong>on</strong> that the productivity assumpti<strong>on</strong>s<br />
for the mine fleet in the first five m<strong>on</strong>ths <strong>of</strong> the operati<strong>on</strong> are overly optimistic. Further, later in the mine<br />
schedule, the vertical advance rate is in AMC’s opini<strong>on</strong> not achievable. To <strong>of</strong>fset the impact <strong>of</strong> these<br />
productivity c<strong>on</strong>cerns AMC has, in its modelling <strong>of</strong> the project, added additi<strong>on</strong>al mining costs to the schedule<br />
by assuming the mining fleet remains <strong>on</strong> site for an additi<strong>on</strong>al six m<strong>on</strong>ths. The changes to the mining<br />
schedule described here do not affect the ore supply or processing schedule due to the development <strong>of</strong> ore<br />
stockpiles.<br />
Due to the use <strong>of</strong> dry hire mining fleet and the short life <strong>of</strong> the project there is no capital budgeted for mining<br />
operati<strong>on</strong>s. Workshop and site establishment capital is included in the dry hire arrangement.<br />
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3.1.4 Ore Reserves<br />
The pit optimisati<strong>on</strong> report formed the basis for the development <strong>of</strong> an Ore Reserve statement for the project.<br />
AMC has not reviewed the Ore Reserves however the Ore Reserves quoted are c<strong>on</strong>sistent <strong>with</strong> the study<br />
and the financial modelling.<br />
Table 3.2 shows the estimate Ore Reserves for Mt Boppy.<br />
Table 3.2<br />
Ore Reserves for Mt Boppy<br />
Reserve<br />
Category<br />
T<strong>on</strong>nes<br />
(kt)<br />
Gold<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
Proved 42 5.63 7,600<br />
Probable 507 4.19 68,300<br />
Total 549 4.30 75,900<br />
Key assumpti<strong>on</strong>s used for the Ore Reserve calculati<strong>on</strong>s include:<br />
• Mining diluti<strong>on</strong> 10%.<br />
• Mine recovery 95%.<br />
• Gold price $1,350/oz.<br />
3.1.5 Processing Operati<strong>on</strong>s<br />
<strong>Polymetals</strong> treated purchased tailings from the Elura Mine from 1993 to 2002, yielding 32 t <strong>of</strong> silver and<br />
5 koz <strong>of</strong> gold. From 2002 to 2005, <strong>Polymetals</strong> operated an open pit mine at Mt Boppy and produced 68 koz<br />
<strong>of</strong> gold from 500 kt <strong>of</strong> ore.<br />
The Mt Boppy plant has remained idle since 2005. The overall development c<strong>on</strong>cept requires processing for<br />
approximately 24 m<strong>on</strong>ths <strong>of</strong> 300 ktpa <strong>of</strong> ore grading 4.32 g/t Au. The shortness <strong>of</strong> the overall campaign<br />
presents ec<strong>on</strong>omic challenges such as the danger <strong>of</strong> over-capitalisati<strong>on</strong>, and the need to quickly attain<br />
forecast plant performance.<br />
3.1.5.1 Proposed Flowsheet<br />
<strong>Polymetals</strong> engineers developed the flowsheet shown in Figure 3.4 using experience gained from previous<br />
Mt Boppy operati<strong>on</strong>s, at White Dam and elsewhere plus the results <strong>of</strong> metallurgical test work carried out <strong>on</strong><br />
Mt Boppy samples in 2012.<br />
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Figure 3.4 Mt Boppy Proposed Flowsheet<br />
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3.1.5.2 Metallurgical Testing<br />
Testing <strong>of</strong> ore samples from Mt Boppy was carried out by independent technical specialists 4 and in<br />
September 2012 5 . The sec<strong>on</strong>d round <strong>of</strong> testing was undertaken to c<strong>on</strong>firm results obtained in May 2012, as<br />
some c<strong>on</strong>fusi<strong>on</strong> remained regarding the representativeness <strong>of</strong> the material chosen to characterise plant<br />
feed.<br />
A composite sample was subjected to standard B<strong>on</strong>d ball mill testing. A B<strong>on</strong>d ball mill work index (BWI)<br />
value <strong>of</strong> 18.1 kWh/t was obtained. This value is aligned <strong>with</strong> previous operating experience that the Mt<br />
Boppy fresh ore is hard and abrasive, and has been used in plant design calculati<strong>on</strong>s.<br />
Grinding flotati<strong>on</strong> c<strong>on</strong>centrate to a P 80 size <strong>of</strong> 20 µm rather than 53 µm allowed sufficiently improved<br />
recoveries (80.0% compared to 78.2%) to justify the inclusi<strong>on</strong> <strong>of</strong> two-stage grinding in the flowsheet to<br />
achieve this fineness.<br />
The carb<strong>on</strong>-in-leach (CIL) leaching plant c<strong>on</strong>figurati<strong>on</strong> was chosen as a result <strong>of</strong> apparent tie-up <strong>of</strong><br />
solubilised gold (preg-robbing) that was seen during the May 2012 testing. The effect was counteracted by<br />
having carb<strong>on</strong> present in all leach stages.<br />
The test work c<strong>on</strong>ducted, flowsheet decisi<strong>on</strong>s made, and design data extracted from the tests are, in AMC’s<br />
opini<strong>on</strong>, reas<strong>on</strong>able for the scale and short life <strong>of</strong> the project.<br />
3.1.5.3 Plant Layout<br />
The new plant layout will utilise as much <strong>of</strong> the existing equipment as possible, in its original locati<strong>on</strong>. This<br />
will minimise civil expenses for new foundati<strong>on</strong>s. The original grinding mill which will now become the regrind<br />
mill and the lime silo which will all be reused in place.<br />
Some minor work has been completed in preparati<strong>on</strong> for the project. Leach tanks were inspected and found<br />
to be adequate for a 2-year campaign. Tank supports were chipped out <strong>of</strong> the c<strong>on</strong>crete floor and repaired.<br />
M<strong>on</strong>olithic c<strong>on</strong>crete blocks will be poured around the supports to protect the steel from further corrosive<br />
damage.<br />
The existing crushing plant is located west <strong>of</strong> the plant in the area earmarked for ROM ore storage. The<br />
existing equipment will be removed for possible sale. The new, two-stage crushing plant will be leased<br />
equipment operated by <strong>Polymetals</strong> pers<strong>on</strong>nel. The existing dump stati<strong>on</strong> and grizzly screen will be reused.<br />
Some minor capital expense has been allowed for the work. Sufficient area exists for anticipated storage <strong>of</strong><br />
ROM material ahead <strong>of</strong> the plant.<br />
All piping and electrical wiring has been removed and new, elevated support racks are in the process <strong>of</strong><br />
being c<strong>on</strong>structed for the new plant.<br />
The layout is compact and logical and has been well c<strong>on</strong>ceived.<br />
3.1.5.4 Capital Costs<br />
Extensive use has been made <strong>of</strong> used and rec<strong>on</strong>diti<strong>on</strong>ed equipment, <strong>with</strong> as much engineering and<br />
c<strong>on</strong>structi<strong>on</strong> input as possible being provided from <strong>with</strong>in the company. <strong>Polymetals</strong>' intenti<strong>on</strong> is to employ<br />
this strategy in the redevelopment <strong>of</strong> Mt Boppy.<br />
<strong>Polymetals</strong> pers<strong>on</strong>nel developed the process flowsheet, mass balance algorithms, and Capex estimate <strong>of</strong><br />
$13.7M for the project to ±17%. Table 3.3 shows details <strong>of</strong> the estimate by area. Actual quotati<strong>on</strong>s for new or<br />
new-sec<strong>on</strong>dhand equipment were obtained wherever possible. Bids were solicited for services, and<br />
4<br />
5<br />
Alan Eslake, “Report M2515 - Metallurgical Characterisati<strong>on</strong> Tests <strong>on</strong> Mt Boppy Ore Samples”, c<strong>on</strong>fidential unpublished report,<br />
May 2012.<br />
Steve Rayner, “Report M2588 - Metallurgical Characterisati<strong>on</strong> <strong>of</strong> a Mt Boppy Ore Sample”, c<strong>on</strong>fidential unpublished report,<br />
September 2012.<br />
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c<strong>on</strong>servative, best-guess estimates for costs <strong>of</strong> overhaul <strong>of</strong> existing equipment were used. Estimati<strong>on</strong> errors<br />
have been assigned (e.g. 30% for the Ravensthorpe flotati<strong>on</strong> banks) as there is a degree <strong>of</strong> uncertainty that<br />
the equipment will be available when the project receives the go-ahead. Preliminary engineering drawings<br />
for the plant were produced by LogiCamms, a small South Australian firm.<br />
The crushing plant and the eluti<strong>on</strong> plant and gold room have been included as leased equipment, <strong>with</strong> the<br />
lease charge included in operating budget. The plant does not c<strong>on</strong>tain a gold room or eluti<strong>on</strong> circuit therefore<br />
the functi<strong>on</strong> <strong>of</strong> stripping and regenerating carb<strong>on</strong> will be outsourced. Load-out and receiving facilities have<br />
been designed to permit removal <strong>of</strong> loaded carb<strong>on</strong> and return <strong>of</strong> regenerated carb<strong>on</strong> by truck-mounted<br />
tanks.<br />
A plant <strong>of</strong> comparable size and capacity built c<strong>on</strong>venti<strong>on</strong>ally using engineering and c<strong>on</strong>structi<strong>on</strong> c<strong>on</strong>tractors<br />
and new equipment could be expected to cost between $23M and $30M. Successful in-house c<strong>on</strong>structi<strong>on</strong><br />
will depend <strong>on</strong> <strong>Polymetals</strong> being able to obtain appropriate equipment for the estimated prices, and being<br />
able to retain the right skills to accomplish c<strong>on</strong>structi<strong>on</strong> and commissi<strong>on</strong>ing in the allotted time.<br />
AMC notes that some items <strong>of</strong> capital are estimated <strong>on</strong> the basis <strong>of</strong> the availability <strong>of</strong> sec<strong>on</strong>dhand<br />
equipment. A c<strong>on</strong>tingency allowance <strong>of</strong> $1M has been made in case the sec<strong>on</strong>dhand equipment is not<br />
available.<br />
AMC notes that in an ASX announcement dated 29 January 2013 <strong>Polymetals</strong> quoted a capital cost for the<br />
project <strong>of</strong> $26.6M. <strong>Polymetals</strong> advised that this was in fact the maximum pre-producti<strong>on</strong> negative cash flow.<br />
This is c<strong>on</strong>sistent <strong>with</strong> the financial model reviewed for Mt Boppy project.<br />
Table 3.3<br />
Capital Estimate for Mt Boppy Redevelopment<br />
Area<br />
Capex<br />
(A$)<br />
Estimated<br />
Error<br />
(%)<br />
C<strong>on</strong>tingency<br />
(A$)<br />
Leased<br />
(in Opex)<br />
(A$)<br />
Tailings dam 2,087,947 15 316,442 - -<br />
ROM pad 50,000 25 12,500 - -<br />
3.1.5.5 Operating Costs<br />
Comments<br />
Crusher - - - 266,913 Old crusher to be removed, new equipment to be<br />
leased in Opex<br />
Grinding mills 1,841,775 16 289,095 - Placement <strong>of</strong> new mill, overhaul and alignment <strong>of</strong><br />
existing mill<br />
Leaching plant 1,209,429 17 211,028 - Includes 2 new thickeners, c<strong>on</strong>structi<strong>on</strong> and<br />
installati<strong>on</strong> <strong>of</strong> new MCC, some new agitators,<br />
overhaul <strong>of</strong> all pumps<br />
Eluti<strong>on</strong>, gold room - - - 363,250 Project calls for loaded carb<strong>on</strong> to be transported<br />
to White Dam for gold recovery<br />
Flotati<strong>on</strong> plant 450,000 30 135,000 - Existing plant (possibly Ravensthorpe) available<br />
for purchase and removal<br />
Reagent mixing 311,150 20 62,230 - -<br />
First fill (carb<strong>on</strong>, cyanide, 230,760 15 34,614 - -<br />
flotati<strong>on</strong> reagents)<br />
Services (air, water, power) 1,690,369 17 281,001 - Includes new water systems, including an RO<br />
plant<br />
Infrastructure 144,600 25 36,150 - -<br />
Camp 1,060,500 15 159,075 - new camp in Canbelego<br />
Vehicles - - - 737,750 vehicles to be leased<br />
EPCM (provided in-house) 1,465,175 23 330,614 - Salaried positi<strong>on</strong>s to be filled in-house where<br />
possible<br />
Owner's cost 1,190,000 10 119,000 - -<br />
TOTAL 11,731,705 1,986,749 1,367,913<br />
TOTAL (incl. C<strong>on</strong>tingency) 13,718,454 17<br />
Basic design parameters for the plant are shown in Table 3.4. The utilisati<strong>on</strong> values <strong>of</strong> 90% are c<strong>on</strong>servative<br />
and the gold recovery figure <strong>of</strong> 78% is supported by metallurgical test work.<br />
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Table 3.4<br />
Basic Design Parameters<br />
Parameter Unit Value<br />
Crusher Annual T<strong>on</strong>nage t 356,400<br />
M<strong>on</strong>thly T<strong>on</strong>nage t 33,000<br />
Throughput t/h 156.7<br />
Operati<strong>on</strong> Days/week 5<br />
Operati<strong>on</strong> Hours/day 12<br />
Utilisati<strong>on</strong> % 90<br />
Primary Mill Annual T<strong>on</strong>nage t 300,000<br />
M<strong>on</strong>thly T<strong>on</strong>nage t 25,000<br />
Throughput t/h 38.1<br />
Operati<strong>on</strong> Days/wk 7<br />
Operati<strong>on</strong> Hours/day 21.6<br />
Utilisati<strong>on</strong> % 90<br />
B<strong>on</strong>d Ball Mill Wi kWh/t 18.1<br />
Gold Gold Recovery % 80<br />
Gold Producti<strong>on</strong> (total project) oz 62,511<br />
Operating costs are summarised in Table 3.5. Key cost c<strong>on</strong>tributors, such as labour, power and reagents are<br />
reas<strong>on</strong>able by industry standards.<br />
Table 3.5<br />
Processing Unit Cost<br />
Cost Element<br />
$/t<br />
Crusher lease 1.76<br />
Reagents/c<strong>on</strong>sumables 8.36<br />
Power 7.99<br />
Maintenance 3.89<br />
Labour 10.26<br />
Refining 0.88<br />
Processing Total 33.14<br />
The overall processing unit cost <strong>of</strong> $33.14/t is reas<strong>on</strong>able. A comparable gold plant in the area currently<br />
reports an overall processing cost <strong>of</strong> $35/t.<br />
3.1.5.6 Worker's Camps<br />
<strong>Polymetals</strong> currently operates a small, serviced camp in Canbelego for company geologists and mine<br />
caretakers. The project had allowed for the relocati<strong>on</strong> <strong>of</strong> a 60-pers<strong>on</strong>, camp from White Dam to Canbelego<br />
for Mt Boppy workers. Due to the imminent sale <strong>of</strong> the White Dam asset this camp is no l<strong>on</strong>ger available.<br />
AMC added a capital cost c<strong>on</strong>tingency to address the requirement to purchase a new camp. An appropriate<br />
site has been selected.<br />
A camp for the mining c<strong>on</strong>tractor will also be located in Canbelego.<br />
3.1.5.7 Water Supply<br />
Mt Boppy is in a regi<strong>on</strong> <strong>of</strong> very low rainfall (approximately 300 mm per year) therefore the mine must rely <strong>on</strong><br />
bore water for processing. The plant requires 450 ML/pa <strong>of</strong> make-up water, however <strong>on</strong>ly 240 ML/pa is<br />
available under the existing permit. Currently the intenti<strong>on</strong> is to bridge the shortfall by dewatering the pit.<br />
<strong>Polymetals</strong> state that the inventory currently in the pit together <strong>with</strong> future inflow will be adequate for the<br />
2-year life <strong>of</strong> the mine.<br />
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3.1.5.8 Power Supply<br />
Power will be generated in Cobar and supplied using an existing line and transformer <strong>on</strong> site. <strong>Polymetals</strong> has<br />
calculated demand <strong>on</strong> the basis <strong>of</strong> 35 kWh/t required by the plant. This value is reas<strong>on</strong>able, and slightly<br />
c<strong>on</strong>servative. A detailed electrical load survey is currently under way to more accurately forecast expected<br />
demand.<br />
3.1.6 Envir<strong>on</strong>ment<br />
3.1.6.1 Overview<br />
As a previously-operati<strong>on</strong>al mine, Mt Boppy has a recent history <strong>of</strong> envir<strong>on</strong>mental feasibility and<br />
performance, facilitating the obtaining <strong>of</strong> envir<strong>on</strong>mental approvals required for the recommencement <strong>of</strong><br />
operati<strong>on</strong>s. Moreover, technical envir<strong>on</strong>mental challenges are relatively unc<strong>on</strong>tentious, and are c<strong>on</strong>sidered<br />
to be manageable using established and recognised envir<strong>on</strong>mental management strategies. Practicable<br />
envir<strong>on</strong>mental management plans have been developed to ensure envir<strong>on</strong>mental protecti<strong>on</strong>.<br />
Biodiversity and c<strong>on</strong>servati<strong>on</strong> issues are <strong>of</strong> minor significance, acid and metalliferous drainage is<br />
dem<strong>on</strong>strably manageable in this dry envir<strong>on</strong>ment and water supply and management is unlikely to hazard<br />
either other potential users in the area or aquatic ecosystems. The most sensitive envir<strong>on</strong>mental issue will<br />
be community relati<strong>on</strong>s, reflecting the operati<strong>on</strong>’s close proximity to Canbelego township. Additi<strong>on</strong>ally, AMC<br />
was unable to review a closure cost estimate, but believes this liability unlikely to amount to more than<br />
several milli<strong>on</strong> dollars.<br />
It is unlikely that the proposed pit-lake closure strategy involves risk <strong>of</strong> increasing salinity. This issue was<br />
c<strong>on</strong>sidered by the NSW Office <strong>of</strong> Water to have been addressed <strong>with</strong> no issues identified.<br />
3.1.6.2 Statutory Envir<strong>on</strong>mental Approvals<br />
Other than planning-law approvals, the most important envir<strong>on</strong>mental permit is an Envir<strong>on</strong>mental Protecti<strong>on</strong><br />
Licence (EPL). An EPL was applied for in August 2012, and AMC was advised that the EPL was issued in<br />
January 2013.<br />
Permits to abstract groundwater have been obtained from the NSW Office <strong>of</strong> Water under the provisi<strong>on</strong>s <strong>of</strong><br />
the Water Management Act. Other, sec<strong>on</strong>dary, permits (heritage, dangerous goods etc.) are either in hand<br />
or unlikely to prove problematical, as they are for the most part <strong>of</strong> a registrati<strong>on</strong>, rather than impactassessment,<br />
nature.<br />
There is little likelihood that envir<strong>on</strong>mental impacts could trigger the requirements for assessment under the<br />
EPBC Act.<br />
AMC thus c<strong>on</strong>siders that statutory approvals are unlikely to delay or c<strong>on</strong>strain project development.<br />
3.1.6.3 Biodiversity and C<strong>on</strong>servati<strong>on</strong><br />
No c<strong>on</strong>servati<strong>on</strong> estate property or threatened flora species or vegetati<strong>on</strong> community will be impacted by the<br />
project; in part, this reflects the existence <strong>of</strong> little remnant native vegetati<strong>on</strong> and its low c<strong>on</strong>servati<strong>on</strong> value<br />
due to past modificati<strong>on</strong> by human activities.<br />
There is theoretical potential for 14 c<strong>on</strong>servati<strong>on</strong>-sensitive fauna species to occur in the project area, but<br />
even if they are present the nature and extent <strong>of</strong> disturbance is small <strong>on</strong> even a local scale as to make any<br />
impacts <strong>of</strong> little c<strong>on</strong>sequence. A biodiversity <strong>of</strong>fset program is c<strong>on</strong>sidered unlikely to be necessary, reflecting<br />
the inc<strong>on</strong>sequential impact <strong>of</strong> the project <strong>on</strong> the local and regi<strong>on</strong>al biodiversity resource.<br />
3.1.6.4 Acid and Metalliferous Drainage<br />
Static (acid-base accounting) has identified around 20% <strong>of</strong> mine waste to be potentially acid-forming (PAF),<br />
<strong>with</strong> the remainder n<strong>on</strong> acid-forming (NAF). Little acid-c<strong>on</strong>suming material is c<strong>on</strong>sidered to exist.<br />
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PAF material is proposed for encapsulati<strong>on</strong> <strong>with</strong>in NAF waste <strong>with</strong>in waste stockpiles, to form a<br />
“store-and-release” cover to provide l<strong>on</strong>g-term isolati<strong>on</strong> <strong>of</strong> PAF material from the oxygen and water<br />
necessary to allow sulphide oxidati<strong>on</strong> and acid drainage. In this relatively dry envir<strong>on</strong>ment, such a strategy<br />
poses no significant challenge.<br />
While no kinetic (column-leach) test work has apparently been performed <strong>on</strong> PAF material, the fact that no<br />
acid drainage has been reported in the past indicates a low risk, especially as the proposed mine<br />
development is primarily a cutback and thus unlikely to expose higher-sulphur primary rock.<br />
No near-neutral or mild-acid leaching test work has been c<strong>on</strong>ducted <strong>on</strong> mine waste, but analyses have<br />
dem<strong>on</strong>strated that there is little enrichment <strong>with</strong> metals known to pose envir<strong>on</strong>mental risk. Circum-neutral<br />
metal enrichment in drainage from final waste stockpiles can therefore be c<strong>on</strong>sidered to be a small risk,<br />
especially in this dry envir<strong>on</strong>ment.<br />
3.1.6.5 Water Management<br />
Project water supply will be, as in past operati<strong>on</strong>s, from pit dewatering, groundwater and from decant return<br />
from the TSF. The requisite abstracti<strong>on</strong> permits have reportedly been obtained.<br />
Water balance modelling has shown that envir<strong>on</strong>mentally undesirable discharge <strong>of</strong> excess water will not be<br />
required. Should pit dewatering for any significant period provide water volumes in excess <strong>of</strong> project<br />
demand, temporary storage <strong>on</strong> the active TSF has been shown to be a viable management strategy.<br />
Groundwater modelling has also shown a very low risk <strong>of</strong> impact <strong>on</strong> other users, the nearest <strong>of</strong> whom is<br />
some 20 km away. Additi<strong>on</strong>ally, there are no groundwater-dependent ecosystems that will be impacted by<br />
draw-down resulting from pit dewatering and groundwater abstracti<strong>on</strong> activities.<br />
In the event <strong>of</strong> lower than expected water supply from the above sources, water rights to up to 250 ML/year<br />
are held by Mt Boppy; the modelled water balance identifies an additi<strong>on</strong>al 200 ML/year demand.<br />
3.1.6.6 Closure<br />
Some disturbed areas, especially disused TSFs, have already been capped <strong>with</strong> inter material, so that <strong>on</strong>ly<br />
less expensive surface preparati<strong>on</strong> and revegetati<strong>on</strong> are required in the future.<br />
Closure strategies have been developed for various project areas. These represent current technology and<br />
envir<strong>on</strong>mental protecti<strong>on</strong> c<strong>on</strong>cepts, and can reas<strong>on</strong>ably be expected to meet statutory requirements.<br />
Importantly, the strategies identify the desirability <strong>of</strong> progressive rehabilitati<strong>on</strong>.<br />
In particular, encapsulati<strong>on</strong> <strong>of</strong> PAF mine waste is well designed, <strong>with</strong> this material progressively being placed<br />
<strong>with</strong>in and covered by inert waste to form a “store-and-release” cover.<br />
Post decommissi<strong>on</strong>ing, it is proposed that a groundwater-fed lake be allowed to develop in the pit void. While<br />
groundwater salinity is not high (2,000 mg/L to 2,500 mg/L total dissolved solids), there does exist a low risk<br />
that the net evaporative climate <strong>of</strong> the project area could result in the l<strong>on</strong>g term in increasing salinity <strong>of</strong> the pit<br />
lake.<br />
No estimate <strong>of</strong> closure costs was provided for this review, but an envir<strong>on</strong>mental performance b<strong>on</strong>d<br />
calculati<strong>on</strong> <strong>of</strong> $0.99M was reviewed. Throughout Australia, b<strong>on</strong>ds are known to cover <strong>on</strong>ly a fracti<strong>on</strong> <strong>of</strong><br />
actual closure costs – sometimes as little as 30%. AMC has developed an empirical estimate, based <strong>on</strong><br />
areas <strong>of</strong> disturbance and current rehabilitati<strong>on</strong> status, and c<strong>on</strong>siders a closure cost <strong>of</strong> $1.4M to $1.7M to be<br />
realistic. This sum does not include demoliti<strong>on</strong> costs, which are frequently <strong>of</strong>fset by salvage revenue. Nor<br />
does it include retrenchment and related costs that are comm<strong>on</strong>ly included in accounting-based closure<br />
estimates. AMC made an adjustment to the closure cost in its modelling for Mt Boppy.<br />
3.1.7 Project Implementati<strong>on</strong><br />
AMC notes that although the majority <strong>of</strong> the design and analytical work is complete for the assessment <strong>of</strong><br />
redeveloping Mt Boppy, a formal feasibility document does not exist. Such a document is likely to be<br />
required for financing. Therefore three to four m<strong>on</strong>ths should be allowed to complete the documentati<strong>on</strong> and<br />
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financing. A further seven m<strong>on</strong>ths should be allowed for procurement, c<strong>on</strong>structi<strong>on</strong> and commissi<strong>on</strong>ing. The<br />
earliest likely start-up date is May 2014.<br />
3.1.8 AMC Producti<strong>on</strong> Cases<br />
AMC has modelled two cases for Mt Boppy. The cases are projecti<strong>on</strong>s <strong>of</strong> mining and processing t<strong>on</strong>nages,<br />
gold grades and costs. The cases are provided to BDO for c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> value.<br />
<strong>Polymetals</strong> provided AMC <strong>with</strong> a range <strong>of</strong> technical informati<strong>on</strong>: Mineral Resource models, Ore Reserves,<br />
mine designs and schedules. AMC has prepared its cases based <strong>on</strong> this informati<strong>on</strong>.<br />
Case 1, ore producti<strong>on</strong>, is based primarily <strong>on</strong> the pit optimisati<strong>on</strong> study scenario using mainly the Ore<br />
Reserves and a small volume <strong>of</strong> Inferred Mineral Resource also in the producti<strong>on</strong> case as presented by<br />
<strong>Polymetals</strong>.<br />
Case 2, ore producti<strong>on</strong>, includes that scheduled in Case 1, <strong>with</strong> the additi<strong>on</strong> <strong>of</strong> 35 kt or ore added to the end<br />
<strong>of</strong> the mine life to simulate the likely c<strong>on</strong>versi<strong>on</strong> <strong>of</strong> Mineral Resources to Ore Reserves and likely success<br />
<strong>with</strong> explorati<strong>on</strong> in the project area. The Mineral Resources defined at Mt Boppy outside the development<br />
case proposed by <strong>Polymetals</strong> are limited.<br />
AMC believes that the two producti<strong>on</strong> cases described appropriately provide a value range <strong>on</strong> the Mineral<br />
Resources and explorati<strong>on</strong> potential for the greater Mt Boppy project by simulating the range <strong>of</strong> likely<br />
outcomes for the project.<br />
Mt Boppy Producti<strong>on</strong> Case 1 (Feasibility Case)<br />
Key aspects <strong>of</strong> AMC's Case 1 model are:<br />
• The mining and processing schedules are based <strong>on</strong> the LOM plan provided in the feasibility study and<br />
financial model.<br />
• 587 kt <strong>of</strong> ore at a head grade <strong>of</strong> 4.28 g/t is mined and processed over a 25 m<strong>on</strong>th period. This<br />
represents all <strong>of</strong> the Ore Reserves and approximately 40 kt <strong>of</strong> the Inferred Mineral Resource.<br />
• At total <strong>of</strong> 64 koz <strong>of</strong> gold are produced.<br />
• AMC increased the estimated mining period by six m<strong>on</strong>ths to effectively lower the assumed mining<br />
productivities and fast development rates in the supplied model.<br />
• Project commences in May 2014.<br />
• Average unit mining costs <strong>of</strong> $3.90/t <strong>of</strong> material moved are used.<br />
• Average processing costs <strong>of</strong> $33.48/t ore processed.<br />
• AMC added an allowance <strong>of</strong> $0.7M for additi<strong>on</strong>al closure costs.<br />
• AMC added a c<strong>on</strong>tingency <strong>of</strong> $1M to the capital estimate relating to the assumed availability <strong>of</strong><br />
sec<strong>on</strong>dhand equipment.<br />
Mt Boppy Producti<strong>on</strong> Case 2 (Feasibility Case Plus Additi<strong>on</strong>al Inventory)<br />
Key aspects <strong>of</strong> AMC's Case 2 model are:<br />
• Assumpti<strong>on</strong>s as in Case 1 initial producti<strong>on</strong> period.<br />
• An additi<strong>on</strong>al 35 kt <strong>of</strong> ore at a grade 3.98 g/t is added to the end <strong>of</strong> the mine life. The t<strong>on</strong>nage is based<br />
<strong>on</strong> the assumpti<strong>on</strong> that 50% <strong>of</strong> the remaining resource outside the pit or equivalent explorati<strong>on</strong><br />
success elsewhere c<strong>on</strong>verts to Ore Reserve at the head grade produced at the end <strong>of</strong> the mine life.<br />
AMC has assumed that operating costs are the same as those incurred in the last m<strong>on</strong>ths <strong>of</strong> the<br />
financial model provided and have added these to the schedule.<br />
• AMC notes there is <strong>on</strong>ly limited additi<strong>on</strong>al Mineral Resource outside the current mine plan proposed<br />
by <strong>Polymetals</strong>.<br />
• A total <strong>of</strong> 68,200 oz <strong>of</strong> gold are produced.<br />
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Explorati<strong>on</strong> Valuati<strong>on</strong><br />
The explorati<strong>on</strong> licence (EL 5842) adjacent to the Mt Boppy mining leases was acquired in 2008 for $0.5M.<br />
Explorati<strong>on</strong> <strong>on</strong> the Tenement<br />
Recent drilling at most prospects generally failed to identify significant mineralisati<strong>on</strong> to encourage resource<br />
delineati<strong>on</strong> drilling. Results from other drilling are not yet available.<br />
AMC c<strong>on</strong>siders that a unit area value <strong>of</strong> $1,000/km 2 can be assigned to this tenement indicating a value <strong>of</strong><br />
$0.2M.<br />
3.1.9 Opportunities and Risks<br />
AMC c<strong>on</strong>siders that additi<strong>on</strong>al opportunities that might be available for Mt Boppy include:<br />
• AMC has not c<strong>on</strong>sidered underground mining <strong>of</strong> additi<strong>on</strong>al resources in its evaluati<strong>on</strong> as no work has<br />
been undertaken in this regard. However, Mineral Resources at Mt Boppy may have a grade that<br />
would support underground mining.<br />
• Overall plant recovery greater than the estimated 80% is achieved.<br />
AMC c<strong>on</strong>siders that the following risks apply to Mt Boppy:<br />
• There is a risk that due to geotechnical issues the pit walls may need to be designed at a flatter angle<br />
in the south-east corner <strong>of</strong> the pit, thus increasing the waste mining requirement.<br />
• The current estimate for mine dewatering volumes is a broad range <strong>with</strong> upper estimates likely to add<br />
to the operating cost <strong>of</strong> the project.<br />
• Throughput is not achieved in the upgraded treatment plant.<br />
• The grade and t<strong>on</strong>nage <strong>of</strong> the stope backfill material is lower than estimated in the Mineral Resource.<br />
• The existing underground voids cause instability in the open pit final walls.<br />
• Inferred Mineral Resource used to support the feasibility study may be lower in t<strong>on</strong>nes and grade than<br />
is currently modelled.<br />
3.2 Turner River<br />
The Turner River projects are located approximately 60 km south <strong>of</strong> Port Hedland in the Pilbara Regi<strong>on</strong> <strong>of</strong><br />
Western Australia (Figure 3.5).<br />
The gold project is located in the western tenements and includes the Wingina Well deposit. The base<br />
metals project is located in the eastern tenements and covers a 20 km l<strong>on</strong>g greenst<strong>on</strong>e belt hosting<br />
polymetallic mineralisati<strong>on</strong>.<br />
AMC pers<strong>on</strong>nel visited Turner River during 2012.<br />
The development and evaluati<strong>on</strong> work c<strong>on</strong>ducted by <strong>Polymetals</strong> <strong>on</strong> the Turner River gold project are<br />
preliminary in nature.<br />
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Figure 3.5<br />
Locati<strong>on</strong> <strong>of</strong> Turner River Projects<br />
Wingina<br />
Well<br />
Tenements covering the Turner River gold and base metals projects are the subject <strong>of</strong> a farm-out and joint<br />
venture agreement <strong>with</strong> De Grey Mining Limited. The tenements comprise:<br />
• Seven explorati<strong>on</strong> licences.<br />
• One prospecting licence.<br />
The tenements (Figure 3.6) cover a combined area <strong>of</strong> 811.7 km 2 and are located in a mineralised district<br />
which includes the Indee Gold Mine, Wodgina Tantalum Project, Lynas Find Gold Project and the<br />
Panorama-Sulphur Springs Base Metal Projects.<br />
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Figure 3.6<br />
Locati<strong>on</strong> <strong>of</strong> Turner River Explorati<strong>on</strong> Licence<br />
3.2.1 Geology<br />
The Turner River Gold projects are in the Archaean-Proterozoic Pilbara Crat<strong>on</strong>. North-east-trending<br />
greenst<strong>on</strong>es (mafic to ultramafic intrusives, intermediate to felsic volcanic, layered mafic to ultramafic<br />
intrusi<strong>on</strong>s and sediments (shales, banded ir<strong>on</strong>st<strong>on</strong>es and cherts)) wrap around granitic inliers.<br />
The greenst<strong>on</strong>e successi<strong>on</strong> comprises the Warrawo<strong>on</strong>a Group, the Cleaverville Formati<strong>on</strong> and the De Grey<br />
Group. Warrawo<strong>on</strong>a Group mafic and ultramafic rocks al<strong>on</strong>g <strong>with</strong> minor chert bands are overlain by the<br />
Cleaverville Formati<strong>on</strong> (banded ir<strong>on</strong> formati<strong>on</strong> (BIF), fine grained clastic rocks and felsic volcanics). The<br />
Cleaverville Formati<strong>on</strong> is overlain by the De Grey Group, a widespread successi<strong>on</strong> <strong>of</strong> turbiditic sediments. In<br />
the project area the De Grey Group comprises the lower C<strong>on</strong>stantine Sandst<strong>on</strong>e and the upper Mallina<br />
Formati<strong>on</strong>.<br />
Northeasterly trending shear z<strong>on</strong>es cut the greenst<strong>on</strong>es. The Mallina, Mount Dove-Tabba Tabba and Mount<br />
Wohler Shear Z<strong>on</strong>es cut through the project area. The deposits and prospects in the project area occur <strong>on</strong> or<br />
in positi<strong>on</strong>s related to these shears.<br />
3.2.2 Turner River Gold Project<br />
Gold mineralisati<strong>on</strong> at Wingina Well is located al<strong>on</strong>g the Tabba Tabba Shear Z<strong>on</strong>e and hosted by steeply<br />
south-dipping chert units <strong>of</strong> the Cleaverville Formati<strong>on</strong>. The chert is up to 50 m wide, deeply weathered to<br />
more than 150 m below surface, and variably brecciated and gossanous. The chert is bounded by a shale<br />
unit to the north and a z<strong>on</strong>e <strong>of</strong> talc chlorite schist to the south.<br />
The Mt Berghaus deposit is located 10 km north-west <strong>of</strong> Wingina Well, <strong>on</strong> the Mallina Shear Z<strong>on</strong>e. Gold<br />
mineralisati<strong>on</strong> is hosted <strong>with</strong>in turbiditic arenites and argillites which are folded into a tight isoclinal plunging<br />
fold. Gold mineralisati<strong>on</strong> appears to occur <strong>on</strong> the southern limb <strong>of</strong> an isoclinal fold and is associated <strong>with</strong><br />
quartz veining, stockwork and breccia.<br />
The Amanda deposit is located 2 km north-east and al<strong>on</strong>g strike <strong>of</strong> Wingina Well. Gold mineralisati<strong>on</strong> is<br />
hosted <strong>with</strong>in pyritic chert units.<br />
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3.2.2.1 Resources<br />
Mineral Resources for the Turner River Gold Project at 13 March 2013 are listed in Table 3.6. AMC has<br />
independently reported the total t<strong>on</strong>nes and grade <strong>of</strong> each Mineral Resource estimate and found no material<br />
differences when compared to the total t<strong>on</strong>nes and grade reported at 13 March 2013.<br />
Table 3.6 Turner River Gold Project – Mineral Resources at 13 March 2013<br />
Locati<strong>on</strong> Cut-<strong>of</strong>f<br />
Measured Indicated Inferred<br />
Grade<br />
(g/t Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
Wingina Well above ~55 mRL 1 0.5 2,300 1.8 130,000 700 1.1 26,000 100 1.2 5,000<br />
1<br />
2<br />
3<br />
Wingina Well below ~55 mRL 1 1.0 400 2.1 26,000 400 1.6 22,000 1,200 1.5 58,000<br />
Mt Berghaus 2 0.5 - - - - - - 900 1.4 43,000<br />
Amanda 3 0.5 - - - - - - 700 1.6 35,000<br />
Total 2,700 1.8 157,000 1,100 1.3 47,000 2,900 1.5 141,000<br />
As reported by <strong>Polymetals</strong> Mining Ltd, March 2013. 458 drillholes. Ordinary Kriging.<br />
Resource estimati<strong>on</strong> by Ravensgate, February 2012.125 drillholes. Ordinary Kriging. Verified by <strong>Polymetals</strong>.<br />
Resource estimati<strong>on</strong> by Ravensgate, March 2012. 248 drillholes. Ordinary Kriging. Verified by <strong>Polymetals</strong>.<br />
The resource estimates are based mostly <strong>on</strong> diam<strong>on</strong>d and reverse circulati<strong>on</strong> (RC) drilling. Minor air core<br />
(AC) drilling has been included in the Wingina Well resource.<br />
Drilling completed by <strong>Polymetals</strong> at Wingina Well in 2012 was carried out using comm<strong>on</strong> industry practice<br />
<strong>with</strong> assay quality c<strong>on</strong>trol in place. Drillhole collars are surveyed and downhole surveys are carried out.<br />
Details <strong>of</strong> drilling data quality (sample preparati<strong>on</strong>, assay quality c<strong>on</strong>trol, drillhole collar and downhole<br />
surveying) for the Amanda and Mt Berghaus resource estimates are very limited.<br />
The interpretati<strong>on</strong>s for the resource estimates were developed relying <strong>on</strong> drillhole logging and based <strong>on</strong><br />
lithological c<strong>on</strong>trol. A nominal lower cut <strong>of</strong>f grade <strong>of</strong> 0.5 g/t Au was used to interpret the Amanda and Mt<br />
Berghaus mineralisati<strong>on</strong>, and a nominal lower COG <strong>of</strong> 0.3 g/t Au was used to interpret the Wingina Well<br />
mineralisati<strong>on</strong>.<br />
All <strong>of</strong> the deposits have a number <strong>of</strong> mineralised domains. Assays <strong>with</strong>in the domains were composited to<br />
1 m. The influence <strong>of</strong> statistical outliers <strong>on</strong> grade estimati<strong>on</strong> was limited through top cutting or by restricting<br />
the distance <strong>of</strong> influence <strong>of</strong> the outliers. Grades were estimated into the block models using OK. Estimati<strong>on</strong><br />
parameters for Wingina Well were determined from a study <strong>of</strong> variography. Details <strong>of</strong> variography and<br />
estimati<strong>on</strong> parameters for Amanda and Mt Berghaus are poorly documented.<br />
Densities for Wingina Well were derived from downhole gamma and diam<strong>on</strong>d core measurements and were<br />
assigned by weathering state. Densities for the Wingina Well estimate were 2.1 t/m 3 in oxide, 2.4 t/m 3 in<br />
transiti<strong>on</strong>al and 2.6 t/m 3 in fresh rock. Densities for Amanda and Mt Berghaus were selected <strong>on</strong> the basis <strong>of</strong><br />
typical weathering domains <strong>with</strong>in sediment hosted deposits. The method <strong>of</strong> assignment (by weathering<br />
surface or elevati<strong>on</strong>) was not specified. Densities for the Amanda and Mt Berghaus estimates were 2.4 t/m 3<br />
in oxide, 2.6 t/m 3 in transiti<strong>on</strong>al and 2.8 t/m 3 in fresh rock.<br />
Resource estimates were classified as Measured, Indicated or Inferred Resource based <strong>on</strong> data density and<br />
quality, drill spacing, and geological c<strong>on</strong>fidence in resource domain c<strong>on</strong>tinuity. Mineral Resources are<br />
reported <strong>with</strong> Ore Reserves excluded.<br />
AMC c<strong>on</strong>siders that the Turner River Gold Project Mineral Resource estimates were prepared using<br />
accepted industry practice and have been classified in accordance <strong>with</strong> the JORC Code.<br />
3.2.2.2 Mining<br />
<strong>Polymetals</strong> engaged Australian Mine Design and Development Pty Ltd (AMDAD) to undertake a pit<br />
optimisati<strong>on</strong> study for the Turner River Gold project utilising the Mineral Resources at Wingina, Amanda and<br />
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Berghaus deposits. AMC c<strong>on</strong>siders the study to be at a scoping level. This is a green-fields project so there<br />
is no historical cost or operating data available.<br />
The Measured, Indicated and Inferred Resources were optimised using Whittle s<strong>of</strong>tware to generate pit<br />
shells for further evaluati<strong>on</strong>. Two processing scenarios were c<strong>on</strong>sidered being heap leach and<br />
carb<strong>on</strong>-in-pulp (CIP). The heap leach project had the best ec<strong>on</strong>omics due to its lower capital cost. In AMC’s<br />
opini<strong>on</strong> the mining cost assumpti<strong>on</strong>s and other input parameters to the optimisati<strong>on</strong> process are reas<strong>on</strong>able.<br />
A gold price <strong>of</strong> $1,600 was assumed.<br />
The pit optimisati<strong>on</strong> process generated two pit shells for the Amanda deposit, <strong>on</strong>e for Wingina and three for<br />
Berghaus. Detailed pit designs and mine scheduling were not undertaken for the project.<br />
Ore Reserves are not reported for the Turner River gold project.<br />
3.2.2.3 Processing<br />
Preliminary spreadsheet modelling was undertaken by <strong>Polymetals</strong> utilising either heap leach or CIP<br />
processing. Heap leach was the preferred processing route. Limited metallurgical test work was undertaken<br />
to dem<strong>on</strong>strate the ore is generally amenable to heap leach processing. However, a full programme <strong>of</strong> test<br />
work would be required to quantitatively establish the parameters required for a heap leach model. These<br />
would include<br />
• ROM ore size distributi<strong>on</strong> for optimal leach soluti<strong>on</strong> percolati<strong>on</strong>.<br />
• Leach soluti<strong>on</strong> chemistry and additi<strong>on</strong> rates.<br />
• Expected recoveries through time.<br />
Capital and operating costs were developed in-house by <strong>Polymetals</strong> and are preliminary in nature.<br />
Operating costs were estimated at $14.15/t heap leach and $37/t ore in CIP. Capital costs for the heap leach<br />
opti<strong>on</strong> are estimated in the range $20M to $25M. In AMC‘s opini<strong>on</strong> the operating and capital costs are<br />
reas<strong>on</strong>able.<br />
3.2.2.4 Envir<strong>on</strong>mental<br />
Turner River is a small project for which detailed envir<strong>on</strong>mental investigati<strong>on</strong>s are yet to be completed.<br />
However, a number <strong>of</strong> potentially significant envir<strong>on</strong>mental issues have been identified. These are discussed<br />
below.<br />
Statutory Approval<br />
The scale and nature <strong>of</strong> impacts <strong>of</strong> the project make it likely that envir<strong>on</strong>mental assessment will be via the<br />
Mining Proposal process managed by the Department <strong>of</strong> Mines and Petroleum (DMP). Preliminary<br />
discussi<strong>on</strong>s have been held <strong>with</strong> the DMP <strong>on</strong> this basis.<br />
A licence issued by the Department <strong>of</strong> Envir<strong>on</strong>ment and C<strong>on</strong>servati<strong>on</strong> (DEC) under Part V <strong>of</strong> the EP Act will<br />
be required, to cover processing, tailings storage and water discharge aspects.<br />
Project schedule calls for submissi<strong>on</strong> <strong>of</strong> a Mining Proposal in Q1 2014, <strong>with</strong> final approval in Q4 2014.<br />
Provided the requisite field investigati<strong>on</strong>s (see below) are completed by early 2014, this timeline is<br />
c<strong>on</strong>sidered to be realistic; the DMP claims to complete its assessment <strong>of</strong> proposals <strong>with</strong>in 30 days <strong>of</strong><br />
completi<strong>on</strong> <strong>of</strong> all material relevant to that assessment.<br />
Water Management<br />
The project is located in a proclaimed groundwater area so that detailed hydrogeological studies will be<br />
required to quantify impacts in terms <strong>of</strong> both quantity and quality <strong>of</strong> the groundwater resource. Other projects<br />
in the regi<strong>on</strong> have involved comparable scrutiny for the water and envir<strong>on</strong>mental regulators, and the small<br />
scale <strong>of</strong> this project provides some c<strong>on</strong>fidence that impacts will be localised and manageable impacts<br />
identified.<br />
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Preliminary studies indicate a requirement to discharge excess pit water to the broader envir<strong>on</strong>ment.<br />
Depending <strong>on</strong> quantities involved, discharge proposals will be closely scrutinised by water and<br />
envir<strong>on</strong>mental regulators, reflecting a preferred “no discharge” strategy <strong>of</strong> those regulators.<br />
Styg<strong>of</strong>auna are known to occur in groundwater in this regi<strong>on</strong>, so studies covering several seas<strong>on</strong>s will be<br />
necessary. However, recent experience indicates that, <strong>with</strong> adequate investigati<strong>on</strong>s, manageable impacts<br />
can be shown to be probable.<br />
C<strong>on</strong>servati<strong>on</strong> and Diversity<br />
No significant flora or vegetati<strong>on</strong> issues are likely to be identified from field studies. Any impacts <strong>on</strong><br />
threatened flora species are likely to be insignificant <strong>on</strong> both local and regi<strong>on</strong>al scales.<br />
Rehabilitati<strong>on</strong> and Closure<br />
To facilitate closure and rehabilitati<strong>on</strong> planning, requirements for establishment <strong>of</strong> analogue sites (to guide<br />
closure prescripti<strong>on</strong>s), soils studies and other investigati<strong>on</strong>s have been identified. As part <strong>of</strong> the Mining<br />
Proposal process, a closure plan will be required at the time <strong>of</strong> submissi<strong>on</strong> <strong>of</strong> the proposal. The project<br />
poses no obvious major envir<strong>on</strong>mental challenges (importantly, sulphur levels in the predominantly oxidised<br />
mine material are reportedly low, <strong>with</strong> c<strong>on</strong>sequent low risks <strong>of</strong> acid and metalliferous drainage), so technical<br />
closure challenges appear to be unlikely.<br />
3.2.2.5 Turner River Explorati<strong>on</strong><br />
Mt Berghaus North-east Extended<br />
Lansdowne has tested similar geology to the Mt Berghaus deposit, in what appears to be the extensi<strong>on</strong> <strong>of</strong><br />
the Mallina Shear, and identified moderate to str<strong>on</strong>g induced polarisati<strong>on</strong> (IP) anomalies overlying magnetic<br />
anomalies.<br />
Edkins and Amanda West<br />
These prospect areas lie between the Wingina Well and Amanda deposits al<strong>on</strong>g the Tabba Tabba Shear.<br />
Significant gold intersecti<strong>on</strong>s from these prospects include 3 m at 29.4 g/t Au from 20 m (Edkins ERC012)<br />
and 7 m at 19.5 g/t Au from 41 m (Amanda West, TRC023).<br />
Brierly Structure<br />
Extensive gold-arsenic anomalism identified by drilling by De Grey Mining coincides <strong>with</strong> a prominent eastwest<br />
striking structure, the Brierly structure, identified by airborne geophysics. This structure may link the<br />
Mallina and Tabba Tabba Shears.<br />
Approximately 5 m to 15 m <strong>of</strong> transported cover overlies a sequence <strong>of</strong> deeply weathered Mallina sediments<br />
and diorite intrusi<strong>on</strong>s. A broad geochemical anomaly >200 ppb gold has been identified. Mineralisati<strong>on</strong> is<br />
associated <strong>with</strong> pyrite and quartz veining.<br />
Lansdowne completed follow-up drilling in 2001 and an IP survey obtained a strengthening anomaly to the<br />
west and south <strong>of</strong> anomalous drill results.<br />
Kasy Structure<br />
The Kasy structure is a northeast trending structure that runs parallel to the Mt Berghaus mineralised<br />
structure. Interpretati<strong>on</strong> by the Geological Survey <strong>of</strong> Western Australia (GSWA) indicates that the host rocks<br />
in the area are similar to those in the Mt Berghaus area.<br />
The structure may represent a brittle fault <strong>with</strong> oblique structures cross-cutting the main feature.<br />
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T1<br />
T1 is located in a favourable structural positi<strong>on</strong> <strong>with</strong>in the Mallina Shear system and al<strong>on</strong>g strike from Mt<br />
Berghaus near the Mt Dove granitoid. It is characterised by a discrete magnetic high. Limited AC drilling by<br />
De Grey Mining returned best results <strong>of</strong> 1 m at 10.2 g/t Au and 2 m at 5.22 g/t Au.<br />
3.2.2.6 Turner River Gold Project Valuati<strong>on</strong><br />
The Turner River gold project was the subject <strong>of</strong> a farm-in arrangement between Landsdowne Resources<br />
Pty Ltd (Landsdowne) and De Grey Mining Ltd (De Grey) whereby Landsdowne could earn a 75% interest in<br />
the tenements by spending $2M over three years. <strong>Polymetals</strong> acquired Lansdowne in September 2012 and<br />
completed the farm-in expenditure in March 2013. The joint venture terms valuati<strong>on</strong> method indicates a<br />
value <strong>of</strong> the vendor’s interest at $0.61M at the time <strong>of</strong> the agreement, although a payment <strong>of</strong> $4.1M to the<br />
vendor is required <strong>on</strong> a decisi<strong>on</strong> to mine the Wingina Well Mineral Resource.<br />
<strong>Polymetals</strong> has completed the farm-in expenditure and holds 75% <strong>of</strong> the rights in these tenements.<br />
The development and evaluati<strong>on</strong> work c<strong>on</strong>ducted by <strong>Polymetals</strong> <strong>on</strong> the Turner River gold project are<br />
preliminary in nature and do not support a detailed producti<strong>on</strong> scenario and DCF valuati<strong>on</strong>.<br />
AMC examined transacti<strong>on</strong>s for tenements c<strong>on</strong>taining gold Mineral Resources that occurred between 2010<br />
and 2013. These transacti<strong>on</strong>s define a range <strong>of</strong> yardstick values. Transacti<strong>on</strong>s in 2012 and 2013 have<br />
tended to indicate lower values per ounce than in 2010 and 2011. AMC has c<strong>on</strong>sidered this in developing<br />
ranges <strong>of</strong> values for tenements c<strong>on</strong>taining Measured, Indicated and Inferred Resources as follows:<br />
• Measured Resource: $18/oz to $25/oz.<br />
• Indicated Resource: $11/oz to $18/oz.<br />
• Inferred Resource: $4/oz to $11/oz.<br />
Applying these yardstick values to the Turner River gold project indicates a value <strong>of</strong> $2.9M to $4.7M for<br />
<strong>Polymetals</strong> 75% interest using this method. As this is a valuati<strong>on</strong> <strong>of</strong> the current status <strong>of</strong> the property AMC<br />
has not factored in producti<strong>on</strong> royalties or future payments.<br />
AMC examined a number <strong>of</strong> transacti<strong>on</strong>s that indicate a value per unit area. These transacti<strong>on</strong>s indicate a<br />
wide range <strong>of</strong> values, depending <strong>on</strong> the tenement locati<strong>on</strong>, level <strong>of</strong> explorati<strong>on</strong> activity and the occurrence <strong>of</strong><br />
Mineral Resources. AMC c<strong>on</strong>siders a range <strong>of</strong> $2,000/km 2 to $6,000/km 2 to be appropriate for the Turner<br />
River gold project. This indicates a value <strong>of</strong> $1.2M to $3.7M for <strong>Polymetals</strong> 75% interest using this method.<br />
In AMC’s opini<strong>on</strong> the Turner River project is not sufficiently advanced to allow a DCF evaluati<strong>on</strong> method to<br />
be undertaken.<br />
C<strong>on</strong>sidering these methods, AMC values the Turner River gold project tenements between $2.1M and<br />
$4.2M.<br />
3.2.3 Turner River Base Metals Project<br />
The Turner River base metals project is located <strong>on</strong> two explorati<strong>on</strong> licences covering 95 km 2 located about<br />
60 km south-south-east <strong>of</strong> Port Hedland. The tenements were the subject <strong>of</strong> a farm-in arrangement between<br />
Landsdowne (now <strong>Polymetals</strong>) and De Grey whereby Landsdowne could earn a 75% interest in the<br />
tenements by spending $1.5M over three years.<br />
The Turner River base metal Mineral Resources are listed in Table 3.7.<br />
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Table 3.7 Turner River Base Metal Inferred Mineral Resources at 24 April 2013<br />
Locati<strong>on</strong><br />
T<strong>on</strong>nes<br />
(Mt)<br />
Zn<br />
(%)<br />
Ag<br />
(g/t)<br />
Discovery 1.12 2.6 94 1.0 0.1 0.9<br />
Orchard Tank 1.49 2.7 84 1.1 0.1 0.6<br />
Total 2.61 2.7 89 1.1 0.1 0.7<br />
Pb<br />
(%)<br />
Cu<br />
(%)<br />
Au<br />
(g/t)<br />
3.2.3.1 Geology<br />
The Turner River base metal project is located in an Archaean granite-greenst<strong>on</strong>e terrane. Greenst<strong>on</strong>e belt<br />
rocks are comprised <strong>of</strong> metamorphosed (greenschist facies), mafic to ultramafic intrusive rocks, intermediate<br />
to felsic volcanics, some intrusi<strong>on</strong>s and various sedimentary rocks including shale, banded ir<strong>on</strong>st<strong>on</strong>e and<br />
chert. Greenst<strong>on</strong>e belt rocks wrap around granitic inliers. The project is located <strong>with</strong>in the widely mineralised<br />
Mallina Shear.<br />
Outcropping silver-gold-zinc-lead mineralisati<strong>on</strong> c<strong>on</strong>sidered to be polymetallic volcanogenic massive<br />
sulphide style (VMS) is found in the Tabba Tabba greenst<strong>on</strong>e belt. High-grade mineralisati<strong>on</strong> intersecti<strong>on</strong>s<br />
have been returned from six outcropping prospects over a 20 km strike length and to depths up to 430 m<br />
below surface. The main prospect locati<strong>on</strong>s and drilling highlights are shown in Figure 3.7.<br />
Figure 3.7<br />
Turner River Base Metal Project Prospect Locati<strong>on</strong><br />
The steeply dipping sulphide mineralisati<strong>on</strong> is hosted in foliated, sericite-altered felsic schist that was<br />
originally felsic volcanics.<br />
Explorati<strong>on</strong> and resource definiti<strong>on</strong> has c<strong>on</strong>centrated <strong>on</strong> the Orchard Tank and Discovery prospects and<br />
other prospects al<strong>on</strong>g the 20 km l<strong>on</strong>g greenst<strong>on</strong>e belt have not been fully investigated. The greenst<strong>on</strong>e belt<br />
has been largely covered <strong>with</strong> geochemistry, geophysics and shallow RAB and AC drilling.<br />
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3.2.3.2 Mineral Resources<br />
Mineral Resources have been estimated for the Discovery and Orchard Tank deposits and is based <strong>on</strong><br />
drilling data collected by De Grey in 2005 and 2006. Drilling is mainly RAB, AC <strong>with</strong> some RC and is spaced<br />
at about 20 m x 40 m.<br />
The estimate is a c<strong>on</strong>venti<strong>on</strong>al block model <strong>with</strong> grade estimated using OK <strong>with</strong> estimati<strong>on</strong> parameters<br />
determined from a study <strong>of</strong> variography. Bulk densities were assigned based <strong>on</strong> mean values for oxide,<br />
transiti<strong>on</strong> and fresh rock.<br />
The estimate has been classified as Inferred Resource reflecting some uncertainty in the historic data. The<br />
Mineral Resources are reported at a 1.0% Zn COG.<br />
The Discovery and Orchard Tank Mineral Resources have been estimated using accepted industry practice<br />
and have been classified and reported in accordance <strong>with</strong> the JORC Code.<br />
3.2.3.3 Valuati<strong>on</strong><br />
The Turner River base metals project comprises two explorati<strong>on</strong> licences covering an area <strong>of</strong> 95 km 2 . The<br />
tenements include a polymetallic Mineral Resource. Yardstick values for polymetallic Mineral Resources are<br />
more difficult to determine than those for gold tenements because <strong>of</strong> different combinati<strong>on</strong>s <strong>of</strong> metals,<br />
metallurgy, and c<strong>on</strong>siderati<strong>on</strong>s <strong>of</strong> locati<strong>on</strong> and scale.<br />
The tenements were the subject <strong>of</strong> a farm-in arrangement between Landsdowne and De Grey whereby<br />
Landsdowne could earn a 75% interest in the tenements by spending $1.5M over three years. The joint<br />
venture terms valuati<strong>on</strong> method indicates a value <strong>of</strong> the vendor’s interest at $0.35M at the time <strong>of</strong> the<br />
agreement.<br />
<strong>Polymetals</strong> has spent about $0.60M <strong>on</strong> explorati<strong>on</strong> and has a beneficial interest <strong>of</strong> 55%, although no interest<br />
is earned if the full farm-in expenditure commitment is not met.<br />
The tenements cover an area <strong>of</strong> 95 km 2 <strong>with</strong> identified Mineral Resources. AMC c<strong>on</strong>siders a range <strong>of</strong><br />
$2,000/km 2 to $5,000/km 2 to be appropriate for the Turner River base metals project. The value <strong>of</strong> the<br />
tenements is in the range $0.11M to $0.26M for <strong>Polymetals</strong> 55% interest using this method.<br />
Details <strong>of</strong> explorati<strong>on</strong> expenditure prior to the farm-in were not available to AMC. Valuati<strong>on</strong> using the past<br />
expenditure method was not possible.<br />
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4 SOUTHERN CROSS GOLDFIELDS LIMITED<br />
4.1 Marda Gold Project<br />
4.1.1 Introducti<strong>on</strong><br />
The Marda Gold Project (Marda) is located in the Shire <strong>of</strong> Yilgarn in Western Australia and is approximately<br />
400 km north-east <strong>of</strong> Perth and 150 km north <strong>of</strong> the town <strong>of</strong> Southern Cross (Figure 4.1). Southern Cross is<br />
located approximately 400 km east <strong>of</strong> Perth and 200 km to the west <strong>of</strong> the mining centre <strong>of</strong> Kalgoorlie. A<br />
feasibilty study was completed <strong>on</strong> the project in 2012. This is a green-fields project <strong>with</strong> no development in<br />
place.<br />
Figure 4.1<br />
Locati<strong>on</strong> <strong>of</strong> Marda Gold Project<br />
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Marda comprises:<br />
• A 500,000 tpa c<strong>on</strong>venti<strong>on</strong>al CIP/CIL gold processing facility producing nominally 35,000 oz <strong>of</strong> gold<br />
per year.<br />
• Up to ten open pit mining operati<strong>on</strong>s at Marda and satellite pits.<br />
• Infrastructure, maintenance, and administrati<strong>on</strong> facilities.<br />
• Accommodati<strong>on</strong> and airstrip to support a fly-in-fly-out (FIFO) operati<strong>on</strong>.<br />
Mineral Resources total 8.4 Mt at 2.0 g/t <strong>with</strong> c<strong>on</strong>tained metal <strong>of</strong> 546 koz <strong>of</strong> gold <strong>of</strong> which 66% is in the<br />
Measured and Indicated category. The reported Ore Reserve for the Project is 2.3 Mt at a grade <strong>of</strong> 2.4 g/t<br />
<strong>with</strong> 178,500 c<strong>on</strong>tained ounces <strong>of</strong> gold.<br />
Additi<strong>on</strong>al explorati<strong>on</strong> targets exist adjacent to the project and these areas are subject to current explorati<strong>on</strong><br />
activities.<br />
A formal feasibility study and supporting documentati<strong>on</strong> exists for the Marda project. AMC visited the site in<br />
2013 as part <strong>of</strong> a separate review <strong>of</strong> the feasibility study.<br />
The Southern Cross tenements in the Southern Cross area comprise:<br />
• 26 mining leases.<br />
• 91 explorati<strong>on</strong> licences.<br />
• 92 prospecting licences.<br />
• 1 general purpose leases.<br />
• 11 miscellaneous licences.<br />
• 2 retenti<strong>on</strong> leases.<br />
The Southern Cross tenements cover an area <strong>of</strong> 2,920 km 2 .<br />
4.1.2 Geology<br />
Marda comprises two areas: Northern Deposits and Southern Deposits. The Northern Deposits include the<br />
Marda Central deposits (Dolly Pot, Dugite, Pyth<strong>on</strong> and Goldstream), the Die Hardy Deposits (Die Hardy and<br />
Red Legs), King Brown and Golden Orb. The Southern Deposits comprise Battler and British Hill.<br />
4.1.2.1 Northern Deposits<br />
The Northern Deposits are located 150 km north <strong>of</strong> Southern Cross <strong>with</strong>in the Archaean Marda-Diemals<br />
greenst<strong>on</strong>e belt. The Marda-Diemals greenst<strong>on</strong>e belt comprises ultramafic and mafic rocks <strong>with</strong> overlying<br />
felsics, narrow interflow sediments and BIF. The greenst<strong>on</strong>e belt is divided into two supracrustal successi<strong>on</strong>s<br />
divided by an unc<strong>on</strong>formity. The upper Marda Complex comprises thick sequences <strong>of</strong> rhyolitic and andesitic<br />
volcanic, and associated felsic sediments. The lower successi<strong>on</strong> comprises three associati<strong>on</strong>s based <strong>on</strong><br />
lithological assemblages. The lower associati<strong>on</strong> is dominated by tholeiitic basalt <strong>with</strong> ultramafic, gabbro and<br />
mafic tuffaceous rocks. The middle associati<strong>on</strong> is characterised by the Jacks<strong>on</strong> Range BIF and is dominated<br />
by moderately thick, c<strong>on</strong>tinuous BIF and chert. The upper associati<strong>on</strong> comprises a variety <strong>of</strong> rock types<br />
including tholeiitic basalt, various chemical sediments and minor clastic and volcanic felsics.<br />
The upper associati<strong>on</strong> <strong>of</strong> the lower successi<strong>on</strong> hosts the Marda Central deposits. The lower associati<strong>on</strong> <strong>of</strong><br />
the lower successi<strong>on</strong> hosts the King Brown and Golden Orb deposits.<br />
The greenst<strong>on</strong>e belt is surrounded and intruded by granitoids. Younger west-north-west and west-south-west<br />
trending dykes are evident throughout the belt.<br />
The Marda Central deposits comprise a series <strong>of</strong> discrete gold deposits <strong>with</strong>in a highly deformed segment <strong>of</strong><br />
the Marda BIF and locally intercalated <strong>with</strong> mafic and ultramafic units. The deposits are characterised by<br />
quartz veining accompanied by pyrite, silica and sericite alterati<strong>on</strong>. The structural setting is dominated by<br />
isoclinal folds, low angle shears and late, high angle cross faults.<br />
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The Golden Orb deposit comprises a chert BIF unit enclosed by a sequence <strong>of</strong> basalt, high magnesium<br />
basalt, ultramafics and minor gabbro. The deposit has been interpreted to have developed in a dilati<strong>on</strong>al<br />
positi<strong>on</strong> al<strong>on</strong>g a strike-slip shear.<br />
The Die Hardy and Red Legs deposits are associated <strong>with</strong> BIF in c<strong>on</strong>juncti<strong>on</strong> <strong>with</strong> variably trending shear<br />
z<strong>on</strong>es. Similarly, gold mineralisati<strong>on</strong> at Mt King is interpreted to be c<strong>on</strong>centrated around the intersecti<strong>on</strong> <strong>of</strong><br />
cross cutting faults and the BIFs.<br />
The King Brown deposit is hosted in highly weathered ultramafic saprolitic clays interspersed <strong>with</strong> narrow BIF<br />
units.<br />
Complete oxidati<strong>on</strong> extends to between 45 m below surface and 80 m below surface and locally reaches<br />
depths <strong>of</strong> greater than 100 m.<br />
4.1.2.2 Southern Deposits<br />
Mineralisati<strong>on</strong> at the Battler Deposit is associated <strong>with</strong> <strong>on</strong>e major easterly-dipping north-trending shear z<strong>on</strong>e<br />
in c<strong>on</strong>juncti<strong>on</strong> <strong>with</strong> a major north-north-west-trending, steeply east-dipping splay shear z<strong>on</strong>e.<br />
British Hill mineralisati<strong>on</strong> is associated <strong>with</strong> BIF-hosted quartz veining associated <strong>with</strong> north-trending,<br />
subvertical shear z<strong>on</strong>es <strong>with</strong>in a mafic-ultramafic greenst<strong>on</strong>e sequence. Three main shears have been<br />
identified.<br />
4.1.3 Resources<br />
Mineral Resources for Marda at 25 September 2012 are listed in Table 4.1. AMC has independently<br />
reviewed the total t<strong>on</strong>nes and grade <strong>of</strong> the Marda Central, King Brown, Golden Orb, Barranco Opti<strong>on</strong>, British<br />
Hill and Battler Mineral Resource estimates and found no material differences when compared to the total<br />
t<strong>on</strong>nes and grade reported at 25 September 2012.<br />
Table 4.1 Marda Gold Project – Mineral Resources as at 25 September 2012<br />
1<br />
2<br />
3<br />
4<br />
Locati<strong>on</strong> Measured Indicated Inferred<br />
T<strong>on</strong>nes<br />
(Mt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
T<strong>on</strong>nes<br />
(Mt)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
T<strong>on</strong>nes<br />
(Mt)<br />
Grade<br />
(g/t Au)<br />
Northern Deposits<br />
Total 2,795,670 2.26 203,446 2,639,664 1.8 155,084 3,051,843 1.9 187,593<br />
Marda Central includes Pyth<strong>on</strong>, Dolly Pot, Dugite, Goldstream, Cobra, Taipan and Green Tree.<br />
Mt King estimated in 2008 by Hellman and Sch<strong>of</strong>ield using multiple indicator kriging <strong>with</strong> block support adjustment.<br />
Red Legs and Die Hardy deposits are subject to an opti<strong>on</strong> agreement.<br />
C<strong>on</strong>tained<br />
Gold<br />
(oz Au)<br />
Marda Central 1 1,918,197 1.91 117,885 161,609 1.61 8,371 326,748 1.71 17,953<br />
King Brown 100,300 4.36 14,060 63,300 2.59 5,274 73,925 2.95 7,012<br />
Golden Orb 415,829 3.01 40,246 102,890 1.97 6,517 175,600 1.79 10,107<br />
Mt King 2 - - - - - - 523,000 3 50,450<br />
Subtotal 2,434,326 2.2 172,191 327,799 1.91 20,162 1,099,273 2.42 85,522<br />
Barranco Opti<strong>on</strong> 3 - - - 1,302,243 1.7 71,900 949,576 1.64 50,300<br />
Subtotal 2,434,326 2.2 172,191 1,630,042 1.74 92,062 2,048,849 2.06 135,822<br />
Southern Deposits<br />
Battler 361,344 2.69 31,255 39,300 3.46 4,372 52,087 3.53 5,912<br />
British Hill 4 - - - 970,322 1.88 58,650 950,907 1.5 45,859<br />
Subtotal 361,344 2.69 31,255 1,009,622 1.9 63,022 1,002,994 1.61 51,771<br />
Indicated and Inferred t<strong>on</strong>nes differ from those announced by Southern Cross <strong>on</strong> 23 November 2012. Southern<br />
Cross advised the Resource for British Hill was incorrectly reported and the values in the table above are correct and<br />
match those provided by Ravensgate.<br />
The following comments apply to all resources estimated by Ravensgate during 2012. The resource<br />
estimates are based mostly <strong>on</strong> diam<strong>on</strong>d and RC drilling.<br />
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Drilling completed by Southern Cross Goldfields Limited (Southern Cross) in 2011 was carried out using<br />
comm<strong>on</strong> industry practice <strong>with</strong> assay quality c<strong>on</strong>trol in place. Drillhole collars are surveyed and downhole<br />
surveys are carried out.<br />
RC sample recovery was observed to be good although diam<strong>on</strong>d core recovery was poor for most <strong>of</strong><br />
Northern Deposits except King Brown.<br />
Historic quality c<strong>on</strong>trol data is incomplete. Extensive validati<strong>on</strong> <strong>of</strong> historic data was completed by an<br />
independent c<strong>on</strong>sultant and Ravensgate accepted the historic data as acceptable to use for the resource<br />
estimates.<br />
The interpretati<strong>on</strong>s for the resource estimates were developed relying <strong>on</strong> drillhole logging and based <strong>on</strong><br />
lithological c<strong>on</strong>trol. A nominal lower COG <strong>of</strong> 0.5 g/t Au was used to interpret the mineralisati<strong>on</strong>.<br />
All <strong>of</strong> the deposits have a number <strong>of</strong> mineralised domains. Assays <strong>with</strong>in the domains were composited to<br />
1 m. The influence <strong>of</strong> statistical outliers <strong>on</strong> grade estimati<strong>on</strong> was limited through top-cutting and by restricting<br />
the distance <strong>of</strong> influence <strong>of</strong> the outliers. Grades were estimated into the block models using OK. Estimati<strong>on</strong><br />
parameters for the resource estimates were determined from variography studies.<br />
Bulk density data comprise 532 measurements collected from diam<strong>on</strong>d core. Bulk density values vary<br />
between the deposits, and were applied according to rock type and elevati<strong>on</strong>.<br />
Resource estimates were classified as Measured, Indicated or Inferred Resources based <strong>on</strong> a c<strong>on</strong>fidence<br />
item value calculated from a number <strong>of</strong> parameters and then used to describe levels <strong>of</strong> interpolati<strong>on</strong><br />
c<strong>on</strong>fidence. Mineral Resources are reported <strong>with</strong> Ore Reserves excluded.<br />
The majority <strong>of</strong> Mineral Resources <strong>with</strong>in a $1,475/oz optimised pit design is classified as Measured. This is<br />
reas<strong>on</strong>able where drilling data is dense and has been validated, and where there is good c<strong>on</strong>tinuity <strong>of</strong><br />
mineralisati<strong>on</strong>. Where it has not been possible to validate a significant amount <strong>of</strong> historical drilling data<br />
c<strong>on</strong>fidence in the resource estimate is less certain.<br />
The Mt King Mineral Resource was estimated in 2008 by Hellman and Sch<strong>of</strong>ield using 23 RC holes drilled at<br />
a nominal 100 mE by 50 mN spacing. Recoverable resources were estimated using multiple indicator kriging<br />
from 2 m composites.<br />
AMC c<strong>on</strong>siders that Marda Mineral Resource estimates have been prepared using accepted industry<br />
practice and have been classified in accordance <strong>with</strong> the JORC Code.<br />
4.1.4 Joint Ventures<br />
In August 2011 Southern Cross entered into an agreement <strong>with</strong> Barranco Resources NL to acquire the Red<br />
Legs and Die Hardy deposits. The agreement comprises a two year opti<strong>on</strong> at a cost to Southern Cross <strong>of</strong><br />
$20,000 every six m<strong>on</strong>ths. If Southern Cross elects to exercise the opti<strong>on</strong> it will pay $500,000 in cash and<br />
issue 20 milli<strong>on</strong> shares in Southern Cross to Barranco. The agreement covers two retenti<strong>on</strong> licences<br />
covering the deposits. Up<strong>on</strong> exercise, Southern Cross will hold all mineral rights to the retenti<strong>on</strong> licences,<br />
including Barranco’s existing royalty over the Mt King deposits (owned by Southern Cross).<br />
4.1.4.1 Radio Gold Mine<br />
In August 2011, Southern Cross reached agreement <strong>with</strong> Renaissance Minerals Limited to enter into a farmin<br />
agreement for the historic high-grade Radio Gold Mine. The deposit was mined to <strong>on</strong>ly 100 m below<br />
surface and produced 71,000 oz (57,000 t at 38.5 g/t Au).<br />
Previous drilling art Radio Gold Mine has been restricted to an area surrounding existing workings.<br />
Extensi<strong>on</strong>s to mineralisati<strong>on</strong> may be identified.<br />
Under the agreement Southern Cross will also acquire Renaissance Minerals Limited's Mt Rankin Gold<br />
Project. The tenement package is located immediately al<strong>on</strong>g strike <strong>of</strong> Southern Cross’s existing tenements in<br />
the regi<strong>on</strong> and <strong>with</strong>in close proximity to existing gold mining and processing facilities at Marvel Loch and<br />
West<strong>on</strong>ia..<br />
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4.1.4.2 Dulcie Gold Project<br />
In the March 2012 Quarter Southern Cross entered into a formal sale agreement <strong>with</strong> a private c<strong>on</strong>sortium<br />
for the sale <strong>of</strong> the Dulcie Gold Project and related tenements for a c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> $1M in cash plus a 5%<br />
gross royalty <strong>on</strong> future producti<strong>on</strong>. Payments relating to the sale were received in the June 2012 Quarter.<br />
4.1.4.3 Western Areas NL (Southern Cross 30% Nickel Interest, 100% N<strong>on</strong>-nickel Interest)<br />
In August 2011, Southern Cross entered into an agreement <strong>with</strong> Western Areas NL whereby Western Areas<br />
NL acquired 70% <strong>of</strong> Southern Cross’s nickel rights across much <strong>of</strong> Southern Cross’s tenement package. The<br />
agreement excluded some tenements including the tenements at the Copper Bore Project and the N<strong>on</strong>-ir<strong>on</strong><br />
Rights <strong>on</strong> Radar Ir<strong>on</strong>’s tenement.<br />
Previous explorati<strong>on</strong> undertaken identified multiple nickel sulphide targets, including a 66 km strike length<br />
<strong>with</strong> known favourable nickel sulphide olivine cumulate host rocks.<br />
4.1.5 Explorati<strong>on</strong><br />
4.1.5.1 Gold<br />
Review <strong>of</strong> regi<strong>on</strong>al explorati<strong>on</strong> in 2011-2012 identified high priority targets al<strong>on</strong>g the Evanst<strong>on</strong> Shear Z<strong>on</strong>e<br />
and Andromeda Trend. Auger drilling tested priority targets identified in the review, particularly a largely<br />
undrilled gold trend extending over a strike length <strong>of</strong> 30 km.<br />
Southern Cross advises that further auger drilling is currently in progress.<br />
4.1.5.2 Red Boomerang<br />
The Red Boomerang prospect lies al<strong>on</strong>g the Evanst<strong>on</strong> Shear Z<strong>on</strong>e. Previous drilling intersected<br />
porphyry-hosted mineralisati<strong>on</strong> including 6 m at 23.8 g/t Au and 11 m at 4.7 g/t Au. Four lines <strong>of</strong> auger<br />
drilling was c<strong>on</strong>ducted over a 2 km strike at 400 m spacing, and defined a +100 ppb Au anomaly extending<br />
over a strike length <strong>of</strong> 1.3 km.<br />
4.1.5.3 Lancelot<br />
The Lancelot prospect lies al<strong>on</strong>g the Evanst<strong>on</strong> Shear Z<strong>on</strong>e, immediately north <strong>of</strong> the Gwendolyn tenement<br />
(Vector Resources). Auger drilling returned results <strong>of</strong> up to 3,000 ppb Au. Subsequent auger drilling at 40 m<br />
centres al<strong>on</strong>g 200 m to 800 m spaced lines c<strong>on</strong>firm a semi-c<strong>on</strong>tinuous 5 km l<strong>on</strong>g anomaly greater than<br />
40 ppb Au al<strong>on</strong>g the main trend between Lancelot and Gwendolyn. These results build <strong>on</strong> previous RC<br />
drilling which returned results including 4 m at 17.36 g/t Au, 5 m at 6.13 g/t Au, and 4 m at 2.80 g/t Au.<br />
4.1.5.4 White Pointer<br />
The White Pointer prospect is approximately 40 km north-west <strong>of</strong> the proposed gold treatment facility at<br />
Marda and 500 m north-west <strong>of</strong> Red Boomerang. A gold anomaly has been defined by auger drilling at 40<br />
centres al<strong>on</strong>g 200 m spaced lines. The anomaly is defined by values <strong>of</strong> +40 ppb Au has been identified over<br />
a strike length <strong>of</strong> 2.2 km <strong>with</strong> a +100 ppb Au core over 1 km.<br />
4.1.5.5 Thresher<br />
The Thresher prospect is approximately 60 km north-west <strong>of</strong> the proposed gold treatment facility at Marda.<br />
This prospect lies close to the Evanst<strong>on</strong> Shear Z<strong>on</strong>e and parallel to an adjacent magnetic unit. A gold<br />
anomaly defined by values <strong>of</strong> +40 ppb Au has been identified over a strike length <strong>of</strong> 800 m <strong>with</strong> a +100 ppb<br />
Au core over 400 m.<br />
4.1.5.6 Copper Bore<br />
Auger drilling was c<strong>on</strong>ducted during February 2012 to test for anomalous mineralisati<strong>on</strong> at the Copper Bore<br />
trend and extensi<strong>on</strong> <strong>of</strong> to the south <strong>of</strong> Southern Gossan. The drilling identified anomalous grades up to 652<br />
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ppm Cu al<strong>on</strong>g a 1.3 km strike about 2 km north-west <strong>of</strong> Southern Gossan. Anomalous gold grades include<br />
250 ppb Au 1.3 km south-east <strong>of</strong> Southern Gossan and 54 ppb Au west <strong>of</strong> Southern Gossan.<br />
A downhole electro-magnetic survey was also completed over a 10 km trend between Copper Bore and<br />
Southern Gossan during 2012. Ten drillholes were surveyed. Of 17 anomalies identified. Six <strong>of</strong> the identified<br />
anomalies are related to base metal sulphide occurrences that have already been drill-tested.<br />
A rec<strong>on</strong>naissance survey west <strong>of</strong> the Copper Bore trend identified a wide quartz veined shear z<strong>on</strong>e<br />
characterised by micaceous schist <strong>with</strong> up to 10% box-work texture after pyrite. The shear z<strong>on</strong>e appears to<br />
strike over 10 km and is up to 50 m wide. Rock chip samples from the shear z<strong>on</strong>e returned a peak result <strong>of</strong><br />
3.38 g/t Au from a quartz vein in gabbro. Other explorati<strong>on</strong> targets associated <strong>with</strong> this shear are thrust-fold<br />
structures, which returned 0.5 g/t Au at two separate outcrops 800 m apart.<br />
4.1.6 Mining<br />
The Marda mining study utilises Mineral Resource estimates undertaken in 2011 and 2012 following the<br />
completi<strong>on</strong> <strong>of</strong> additi<strong>on</strong>al drilling during 2011. Open pit optimisati<strong>on</strong>s, designs, and mining schedules have<br />
been developed by Southern Cross and its c<strong>on</strong>sultants using these resource model estimates.<br />
Southern Cross proposes mining ten small open pits using a company owned and managed mining fleet and<br />
c<strong>on</strong>venti<strong>on</strong>al open pit mining techniques. Mining is planned to commence in the Marda Central, Golden Orb<br />
and King Brown areas before commencing at Red Legs in Year 4, and at the two furthest projects (British Hill<br />
and Battler) in Year 5. The mining sequence is logically based <strong>on</strong> the higher value and higher c<strong>on</strong>fidence pits<br />
early in the schedule <strong>with</strong> lower value/c<strong>on</strong>fidence pits mined at the end <strong>of</strong> the mine life.<br />
A gold processing plant is planned at Marda <strong>with</strong> a capacity <strong>of</strong> 500 ktpa.<br />
Marda comprises shallow open pits ranging in depths <strong>of</strong> between 45 m and 100 m. The material to be mined<br />
is predominantly oxide mineralisati<strong>on</strong>. The proposed mining fleet comprises a 120 t<strong>on</strong>ne excavator and a<br />
truck fleet <strong>of</strong> three 40 t<strong>on</strong>ne trucks. Blasting is planned across all materials to assist productivity and to<br />
provide blasthole grade c<strong>on</strong>trol samples. Southern Cross plans to lease the mining fleet and associated<br />
equipment. Ore haulage from satellite pits will be undertaken using c<strong>on</strong>venti<strong>on</strong>al road trains capable <strong>of</strong><br />
hauling <strong>on</strong> public and private roads. Southern Cross plans to lease and operate the road train fleet.<br />
All maintenance facilities and associated services are to be provided by Southern Cross.<br />
The open pit designs incorporate narrow 10 m wide ramps to reduce stripping costs associated <strong>with</strong> small<br />
pits. The geotechnical studies are preliminary, however they did identify the risk <strong>of</strong> ramp crest failure. Ramp<br />
crest failure <strong>on</strong> narrow ramps would interrupt producti<strong>on</strong> although the existence <strong>of</strong> multiple pits and ore<br />
stockpiles <strong>of</strong>fsets this risk to some extent.<br />
The overall mining schedule shows a high rate <strong>of</strong> vertical development. In AMC’s opini<strong>on</strong> the mining<br />
schedule will be difficult to achieve. This risk is <strong>of</strong>fset by the availability <strong>of</strong> multiple pits and ore stockpiles.<br />
Southern Cross added ore diluti<strong>on</strong> and an ore recovery factor to the pit inventory prior to developing the<br />
mine schedule. This is standard industry practice. However, in AMC’s opini<strong>on</strong>, the 0.7 g/t Au grade assigned<br />
to the diluting material is too high and has adjusted head grades in the cash flow model.<br />
In AMC’s opini<strong>on</strong> the overall mining costs appear reas<strong>on</strong>able for Marda.<br />
4.1.7 Ore Reserves<br />
The Ore Reserves for Marda were developed as part <strong>of</strong> the recent feasibility study. The Ore Reserves are<br />
based <strong>on</strong> the development <strong>of</strong> the ten open pit designs using the current Mineral Resource model. Ore<br />
Reserves were calculated at a gold price <strong>of</strong> $1,475/oz and are shown in Table 4.2. AMC notes that<br />
approximately 4% <strong>of</strong> the inventory supporting the feasibility study is in the Inferred Mineral Resource<br />
category. This is not a material c<strong>on</strong>cern for the project.<br />
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Table 4.2 Marda Gold Project – Ore Reserves at October 2012<br />
Pits Proved Probable Total<br />
Dry<br />
T<strong>on</strong>nes<br />
(k/t)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(koz Au)<br />
Dry<br />
T<strong>on</strong>nes<br />
(k/t)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(koz Au)<br />
Dry<br />
T<strong>on</strong>nes<br />
(k/t)<br />
Grade<br />
(g/t Au)<br />
C<strong>on</strong>tained<br />
Gold<br />
(koz Au)<br />
Battler 129.6 3.9 16.1 6.0 5.9 1.1 135.6 4.0 17.2<br />
King Brown 84.5 4.7 12.7 12.1 2.9 1.1 96.6 4.5 13.9<br />
Golden Orb 261.5 3.3 27.4 9.3 2.1 0.6 270.8 3.2 28.1<br />
Goldstream 86.3 2.5 6.9 – – – 86.3 2.5 6.9<br />
Pyth<strong>on</strong> 525.7 2.0 33.5 2.6 1.5 0.1 528.3 2.0 33.6<br />
Dugite 209.6 2.0 13.3 0.2 1.5 – 209.8 2.0 13.3<br />
Dolly Pot 355.6 1.8 20.8 0.3 1.2 – 355.9 1.8 20.8<br />
British Hill – – – 70.0 4.6 10.4 70 4.6 10.4<br />
Die Hardy 214.8 1.6 10.9 154.1 1.7 8.2 368.9 1.6 19.1<br />
Red Legs 70.1 3.4 7.6 85.1 2.8 7.6 155.2 3.1 15.2<br />
Total 1,937.7 2.4 149.2 339.7 2.7 29.1 2,277.4 2.4 178.5<br />
Source: Southern Cross Marda feasibility study<br />
4.1.8 Metallurgy and Processing<br />
4.1.8.1 Introducti<strong>on</strong><br />
It is proposed that mined ore from Marda will be treated in a nominal 0.5 Mtpa c<strong>on</strong>venti<strong>on</strong>al cyanidati<strong>on</strong><br />
treatment facility employing CIL for gold recovery.<br />
Ore to be fed to the proposed process facility will be sourced from ten discrete gold resources as described<br />
in the geological secti<strong>on</strong> <strong>of</strong> this review. Ore from different resource pits will be blended to suit the<br />
requirements <strong>of</strong> the processing plant. Metallurgical test work programmes <strong>on</strong> samples <strong>of</strong> ore from Marda<br />
have been undertaken over approximately ten years.<br />
During 2012 Southern Cross acquired the Sandst<strong>on</strong>e processing facility. Southern Cross c<strong>on</strong>tracted<br />
independent technical specialists to undertake an engineering study to prepare cost estimates for a process<br />
plant installati<strong>on</strong> involving utilisati<strong>on</strong> <strong>of</strong> the refurbished plant equipment to be relocated from Sandst<strong>on</strong>e to<br />
Marda.<br />
4.1.8.2 Metallurgical Test Work<br />
Historical metallurgical test work undertaken between the 1991 and 2011 programmes showed that tested<br />
samples from the Marda Central deposits were all relatively free milling ores <strong>with</strong> cyanidati<strong>on</strong> gold<br />
extracti<strong>on</strong>s varying between 84% and 97%. Comminuti<strong>on</strong> testing <strong>of</strong> oxide and primary samples indicated that<br />
the ore types tested could be classified as moderate to hard.<br />
A comprehensive programme <strong>of</strong> metallurgical test work was undertaken in 2012 <strong>on</strong> samples from the major<br />
ore deposits as part the recent feasibility study. The project assumpti<strong>on</strong>s are reas<strong>on</strong>ably based <strong>on</strong> the test<br />
work results.<br />
In the first year <strong>of</strong> plant operati<strong>on</strong> ore to be treated will be from the Dugite, King Brown, Goldstream and<br />
Pyth<strong>on</strong> pits followed by increasing amounts <strong>of</strong> Pyth<strong>on</strong> and Golden Orb ore, and then ore from the Redlegs<br />
deposit. In later years ore is mined from Redlegs, Die Hardy, British Hill and Battler deposits. AMC notes that<br />
<strong>on</strong>ly limited test work has been c<strong>on</strong>ducted <strong>on</strong> these deposits.<br />
Comminuti<strong>on</strong> Testing<br />
Results for key comminuti<strong>on</strong> parameters derived from both historical and recent comminuti<strong>on</strong> testing are<br />
presented in Table 4.3, together <strong>with</strong> the proporti<strong>on</strong> <strong>of</strong> LOM ore t<strong>on</strong>nes to be treated in the plant. Parameters<br />
tested were Unc<strong>on</strong>fined Compressive Strength (UCS), Crushing Work Index (CWi), B<strong>on</strong>d Rod Mill Work<br />
Index (RWi), B<strong>on</strong>d Ball Mill Work Index (BWi), Abrasi<strong>on</strong> Index (Ai) and SAG Mill Competency (SMC).<br />
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Table 4.3<br />
Mean Comminuti<strong>on</strong> Test Parameters<br />
1<br />
Deposit<br />
Ore in LOM<br />
Schedule<br />
(%)<br />
UCS<br />
(Mpa)<br />
Mean Test Work Comminuti<strong>on</strong> Parameter Value<br />
CWi<br />
(kWh/t)<br />
RWi<br />
(kWh/t)<br />
BWi<br />
(kWh/t)<br />
Golden Orb 11.8 – – – 9.0 1 – –<br />
King Brown 4.1 – – 11.4 9.5 0.02 337<br />
Dolly Pot 15.1 32.4 6.9 18.0 17.2 0.49 57<br />
Pyth<strong>on</strong> 22.4 15.0 5.9 16.3 17.1 0.48 86<br />
Dugite 8.9 11.0 13.3 17.9 17.7 0.26 71<br />
Goldstream 3.7 11.7 6.6 18.1 17.8 0.38 77<br />
Tested by comparative index <strong>on</strong>ly.<br />
Ai<br />
SMC<br />
(A*b)<br />
AMC c<strong>on</strong>siders that the results fall <strong>with</strong>in expectati<strong>on</strong>s for hardness <strong>of</strong> the various ore types based <strong>on</strong> the<br />
geological descripti<strong>on</strong>s and core photos. AMC notes that due to lack <strong>of</strong> sample availability, the comminuti<strong>on</strong><br />
variability testing for the King Brown and Golden Orb deposits is below what would normally be undertaken<br />
in a definitive study. However, given the size <strong>of</strong> Marda and the ability to blend from multiple ore sources,<br />
AMC c<strong>on</strong>siders that the risks to comminuti<strong>on</strong> design and plant throughput are c<strong>on</strong>sidered to be low.<br />
Gravity and Cyanidati<strong>on</strong> Leaching Tests<br />
Head analyses <strong>of</strong> the samples tested show generally low levels <strong>of</strong> elements detrimental to gold recovery by<br />
cyanidati<strong>on</strong>. Some samples were slightly elevated in base metals, but c<strong>on</strong>sidering the ability to blend <strong>with</strong><br />
multiple pits AMC does not c<strong>on</strong>sider this is a significant risk to processing.<br />
Gravity and cyanidati<strong>on</strong> testing was undertaken at grind sizes <strong>of</strong> P80 150 µm and 75 µm to evaluate grind<br />
size dependence.<br />
Key points from a review <strong>of</strong> the gravity and cyanidati<strong>on</strong> testing as noted by AMC are:<br />
• All samples tested c<strong>on</strong>tain a high proporti<strong>on</strong> <strong>of</strong> gravity gold and therefore justify the inclusi<strong>on</strong> <strong>of</strong> an<br />
efficient gravity gold recovery circuit.<br />
• Overall recovery results from the combined gravity and cyanidati<strong>on</strong> leaching tests are very satisfactory<br />
<strong>with</strong> an arithmetic mean result <strong>of</strong> all samples at around 94%. Goldstream ore results show the lowest<br />
recovery.<br />
• The recovery dependence <strong>on</strong> grind size for the range tested was generally low <strong>with</strong> the excepti<strong>on</strong> <strong>of</strong><br />
Goldstream which showed a 5% to 10% increase in recovery at the finer size. Blends c<strong>on</strong>taining<br />
Goldstream ore would therefore benefit from finer grinding.<br />
• The mean gold grade <strong>of</strong> the tested samples is generally higher than the LOM grades <strong>of</strong> the equivalent<br />
ore deposit as presented in the feasibility study mine schedule. The biggest deviati<strong>on</strong>s are <strong>with</strong> the<br />
King Brown and Pyth<strong>on</strong> deposits for which tested samples are around double the scheduled grade.<br />
The high grade <strong>of</strong> these tested ore samples might overstate potential recovery for these scheduled ore<br />
types, and therefore there is a risk that recovery will be lower than that tested.<br />
• Reagent c<strong>on</strong>sumpti<strong>on</strong>s are moderate for cyanide and moderate to high for lime.<br />
4.1.8.3 Process Plant<br />
Background Informati<strong>on</strong><br />
Southern Cross acquired the Sandst<strong>on</strong>e processing facility and plans to utilise as much <strong>of</strong> the plant as<br />
possible for refurbishment and relocati<strong>on</strong> to Marda. The preferred c<strong>on</strong>figurati<strong>on</strong> is a single mill opti<strong>on</strong>. A used<br />
suitable single stage semi-autogenous (SAG) mill is purchased which is fed <strong>with</strong> primary crushed ore using<br />
the relocated primary crusher from Sandst<strong>on</strong>e. Southern Cross plans to refurbish, relocate and install<br />
remaining appropriate processing equipment to Marda and upgrade where required.<br />
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Processing Circuit<br />
The key unit operati<strong>on</strong>s and equipment utilised for the processing facility are as follows:<br />
• Primary crushing using the existing track-mounted Terex-Pegs<strong>on</strong> jaw crusher relocated from<br />
Sandst<strong>on</strong>e.<br />
• Stacking c<strong>on</strong>veyors relocated from Sandst<strong>on</strong>e which allow stockpiling, or direct feeding the mill via a<br />
feed bin and apr<strong>on</strong> feeder.<br />
• Single stage milling in a proposed 4.27 m diameter SAG mill powered by a 1.25 MW motor. This mill<br />
will need to be sourced externally. Circuit classificati<strong>on</strong> using Warman 10" cycl<strong>on</strong>es sourced from<br />
Sandst<strong>on</strong>e.<br />
• Gravity gold recovery using a new Falc<strong>on</strong> gravity c<strong>on</strong>centrator. Recovery <strong>of</strong> gravity gold from<br />
c<strong>on</strong>centrate to be undertaken by intensive leaching in a new intensive leach reactor, and subsequent<br />
electrowinning in a new dedicated gravity cell.<br />
• CIL leaching using nine draft tube style mechanically agitated tanks in series. All tanks to be<br />
refurbished and relocated from Sandst<strong>on</strong>e. First tank to be leaching <strong>on</strong>ly and remaining eight tanks for<br />
leaching plus adsorpti<strong>on</strong> <strong>of</strong> gold to carb<strong>on</strong>.<br />
• Recovery <strong>of</strong> gold from carb<strong>on</strong> using an integral 1.5 t carb<strong>on</strong> capacity eluti<strong>on</strong> and electrowinning facility<br />
relocated from Sandst<strong>on</strong>e. Carb<strong>on</strong> reactivati<strong>on</strong> in a new horiz<strong>on</strong>tal diesel fired kiln.<br />
• Reagent mixing and distributi<strong>on</strong> systems, water systems, diesel storage all relocated from Sandst<strong>on</strong>e.<br />
4.1.8.4 Gold Recovery<br />
Based <strong>on</strong> an assessment <strong>of</strong> test work results <strong>of</strong> samples from ore sources treated in the first three years,<br />
AMC c<strong>on</strong>siders that the mean recovery will be approximately 1% lower than the predicted 95% as presented<br />
in the financial model. It is not possible to make predicti<strong>on</strong>s <strong>on</strong> the later years <strong>of</strong> the project <strong>with</strong>out additi<strong>on</strong>al<br />
test work <strong>on</strong> samples from these deposits.<br />
4.1.8.5 Plant Throughput<br />
Annual ore throughput in the financial model ramps up to 550 ktpa in the sec<strong>on</strong>d year <strong>of</strong> the project which is<br />
higher than the current plant design throughput <strong>of</strong> 480 ktpa as presented in the most recent engineering<br />
study. The design used a c<strong>on</strong>servative <strong>on</strong>-line utilisati<strong>on</strong> <strong>of</strong> 92% and AMC c<strong>on</strong>siders that there is potential to<br />
increase availability <strong>of</strong> the mill above this design figure after commissi<strong>on</strong>ing and ramp-up. There is<br />
insufficient comminuti<strong>on</strong> test informati<strong>on</strong> <strong>on</strong> ore types to be treated in the later years <strong>of</strong> the project to make a<br />
throughput predicti<strong>on</strong>.<br />
4.1.8.6 Capital Estimate Plant and Infrastructure<br />
Southern Cross has prepared a capital estimate for plant and infrastructure, based <strong>on</strong> informati<strong>on</strong> provided<br />
by independent technical specialists in November 2012. This estimate was prepared to an accuracy level <strong>of</strong><br />
±20% and included a 20% c<strong>on</strong>tingency. The Southern Cross capital estimate is presented in Table 4.4. The<br />
costs presented include the removal, refurbishment, relocati<strong>on</strong> and installati<strong>on</strong> <strong>of</strong> plant and equipment as<br />
well as infrastructure items including camp, roads and airstrip, buildings/work-shops, and water supply. A<br />
preliminary estimate for tailings storage requirements is also included.<br />
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Table 4.4<br />
Southern Cross Capital Estimate Summary<br />
Marda Infrastructure<br />
Cost Centre<br />
Capital Cost<br />
(Single SAG Mill)<br />
($M) 1<br />
Accommodati<strong>on</strong> camp, roads, airstrip, buildings/workshops 8.26<br />
Plant and Equipment<br />
Sandst<strong>on</strong>e equipment refurbishment and relocati<strong>on</strong> 4.59<br />
Additi<strong>on</strong>al equipment and installati<strong>on</strong> costs 13.17<br />
Provisi<strong>on</strong>al cost items 0.33<br />
Upgrade requirements 1.44<br />
Plant and Infrastructure C<strong>on</strong>tingencies (overruns) 5.26<br />
Tailings Dam 1.98<br />
Owners Costs<br />
Project Supervisi<strong>on</strong> 0.30<br />
First Fills 0.45<br />
Total Processing and Infrastructure 35.74<br />
1<br />
Costs exclude GST<br />
AMC notes that the allowance for the single SAG mill is based <strong>on</strong> sourcing a suitable used mill. There is a<br />
risk that actual costs in the milling area may increase depending <strong>on</strong> the cost and refurbishment <strong>of</strong> the mill<br />
that is sourced for the plant.<br />
AMC notes in ASX announcement <strong>of</strong> 14 August 2012 that Southern Cross quoted an estimated capital cost<br />
for the project at $25M (plus or minus $5M) to refurbish and relocate the plant from Sandst<strong>on</strong>e to Marda.<br />
AMC understands this was a preliminary estimate prior to the decisi<strong>on</strong> to upgrade the plant and the receipt <strong>of</strong><br />
a more detailed cost estimate. In AMC’s opini<strong>on</strong> the capital estimate shown in Table 4.4 is reas<strong>on</strong>able.<br />
4.1.8.7 Operating Cost Estimate<br />
Southern Cross has prepared an operating cost estimate based <strong>on</strong> an assessment by independent technical<br />
specialists in the July FS. This estimate was prepared to an accuracy level <strong>of</strong> ±20% <strong>on</strong> the basis <strong>of</strong> an<br />
annual ore throughput <strong>of</strong> 480 ktpa <strong>of</strong> blended ore.<br />
The Southern Cross cost estimate is presented in Table 4.5.<br />
Table 4.5<br />
Marda Operating Cost Estimate<br />
Cost Centre<br />
LOM<br />
($M)<br />
Operating Cost<br />
Mean LOM<br />
($/t ore treated)<br />
Salaries and labour 20.41 8.23<br />
Reagents and operating c<strong>on</strong>sumables 25.55 10.30<br />
Power 24.43 9.85<br />
Maintenance 3.09 1.24<br />
G/A, flights and accommodati<strong>on</strong> 1.46 0.59<br />
Total Process Operating Costs 74.93 30.21<br />
AMC c<strong>on</strong>siders the mean LOM unit operating cost <strong>of</strong> $30/t ore to be in general agreement <strong>with</strong> treatment<br />
costs for other Australian gold projects <strong>of</strong> a similar throughput and plant complexity.<br />
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4.1.9 Envir<strong>on</strong>ment<br />
4.1.9.1 Overview<br />
Marda appears to involve no envir<strong>on</strong>mental risks that cannot be managed <strong>with</strong> well established strategies<br />
and techniques, although hydrogeology and some geochemistry reports were not available for this review.<br />
Statutory envir<strong>on</strong>mental approval is likely to be unc<strong>on</strong>troversial, as potential envir<strong>on</strong>mental impacts have<br />
been well characterised and their manageability dem<strong>on</strong>strated. Extensive c<strong>on</strong>sultati<strong>on</strong> <strong>with</strong> regulators has<br />
been important in managing approvals-related risks.<br />
While there are fauna c<strong>on</strong>servati<strong>on</strong> issues (rare/endangered species), these fauna are likely to be <strong>on</strong>ly<br />
marginally impacted by project activities. Moreover, studies c<strong>on</strong>ducted for the project are likely to enhance<br />
scientific knowledge <strong>of</strong> the occurrence and auto-ecology <strong>of</strong> these species, thereby supporting c<strong>on</strong>servati<strong>on</strong><br />
efforts by the relevant agencies. Importantly, c<strong>on</strong>servati<strong>on</strong> risks to approval have been mitigated by close<br />
and regular liais<strong>on</strong> <strong>with</strong> the agencies.<br />
Acid mine drainage is an inc<strong>on</strong>sequential risk at the four Central Marda deposits. Results <strong>of</strong> geochemical<br />
test work for the King Brown and Golden Orb deposits were not available for this review. At Marda Central,<br />
much <strong>of</strong> the sulphide present in mine waste occurs as sulphates, rather than sulphides and, even where<br />
sulphides are present, relatively large volumes <strong>of</strong> carb<strong>on</strong>ate also occur. Similarly, risks <strong>of</strong> circum-neutral<br />
metal enrichment <strong>of</strong> leachates from waste stockpiles have been shown to be low: potential metal pollutants<br />
in labile forms are not present at elevated c<strong>on</strong>centrati<strong>on</strong>s, and significant acid-neutralising capacity is likely<br />
to be available in stored waste.<br />
Water supply from existing and proposed bores at Marda is reported to be adequate for project needs,<br />
although hydrogeological reports were not available for this review. While excess water is unlikely (pits are<br />
reported to be dry to full mining depth), the disposal to land or water-course <strong>of</strong> significant volumes <strong>of</strong> excess<br />
water would attract close scrutiny from regulators.<br />
Closure poses no technical challenges at Marda, based <strong>on</strong> current informati<strong>on</strong>. The closure provisi<strong>on</strong> <strong>of</strong><br />
$2.2M is c<strong>on</strong>sidered by AMC to be reas<strong>on</strong>able, reflecting the relatively small disturbance footprint <strong>of</strong> the<br />
project. This situati<strong>on</strong> could change, however, if mined pits partially refilled <strong>with</strong> groundwater – rehandling <strong>of</strong><br />
mine waste to backfill pits above the re-established water table would result in additi<strong>on</strong>al,<br />
yet-to-be-determined, closure costs.<br />
4.1.9.2 Statutory Envir<strong>on</strong>mental Approval<br />
Porti<strong>on</strong>s <strong>of</strong> the project area are included in a proposed Dual Purpose Mining and C<strong>on</strong>servati<strong>on</strong> Reserve.<br />
AMC c<strong>on</strong>siders this not to pose a significant risk, as mining is legally an acceptable land use, subject to<br />
agreement and c<strong>on</strong>sultati<strong>on</strong> <strong>with</strong> the regulator. Other companies in the regi<strong>on</strong> are in comparable situati<strong>on</strong>s,<br />
and the dual-use model is now well established. The lengthy and detailed c<strong>on</strong>sultati<strong>on</strong> c<strong>on</strong>ducted <strong>with</strong><br />
government agencies by Southern Cross is c<strong>on</strong>sidered to have ensured adequate security <strong>of</strong> tenure and<br />
purpose for the project.<br />
State envir<strong>on</strong>mental approval is most unlikely to involve the lengthy and complex processes <strong>of</strong> Part IV <strong>of</strong> the<br />
EP Act, administered by the EPA. Potential impacts are easily manageable by other agencies, and in recent<br />
years the EPA has increasingly and pointedly not assessed such projects, and relied <strong>on</strong> these other<br />
agencies. Southern Cross has maintained close c<strong>on</strong>tact <strong>with</strong> the Office <strong>of</strong> the EPA (OEPA), which has<br />
clearly flagged that EPA assessment is unlikely to be necessary.<br />
A Works Approval (to c<strong>on</strong>struct) and a Licence (to operate) will be required under Part V <strong>of</strong> the EP Act,<br />
administered by the DEC. These are relatively routine processes, compared <strong>with</strong> those <strong>of</strong> Part IV <strong>of</strong> the EP<br />
Act, and are unlikely to delay project implementati<strong>on</strong>.<br />
The Mining Proposal processes <strong>of</strong> the Mining Act, administered by the DMP will also be required. A Mining<br />
Proposal is currently being prepared, <strong>with</strong> submissi<strong>on</strong> planned for June 2013. The DMP undertakes to<br />
complete its assessment <strong>of</strong> proposals <strong>with</strong>in 30 days, although this timeframe can be significantly changed if<br />
additi<strong>on</strong>al informati<strong>on</strong> is requested after submissi<strong>on</strong> <strong>of</strong> a proposal. Southern Cross and its envir<strong>on</strong>mental<br />
c<strong>on</strong>sultants are aware <strong>of</strong> this risk, and have committed to submitting a sufficiently detailed document. For<br />
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project scheduling, it is practical to assume a DMP approval <strong>with</strong>in 8 to 12 weeks <strong>of</strong> submissi<strong>on</strong> <strong>of</strong> the Mining<br />
Proposal.<br />
The federal EPBC Act could theoretically be triggered by the occurrence at Marda <strong>of</strong> “threatened fauna<br />
species and communities” (species include the Malleefowl and Major Mitchell’s Cockatoo). However,<br />
targeted surveys for Malleefowl and assessment <strong>of</strong> risks to the cockatoo have identified low and manageable<br />
risk <strong>of</strong> impacts. On this basis, it is possible that no referral will be made under the EPBC Act. The Act<br />
requires referral <strong>on</strong>ly <strong>of</strong> proposals likely to cause significant impacts and, while there is a risk that the<br />
proposal could be referred by another party, AMC c<strong>on</strong>siders referral to be unnecessary. It is comm<strong>on</strong><br />
practice for a pr<strong>of</strong>essi<strong>on</strong>al c<strong>on</strong>sultant to complete the referral pro forma document and, if appropriate,<br />
endorse it as “referral not necessary”. This document is then available if the proposal is referred by others, to<br />
quickly have the referral disc<strong>on</strong>tinued.<br />
4.1.10 Flora and Fauna<br />
Flora and vegetati<strong>on</strong> c<strong>on</strong>servati<strong>on</strong> issues are <strong>of</strong> minor significance at Marda. No Declared Rare Flora (DRF)<br />
or Threatened Ecological Communities (TECs) will be impacted. Priority Flora Species (PFS) which do occur<br />
<strong>on</strong> the project area have been reviewed by the relevant agencies <strong>on</strong> a regi<strong>on</strong>al basis and, while some<br />
modificati<strong>on</strong> <strong>of</strong> project facility locati<strong>on</strong>s may be required, no significant impediment to implementati<strong>on</strong> is<br />
c<strong>on</strong>sidered likely. A proposed Priority Ecological Community (PEC) in the regi<strong>on</strong> is c<strong>on</strong>sidered unlikely to<br />
c<strong>on</strong>strain project development, because the locati<strong>on</strong> <strong>of</strong> facilities has been discussed at length <strong>with</strong> DMP and<br />
DEC.<br />
C<strong>on</strong>servati<strong>on</strong>-sensitive fauna species (two wishb<strong>on</strong>e spiders, a pseudoscorpi<strong>on</strong>, the Malleefowl and Major<br />
Mitchell’s Cockatoo) have been recorded in the envir<strong>on</strong>s <strong>of</strong> the project, but impacts <strong>on</strong> all species are<br />
c<strong>on</strong>sidered by AMC to be easily manageable.<br />
The spiders and pseudoscorpi<strong>on</strong> do not occur <strong>on</strong> areas proposed for disturbance, and are thus most unlikely<br />
to be impacted, given the implementati<strong>on</strong> <strong>of</strong> envir<strong>on</strong>mental management plans which prevent disturbance <strong>of</strong><br />
land outside approved envelopes.<br />
A targeted survey for Malleefowl revealed no active (current use) or recently active (1 to 5 years) nesting<br />
mounds <strong>on</strong> the Southern Cross tenements. Three inactive mounds were found, but n<strong>on</strong>e in areas proposed<br />
for disturbance. Some 400 ha <strong>of</strong> potential Malleefowl habitat was identified in the envir<strong>on</strong>s <strong>of</strong> the project, but<br />
<strong>on</strong>ly a small amount (some 6%) occurs <strong>on</strong> areas <strong>of</strong> proposed disturbance. Management <strong>of</strong> potential<br />
Malleefowl impacts is a regi<strong>on</strong>al issue, <strong>with</strong> the greatest risk at Marda being from traffic deaths. Workforce<br />
educati<strong>on</strong> and m<strong>on</strong>itoring will form part <strong>of</strong> the operating envir<strong>on</strong>mental management plan for Marda, and can<br />
reas<strong>on</strong>ably be expected to manage impacts.<br />
Impacts <strong>on</strong> the Major Mitchell’s Cockatoo are c<strong>on</strong>sidered likely to be small, as this volant species can avoid<br />
disturbance and seek alternative habitat, <strong>of</strong> which there are large undisturbed tracts in the regi<strong>on</strong>.<br />
Assessment <strong>of</strong> potential impacts <strong>on</strong> c<strong>on</strong>servati<strong>on</strong>-sensitive fauna at Marda have been characterised by close<br />
and regular c<strong>on</strong>sultati<strong>on</strong> <strong>with</strong> the DEC. Minuted meetings have been held, and the DEC appears to be aware<br />
<strong>of</strong> both the low risks <strong>of</strong> significant impacts and the c<strong>on</strong>tributi<strong>on</strong> to a broader understanding <strong>of</strong> the<br />
auto-ecology <strong>of</strong> some <strong>of</strong> these species, particularly the Malleefowl. AMC therefore c<strong>on</strong>siders it unlikely that<br />
c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> fauna impacts will significantly affect envir<strong>on</strong>mental approval and <strong>on</strong>going operati<strong>on</strong>.<br />
4.1.11 Acid and Metalliferous Drainage<br />
Based <strong>on</strong> rigorous geochemical test work c<strong>on</strong>ducted <strong>on</strong> representative samples using recognised<br />
techniques, risks <strong>of</strong> acid and metalliferous drainage (AMD) in waste rock at Marda Central (four pits) have<br />
been shown to be extremely low.<br />
Sulphide sulphur c<strong>on</strong>centrati<strong>on</strong>s in waste rock are mostly below the rule-<strong>of</strong>-thumb threshold <strong>of</strong> 0.3%S, and<br />
occurrences <strong>of</strong> carb<strong>on</strong>ate and other acid-neutralising compounds are significant. By far the greater<br />
proporti<strong>on</strong> <strong>of</strong> samples were shown to be NAF, and the few samples judged by acid-base accounting to be<br />
PAF were shown to be NAF after more detailed testing.<br />
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Leaching test work has also shown the risks <strong>of</strong> circum-neutral metal enrichment <strong>of</strong> drainage from stockpiled<br />
waste rock to be low.<br />
While AMD risks at Marda Central are c<strong>on</strong>sidered by AMC to be low, no rigorous test work results were<br />
available for this review. The risk <strong>of</strong> AMD challenges at the King Brown and Golden Orb deposits therefore<br />
cannot be dismissed absolutely.<br />
4.1.12 Water Management<br />
Southern Cross advises that project water demand will be met from existing and proposed bores at Marda,<br />
but no hydrogeology reports were available for this review. Based <strong>on</strong> limited drill-hole sampling, no<br />
dewatering <strong>of</strong> mine pits has been judged likely to be necessary, but AMC has not been able to rigorously<br />
assess this view. Should dewatering in excess <strong>of</strong> project demand prove necessary, disposal to land or<br />
nearby water-courses could attract the scrutiny <strong>of</strong> regulators (DEC and the Department <strong>of</strong> Water (DoW)).<br />
While such a situati<strong>on</strong> is unlikely in the low-rainfall area <strong>of</strong> the project, and <strong>with</strong> relatively shallow pits<br />
planned, there are regi<strong>on</strong>al precedents for the development <strong>of</strong> unforeseen excess-water issues.<br />
Groundwater in the project area is saline and, while adequate for processing and (after reverse osmosis)<br />
potable supply, unlikely to be required by other users. The project area is remote and sparsely inhabited, and<br />
other mining operati<strong>on</strong>s in the area are unlikely to place demands <strong>on</strong> groundwater exploited by Southern<br />
Cross.<br />
4.1.13 Rehabilitati<strong>on</strong> and closure<br />
Technical closure and rehabilitati<strong>on</strong> issues at Marda are undemanding. The creati<strong>on</strong> <strong>of</strong> safe, stable and n<strong>on</strong>polluting<br />
landforms after mining will require no novel strategies or techniques. The lack <strong>of</strong> potential AMD<br />
issues at Marda means that complex and expensive encapsulati<strong>on</strong> <strong>of</strong> PAF waste will not be needed, and<br />
simple landscaping <strong>of</strong> waste stockpiles, <strong>with</strong> appropriate erosi<strong>on</strong>-c<strong>on</strong>trol and water-capture structures, can<br />
easily meet DMP guidelines. It is noted again here that rigorous geochemistry test work results for the King<br />
Brown and Golden Orb deposits were not available for this review, so AMD risks, and implicati<strong>on</strong>s for<br />
closure, have not been assessed for those deposits.<br />
Given the small disturbance footprint <strong>of</strong> the project and the improbability <strong>of</strong> needing to manage<br />
acid-generating waste rock, the existing closure cost estimate <strong>of</strong> $2.2M is c<strong>on</strong>sidered by AMC to be<br />
adequate and reas<strong>on</strong>able, subject to the AMD questi<strong>on</strong> noted immediately above, and to the following<br />
qualificati<strong>on</strong>.<br />
It is noted that the DEC has a general stance across the mining industry <strong>of</strong> oppositi<strong>on</strong> to the formati<strong>on</strong> <strong>of</strong> pitlakes<br />
after mining. While it has been assumed that all proposed pits at Marda are above the water table,<br />
AMC has not sighted hydrogeological reports c<strong>on</strong>firming this view. If the water table is such that pit lakes<br />
could form after mining, backfilling to several metres above natural water table could be demanded by DEC<br />
and DMP. Without detailed hydrogeological informati<strong>on</strong>, it is not possible to quantify the volume <strong>of</strong> backfill<br />
involved, and thus the amount and cost or rehandling mine waste.<br />
4.1.14 Project Implementati<strong>on</strong><br />
A formal feasibility document exists for Marda thus making the process <strong>of</strong> financing and approvals<br />
straightforward. However this is a green fields development project. Therefore three m<strong>on</strong>ths should be<br />
allowed to complete envir<strong>on</strong>mental approvals and financing. A further 6 to 9 m<strong>on</strong>ths should be allowed for<br />
procurement, c<strong>on</strong>structi<strong>on</strong> and commissi<strong>on</strong>ing..<br />
4.1.15 AMC Producti<strong>on</strong> Cases<br />
AMC has modelled two cases for Marda. The cases are projecti<strong>on</strong>s <strong>of</strong> mining and processing t<strong>on</strong>nages, gold<br />
grades and costs. The cases are provided to BDO for c<strong>on</strong>siderati<strong>on</strong> <strong>of</strong> value.<br />
Southern Cross provided AMC <strong>with</strong> a range <strong>of</strong> technical informati<strong>on</strong>: Mineral Resource models, Ore<br />
Reserves, mine designs and schedules and a feasibility study. AMC has prepared its cases based <strong>on</strong> this<br />
informati<strong>on</strong>.<br />
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BDO CORPORATE FINANCE (WA) PTY LTD<br />
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Case 1, ore producti<strong>on</strong>, is primarily based <strong>on</strong> the feasibility study scenario using Ore Reserves, and that part<br />
<strong>of</strong> Mineral Resources included in the mine plan provided. AMC added additi<strong>on</strong>al ore to the producti<strong>on</strong> case<br />
in years 5 and 6 <strong>of</strong> the schedule based <strong>on</strong> the likelihood <strong>of</strong> c<strong>on</strong>versi<strong>on</strong> <strong>of</strong> near mine Mineral Resources to<br />
Ore Reserves and explorati<strong>on</strong> success also c<strong>on</strong>tributing to additi<strong>on</strong>al ore Reserves.<br />
Case 2, ore producti<strong>on</strong>, includes that scheduled in Case 1, <strong>with</strong> the additi<strong>on</strong> <strong>of</strong> two years producti<strong>on</strong><br />
simulated to reflect the likely c<strong>on</strong>versi<strong>on</strong> <strong>of</strong> additi<strong>on</strong>al Mineral Resources to Ore Reserves and likely success<br />
<strong>with</strong> explorati<strong>on</strong> in the Marda regi<strong>on</strong>. AMC has included additi<strong>on</strong>al producti<strong>on</strong> to extend the mine life for two<br />
years to reflect further explorati<strong>on</strong> success.<br />
The two producti<strong>on</strong> cases are designed to provide a lower and upper range <strong>of</strong> likely outcomes for the Marda<br />
Project.<br />
AMC believes that the two producti<strong>on</strong> cases described appropriately provide a value <strong>on</strong> the Mineral<br />
Resources and explorati<strong>on</strong> potential for the greater Marda Gold project.<br />
Marda Case 1 (Feasibility Case)<br />
Key aspects <strong>of</strong> AMC's case 1 model are:<br />
• The mine schedule and processing schedule are essentially based <strong>on</strong> the 5 year LOM plan provided in<br />
the feasibility study <strong>with</strong> a limited amount <strong>of</strong> ore added to end <strong>of</strong> the mine life.<br />
• Project development commences in May 2014.<br />
• Operating and capital costs are based <strong>on</strong> those provided in the feasibility study.<br />
• Average unit mining costs <strong>of</strong> $3.24/t <strong>of</strong> material moved are used.<br />
• Average processing costs <strong>of</strong> $30.21/t ore processed are assumed.<br />
• Total ore processed is 2.7 Mt at a head grade <strong>of</strong> 2.3 g/t.<br />
• AMC adjusted the head grade to reflect a lower grade <strong>of</strong> diluting material than that assumed in the<br />
feasibility study based <strong>on</strong> the AMC review <strong>of</strong> the Resource model, this had the effect <strong>of</strong> lowering the<br />
head grade from 2.36 g/t to 2.31 g/t over the life <strong>of</strong> the project.<br />
• AMC adjusted the metallurgical recovery for the project in the first three years from 95% to 94%<br />
compared to the feasibility study based <strong>on</strong> our review <strong>of</strong> the test work..<br />
• Total gold producti<strong>on</strong> <strong>of</strong> 190 koz <strong>of</strong> gold.<br />
• Initial capital expenditure <strong>of</strong> $38.2M based <strong>on</strong> the feasibility study. This capital is principally associated<br />
<strong>with</strong> site establishment and relocati<strong>on</strong> and refurbishment <strong>of</strong> the processing facilities and camp from<br />
Sandst<strong>on</strong>e to Marda.<br />
• Closure costs increased by $1.2M compared to the feasibility study to <strong>of</strong>fset the assumed residual<br />
value <strong>of</strong> the mining equipment.<br />
Marda Case 2 (Feasibility Case Plus Additi<strong>on</strong>al Inventory)<br />
Key aspects <strong>of</strong> AMC's case 2 model are:<br />
• Assumpti<strong>on</strong>s as in case 1 for the first 4 years <strong>of</strong> producti<strong>on</strong>.<br />
• An additi<strong>on</strong>al 1 milli<strong>on</strong> t<strong>on</strong>nes <strong>of</strong> ore at a grade 2.31 g/t is added to the end <strong>of</strong> the mine life. AMC has<br />
assumed that operating costs are the same as those incurred in year 2014 for the extensi<strong>on</strong> period.<br />
The head grade is based <strong>on</strong> the project average. The 1 Mt represents 50% <strong>of</strong> the Marda Inferred<br />
Resource c<strong>on</strong>verting to Ore Reserves. The average project head grade has been applied.<br />
• Processing recoveries are assumed to be 92% in the extensi<strong>on</strong> years to reflect a lower c<strong>on</strong>fidence in<br />
the recovery characteristics for this material.<br />
• Total gold producti<strong>on</strong> <strong>of</strong> 246 koz <strong>of</strong> gold.<br />
• A higher capital expenditure over the extensi<strong>on</strong> period is assumed compared to case 1 due to costs<br />
that would be associated <strong>with</strong> starting or extending open pits.<br />
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Explorati<strong>on</strong> Valuati<strong>on</strong><br />
AMC c<strong>on</strong>siders that the producti<strong>on</strong> cases indicate an appropriate value for groups <strong>of</strong> tenements hosting<br />
Mineral Resources. In the Marda area, tenements hosting Mineral Resources occupy about half <strong>of</strong> the<br />
overall tenement area. The northern part <strong>of</strong> the Marda tenement area (about 650 km 2 ) does not host any<br />
Mineral Resources but remains prospective for gold and base metals as previously described. AMC<br />
c<strong>on</strong>siders it appropriate to assign a value <strong>of</strong> $1,000/km 2 to $2,000/km 2 indicating a range <strong>of</strong> values for this<br />
area <strong>of</strong> $0.65M to $1.3M.<br />
Opportunities and Risks<br />
AMC c<strong>on</strong>siders that additi<strong>on</strong>al opportunities that might be available for Marda include:<br />
• Southern Cross has undertaken a review <strong>of</strong> the mine schedules in the feasibility study. The results <strong>of</strong><br />
this work dem<strong>on</strong>strate a mine plan targeting early development <strong>of</strong> higher grade ore. AMC has<br />
reviewed this work and although it is preliminary in nature, believes the revised mine schedules would<br />
generate higher earlier cash flows and an increase in the projects DCF compared to case 1.<br />
• A significant resource remains outside and below the open pits at Marda. Reducti<strong>on</strong>s in cost<br />
structures and/or an increase in gold price would allow more <strong>of</strong> this material to be mined ec<strong>on</strong>omically.<br />
• AMC has not c<strong>on</strong>sidered underground mining <strong>of</strong> additi<strong>on</strong>al resources in its evaluati<strong>on</strong> as no work has<br />
been undertaken in this regard. However, a number <strong>of</strong> the Mineral Resources at Marda have a grade<br />
that might support underground mining.<br />
• Potential to achieve plant throughputs greater than design <strong>on</strong>ce the project is commissi<strong>on</strong>ed.<br />
• Potential to install higher grinding capacity and hence increase plant throughput and gold producti<strong>on</strong>.<br />
This could be achieved by specifying a larger SAG mill or utilising the spare ball mill at Sandst<strong>on</strong>e.<br />
The rest <strong>of</strong> the process plant either has the capacity to handle the additi<strong>on</strong>al t<strong>on</strong>nage or modificati<strong>on</strong>s<br />
required are relatively simple and inexpensive.<br />
AMC c<strong>on</strong>siders that the following risks apply to Marda:<br />
• Marda is a green-fields open pit operati<strong>on</strong>. There is no historical mining or ore processing in the area,<br />
therefore there is a level <strong>of</strong> risk associated <strong>with</strong> the key assumpti<strong>on</strong>s for the project such as mine<br />
dewatering, geotechnical and productivity assumpti<strong>on</strong>s.<br />
• The advance rate assumed for the open pits is high, however this is <strong>of</strong>fset to an extent by the number<br />
<strong>of</strong> ore sources available and the ore stockpiles built up during the operati<strong>on</strong>.<br />
• AMC's producti<strong>on</strong> cases include Inferred Mineral Resources and assumed further explorati<strong>on</strong> success.<br />
Based <strong>on</strong> AMC's assessment <strong>of</strong> the large Mineral Resource inventory and explorati<strong>on</strong> prospectivity in<br />
the area, AMC c<strong>on</strong>siders that there is a reas<strong>on</strong>able basis for including these in its producti<strong>on</strong> cases.<br />
However, it is not certain if further explorati<strong>on</strong> will result in the determinati<strong>on</strong> <strong>of</strong> additi<strong>on</strong>al Mineral<br />
Resources and Ore Reserves.<br />
• Slightly lower metallurgical recoveries are possible in later years <strong>of</strong> the project because <strong>of</strong> limit specific<br />
test work <strong>on</strong> the ore scheduled to be treated in those years.<br />
4.2 Sandst<strong>on</strong>e Project<br />
The Sandst<strong>on</strong>e project was acquired by Southern Cross from Troy Resources NL (Troy) in a transacti<strong>on</strong><br />
completed in March 2013 involving $2.3M cash, replacement <strong>of</strong> $2.7M <strong>of</strong> existing envir<strong>on</strong>mental b<strong>on</strong>ds, a<br />
2% net smelter royalty and 44M SXG opti<strong>on</strong>s. The transacti<strong>on</strong> included the Sandst<strong>on</strong>e treatment plant and<br />
camp.<br />
Troy acquired the project in 1998, purchased the Sandst<strong>on</strong>e treatment plant in 1999 and commenced mining<br />
at Bulchina. The Bulchina pit produced 230,000 oz <strong>of</strong> gold. Producti<strong>on</strong> commenced from the Lord Nels<strong>on</strong><br />
and Lord Henry pits in 2005. Mining at Lord Nels<strong>on</strong> was disc<strong>on</strong>tinued in August 2007 having produced<br />
180,000 oz <strong>of</strong> gold but was restarted in a pit cutback to produce a further 27,440 oz <strong>of</strong> gold. The Lord Henry<br />
pit was completed in 2007 having produced 48,000 oz <strong>of</strong> gold.<br />
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The Sandst<strong>on</strong>e project tenements (Figure 4.2) are located near the town <strong>of</strong> Sandst<strong>on</strong>e approximately<br />
730 km north-east <strong>of</strong> Perth in the East Murchis<strong>on</strong> Mineral Field, Western Australia. The Sandst<strong>on</strong>e shire has<br />
a history <strong>of</strong> gold mining since the late 1800s and when Troy’s mining operati<strong>on</strong>s ceased in 2010, it was<br />
operating the <strong>on</strong>ly gold mine in the district <strong>with</strong> ore mined from an open cut mine at Lord Nels<strong>on</strong>. Ore from<br />
Lord Nels<strong>on</strong> was hauled to the Sandst<strong>on</strong>e mill located near Troy’s first open pit mine at Bulchina mine.<br />
The Sandst<strong>on</strong>e project tenements cover an area <strong>of</strong> about 985 km 2 c<strong>on</strong>sisting <strong>of</strong>:<br />
• 14 explorati<strong>on</strong> licences.<br />
• 20 mining leases.<br />
• 34 prospecting licences.<br />
• 10 miscellaneous licences.<br />
• 1 general purpose lease.<br />
Figure 4.2<br />
Sandst<strong>on</strong>e Tenement Locati<strong>on</strong><br />
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4.2.1 Geology<br />
The Sandst<strong>on</strong>e project covers part <strong>of</strong> the Archaean Sandst<strong>on</strong>e greenst<strong>on</strong>e belt which is a triangular area <strong>of</strong><br />
greenst<strong>on</strong>e belt rocks interpreted as a north-plunging antiform located at the northern end <strong>of</strong> the Southern<br />
Cross province. The greenst<strong>on</strong>e belt lies at the northern end <strong>of</strong> the Diemals dome at the c<strong>on</strong>juncti<strong>on</strong> <strong>of</strong> the<br />
Youanmi and Edale faults (Figure 4.3).<br />
Figure 4.3<br />
Sandst<strong>on</strong>e Project Geology<br />
The greenst<strong>on</strong>e belt c<strong>on</strong>sists <strong>of</strong> mafic volcanic and intrusive rocks <strong>with</strong> subordinate ultramafic, banded ir<strong>on</strong><br />
formati<strong>on</strong> (BIF) and siliciclastic sediments. Granitoid plut<strong>on</strong>s associated <strong>with</strong> the Diemals dome intrude the<br />
southern margin <strong>of</strong> the belt. The metamorphic grade is greenschist facies, although amphibolites facies<br />
assemblages are locally developed al<strong>on</strong>g the flanks <strong>of</strong> the belt.<br />
The Lord Nels<strong>on</strong> and Lord Henry deposits are about 3 km apart al<strong>on</strong>g the north-south trending Trafalgar<br />
shear z<strong>on</strong>e (Figure 4.4). Lord Henry differs from Lord Nels<strong>on</strong> in that it strikes broadly east-west compared<br />
<strong>with</strong> the north-north-west strike <strong>of</strong> Lord Nels<strong>on</strong>. Most <strong>of</strong> the gold Mineral Resource at Lord Henry is in fresh<br />
rock whereas nearly all <strong>of</strong> Lord Nels<strong>on</strong> is in the oxide z<strong>on</strong>e.<br />
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Figure 4.4<br />
Lord Nels<strong>on</strong> and Lord Henry Geology<br />
The Lord Nels<strong>on</strong> deposit is hosted by a z<strong>on</strong>e <strong>of</strong> intermixed high-magnesium basalt and granodiorite above a<br />
footwall ultramafic unit. A central and an east lode have been defined. Both z<strong>on</strong>es trend north-north-west, dip<br />
approximately -50º to the west and plunge to the south. The central z<strong>on</strong>e is located mainly in the supergene<br />
z<strong>on</strong>e horiz<strong>on</strong>. The east lode is a z<strong>on</strong>e <strong>of</strong> pyrite-silica-biotite-quartz veining that follows the ultramafic footwall<br />
c<strong>on</strong>tact. Gold mineralisati<strong>on</strong> at Lord Henry is dominated by veining. Wall rock alterati<strong>on</strong> is str<strong>on</strong>g but <strong>with</strong><br />
little pyrite.<br />
The Lord Henry deposit is hosted by granodiorite bound to the south and west by a sheared ultramafic<br />
c<strong>on</strong>tact, forming part <strong>of</strong> the Trafalgar shear. Mineralisati<strong>on</strong> comprises a series <strong>of</strong> stacked lodes that dip 20º<br />
to 30º to the north characterised by quartz-sericite-chlorite-pyrite alterati<strong>on</strong>. The overall trend <strong>of</strong> the<br />
mineralised z<strong>on</strong>es is north-east <strong>with</strong> a defined length <strong>of</strong> 400 m. High-grade gold intersecti<strong>on</strong>s are associated<br />
<strong>with</strong> sulphide-rich quartz veins and stringers.<br />
The Two Mile Hill deposit is hosted in a late-stage, near vertical intrusive t<strong>on</strong>alitic stock which cuts the local<br />
stratigraphy <strong>of</strong> mafic volcanics and BIF (Figure 4.5). The stock is about 220 m l<strong>on</strong>g and 70 m wide and is<br />
pervasively altered <strong>with</strong> sericite, silica and carb<strong>on</strong>ate and c<strong>on</strong>tains variable amounts <strong>of</strong> disseminated pyrite.<br />
It also c<strong>on</strong>tains an open-sheeted system <strong>of</strong> quartz veins varying from
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Figure 4.5<br />
Two Mile Hill Geology<br />
Gold mineralisati<strong>on</strong> has been intersected in the t<strong>on</strong>alite c<strong>on</strong>tinuously from surface to a vertical depth <strong>of</strong> over<br />
400 m in diam<strong>on</strong>d drillholes. The t<strong>on</strong>alite has been intersected over a strike length <strong>of</strong> 220 m and an average<br />
width <strong>of</strong> 70 m. Gold mineralisati<strong>on</strong> in the t<strong>on</strong>alite stock remains open at depth and al<strong>on</strong>g strike.<br />
A small t<strong>on</strong>nage <strong>of</strong> higher-grade gold mineralisati<strong>on</strong> (average 9.9 g/t Au in the Mineral Resource) occurs in<br />
BIF at Two Mile Hill.<br />
4.2.2 Mineral Resources<br />
Mineral Resources are reported for Lord Nels<strong>on</strong>, Lord Henry and Two Mile Hill (Table 4.6). All <strong>of</strong> these<br />
Mineral Resources have been mined in open pits to some extent. Mineral Resources are also reported for a<br />
number <strong>of</strong> small deposits reported collectively, some <strong>of</strong> which are remnants around previously mined pits.<br />
These deposits are:<br />
• Havilah<br />
• Bulk Oak Reefs<br />
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• Vanguard<br />
• Ladybird<br />
• Maninga Marley<br />
• Shillingt<strong>on</strong><br />
• Sandst<strong>on</strong>e North<br />
• Plum Pudding<br />
• Oroya<br />
• Tigermoth<br />
• Piper<br />
• Wirraminna.<br />
Table 4.6 Sandst<strong>on</strong>e Mineral Resources at June 2012<br />
Locati<strong>on</strong> Indicated Resource Inferred Resource<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
T<strong>on</strong>nes<br />
(kt)<br />
Grade<br />
(g/t Au)<br />
Lord Nels<strong>on</strong> 392 3.0 84 1.8<br />
Lord Henry 987 1.9 39 1.7<br />
Two Mile Hill T<strong>on</strong>alite 10,541 1.3<br />
Two Mile Hill BIF 59 9.9<br />
Sandst<strong>on</strong>e (other) 494 1.8 1,922 1.9<br />
Total 1,932 2.3 12,586 1.4<br />
Mineral Resources at Lord Henry are reported at a 0.8 g/t Au COG and for Lord Nels<strong>on</strong> and Two Mile Hill at<br />
0.5 g/t Au COG.<br />
Rotary air blast (RAB) and air core (AC) drilling have been used for explorati<strong>on</strong> sampling but data from these<br />
drillhole types are not used in resource estimati<strong>on</strong>. Reverse circulati<strong>on</strong> (RC) is the main drilling method used<br />
for resource estimati<strong>on</strong> in associati<strong>on</strong> <strong>with</strong> some diam<strong>on</strong>d drilling.<br />
Drilling has been completed using accepted industry practices. Drillhole collars are surveyed and drillholes<br />
are surveyed downhole. Samples and diam<strong>on</strong>d drill core are geologically logged. Resource definiti<strong>on</strong> RC<br />
drillholes are sampled at 1 m intervals. Diam<strong>on</strong>d drill core is sampled at 1 m intervals respecting geological<br />
variati<strong>on</strong>s and cut using diam<strong>on</strong>d saws <strong>with</strong> half core submitted for assay.<br />
Sample assaying is undertaken by independent laboratories. Gold c<strong>on</strong>tent is determined by acid digest and<br />
fire assay. Field duplicates, blanks and certified reference materials are submitted to m<strong>on</strong>itor assay quality<br />
c<strong>on</strong>trol.<br />
The Lord Henry and Lord Nels<strong>on</strong> resource estimates have been developed <strong>with</strong>in an interpretati<strong>on</strong> guided by<br />
a 0.2 g/t Au COG and geological logging. The estimates are c<strong>on</strong>venti<strong>on</strong>al block models <strong>with</strong> grade estimated<br />
using OK <strong>with</strong> estimati<strong>on</strong> parameters determined from a study <strong>of</strong> variography. Bulk densities were assigned<br />
based <strong>on</strong> mean values for oxide, transiti<strong>on</strong> and fresh rock. The resource estimates are classified as<br />
Indicated and Inferred Resources based <strong>on</strong> c<strong>on</strong>fidence in the geological and grade c<strong>on</strong>tinuity reflecting<br />
drillhole spacing. The Mineral Resources are reported at a 1 g/t Au COG.<br />
The Two Mile Hill resource estimate is based <strong>on</strong> interpretati<strong>on</strong> <strong>of</strong> distributi<strong>on</strong> <strong>of</strong> the t<strong>on</strong>alite from drillhole<br />
geological data. The estimate is a c<strong>on</strong>venti<strong>on</strong>al block model <strong>with</strong> grade estimated using OK <strong>with</strong> estimati<strong>on</strong><br />
parameters determined from a study <strong>of</strong> variography. Bulk densities were assigned based <strong>on</strong> mean values for<br />
oxide and fresh rock. The estimate has been classified as Inferred Resource reflecting the drillhole spacing.<br />
The Mineral Resources are reported at a 0.5 g/t Au COG.<br />
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The Lord Henry, Lord Nels<strong>on</strong> and Two Mile Hill Mineral Resources have been estimated using accepted<br />
industry practice and have been classified and reported in accordance <strong>with</strong> the JORC Code.<br />
4.2.3 Explorati<strong>on</strong><br />
The Sandst<strong>on</strong>e tenements have been extensively explored for gold over many years. There are explorati<strong>on</strong><br />
targets that could be further tested.<br />
The depth extent <strong>with</strong>in the t<strong>on</strong>alite intrusive at Two Mile Hill has been intersected c<strong>on</strong>tinuously from surface<br />
to a vertical depth <strong>of</strong> over 400 m in diam<strong>on</strong>d drillholes but the deposit remains open at depth. High-grade<br />
gold mineralisati<strong>on</strong> associated <strong>with</strong> quartz veining and pyrite replacement <strong>of</strong> BIF <strong>on</strong> or near its c<strong>on</strong>tact <strong>with</strong><br />
the t<strong>on</strong>alite may not be completely investigated and may be a target for high-grade gold mineralisati<strong>on</strong>.<br />
Other felsic intrusive rocks <strong>on</strong> the tenements could be explored for large t<strong>on</strong>nage low-grade gold<br />
mineralisati<strong>on</strong> based <strong>on</strong> the Two Mile Hill model.<br />
The Indomitable, Piper, Tiger Moth, Cessna and Musketeer prospects are associated <strong>with</strong> the Indomitable<br />
shear and subsidiary structures. The prospects were originally discovered by RAB drilling and some RC<br />
drilling has been carried out at Indomitable. A Mineral Resource has been estimated at Tiger Moth. Drilling<br />
does not completely test the shear z<strong>on</strong>e and primary mineralisati<strong>on</strong> associated <strong>with</strong> the surface oxide<br />
mineralisati<strong>on</strong> has not been tested.<br />
4.2.4 Valuati<strong>on</strong><br />
AMC notes that to date no development and evaluati<strong>on</strong> work has been c<strong>on</strong>ducted by Southern Cross <strong>on</strong> the<br />
Sandst<strong>on</strong>e project.<br />
The Sandst<strong>on</strong>e tenements were acquired by Southern Cross in March 2013.<br />
The tenements c<strong>on</strong>tain 720,000 oz <strong>of</strong> gold in Indicated and Inferred Resources. C<strong>on</strong>sidering the yardstick<br />
values for categories <strong>of</strong> Mineral Resources described in Secti<strong>on</strong> 3.2.7, AMC values these tenements<br />
between $4.5M and $10M using this method.<br />
The tenements cover an area <strong>of</strong> 985 km 2 <strong>of</strong> greenst<strong>on</strong>e belt rocks <strong>with</strong> identified Mineral Resources. Using<br />
the unit area values described in Secti<strong>on</strong> 3.2.7, the value <strong>of</strong> the tenements is $2.0M to $5.9M using this<br />
method.<br />
C<strong>on</strong>sidering these methods, AMC values the Sandst<strong>on</strong>e tenements between $3.4M and $8.3M.<br />
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5 QUALIFICATIONS<br />
AMC is a firm <strong>of</strong> mineral industry c<strong>on</strong>sultants whose activities include the preparati<strong>on</strong> <strong>of</strong> due diligence reports<br />
<strong>on</strong>, and reviews <strong>of</strong>, mining and explorati<strong>on</strong> projects for equity and debt funding and for public reports. In<br />
these assignments, AMC and its subc<strong>on</strong>sultants have acted as independent parties. Although we do not<br />
c<strong>on</strong>sider it a c<strong>on</strong>flict, AMC has had recent roles reviewing the Marda gold project feasibility study and has<br />
also reviewed certain mine geotechnical aspects for the Wingina Well project. Neither AMC nor its<br />
subc<strong>on</strong>sultants have any business relati<strong>on</strong>ship <strong>with</strong> Grant Thornt<strong>on</strong>, BDO, <strong>Polymetals</strong> or Southern Cross<br />
other than the carrying out <strong>of</strong> individual c<strong>on</strong>sulting assignments as engaged.<br />
While some employees <strong>of</strong> AMC and its subc<strong>on</strong>sultants may have small direct or beneficial shareholdings in<br />
<strong>Polymetals</strong> or Southern Cross, neither AMC nor the c<strong>on</strong>tributors to this report nor members <strong>of</strong> their<br />
immediate families have any interests in <strong>Polymetals</strong> or Southern Cross that could be reas<strong>on</strong>ably c<strong>on</strong>strued<br />
to affect their independence. AMC has no pecuniary interest, associati<strong>on</strong> or employment relati<strong>on</strong>ship <strong>with</strong><br />
Grant Thornt<strong>on</strong>, BDO, <strong>Polymetals</strong> or Southern Cross.<br />
AMC is being paid a fee by Southern Cross according to its normal per diem rates and out-<strong>of</strong>-pocket<br />
expenses in the preparati<strong>on</strong> <strong>of</strong> this report. AMC's fee is not c<strong>on</strong>tingent up<strong>on</strong> the outcome <strong>of</strong> the Transacti<strong>on</strong><br />
or Scheme. The approximate fee paid to AMC for this work is $16,000.<br />
In corresp<strong>on</strong>dence relating to our engagement, Southern Cross agreed to comply <strong>with</strong> those obligati<strong>on</strong>s <strong>of</strong><br />
the commissi<strong>on</strong>ing entity under the VALMIN Code including that to the best <strong>of</strong> its knowledge and<br />
understanding, complete, accurate and true disclosure <strong>of</strong> all relevant material informati<strong>on</strong> will be made.<br />
<strong>Polymetals</strong> and Southern Cross have separately represented in writing that to the best <strong>of</strong> their knowledge,<br />
they have provided AMC <strong>with</strong> all material informati<strong>on</strong> relevant to their operati<strong>on</strong>s and projects described in<br />
this report.<br />
In preparing this report, AMC has relied <strong>on</strong> informati<strong>on</strong> provided by <strong>Polymetals</strong> and Southern Cross, and<br />
AMC has no reas<strong>on</strong> to believe that informati<strong>on</strong> is materially misleading or incomplete or c<strong>on</strong>tains any<br />
material errors. <strong>Polymetals</strong> and Southern Cross have been provided <strong>with</strong> drafts <strong>of</strong> our report to enable<br />
correcti<strong>on</strong> <strong>of</strong> any factual errors and notati<strong>on</strong> <strong>of</strong> any material omissi<strong>on</strong>s. The views, statements, opini<strong>on</strong>s and<br />
c<strong>on</strong>clusi<strong>on</strong>s expressed by AMC are based <strong>on</strong> the assumpti<strong>on</strong> that all data provided to it by <strong>Polymetals</strong> and<br />
Southern Cross are complete, factual and correct to the best <strong>of</strong> their knowledge. This report and the<br />
c<strong>on</strong>clusi<strong>on</strong>s in it are effective at 7 June 2013. Those c<strong>on</strong>clusi<strong>on</strong>s may change in the future <strong>with</strong> changes in<br />
relevant metal prices, explorati<strong>on</strong> and other technical developments in regard to the projects and the market<br />
for mineral properties.<br />
Southern Cross has provided AMC <strong>with</strong> indemnities in regard to damages, losses and liabilities related to or<br />
arising out <strong>of</strong> its engagement other than those arising from illegal acts, bad faith or negligence <strong>on</strong> its part or<br />
its reliance <strong>on</strong> unauthorised statements from third parties.<br />
This report has been provided to BDO for the purposes <strong>of</strong> forming its opini<strong>on</strong> in relati<strong>on</strong> to the Transacti<strong>on</strong>.<br />
AMC has given its c<strong>on</strong>sent for its report to be appended to BDO's report and for it to be provided to<br />
shareholders and has not <strong>with</strong>drawn that c<strong>on</strong>sent before their lodgement <strong>with</strong> the Australian Securities &<br />
Investments Commissi<strong>on</strong>. Neither this report nor any part <strong>of</strong> it may be used for any other purpose <strong>with</strong>out<br />
written c<strong>on</strong>sent.<br />
The signatories to this report are corporate members <strong>of</strong> the AusIMM and bound by its Code <strong>of</strong> Ethics.<br />
D Varcoe<br />
MAusIMM<br />
Principal Mining Engineer<br />
L Gillett<br />
FAusIMM (CP)<br />
Director<br />
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APPENDIX A<br />
PRINCIPAL SOURCES OF INFORMATION<br />
In preparing this report, AMC has relied <strong>on</strong> informati<strong>on</strong> provided by <strong>Polymetals</strong> and Southern Cross.<br />
GENERAL<br />
SXG Executed Scheme Implementati<strong>on</strong> Agreement 20130407.pdf.<br />
POLYMETALS MINING LIMITED<br />
Envir<strong>on</strong>ment, Permitting and Hydrology<br />
Envir<strong>on</strong>mental Impact Statement (and Appendices): Mt Boppy Gold Mine – Proposed Redevelopment<br />
Project. <strong>Polymetals</strong> (Mt Boppy) Pty Ltd. November 2011.<br />
Annual Envir<strong>on</strong>mental Management Report: Mt Boppy Gold Mine Canbelego NSW. <strong>Polymetals</strong> (Mt Boppy)<br />
Pty Ltd. February 2013.<br />
Life <strong>of</strong> Mine Tailings Management Strategy: Mt Boppy Gold Project. <strong>Polymetals</strong> (Mt Boppy) Pty Ltd.<br />
November 2011. Allan Wats<strong>on</strong> Associates. October 2012.<br />
Mt Boppy Gold Mine – Proposed Redevelopment Project. Mining Operati<strong>on</strong>s Plan Versi<strong>on</strong> 3. <strong>Polymetals</strong> (Mt<br />
Boppy) Pty Ltd. October 2012<br />
Mine Waste Management Plan (MWMP) for the Mt Boppy Gold Mine, Canbelego, NSW. Report No.<br />
611013-MWMPv2. Envir<strong>on</strong>mental Earth Sciences Qld. October 2011.<br />
Mining Lease C<strong>on</strong>diti<strong>on</strong>s, Mining Lease No. 1681. NSW Government, Department <strong>of</strong> Trade and Investment<br />
– Resources and Energy Divisi<strong>on</strong>. January 2013.<br />
Mt Boppy Gold Mine Development Project: Overview. <strong>Polymetals</strong> Mining Limited. June 2012.<br />
NAF and PAF Waste Field Testing. <strong>Polymetals</strong> Mining Limited. Safe Work Procedure. (Undated.)<br />
Turner River – Presentati<strong>on</strong> to DMP. (Undated.)<br />
Geology, Resources and Explorati<strong>on</strong> Property Valuati<strong>on</strong>s<br />
<strong>Polymetals</strong> Mining Limited, 2012: Mt Boppy Resource <str<strong>on</strong>g>Update</str<strong>on</strong>g> Report – January 2012.<br />
<strong>Polymetals</strong> Mining Limited, 2012: Boppy Sth Resource Summary Report – September 2012.<br />
<strong>Polymetals</strong> Mining Limited, 2012: Explorati<strong>on</strong> Licence 5842 Canbelego Including Explorati<strong>on</strong> C<strong>on</strong>ducted<br />
Within Ml311, GL3255, GL5836, GL5848, GL5898 & MPL240. 11th Annual Explorati<strong>on</strong> Report For<br />
The Reporting Period 20th April 2011 To 19th April 2012.<br />
Landsdowne Resources Pty Ltd, 2012: Informati<strong>on</strong> Memorandum Turner River Gold, Silver & Base Metal<br />
Projects, Pilbara WA.<br />
Ravensgate C<strong>on</strong>sultants, 2012: Block Model Resource Estimati<strong>on</strong> <strong>on</strong> the Discovery Zn, Ag & Pb Base<br />
Metals Project for Lansdowne Resources Pty Ltd.<br />
Ravensgate C<strong>on</strong>sultants, 2012: Block Model Resource Estimati<strong>on</strong> <strong>on</strong> the Orchard Tank Zn, Ag & Pb Base<br />
Metals Project for Lansdowne Resources Pty Ltd.<br />
Poly13-005.Tenement Summary.<br />
<strong>Polymetals</strong> ASX Announcement 13 March 2013.<br />
LDR TURNER RIVER_ INFORMATION MEMORANDUM (21 April 2012).<br />
2013 02 ResEst Report Wingina Well.<br />
Block Model resource Estimati<strong>on</strong> Report for Amanda Gold Project by Ravensgate.<br />
Block Model resource Estimati<strong>on</strong> Report for Mt Berghaus Gold Project by Ravensgate.<br />
Appendix A -1
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Mining and Modelling<br />
Ore Reserve Sign<strong>of</strong>f Mt Boppy S Buxt<strong>on</strong> 290612.docx.<br />
112101 - Wingina Well Geotechnical Review.pdf.<br />
1669-M01_MB_Optimisati<strong>on</strong>_Memo_v03.pdf.<br />
1693AMD20130305_Turner_River_optimisati<strong>on</strong>_memo_v04.pdf.<br />
1693AMD20130305_Turner_River_optimisati<strong>on</strong>_memo_v04.zip.<br />
Andys EM Letter and Overview (<strong>Polymetals</strong>).pdf.<br />
Poly\Appendix E1 Hydrogeological Assessment (revised).pdf.<br />
Poly\Appendix K2 SWMP (Final) 29 June 12.pdf.<br />
ASX_28Sep2012_Annual_Report_2012.pdf.<br />
ASX_29Jan2013_Mt Boppy Feasibility Announcement.pdf.<br />
Copy <strong>of</strong> Opt Pit Totals from AMDAD Feb 13.xlsx.<br />
Heap Leach Equipment List V2.xlsx.<br />
MINENHIL00411AA_Mt_Boppy_Geotechnical_Reviewx.pdf.<br />
Mt Boppy Development - project overview 20130115 V3.pdf.<br />
Mt Boppy Financial and Cashflow 4-Feb-13 (V6C).xlsx.<br />
Mt Boppy Plant Hire Proposal - MRA 8Nov12.pdf.<br />
Mt Boppy Royalty Deed executed by GCR and GCO.pdf.<br />
mt_boppy_300912_v7.str.<br />
Ore Reserve Sign<strong>of</strong>f Mt Boppy_SBuxt<strong>on</strong> 290612.docx.<br />
Prelim Hydrogeological Report KBR.pdf.<br />
TR HL and waste dump design V1.xlsx.<br />
Turner River Whittle Inputs_CIL Feb13.xls.<br />
Turner River Whittle Inputs_Heap Leach Feb13.xls.<br />
WinginaWellC<strong>on</strong>ceptualLocati<strong>on</strong>Plan.pdf.<br />
SOUTHERN CROSS GOLDFIELDS LIMITED<br />
Envir<strong>on</strong>ment, Permitting and Hydrology<br />
Bamford C<strong>on</strong>sulting Ecologists: Targeted Fauna Assessment, Mt Jacks<strong>on</strong>. January 2013.<br />
Bioscope Envir<strong>on</strong>mental: Biological and Envir<strong>on</strong>mental Physio-chemical studies <strong>of</strong> the Marda Project.<br />
January 2013.<br />
Bioscope Envir<strong>on</strong>mental: Known Flora and Vegetati<strong>on</strong> Values <strong>of</strong> the Marda Project. January 2013.<br />
Botanica C<strong>on</strong>sulting, and Western Botanical: Various reports <strong>on</strong> flora and vegetati<strong>on</strong> <strong>of</strong> SXG deposits Red<br />
Legs, Marda, King Brown and Die Hardy. 2012.<br />
Cecchi, John B: Report <strong>on</strong> an Aboriginal Heritage Survey <strong>of</strong> Southern Cross Goldfields Ltd Marda Gold<br />
Project Additi<strong>on</strong>al Areas and Die Hardy Road Widening. January 2013.<br />
Precis Report – Potential for Acid Generati<strong>on</strong> from Mining Wastes, Marda District. (Undated.)<br />
Rapallo: Southern Cross Goldfields – Marda, Golden Orb, King Brown and Battler Projects. Feasibility<br />
Study; Envir<strong>on</strong>mental. February 2012.<br />
Rapallo: Level 2 Short-Range Endemic Survey <strong>of</strong> the Marda Tenement and Level 1 Short-Range Endemic<br />
Survey <strong>of</strong> the Golden Orb and King Brown Tenements. June 2012.<br />
Rapallo: Soils and Waste Rock Characterisati<strong>on</strong> for Marda Central Deposits. January 2013.<br />
Appendix A -2
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
Rock Team: Southern Cross Goldfields – Marda Project; Summary. October 2012.<br />
Terrestrial Ecosystems: Short-Range Endemics for Southern Cross Goldfields multiple project areas.<br />
January 2013.<br />
Terrestrial Ecosystems: Tree Hollow Assessment for Cockatoos at Battler, King Brown, Marda and Golden<br />
Orb. September 2011.<br />
Geology, Resources and Explorati<strong>on</strong> Property Valuati<strong>on</strong>s<br />
Troy Resources NL, 201: Sandst<strong>on</strong>e Gold Project Informati<strong>on</strong> Memorandum, May 2011<br />
Troy Resources NL, 2009: Sandst<strong>on</strong>e Technical Report, Sandst<strong>on</strong>e Project, Mid West Regi<strong>on</strong>, Western<br />
Australia, July 2009<br />
Truelove A J, 2012: Review Of Regi<strong>on</strong>al Scale Explorati<strong>on</strong> Potential Sandst<strong>on</strong>e Project for Southern Cross<br />
Goldfields Ltd<br />
AMC212109 - 27 March 2013 - Final Report.<br />
Legal Due Diligence Report (300413) v4 (updated versi<strong>on</strong>).<br />
SXG ASX Announcement 23 November 2012.<br />
SXG Preliminary Final Report for the year ended 30 June 2012.<br />
Metallurgy, Plant and Associated Infrastructure<br />
METS: Report: Southern Cross Feasibility Study, Date: 20/07/2012, Doc No: J531-RP-000-002-C (Part <strong>of</strong><br />
Feasibility Study - Metallurgy Secti<strong>on</strong> 8).<br />
Como Engineers: Report: Southern Cross Feasibility Study Marda Gold Project Definitive Feasibility Study,<br />
July 2012 (Part Of Feasibility Study – Processing Plant Secti<strong>on</strong> 9).<br />
Como Engineers: Report: Marda Gold Project Sandst<strong>on</strong>e Plant Refurbishment and Relocati<strong>on</strong> Study,<br />
November 2012.<br />
Rock Team: Report: Marda Gold Project Summary, October 2012.<br />
G Brock, Memo: To Glenn Jardine; Review <strong>of</strong> SXG Deposit Metallurgy Data; 3 January 2011.<br />
Mining and Modelling<br />
AMC Report Summary_FINAL.pdf.<br />
AMC212109 - 27 March 2013 - Final Report.pdf.<br />
ASX_SXG_Feasibility_Study_090512_v2_Final 2.pdf.<br />
ASX_SXG_Sandst<strong>on</strong>e Acquisiti<strong>on</strong>_140812_Final.pdf.<br />
Southern Cross Feasibility Summary - 011012 Draft V4.5 - Final.pdf.<br />
Southern Cross Financial Model April 2013 - Revised for ITE comments.xlsx.<br />
SouthernCross_Schedule_1475_v7_270412.xlsx.<br />
Appendix A -3
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
APPENDIX B<br />
ABBREVIATIONS<br />
$ Australian dollar unless otherwise<br />
specified<br />
$M Dollars milli<strong>on</strong><br />
% Percent<br />
AC<br />
Air core<br />
Ai<br />
Abrasi<strong>on</strong> index<br />
AMC<br />
AMC C<strong>on</strong>sultants Pty Ltd<br />
AMD<br />
Acid and metalliferous drainage<br />
AMDAD<br />
Australian Mine Design and<br />
Development<br />
Au<br />
Gold<br />
BCFM<br />
Base case financial model<br />
BDO<br />
BDO Corporate Finance (WA) Pty Ltd<br />
BIF<br />
Banded ir<strong>on</strong> formati<strong>on</strong><br />
BWi<br />
B<strong>on</strong>d ball mill work index<br />
CIL<br />
Carb<strong>on</strong>-in-leach<br />
CIP<br />
Carb<strong>on</strong>-in-pulp<br />
CNWAD<br />
Weak acid dissociable cyanide<br />
C<strong>of</strong>fey<br />
C<strong>of</strong>fey Mining Pty Ltd<br />
COG<br />
Cut-<strong>of</strong>f grade<br />
Como<br />
Como Engineers Pty Ltd<br />
Cu<br />
Copper<br />
CWi<br />
Crushing work index<br />
D1<br />
First deformati<strong>on</strong> event<br />
D2<br />
Sec<strong>on</strong>d deformati<strong>on</strong> event<br />
D3<br />
Third deformati<strong>on</strong> event<br />
DCF<br />
Discounted cash flow<br />
DEC<br />
Department <strong>of</strong> Envir<strong>on</strong>ment and<br />
C<strong>on</strong>servati<strong>on</strong><br />
DMP<br />
Department <strong>of</strong> Mines and Petroleum<br />
DoW<br />
Department <strong>of</strong> Water<br />
DRF<br />
Declared rare fauna<br />
EP Act<br />
Envir<strong>on</strong>mental Protecti<strong>on</strong> Act<br />
EPA<br />
Envir<strong>on</strong>mental Protecti<strong>on</strong> Authority<br />
EPA<br />
Envir<strong>on</strong>mental Protecti<strong>on</strong> Authority<br />
EPBC Act Comm<strong>on</strong>wealth Envir<strong>on</strong>mental<br />
Protecti<strong>on</strong> and Biodiversity<br />
C<strong>on</strong>servati<strong>on</strong> Act<br />
EPL<br />
Envir<strong>on</strong>mental Protecti<strong>on</strong> Licence<br />
FIFO<br />
Fly-in fly-out<br />
g<br />
gram<br />
g/t<br />
grams per t<strong>on</strong>ne<br />
Grant Thornt<strong>on</strong> Grant Thornt<strong>on</strong> Corporate Finance Pty<br />
Ltd<br />
GSWA<br />
Geological Survey <strong>of</strong> Western<br />
Australia<br />
IER<br />
Independent expert's report<br />
IP<br />
Induced polarisati<strong>on</strong><br />
JORC Code Australasian Code for Reporting <strong>of</strong><br />
Explorati<strong>on</strong> Results, Mineral<br />
Resources and Ore Reserves, The<br />
JORC Code 2004 Editi<strong>on</strong>, Effective<br />
December 2004, Prepared by the Joint<br />
Ore Reserves Committee <strong>of</strong> the<br />
Australasian Institute <strong>of</strong> Mining and<br />
Metallurgy, Australian Institute <strong>of</strong><br />
Geoscientists and Minerals Council <strong>of</strong><br />
Australia (JORC)<br />
KBR<br />
Kellogg Brown & Root Pty Ltd<br />
km<br />
kilometres<br />
koz<br />
thousand ounces<br />
kt<br />
thousand t<strong>on</strong>nes<br />
ktpa<br />
thousand t<strong>on</strong>nes per annum<br />
LOM<br />
M<br />
m<br />
m 2<br />
m 3<br />
Marda<br />
mm<br />
mRL<br />
Mt<br />
Mtpa<br />
NAF<br />
NPV<br />
OEPA<br />
OK<br />
oz<br />
PAF<br />
PEC<br />
PEM<br />
PFS<br />
<strong>Polymetals</strong><br />
ppm<br />
RAB<br />
RC<br />
ROM<br />
RWi<br />
SAG<br />
SMC<br />
Southern Cross<br />
t<br />
TECs<br />
tpa<br />
tph<br />
TSF<br />
TSR<br />
UCS<br />
US$<br />
VALMIN Code<br />
Zn<br />
Troy<br />
life-<strong>of</strong>-mine<br />
milli<strong>on</strong><br />
metres<br />
square metre<br />
cubic metres<br />
Marda gold project<br />
millimetres<br />
reduced level<br />
milli<strong>on</strong> t<strong>on</strong>nes<br />
milli<strong>on</strong> t<strong>on</strong>nes per annum<br />
N<strong>on</strong> acid-forming<br />
Net present value<br />
Office <strong>of</strong> the EPA<br />
Ordinary kriging<br />
ounce<br />
Potentially acid-forming<br />
Priority ecological community<br />
Prospectivity enhancement multiplier<br />
Priority flora species<br />
<strong>Polymetals</strong> Mining Limited<br />
parts per milli<strong>on</strong><br />
Rotary air blast<br />
Reverse circulati<strong>on</strong><br />
Run-<strong>of</strong>-mine<br />
B<strong>on</strong>d rod mill work index<br />
Semi-autogenous<br />
Sag mill competency<br />
Southern Cross Goldfields Limited<br />
t<strong>on</strong>nes<br />
Threatened ecological communities<br />
t<strong>on</strong>nes per annum<br />
t<strong>on</strong>nes per hour<br />
tailings storage facility<br />
Technical Specialist's Report<br />
Unc<strong>on</strong>fined compressive strength<br />
United States Dollars<br />
Code for the Technical Assessment<br />
and Valuati<strong>on</strong> <strong>of</strong> Mineral and<br />
Petroleum Assets and Securities for<br />
Independent Expert Reports. The<br />
VALMIN Code 2005 Editi<strong>on</strong>, Prepared<br />
by the VALMIN Committee, a joint<br />
committee <strong>of</strong> the Australasian Institute<br />
<strong>of</strong> Mining and Metallurgy, the<br />
Australian Institute <strong>of</strong> Geoscientists<br />
and the Mineral Industry C<strong>on</strong>sultants<br />
Associati<strong>on</strong> <strong>with</strong> the participati<strong>on</strong> <strong>of</strong><br />
the Australian Securities and<br />
Investment Commissi<strong>on</strong>, the<br />
Australian Stock Exchange Limited,<br />
the Minerals Council <strong>of</strong> Australia, the<br />
Petroleum Explorati<strong>on</strong> Society <strong>of</strong><br />
Australia, the Securities Associati<strong>on</strong> <strong>of</strong><br />
Australia and representatives from the<br />
Australian finance sector.<br />
Zinc<br />
Troy Resources NL<br />
Appendix B -1
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
The c<strong>on</strong>tributors to this report include the following:<br />
APPENDIX C<br />
REPORT CONTRIBUTORS<br />
Name Qualificati<strong>on</strong>s Affiliati<strong>on</strong>s Involvement<br />
Bruce Gregory BEng (Mining)<br />
Diploma Financial<br />
Management<br />
Diploma Applied<br />
Finance & Investment<br />
AMC General<br />
Manager/Principal<br />
Mining Engineer<br />
Peer Reviewer.<br />
Lawrie Gillett<br />
Brad Wats<strong>on</strong><br />
BEng (Mining)<br />
DipGeosc (Mineral<br />
Ec<strong>on</strong>omics<br />
BEng (H<strong>on</strong>s) (Mining<br />
Engineering),<br />
BComm (Finance)<br />
FAusIMM (CP),<br />
MAIME,<br />
GAICD<br />
AMC Senior Mining<br />
Engineer<br />
Dean Carville B App Sc (App. Geol) AMC Geology Manager/<br />
Principal Geologist<br />
Peer Reviewer.<br />
Valuati<strong>on</strong> modelling and technical<br />
support.<br />
Geology, Resources and<br />
Explorati<strong>on</strong> Property Valuati<strong>on</strong>s.<br />
Chris John<br />
BSc (Agric) (H<strong>on</strong>s)<br />
PhD<br />
John C<strong>on</strong>sulting Service,<br />
Director<br />
Envir<strong>on</strong>ment, Permitting and<br />
Hydrology<br />
David Varcoe BEng (Mining) (H<strong>on</strong>s) AMC Principal Mining<br />
Engineer<br />
Project Manager and Review <strong>of</strong><br />
Mining and General Aspects.<br />
Rachael Birch MSc (Geology) AMC Senior Geologist Geology, Resources and<br />
Explorati<strong>on</strong> Property Valuati<strong>on</strong>s.<br />
Rob Chesher<br />
BSc (Metallurgy)<br />
(H<strong>on</strong>s)<br />
AMC Corporate<br />
Manager/Principal<br />
C<strong>on</strong>sultant<br />
T<strong>on</strong>y Showell BAppSc (Metallurgy) AMC Associate –<br />
Metallurgist<br />
Metallurgy, Plant and Associated<br />
Infrastructure - Mt Boppy and<br />
Turner River.<br />
Metallurgy, Processing and<br />
Associated Infrastructure -<br />
Marda.<br />
Appendix C - 1
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
APPENDIX D<br />
POLYMETALS TENEMENTS<br />
Tenements and Expenditure by M<strong>on</strong>th<br />
Type Number Project Registered Holder Date<br />
Granted<br />
Date<br />
Expiry<br />
Annual<br />
Expenditure<br />
Ha Blocks ($) ($)<br />
E 1 E47_0891 Mt Dove Domain Mining Pty Ltd 18/07/2002 17/07/2013 14,070.00 44 132,000.00 20,512.80<br />
E E45_2995 Wingina Well Indee Domain Mining Pty Ltd 7/08/2008 6/08/2013 10,560.00 33 49,500.00 8,124.60<br />
E E45_3390 Mt Berghaus Last Crusade Pty Ltd 6/01/2011 5/01/2016 18,250.00 56 57,000.00 10,161.20<br />
E E45_3391 Baker Well Indee HSD Last Crusade Pty Ltd 6/01/2011 5/01/2016 6,400.00 20 20,000.00 3,629.00<br />
E E45_3392 Berghaus Last Crusade Pty Ltd 6/01/2011 5/01/2016 22,390.00 70 70,000.00 12,701.50<br />
P 2 P45_2655 Amanda Domain Mining Pty Ltd 30/05/2008 29/05/2016 25.50 0.1 2,000.00 58.50<br />
E E45_2533 Discovery,Orchard Tnk De Grey Mining Ltd 24/06/2005 23/06/2014 73,100.00 23 70,000.00 10,722.60<br />
E E45_2364 Tabba Tabba De Grey Mining Ltd 28/02/2006 27/02/2013 1,500.00 6.5 50,000.00 3,263.40<br />
E EL_4199 Macd<strong>on</strong>ald Hill Exco Operati<strong>on</strong>s (SA)Limited 75% and 10/11/2008 9/11/2012 4,900.00 - 70,000.00 639.70<br />
<strong>Polymetals</strong> (White Dam) Pty Ltd 25%<br />
E EL_4200 Mingary " 12/11/2008 11/11/2012 22,900.00 - 100,000.00 2,493.70<br />
E EL_4321 Bullo Sth " 14/10/2009 13/10/2012 9,600.00 - 80,000.00 1,123.80<br />
E EL_4533 Drew Hill " 28/07/2010 27/07/2014 34,300.00 - 260,000.00 3,115.25<br />
M 3 ML_6275 White Dam " 11/09/2007 10/09/2014 249.80 - - 11,178.55<br />
M ML_6395 White Dam " 8/12/2011 7/12/2021 250.00 - - 11,524.03<br />
M MPL_95 White Dam " 11/09/2007 10/09/2014 24.10 - - 1,078.00<br />
M MPL_104 White Dam " 24/01/2008 23/01/2015 250.00 - - -<br />
M MPL_105 White Dam " 24/01/2008 23/01/2015 250.00 - - 13,250.00<br />
M MPL_106 White Dam " 24/01/2008 23/01/2015 162.60 - - 8,617.80<br />
M MPL_107 White Dam " 24/01/2008 23/01/2015 132.30 - - 7,011.90<br />
M MPL_139 White Dam " 8/12/2011 7/12/2021 250.00 - - 11,518.21<br />
M GL_3255 Mt Boppy - Canbelego - 20/05/1926 20/05/2012 8.30 - - 338.00<br />
M GL_5836 Mt Boppy - Canbelego - 15/06/1965 15/06/2012 6.00 - - 338.00<br />
M GL_5848 Mt Boppy - Canbelego - 15/02/1968 15/06/2012 8.60 - - 338.00<br />
M GL_5898 Mt Boppy - Canbelego - 21/06/1972 21/06/2013 7.50 - - 338.00<br />
M ML_311* Mt Boppy - Canbelego - 8/12/1976 21/06/2013 10.10 - - 2,960.00<br />
MP 4 MPL_240* Mt Boppy - Canbelego - 17/01/2013 12/12/2033 17.80 - - 3,011.00<br />
M ML_1681 Mt Boppy - Canbelego - - 12/12/2033 - - 2,637.00<br />
MLA 5 MLA_281 Mt Boppy - Canbelego - 4/05/2006 - 188.20 - - -<br />
E EL_5842 Canbelego <strong>Polymetals</strong> (Mt Boppy) Pty Ltd - 100% 19/04/2001 19/04/2013 20,460.00 70 100,000.00 -<br />
Area<br />
Annual<br />
Rent<br />
1.<br />
2.<br />
3.<br />
4.<br />
5.<br />
Explorati<strong>on</strong> Licence WA<br />
Prospecting Licence<br />
Mining Lease<br />
Mining Purposes<br />
Mining Lease Applicati<strong>on</strong><br />
Appendix D-1
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
APPENDIX E<br />
SOUTHERN CROSS TENEMENTS<br />
Tenements and Expenditure by M<strong>on</strong>th<br />
Type Number Project Registered Holder Date<br />
Granted<br />
Date<br />
Expiry<br />
Annual<br />
Expenditure<br />
Annual<br />
Rent<br />
Ha Blocks ($) ($)<br />
E 1 E77/1233 Blackbournes Southern Cross Goldfields Ltd 18/07/2007 17/07/2014 300.00 1 15,000.00 273.00<br />
E E77/1234 Blackbournes Southern Cross Goldfields Ltd 4/07/2005 3/07/2014 2,700.00 35 70,000.00 4,195.80<br />
E E77/1599 Blackbournes Southern Cross Goldfields Ltd 12/05/2009 11/05/2014 2,100.00 7 30,000.00 1,235.50<br />
E E77/1726 Blackbournes Southern Cross Goldfields Ltd 21/09/2010 20/09/2015 2,400.00 8 20,000.00 933.60<br />
E E77/1837 Blackbournes Southern Cross Goldfields Ltd 5/09/2011 4/09/2016 2,400.00 8 20,000.00 933.60<br />
P 2 P77/3663 Blackbournes Southern Cross Goldfields Ltd 10/03/2009 9/03/2017 120.00 - 4,800.00 270.00<br />
P P77/3664 Blackbournes Southern Cross Goldfields Ltd 10/03/2009 9/03/2017 151.00 - 6,040.00 339.75<br />
P P77/4112 Blackbournes Southern Cross Goldfields Ltd 12/12/2011 11/12/2015 68.00 - 2,720.00 153.00<br />
P P77/4113 Blackbournes Southern Cross Goldfields Ltd 12/12/2011 11/12/2015 200.00 - 8,000.00 450.00<br />
E E77/1976 Bo<strong>on</strong>dine Southern Cross Goldfields Ltd 16/05/2012 15/05/2017 900.00 3 15,000.00 340.50<br />
E E77/1790 British Hill Southern Cross Goldfields Ltd 13/01/2011 12/01/2016 600.00 2 15,000.00 233.40<br />
E E77/1939 British Hill Southern Cross Goldfields Ltd 19/10/2011 18/10/2016 300.00 1 10,000.00 280.65<br />
E E77/1368 Bullfinch North Southern Cross Goldfields Ltd 15/04/2008 - 300.00 4 10,000.00 273.00<br />
E E77/1373 Bullfinch North Southern Cross Goldfields Ltd 15/04/2008 14/04/2018 5,700.00 23 30,000.00 3,353.50<br />
E E77/1390 Bullfinch North Southern Cross Goldfields Ltd 15/04/2008 14/04/2018 1,200.00 8 20,000.00 706.00<br />
E E77/1391 Bullfinch North Polaris Metals Pty Ltd 28/01/2009 27/01/2014 600.00 6 20,000.00 362.90<br />
E E77/1630 Bullfinch North Southern Cross Goldfields Ltd 10/12/2009 9/12/2014 4,500.00 15 30,000.00 2,721.75<br />
E E77/1765 Bullfinch North Southern Cross Goldfields Ltd 11/10/2010 10/10/2015 1,200.00 4 15,000.00 466.80<br />
E E77/1893 Bullfinch North Southern Cross Goldfields Ltd 6/08/2012 5/08/2017 2,100.00 7 20,000.00 816.90<br />
E E77/1964 Bullfinch North Southern Cross Goldfields Ltd 3/04/2012 2/04/2017 300.00 1 10,000.00 273.00<br />
M 3 M77/1064 Bullfinch North Southern Cross Goldfields Ltd 7/01/2009 6/01/2030 9.70 - 10,000.00 154.00<br />
M M77/1089 Bullfinch North Southern Cross Goldfields Ltd 4/05/2009 3/05/2030 10.59 - 10,000.00 165.00<br />
M M77/1090 Bullfinch North Southern Cross Goldfields Ltd 4/05/2009 3/05/2030 25.60 - 10,000.00 390.00<br />
M M77/1094 Bullfinch North Southern Cross Goldfields Ltd 4/05/2009 3/05/2030 59.61 - 10,000.00 900.00<br />
M M77/1101 Bullfinch North Southern Cross Goldfields Ltd 3/07/2009 2/07/2030 118.55 - 11,900.00 1,832.60<br />
M M77/1103 Bullfinch North Southern Cross Goldfields Ltd 4/05/2009 3/05/2030 0.76 - 5,000.00 15.00<br />
M M77/123 Bullfinch North Southern Cross Goldfields Ltd 9/12/1986 8/12/2028 150.45 - 15,100.00 2,325.40<br />
M M77/1253 Bullfinch North Polaris Metals Pty Ltd 11/01/2011 10/01/2032 1,519.24 - 152,000.00 23,408.00<br />
M M77/228 Bullfinch North Southern Cross Goldfields Ltd 6/04/1988 5/04/2030 134.90 - 13,500.00 2,079.00<br />
P P77/3625 Bullfinch North Southern Cross Goldfields Ltd 23/10/2007 22/10/2015 72.90 - 2,920.00 164.25<br />
P P77/3626 Bullfinch North Southern Cross Goldfields Ltd 23/10/2007 22/10/2015 24.10 - 2,000.00 56.25<br />
P P77/3627 Bullfinch North Southern Cross Goldfields Ltd 23/10/2007 22/10/2015 24.50 - 2,000.00 56.25<br />
P P77/3628 Bullfinch North Southern Cross Goldfields Ltd 23/10/2007 22/10/2015 150.70 - 6,040.00 339.75<br />
P P77/3629 Bullfinch North Southern Cross Goldfields Ltd 23/10/2007 22/10/2015 108.30 - 4,360.00 245.25<br />
P P77/3630 Bullfinch North Polaris Metals Pty Ltd 23/10/2007 22/10/2015 125.10 - 5,040.00 283.50<br />
P P77/3631 Bullfinch North Polaris Metals Pty Ltd 23/10/2007 22/10/2015 1.95 - 2,000.00 22.50<br />
P P77/3632 Bullfinch North Polaris Metals Pty Ltd 23/10/2007 22/10/2015 20.40 - 2,000.00 47.25<br />
P P77/3633 Bullfinch North Polaris Metals Pty Ltd 23/10/2007 22/10/2015 33.20 - 2,000.00 76.50<br />
P P77/3634 Bullfinch North Polaris Metals Pty Ltd 23/10/2007 22/10/2015 20.50 - 2,000.00 47.25<br />
P P77/3635 Bullfinch North Polaris Metals Pty Ltd 23/10/2007 22/10/2015 3.80 - 2,000.00 22.50<br />
P P77/3636 Bullfinch North Polaris Metals Pty Ltd 23/10/2007 22/10/2015 48.10 - 2,000.00 110.25<br />
P P77/3970 Bullfinch North Polaris Metals Pty Ltd 6/04/2010 5/04/2014 12.00 - 2,000.00 26.40<br />
P P77/4033 Bullfinch North Southern Cross Goldfields Ltd 4/04/2012 3/04/2016 9.66 - 2,000.00 22.00<br />
P P77/4107 Bullfinch North Southern Cross Goldfields Ltd 6/07/2012 5/07/2016 12.99 - 2,000.00 29.25<br />
P P77/3996 Bullfinch North - Ennuin Southern Cross Goldfields Ltd 16/03/2011 15/03/2015 126.00 - 5,040.00 283.50<br />
P P77/3997 Bullfinch North - Ennuin Southern Cross Goldfields Ltd 16/03/2011 15/03/2015 119.00 - 4,760.00 267.75<br />
E E77/1374 Bullfinch North JV Polaris Metals Pty Ltd 27/11/2007 26/11/2017 12,300.00 69 82,000.00 10,094.20<br />
E E77/1423 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 7/11/2008 6/11/2013 9,000.00 30 45,000.00 5,443.50<br />
E E77/1424 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 11/08/2008 10/08/2013 1,800.00 6 30,000.00 1,088.70<br />
E E77/1509 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 3/06/2011 2/06/2016 3,000.00 10 20,000.00 1,135.00<br />
E E77/1566 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 29/04/2009 28/04/2014 3,000.00 10 30,000.00 1,765.00<br />
E E77/1649 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 10/12/2009 9/12/2014 1,500.00 5 20,000.00 907.25<br />
E E77/1699 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 6/04/2010 5/04/2014 4,500.00 15 20,000.00 1,702.50<br />
E E77/1728 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 21/09/2010 20/09/2015 900.00 3 15,000.00 350.10<br />
E E77/1880 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 3/10/2011 2/10/2016 8,700.00 29 29,000.00 3,384.30<br />
P P77/3816 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 103.00 - 4,120.00 231.75<br />
P P77/3817 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 127.00 - 5,080.00 279.40<br />
P P77/4022 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 28/02/2011 27/02/2015 120.00 - 4,800.00 270.00<br />
P P77/4119 Clampt<strong>on</strong> North Southern Cross Goldfields Ltd 3/08/2012 2/08/2016 34.24 - 2,000.00 78.75<br />
E E77/1375 Copper Bore Radar Ir<strong>on</strong> Ltd 30/01/2008 29/01/2018 3,900.00 13 50,000.00 3,200.60<br />
M M77/973 Copper Bore Polaris Metals Pty Ltd 20/02/2008 19/02/2029 6.00 - 10,000.00 92.40<br />
E E77/1791 Die Hardy Range Southern Cross Goldfields Ltd - - 600.00 2 - -<br />
Area<br />
Appendix E-1
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
Tenements and Expenditure by M<strong>on</strong>th<br />
Type Number Project Registered Holder Date<br />
Granted<br />
Date<br />
Expiry<br />
Annual<br />
Expenditure<br />
Annual<br />
Rent<br />
Ha Blocks ($) ($)<br />
L 4 L77/261 Die Hardy Range Southern Cross Goldfields Ltd - - 40.00 - - -<br />
M M77/576 Die Hardy Range Southern Cross Goldfields Ltd 15/06/1993 14/06/2014 35.46 - 10,000.00 540.00<br />
M M77/824 Die Hardy Range Southern Cross Goldfields Ltd 8/06/2005 7/06/2026 180.00 - 18,000.00 2,700.00<br />
E E77/1938 Dulcie - Marvel Loch South Southern Cross Goldfields Ltd 19/10/2011 18/10/2016 300.00 1 10,000.00 280.65<br />
L L77/226 Dulcie - Marvel Loch South Dulcie Operati<strong>on</strong>s 18/10/2011 17/10/2032 20.00 - 0.00 273.00<br />
M M77/1246 Dulcie - Marvel Loch South Dulcie Operati<strong>on</strong>s 8/04/2010 7/04/2031 84.00 - 10,000.00 1,260.00<br />
M M77/1250 Dulcie - Marvel Loch South Dulcie Operati<strong>on</strong>s 26/08/2010 25/08/2031 270.00 - 27,000.00 4,158.00<br />
E E77/1721 Evanst<strong>on</strong> Polaris Metals Pty Ltd - - 9,300.00 31 - -<br />
E E77/1376 Evanst<strong>on</strong> Polaris Metals Pty Ltd 8/04/2008 7/04/2018 9,300.00 31 46,500.00 5,471.50<br />
E E77/1653 Evanst<strong>on</strong> Southern Cross Goldfields Ltd 10/12/2009 9/12/2014 1,800.00 6 30,000.00 1,088.70<br />
E E77/1741 Evanst<strong>on</strong> Southern Cross Goldfields Ltd 20/08/2010 19/08/2015 10,800.00 36 36,000.00 4,201.20<br />
E E77/1742 Evanst<strong>on</strong> Southern Cross Goldfields Ltd 18/04/2011 17/04/2016 900.00 3 15,000.00 340.50<br />
E E77/1814 Evanst<strong>on</strong> Southern Cross Goldfields Ltd 23/05/2011 22/05/2016 1,500.00 5 15,000.00 567.50<br />
E E77/1911 Evanst<strong>on</strong> Southern Cross Goldfields Ltd 6/09/2011 5/09/2016 3,600.00 13 20,000.00 1,400.40<br />
P P77/4063 Evanst<strong>on</strong> Southern Cross Goldfields Ltd 20.69 - 0.00 0.00<br />
E E77/1384 Jacks<strong>on</strong> North Polaris Metals Pty Ltd 1/05/2008 30/04/2013 1,500.00 5 20,000.00 882.50<br />
E E77/1280 Johnst<strong>on</strong> Range Radar Ir<strong>on</strong> Ltd 13/08/2007 12/08/2014 9,600.00 64 64,000.00 5,648.00<br />
E E77/1281 Johnst<strong>on</strong> Range Radar Ir<strong>on</strong> Ltd 13/08/2007 12/08/2014 10,500.00 70 70,000.00 6,177.50<br />
E E77/1807 Johnst<strong>on</strong> Range Radar Ir<strong>on</strong> Ltd 5/09/2011 4/09/2016 900.00 3 15,000.00 350.10<br />
E E77/1879 Johnst<strong>on</strong> Range Southern Cross Goldfields Ltd 3/10/2011 2/10/2016 11,100.00 37 37,000.00 4,317.90<br />
E E77/1508 Marda Southern Cross Goldfields Ltd - - 6,300.00 21 - -<br />
E E77/2024 Marda Southern Cross Goldfields Ltd - - 2,400.00 8 - -<br />
E E77/2025 Marda Southern Cross Goldfields Ltd - - 600.00 2 - -<br />
E E77/2089 Marda Southern Cross Goldfields Ltd - - 6,000.00 20 - -<br />
G 5 G77/120 Marda Southern Cross Goldfields Ltd - - 92.00 - - -<br />
L L77/258 Marda Southern Cross Goldfields Ltd - - 149.00 - - -<br />
L L77/259 Marda Southern Cross Goldfields Ltd - - 32.00 - - -<br />
L L77/260 Marda Southern Cross Goldfields Ltd - - 18.00 - - -<br />
P P77/4179 Marda Southern Cross Goldfields Ltd - - 198.32 - - -<br />
P P77/4180 Marda Southern Cross Goldfields Ltd - - 159.35 - - -<br />
P P77/4181 Marda Southern Cross Goldfields Ltd - - 199.06 - - -<br />
E E77/1117 Marda Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 27/10/2004 26/10/2013 9,300.00 70 93,000.00 14,452.20<br />
E E77/1164 Marda Radar Ir<strong>on</strong> Ltd 28/03/2006 900.00 9 30,000.00 718.50<br />
E E77/1293 Marda Southern Cross Goldfields Ltd 22/11/2006 21/11/2013 300.00 4 15,000.00 280.65<br />
E E77/1295 Marda Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 6/03/2007 5/03/2014 6,300.00 24 50,000.00 5,170.20<br />
E E77/1321 Marda Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 18/01/2007 17/01/2017 900.00 5 30,000.00 738.60<br />
E E77/1322 Marda Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 18/01/2007 17/01/2017 7,500.00 41 50,000.00 6,155.00<br />
E E77/1427 Marda Southern Cross Goldfields Ltd 23/06/2008 22/06/2013 5,400.00 18 30,000.00 3,177.00<br />
E E77/1474 Marda Southern Cross Goldfields Ltd 25/11/2008 24/11/2013 6,300.00 24 31,500.00 3,810.45<br />
E E77/1477 Marda Southern Cross Goldfields Ltd 20/11/2008 19/11/2013 900.00 3 20,000.00 544.35<br />
E E77/1488 Marda Southern Cross Goldfields Ltd 6/02/2009 5/02/2014 2,700.00 9 30,000.00 1,633.05<br />
E E77/1496 Marda Southern Cross Goldfields Ltd 25/11/2008 24/11/2013 900.00 3 20,000.00 544.35<br />
E E77/1498 Marda Southern Cross Goldfields Ltd 1/04/2009 31/03/2014 300.00 1 10,000.00 273.00<br />
E E77/1499 Marda Southern Cross Goldfields Ltd 19/01/2009 18/01/2014 3,000.00 10 30,000.00 1,814.50<br />
E E77/1500 Marda Southern Cross Goldfields Ltd 19/01/2009 18/01/2014 600.00 2 20,000.00 362.90<br />
E E77/1505 Marda Southern Cross Goldfields Ltd 16/02/2009 15/02/2014 900.00 3 20,000.00 544.35<br />
E E77/1650 Marda Southern Cross Goldfields Ltd 10/12/2009 9/12/2014 900.00 3 20,000.00 544.35<br />
E E77/1654 Marda Southern Cross Goldfields Ltd 10/12/2009 9/12/2014 2,100.00 7 30,000.00 1,270.15<br />
E E77/1657 Marda Southern Cross Goldfields Ltd 16/12/2009 15/12/2014 1,200.00 4 20,000.00 725.80<br />
E E77/1658 Marda Southern Cross Goldfields Ltd 16/12/2009 15/12/2014 300.00 1 10,000.00 280.65<br />
E E77/1817 Marda Southern Cross Goldfields Ltd 23/05/2011 22/05/2016 600.00 2 15,000.00 273.00<br />
E E77/1899 Marda Southern Cross Goldfields Ltd 3/04/2012 2/04/2017 600.00 2 15,000.00 273.00<br />
E E77/1921 Marda Southern Cross Goldfields Ltd 8/05/2012 7/05/2017 2,700.00 9 20,000.00 1,021.50<br />
E E77/1996 Marda Southern Cross Goldfields Ltd 17/05/2012 16/05/2017 300.00 1 10,000.00 273.00<br />
E E77/1997 Marda Southern Cross Goldfields Ltd 3/12/2012 2/12/2017 600.00 2 15,000.00 280.65<br />
E E77/2067 Marda Southern Cross Goldfields Ltd 14/02/2013 13/02/2018 900.00 3 15,000.00 350.10<br />
L L77/238 Marda Southern Cross Goldfields Ltd 1/08/2012 31/07/2033 17.50 - - 245.70<br />
L L77/239 Marda Southern Cross Goldfields Ltd 1/08/2012 31/07/2033 21.10 - - 300.30<br />
L L77/240 Marda Southern Cross Goldfields Ltd 1/08/2012 31/07/2033 86.94 - - 1,187.55<br />
L L77/241 Marda Southern Cross Goldfields Ltd 1/08/2012 31/07/2033 12.40 - - 177.45<br />
L L77/242 Marda Southern Cross Goldfields Ltd 5/10/2012 4/10/2033 59.90 - - 819.00<br />
M M77/646 Marda Southern Cross Goldfields Ltd 24/05/1994 23/05/2015 121.60 - 12,200.00 1,830.00<br />
M M77/931 Marda Southern Cross Goldfields Ltd 8/06/2005 7/06/2026 807.20 - 80,800.00 12,120.00<br />
M M77/962 Marda Southern Cross Goldfields Ltd 8/06/2005 7/06/2026 593.00 - 59,300.00 8,895.00<br />
P P77/3460 Marda Southern Cross Goldfields Ltd 24/08/2011 23/08/2015 199.00 - 7,960.00 447.75<br />
P P77/3461 Marda Radar Ir<strong>on</strong> Ltd 24/08/2011 23/08/2015 199.00 - 7,960.00 447.75<br />
P P77/3462 Marda Radar Ir<strong>on</strong> Ltd 24/08/2011 23/08/2015 135.00 - 5,400.00 303.75<br />
P P77/3801 Marda Southern Cross Goldfields Ltd 22/01/2010 21/01/2014 1.00 - 2,000.00 22.50<br />
P P77/3802 Marda Southern Cross Goldfields Ltd 22/01/2010 21/01/2014 1.00 - 2,000.00 22.50<br />
P P77/3808 Marda Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 139.00 - 5,560.00 312.75<br />
Area<br />
Appendix E-2
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
Tenements and Expenditure by M<strong>on</strong>th<br />
Type Number Project Registered Holder Date<br />
Granted<br />
Date<br />
Expiry<br />
Annual<br />
Expenditure<br />
Annual<br />
Rent<br />
Ha Blocks ($) ($)<br />
P P77/3809 Marda Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 196.00 - 7,840.00 441.00<br />
P P77/3810 Marda Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 199.00 - 7,960.00 447.75<br />
P P77/3811 Marda Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 116.00 - 4,640.00 261.00<br />
P P77/3812 Marda Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 142.00 - 5,680.00 319.50<br />
P P77/3813 Marda Southern Cross Goldfields Ltd 23/02/2009 22/02/2017 67.00 - 2,680.00 150.75<br />
P P77/3868 Marda Southern Cross Goldfields Ltd 4/03/2009 3/03/2013 126.00 - 5,040.00 283.50<br />
P P77/3898 Marda Southern Cross Goldfields Ltd 24/02/2010 23/02/2014 165.20 - 6,640.00 373.50<br />
P P77/3899 Marda Southern Cross Goldfields Ltd 6/03/2009 5/03/2017 24.00 - 2,000.00 54.00<br />
P P77/3901 Marda Southern Cross Goldfields Ltd 21/08/2012 20/08/2016 168.84 - 6,760.00 380.25<br />
P P77/3903 Marda Southern Cross Goldfields Ltd 24/02/2010 23/02/2014 20.22 - 2,000.00 47.25<br />
P P77/3936 Marda Southern Cross Goldfields Ltd 6/03/2009 5/03/2017 24.00 - 2,000.00 54.00<br />
P P77/3967 Marda Southern Cross Goldfields Ltd 22/01/2010 21/01/2014 97.00 - 3,880.00 218.25<br />
P P77/4028 Marda Southern Cross Goldfields Ltd 18/04/2011 17/04/2015 131.00 - 5,240.00 288.20<br />
P P77/4029 Marda Southern Cross Goldfields Ltd 18/04/2011 17/04/2015 131.00 - 5,240.00 288.20<br />
P P77/4076 Marda Southern Cross Goldfields Ltd 6/07/2012 5/07/2016 72.14 - 2,920.00 164.25<br />
P P77/4077 Marda Southern Cross Goldfields Ltd 16/07/2012 15/07/2016 151.52 - 6,080.00 342.00<br />
P P77/4078 Marda Southern Cross Goldfields Ltd 16/07/2012 15/07/2016 187.20 - 7,520.00 423.00<br />
P P77/4079 Marda Southern Cross Goldfields Ltd 6/07/2012 5/07/2016 80.00 - 3,200.00 180.00<br />
P P77/4080 Marda Southern Cross Goldfields Ltd 6/07/2012 5/07/2016 83.00 - 3,320.00 186.75<br />
P P77/4101 Marda Southern Cross Goldfields Ltd 5/07/2012 4/07/2016 40.02 - 2,000.00 92.25<br />
P P77/4118 Marda Southern Cross Goldfields Ltd 3/08/2012 2/08/2016 42.76 - 2,000.00 96.75<br />
P P77/4165 Marda Southern Cross Goldfields Ltd 5/03/2013 4/03/2017 25.70 - 2,000.00 58.50<br />
R 5 R77/1 Marda Southern Cross Goldfields Ltd 14/12/2004 13/12/2013 175.00 - 0.00 1,172.50<br />
R R77/2 Marda Southern Cross Goldfields Ltd 14/12/2004 13/12/2013 255.00 - 0.00 1,708.50<br />
E E77/1766 Marda Central Southern Cross Goldfields Ltd 11/10/2010 10/10/2015 300.00 1 10,000.00 280.65<br />
E E77/1900 Marda Central Southern Cross Goldfields Ltd 6/09/2011 5/09/2016 3,000.00 10 20,000.00 1,167.00<br />
G G77/35 Marda Central Southern Cross Goldfields Ltd 9/11/1989 8/11/2031 4.00 - 0.00 54.60<br />
M M77/394 Marda Central Southern Cross Goldfields Ltd 4/08/1989 3/08/2031 987.80 - 98,800.00 15,215.20<br />
P P77/3412 Marda Central Southern Cross Goldfields Ltd 16/10/2009 15/10/2013 200.00 - 8,000.00 450.00<br />
P P77/3414 Marda Central Southern Cross Goldfields Ltd 16/10/2009 15/10/2013 200.00 - 8,000.00 450.00<br />
P P77/3552 Marda Central Southern Cross Goldfields Ltd 16/10/2009 15/10/2013 172.00 - 6,880.00 387.00<br />
P P77/4055 Marda Dome Southern Cross Goldfields Ltd 29/08/2012 28/08/2016 9.30 - 2,000.00 22.50<br />
E E77/1659 Marda Dome Southern Cross Goldfields Ltd 24/03/2010 23/03/2015 2,700.00 9 20,000.00 1,021.50<br />
P P77/3978 Marda Dome Southern Cross Goldfields Ltd 18/07/2012 17/07/2016 9.65 - 2,000.00 22.50<br />
P P77/3979 Marda Dome Southern Cross Goldfields Ltd 18/07/2012 17/07/2016 42.05 - 2,000.00 96.75<br />
P P77/3994 Marda Dome Southern Cross Goldfields Ltd 18/07/2012 17/07/2016 158.22 - 6,360.00 357.75<br />
E E77/1803 Mt Geraldine Southern Cross Goldfields Ltd 17/05/2011 16/05/2016 600.00 2 15,000.00 273.00<br />
E E77/1773 Mt Holland Southern Cross Goldfields Ltd 18/04/2011 17/04/2016 3,300.00 11 20,000.00 1,248.50<br />
E E77/1775 Mt Holland Southern Cross Goldfields Ltd 29/03/2011 28/03/2016 1,800.00 6 20,000.00 681.00<br />
E E77/1776 Mt Holland Southern Cross Goldfields Ltd 10/03/2011 9/03/2016 900.00 3 15,000.00 350.10<br />
E E77/1777 Mt Holland Southern Cross Goldfields Ltd 20/01/2011 19/01/2016 600.00 2 15,000.00 233.40<br />
E E77/2081 Mt Jacks<strong>on</strong> Southern Cross Goldfields Ltd 300.00 1 0.00 0.00<br />
E E77/1497 Mt Jacks<strong>on</strong> Southern Cross Goldfields Ltd 20/11/2008 19/11/2013 600.00 2 20,000.00 362.90<br />
E E77/1778 Parker Dome Southern Cross Goldfields Ltd 8/11/2010 7/11/2015 600.00 2 15,000.00 233.40<br />
M M77/581 Parker Dome Dulcie Operati<strong>on</strong>s 3/05/1993 2/05/2014 9.62 - 10,000.00 150.00<br />
E E77/1965 Parker Range Southern Cross Goldfields Ltd 3/04/2012 2/04/2017 2,100.00 7 20,000.00 794.50<br />
E E77/2009 Parker Range Southern Cross Goldfields Ltd 26/06/2012 25/06/2017 600.00 2 15,000.00 273.00<br />
L L77/221 Parker Range Southern Cross Goldfields Ltd 25/08/2011 24/08/2032 26.13 - 0.00 368.55<br />
L L77/223 Parker Range Southern Cross Goldfields Ltd 18/10/2011 17/10/2032 32.00 - 0.00 436.80<br />
L L77/224 Parker Range Southern Cross Goldfields Ltd 25/08/2011 24/08/2032 2.00 - 0.00 27.30<br />
L L77/225 Parker Range Southern Cross Goldfields Ltd 25/08/2011 24/08/2032 9.00 - 0.00 122.85<br />
M M77/1025 Parker Range Southern Cross Goldfields Ltd 18/10/2002 17/10/2023 4.00 - 5,000.00 61.60<br />
M M77/1044 Parker Range Southern Cross Goldfields Ltd 24/09/2003 23/09/2024 4.80 - 5,000.00 77.00<br />
M M77/1102 Parker Range Southern Cross Goldfields Ltd 5/09/2007 4/09/2028 2.50 - 5,000.00 46.20<br />
M M77/1256 Parker Range Southern Cross Goldfields Ltd 1/08/2011 31/07/2032 999.00 - 99,900.00 15,384.60<br />
M M77/166 Parker Range Southern Cross Goldfields Ltd 27/10/1987 26/10/2029 51.42 - 10,000.00 800.80<br />
M M77/948 Parker Range Southern Cross Goldfields Ltd 7/01/2004 6/01/2025 19.62 - 10,000.00 308.00<br />
P P77/3645 Parker Range Southern Cross Goldfields Ltd 26/05/2008 25/05/2016 119.00 - 4,760.00 261.80<br />
P P77/3657 Parker Range Dulcie Operati<strong>on</strong>s 15/05/2008 14/05/2016 10.00 - 2,000.00 22.00<br />
P P77/3957 Parker Range Southern Cross Goldfields Ltd 15/10/2009 14/10/2013 178.00 - 7,120.00 400.50<br />
P P77/3958 Parker Range Southern Cross Goldfields Ltd 15/10/2009 14/10/2013 178.00 - 7,120.00 400.50<br />
P P77/3959 Parker Range Southern Cross Goldfields Ltd 15/10/2009 14/10/2013 195.00 - 7,800.00 438.75<br />
P P77/4016 Parker Range Southern Cross Goldfields Ltd 18/04/2011 17/04/2015 9.40 - 2,000.00 22.00<br />
P P77/4032 Parker Range Dulcie Operati<strong>on</strong>s 18/04/2011 17/04/2015 56.00 - 2,240.00 123.20<br />
P P77/4036 Parker Range Southern Cross Goldfields Ltd 17/11/2011 16/11/2015 193.03 - 7,760.00 436.50<br />
P P77/4037 Parker Range Southern Cross Goldfields Ltd 17/11/2011 16/11/2015 191.91 - 7,680.00 432.00<br />
P P77/4038 Parker Range Southern Cross Goldfields Ltd 17/11/2011 16/11/2015 196.28 - 7,880.00 443.25<br />
P P77/4102 Parker Range Dulcie Operati<strong>on</strong>s 5/07/2012 4/07/2016 169.20 - 6,800.00 382.50<br />
P P77/4103 Parker Range Southern Cross Goldfields Ltd 5/07/2012 4/07/2016 14.41 - 2,000.00 33.75<br />
P P77/4120 Parker Range Southern Cross Goldfields Ltd 3/08/2012 2/08/2016 179.97 - 7,200.00 405.00<br />
Area<br />
Appendix E-3
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
Tenements and Expenditure by M<strong>on</strong>th<br />
Type Number Project Registered Holder Date<br />
Granted<br />
Date<br />
Expiry<br />
Annual<br />
Expenditure<br />
Annual<br />
Rent<br />
Ha Blocks ($) ($)<br />
P P77/4121 Parker Range Southern Cross Goldfields Ltd 3/08/2012 2/08/2016 181.63 - 7,280.00 409.50<br />
P P77/4122 Parker Range Southern Cross Goldfields Ltd 3/08/2012 2/08/2016 198.79 - 7,960.00 447.75<br />
P P77/4124 Parker Range Southern Cross Goldfields Ltd 7/02/2012 6/02/2016 200.00 - 8,000.00 450.00<br />
P P77/4125 Parker Range Southern Cross Goldfields Ltd 7/02/2012 6/02/2016 200.00 - 8,000.00 450.00<br />
P P77/4150 Parker Range Southern Cross Goldfields Ltd 27/12/2012 26/12/2016 183.75 - 7,360.00 414.00<br />
P P77/4151 Parker Range Southern Cross Goldfields Ltd 27/12/2012 26/12/2016 9.58 - 2,000.00 22.50<br />
P P77/4152 Parker Range Southern Cross Goldfields Ltd 27/12/2012 26/12/2016 7.81 - 2,000.00 22.50<br />
P P77/4168 Parker Range Southern Cross Goldfields Ltd 5/03/2013 4/03/2017 184.18 - 7,400.00 416.25<br />
P P77/4169 Parker Range Southern Cross Goldfields Ltd 5/03/2013 4/03/2017 96.28 - 3,880.00 218.25<br />
E E29/564 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 9/01/2006 8/01/2015 6,300.00 42 70,000.00 9,790.20<br />
E E29/593 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 17/09/2007 16/09/2014 600.00 2 30,000.00 353.00<br />
E E29/653 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2017 2,700.00 9 50,000.00 1,588.50<br />
E E29/655 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2017 1,500.00 5 30,000.00 882.50<br />
E E29/793 Perrinvale Polaris Metals Pty Ltd 4/07/2011 3/07/2016 900.00 3 15,000.00 350.10<br />
E E30/331 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2017 900.00 3 30,000.00 529.50<br />
E E30/423 Perrinvale Polaris Metals Pty Ltd 4/07/2011 3/07/2016 2,100.00 7 20,000.00 816.90<br />
E E30/424 Perrinvale Polaris Metals Pty Ltd 4/07/2011 3/07/2016 600.00 2 15,000.00 233.40<br />
P P29/1922 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2015 95.75 - 3,840.00 216.00<br />
P P29/1923 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2015 152.02 - 6,120.00 344.25<br />
P P29/1926 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2015 124.12 - 5,000.00 281.25<br />
P P29/1927 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2015 21.32 - 2,000.00 49.50<br />
P P30/1011 Perrinvale Cliffs Asia Pacific Ir<strong>on</strong> ore Pty Ltd 19/12/2007 18/12/2015 98.08 - 3,960.00 222.75<br />
E E77/1289 Radio Southern Cross Goldfields Ltd 24/10/2007 23/10/2014 3,600.00 47 50,000.00 2,118.00<br />
E E77/1692 Radio Southern Cross Goldfields Ltd 7/04/2010 6/04/2015 900.00 3 15,000.00 340.50<br />
L L77/81 Radio Southern Cross Goldfields Ltd 19/01/1990 18/01/2015 5.84 - 0.00 81.90<br />
M M77/633 Radio Southern Cross Goldfields Ltd 25/08/1994 24/08/2015 979.95 - 98,000.00 15,092.00<br />
P P77/3614 Radio Southern Cross Goldfields Ltd 5/02/2008 4/02/2016 12.64 - 2,000.00 29.25<br />
P P77/3665 Radio Southern Cross Goldfields Ltd 22/05/2008 21/05/2016 200.00 - 8,000.00 440.00<br />
P P77/3666 Radio Southern Cross Goldfields Ltd 22/05/2008 21/05/2016 83.00 - 3,320.00 182.60<br />
P P77/3759 Radio Southern Cross Goldfields Ltd 19/02/2009 18/02/2017 64.64 - 2,600.00 146.25<br />
P P77/3760 Radio Southern Cross Goldfields Ltd 19/02/2009 18/02/2017 120.80 - 4,840.00 272.25<br />
P P77/3761 Radio Southern Cross Goldfields Ltd 19/02/2009 18/02/2017 103.80 - 4,160.00 234.00<br />
E E57/576 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 13/02/2006 12/02/2015 1,800.00 30 70,000.00 1,477.20<br />
E E57/580 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 30/09/2005 29/09/2014 3,300.00 61 70,000.00 5,128.20<br />
E E57/583 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 5/10/2005 4/10/2014 4,500.00 68 70,000.00 6,993.00<br />
E E57/592 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 30/09/2005 29/09/2014 3,600.00 48 70,000.00 5,594.40<br />
E E57/640 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 30/10/2008 29/10/2013 19,500.00 69 97,500.00 11,794.25<br />
E E57/641 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 30/10/2008 29/10/2013 16,200.00 54 81,000.00 9,798.30<br />
E E57/642 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 5/09/2007 4/09/2017 10,200.00 34 68,000.00 8,370.80<br />
E E57/664 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 7/01/2008 6/01/2018 600.00 2 30,000.00 492.40<br />
E E57/666 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 27/11/2007 27/11/2017 1,800.00 6 50,000.00 1,477.20<br />
E E57/667 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 10/12/2008 9/12/2013 1,500.00 5 20,000.00 907.25<br />
E E57/670 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 10/12/2008 9/12/2013 6,000.00 20 30,000.00 3,629.00<br />
E E57/703 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 7/01/2008 6/01/2018 5,700.00 19 50,000.00 4,677.80<br />
E E57/704 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 20/02/2008 19/02/2018 9,300.00 31 62,000.00 7,632.20<br />
E E57/808 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 21/06/2010 20/06/2015 600.00 2 15,000.00 280.65<br />
G G57/3 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 27/06/1994 26/06/2015 9.62 - - 136.50<br />
L L57/10 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 22/03/1994 21/03/2014 4.20 - - 68.25<br />
L L57/15 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 26/08/1999 25/08/2020 69.00 - - 941.85<br />
L L57/22 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 2/11/2004 1/11/2025 7.60 - - 109.20<br />
L L57/23 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 5/08/2005 4/08/2026 132.00 - - 1,801.80<br />
L L57/24 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 30/06/2006 29/06/2027 17.80 - - 245.70<br />
L L57/25 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 30/06/2006 29/06/2027 6.23 - - 95.55<br />
L L57/26 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 30/06/2006 29/06/2027 7.50 - - 109.20<br />
L L57/27 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 1/11/2006 31/10/2027 1.30 - - 27.30<br />
L L57/33 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 19/02/2010 18/02/1931 11.28 - - 163.80<br />
L L57/34 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 19/02/2010 18/02/1931 4.24 - - 68.25<br />
M M57/1 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 1/12/1982 30/11/2024 290.35 - 29,100.00 4,481.40<br />
M M57/128 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 27/09/1989 26/09/2031 974.45 - 97,500.00 15,015.00<br />
M M57/129 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 10/04/1989 9/04/2031 996.80 - 99,700.00 15,353.80<br />
M M57/130 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 14/03/1989 13/03/2031 662.45 - 66,300.00 10,210.20<br />
M M57/163 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 7/11/1989 6/11/2031 716.75 - 71,700.00 11,041.80<br />
M M57/22 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 7/09/1984 6/09/2026 135.65 - 13,600.00 2,094.40<br />
M M57/239 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 9/11/1993 8/11/2014 52.09 - 10,000.00 816.20<br />
M M57/248 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 23/06/1994 22/06/2015 85.04 - 10,000.00 1,324.40<br />
M M57/266 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 19/12/1994 18/12/2015 7.37 - 10,000.00 123.20<br />
M M57/301 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 5/02/2001 4/02/2022 521.25 - 52,200.00 8,038.80<br />
M M57/40 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 16/04/1986 15/05/2028 354.95 - 35,500.00 5,467.00<br />
M M57/415 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 23/06/1999 22/06/2020 789.95 - 79,000.00 12,166.00<br />
M M57/416 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 23/06/1999 22/06/2020 980.00 - 98,000.00 15,092.00<br />
Area<br />
Appendix E-4
BDO CORPORATE FINANCE (WA) PTY LTD<br />
<strong>Polymetals</strong> Mining Limited and Southern Cross Goldfields Limited<br />
Technical Specialist's Report<br />
Tenements and Expenditure by M<strong>on</strong>th<br />
Type Number Project Registered Holder Date<br />
Granted<br />
Date<br />
Expiry<br />
Annual<br />
Expenditure<br />
Annual<br />
Rent<br />
Ha Blocks ($) ($)<br />
M M57/417 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 23/06/1999 22/06/2020 936.10 - 93,700.00 14,429.80<br />
M M57/439 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 8/10/2004 7/10/2025 648.85 - 64,900.00 9,994.60<br />
M M57/529 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 8/10/2004 7/10/2025 997.20 - 99,800.00 15,369.20<br />
M M57/530 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 8/10/2004 7/10/2025 999.00 - 99,900.00 15,384.60<br />
M M57/632 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 15/12/2009 14/12/2030 253.25 - 25,400.00 3,911.60<br />
M M57/68 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 8/02/1988 7/02/2030 638.25 - 63,900.00 9,840.60<br />
M M57/88 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 12/07/1988 11/07/2030 219.85 - 22,000.00 3,388.00<br />
P P57/1091 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 31/01/2007 30/01/2015 165.35 - 6,640.00 373.50<br />
P P57/1092 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 31/01/2007 30/01/2015 197.57 - 7,920.00 445.50<br />
P P57/1095 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 31/01/2007 30/01/2015 151.36 - 6,080.00 342.00<br />
P P57/1108 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 1/08/2007 31/07/2015 23.63 - 2,000.00 54.00<br />
P P57/1109 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 1/08/2007 31/07/2015 21.60 - 2,000.00 49.50<br />
P P57/1110 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 31/08/2007 30/08/2015 73.19 - 2,960.00 166.50<br />
P P57/1114 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 24/06/2008 23/06/2016 73.18 - 2,960.00 166.50<br />
P P57/1115 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 28/03/2008 27/03/2016 51.59 - 2,080.00 117.00<br />
P P57/1116 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 24/06/2008 23/06/2016 23.80 - 2,000.00 54.00<br />
P P57/1117 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 24/06/2008 23/06/2016 80.34 - 3,240.00 182.25<br />
P P57/1118 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 24/06/2008 23/06/2016 70.68 - 2,840.00 159.75<br />
P P57/1119 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 24/06/2008 23/06/2016 3.25 - 2,000.00 22.50<br />
P P57/1121 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 11/06/2008 10/06/2016 70.74 - 2,840.00 159.75<br />
P P57/1122 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 28/03/2008 27/03/2016 40.64 - 2,000.00 92.25<br />
P P57/1203 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 21/02/2008 20/02/2016 168.00 - 6,720.00 378.00<br />
P P57/1204 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 21/02/2008 20/02/2016 118.00 - 4,720.00 265.50<br />
P P57/1206 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 28/03/2008 27/03/2016 34.68 - 2,000.00 78.75<br />
P P57/1209 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 28/03/2008 27/03/2016 108.06 - 4,360.00 245.25<br />
P P57/1210 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 11/06/2008 10/06/2016 100.06 - 4,040.00 227.25<br />
P P57/1220 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 16/04/2008 15/04/2016 48.00 - 2,000.00 108.00<br />
P P57/1221 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 28/03/2008 27/03/2016 46.00 - 2,000.00 103.50<br />
P P57/1222 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 28/03/2008 27/03/2016 43.00 - 2,000.00 96.75<br />
P P57/1224 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 16/04/2008 15/04/2016 32.00 - 2,000.00 72.00<br />
P P57/1225 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 28/03/2008 27/03/2016 95.00 - 3,800.00 213.75<br />
P P57/1229 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 16/04/2008 15/04/2016 21.59 - 2,000.00 49.50<br />
P P57/1230 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 16/04/2008 15/04/2016 25.80 - 2,000.00 58.50<br />
P P57/1235 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 8/09/2009 7/09/2013 199.66 - 8,000.00 450.00<br />
P P57/1236 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 29/07/2009 28/07/2013 131.67 - 5,280.00 297.00<br />
P P57/1237 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 29/07/2009 28/07/2013 84.31 - 3,400.00 191.25<br />
P P57/1246 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 10/08/2010 9/08/2014 23.79 - 2,000.00 54.00<br />
P P57/1252 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 10/08/2010 9/08/2014 10.96 - 2,000.00 24.75<br />
P P57/1253 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 10/08/2010 9/08/2014 21.59 - 2,000.00 49.50<br />
P P57/1254 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 17/01/2011 16/01/2015 16.75 - 2,000.00 38.25<br />
P P57/1255 Sandst<strong>on</strong>e Southern Cross Goldfields Ltd 17/01/2011 16/01/2015 21.61 - 2,000.00 49.50<br />
E E77/1459 Windarling East Polaris Metals Pty Ltd 3/05/2011 2/05/2016 14,100.00 47 47,000.00 5,334.50<br />
E E77/2018 Windarling East Southern Cross Goldfields Ltd 11/12/2012 10/12/2017 2,400.00 8 20,000.00 933.60<br />
P P77/4170 Windarling Peak Southern Cross Goldfields Ltd - - 134.40 - - -<br />
P P77/4171 Windarling Peak Southern Cross Goldfields Ltd - - 200.00 - - -<br />
E E77/1353 Windarling Peak Polaris Metals Pty Ltd 9/05/2008 8/05/2013 2,700.00 12 30,000.00 1,588.50<br />
E E77/1462 Windarling Peak Polaris Metals Pty Ltd 3/05/2011 2/05/2016 21,000.00 70 70,000.00 7,945.00<br />
E E77/1275 Yilgarn Ir<strong>on</strong> Ore Polaris Metals Pty Ltd 1/05/2008 30/04/2013 2,400.00 34 30,000.00 1,412.00<br />
E E77/1380 Yilgarn Ir<strong>on</strong> Ore Polaris Metals Pty Ltd 19/05/2011 18/05/2016 1,200.00 4 15,000.00 454.00<br />
P P77/4185 Southern Cross Goldfields Ltd - - 191.71 - - -<br />
P P77/4186 Southern Cross Goldfields Ltd - - 172.00 - - -<br />
P P77/4187 Southern Cross Goldfields Ltd - - 196.33 - - -<br />
Area<br />
1.<br />
2.<br />
3.<br />
4.<br />
5.<br />
6.<br />
Explorati<strong>on</strong> Licence WA<br />
Prospecting Licence<br />
Mining Lease<br />
Miscellaneous Licence<br />
General Purpose Lease<br />
Retenti<strong>on</strong> Lease<br />
Appendix E-5