Update on Merger with Polymetals - Notice of Meeting

consider the QMP method to be as reliable due to the low level of liquidity over the past 12 months. We
note however that the value per share derived under the QMP method supports the value derived using
the sum-of-parts method.
We have therefore based our valuation of an SXG share primarily on the sum-of-parts methodology and
consider the value of an SXG share prior to the Transaction and including a premium for control to be
between $0.031 and $0.044, with a preferred value of $0.038.
11. Valuation of the Merged Entity
To determine if the Transaction is fair and reasonable it is necessary to conduct a valuation of the Merged
Entity that will result from approval and implementation of the Scheme, including the requirement for
approval of the Transaction by SXG Shareholders.
In our assessment of the value of the Merged Entity, we have chosen to employ the sum of parts
methodology.
The Merged Entity is valued by combining the sum of parts value of each company and adjusted for any
forecast synergies in the Merged Entity.
SXG have advised us that if the Merger proceeds, the primary intention of the Merged Entity is to progress
regulatory approvals and financing for the development of the Marda Project. On that basis, the valuation
of the Merged Entity has been prepared with production at the Mt Boppy Project being delayed by 12
months to 2015 to enable the Merged Entity to focus on bringing the Marda Project into production in
2014. SXG have advised us that the Mt Boppy Project will be prioritised for development as sufficient cash
reserves become available.
11.1. Sum of parts valuation of the Merged Entity
11.1.1. DCF valuation of the Mt Boppy Project
We elected to use the DCF approach in valuing PLY’s Mt Boppy Project (“the Mt Boppy Project”). The DCF
approach estimates the fair market value by discounting the future cash flows arising from the project to
their net present value using the forecast discount rate of the Merged Entity. Performing a DCF valuation
requires the determination of the following:
• The expected future cash flows that the project is expected to generate; and
• An appropriate discount rate to apply to the cash flows of the project to convert them to present
value equivalent.
A cash flow model for the Mt Boppy Project was prepared by PLY (“the Mt Boppy Model”). The Mt Boppy
Model estimates the future cash flows expected from gold production at the Mt Boppy Project based on
determined JORC compliant reserves. The Mt Boppy Model depicts forecasts of real, post-tax cash flows
over the life of mine on a monthly basis.
The Mt Boppy Model has been adjusted by us to reflect any changes to technical assumptions as a result
of AMC’s review and any changes to the economic and other input assumptions from our research (“the
Adjusted Mt Boppy Model”). We have adjusted the Mt Boppy Model to reflect cash flows on an
annual basis.
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