m: +61 415 201 002 Specific disclosure · Re-awakening of a sleeping giant Kingston Resources (KSN)...

Curran & Co. January 22, 2018

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Kingston Resources

Re-awakening of a sleeping giant

Kingston Resources (KSN) settled the merger with Canadian listed WCB Resources in Nov 2017, putting it in control of a 2.8Moz JORC compliant Resource at Misima Island, PNG. Drill results outside the existing resource as well as historical operating data lead us to take the view that the project will be developed, making for a compelling risk-reward opportunity at KSN’s current valuation. We initiate with a Buy recommendation and a target price of $0.075ps, based on a valuation of $40/oz of gold Resources attributable to Kingston.

Misima – a Tier 1 pedigree

The Misima mine milled 87mt of ore at an average grade of 1.6g/t

gold between 1989 and 2004. Soft ore made the operation

amenable to conventional open cut mining and low-cost processing

methods. Cash costs over its LOM averaged US$218/oz, with

average cash operating margins of 37%.

2.8Moz of gold is the starting point

The decision to close the mine was made in 1999, in a sub

US$300/oz gold price environment, which partially explains why the

previous owner left material resources in the ground. Given

compelling exploration results outside the current Resource, we

think the current 2.8Moz will grow materially and could be in the 4-

5Moz range in the next two years.

What could Misima look like?

Historical operating data from Misima, including very low milling

energy consumption, combined with industry comparisons give us a

high level of confidence that Misima is likely to be a low cost, large

scale producer. In our view, circa 200koz pa for ten plus years is

possible based on existing Resources. Proving up higher-grade

starter zones could propel returns, ultimately attracting funding.

Spec Buy, $0.075ps target price = ~$40/oz Au in Resource

Given the preliminary nature of the project, we have derived a

target price based on an analysis of industry peers and made

subjective adjustments for size, sovereign risk and permitting stage.

We expect drill results in 2018 will be the primary catalysts over the

next 12 months, giving investors confidence the resource will

continue to grow.

Mining

12-month rating BUY

12-m price target (A$) 0.075

Previous TP (A$ps) n/a

Price (A$)* 0.025

Upside 200%

*Priced on 18/1/18

BBG: KSN AU

Trading data & key metrics

52-w range (A$ps) 0.012 - 0.041

Market Cap (A$m): 25

Shares on issue (m): 1009

Avg daily volume (k): 2,669

Avg. daily volume ($k): 67

Directors:

Tony Wehby NEC

Andrew Corbett MD & CEO

Andrew Paterson ED

Stuart Rechner NED

Substantials:

Slipstream 13.1%

Sandfire Resources 11.2%

Farjoy Pty Ltd 9.6%

Analyst: Michael Evans

e: [email protected]

t: 02 8188 9499

m: +61 428 514 557

Sales: Kevin Curran

e: [email protected]

t: 02 8188 9494

m: +61 415 201 002

Specific disclosure:

Curran & Co. acted as advisor to

the merger of KSN and WCB and

received fees for that service.

Curran & Co. and the analyst hold

shares in Kingston Resources

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Please see the last page for important disclosures regarding this report.

All reference to $ in this report is to Australian dollars unless otherwise stated.


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Misima – a Tier 1 pedigree Misima Island is located 625km east of Port Moresby in the Solomon Sea.

Gold was discovered on the island in 1888 with small scale underground

mining continuing until WWII. Placer Dome Inc (Placer) commenced

exploration in 1977, with production beginning in 1989. Misima operated

as an open pit gold mine from 1989 to 2001, with stockpiled ore treated

for the final three years of the operation until 2004.

Figure 1 – Location of Kingston’s assets

Source: Company

Placer mined 87.5Mt at 1.6g/t Au producing 3.7Moz of gold and 22Moz of

silver over its 14 year mine life. At the end of 1990 the Reserve grade

stood at 1.26g/t, however, the mined grade averaged 1.53g/t delivering

reserve grade reconciliation of 121%. The mill had nameplate capacity of

5.5Mtpa, easily workable ore saw a maximum throughput of 6.9Mtpa

achieved.

Gold recoveries averaged 91.5% and costs averaged US$218/oz,

resulting in an average margin of US$128/oz (37%). At the time the

decision was made to close the mine, the gold price was below

US$300/oz. The mill was subsequently decommissioned and removed by

2005. The site has since been rehabilitated, with the PNG Mineral

Resource Authority signing off on the successful rehabilitation in 2012.

Misima is KSN’s

flagship project

Misima was closed

when gold prices were

sub US$300 per oz


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The production profile, cash costs and revenues of the historical

operations are summarised in Figure 2.

Figure 2 – Historical production and mining costs

Source: Placer Annual Reports

WCB’s involvement

In Dec 2011, WCB Resources (WCB.TSX) entered into a farm in

agreement with Pan Pacific Copper (PPC) to earn up to a 70% interest in

the Misima Project (Exploration Licence EL1747) by spending $9m. The

initial exploration focus was a large Cu-Au porphyry system at depth.

Based predominantly on an extensive historical database, WCB

announced an Initial Inferred Resource of 1.57Moz in October 2013 using

a 0.36g/t cut-off in oxide, 0.50g/t cut-off in sulphide and a US$1,100/oz

gold price. In August 2017, WCB announced an updated NI 43-101

Resource of 73Mt @ 1.0g/t for 2.3Moz Au.

Figure 3 – Misima Resource under NI-43101 standards – Sep 2017

Tonnes Gold Silver Au Ag

Mt g/t g/t Moz Moz

Indicated 39.6 1 5.1 1.3 6.5

Inferred 33.1 1 6.9 1 7.3

Total 72.7 1 5.9 2.3 13.8

Source: Company

KSN completed a scrip takeover of Canadian listed WCB Resources in

November 2017. The most recent Resource was published under the ASX

recognised Australian JORC Code by KSN in November 2017. While there

have been no changes to the project since the 43-101 Resource was

published in August 2017, different reporting requirements meant the

JORC Resource was larger, standing at 2.8Moz gold at 1.1g/t, split 1.3Moz

in the Indicated category and 1.5Moz in the Inferred category.

KSN currently holds 49%, and there is ~$2.0m remaining to spend to

reach 70%. The JV Partner PPC, is owned by JX Nippon Metals and Mining

(66%), and Mitsui Mining and Smelting (34%). Approximately $7m has

been spent while under control of WCB Resources.

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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Gold production, cash costs, gold price and grade

Gold production (koz) Cash costs (US$/oz)

Gold price (US$/oz) Grade - (g/t - rhs)

Misima operating

margins were 37%

over its LOM

The Misima Resource

now stands at 2.8Moz

at 1.1g/t gold (JORC)


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2.8Moz is the starting point We expect a drilling campaign in 2018 will continue to increase the

absolute size of the resource while potentially identifying areas of higher

grade gold and lower strip ratio. The importance of focusing on higher

grade near surface resources is the materially positive impact this could

have on any subsequent economic studies.

Historic drill holes surrounding the current Resource include:

• 120m @ 1.57g/t Au from surface in hole GRC1234

• 48m @ 4.09g/t Au from 38m in hole GDD002

• 60m @ 1.43g/t Au from 280m in hole PM1417

• 22m @ 2.14g/t Au from 172m in hole PM2027R



Drill holes at Misima North and Quartz Mountain include:

• 8m @ 4.68g/t Au from 8m in hole MNR2220

• 10m @ 3.20g/t Au from surface in hole MNR515

• 10m @ 2.36g/t Au from surface in hole MNR889

• 60m @ 2.29g/t Au from surface in hole EMD776

Figure 4 shows the high-level focus areas of exploration which have been

developed based on historical drill holes and channel sampling that has

not been adequately followed up.

Figure 4 – Overview of exploration focus areas

Source: Company

Significant

intersections exist

outside the resource…

…Such as 120m at

1.57g/t gold from

surface…

…and 60m @ 2.29g/t

gold from surface at

Misima North


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Kingston mobilised a field team in November 2017 and commenced

trenching soon after focusing on the Umuna East and Kulumalia

extensions with a view to firming up drill targets. Drilling contractors were

shortlisted in late 2017 with a view to a contract being awarded shortly.

During the first quarter of CY18 the exploration work on Misima will

include:

• Re-establishing an operational base and logistics capabilities in

preparation for 2018 drilling.

• Geochemical field work, surface trenching and mapping on the

Umuna East splays.

• Structural mapping and interpretation of the Umuna East splays to

build an improved understanding on the controls on higher-grade

gold mineralisation.

• Completing a drilling tender with the aim of mobilising the drill rig

as early as possible in 2018.

Figure 5 below shows the broad location of the current Resource, which

is predominantly below and surrounding the historical open pits. Extensive

trenching and drill holes to the East are promising and is why we

understand this area will be a priority focus of the 2018 drilling campaign.

Figure 5 – Misima Exploration Potential showing 7km strike

Source: Company

While Misima North is not an immediate focus for Kingston Resources

given its further distance from the likely location of a mill, the area shows

clear potential for a considerable resource in our view based on the

extensive trenching and drilling over a broad area. This includes trench

samples of 130m at 1.62g/t gold and 160m at 1.23g/t gold.

Kingston commenced

exploration on Misima

in November 2017

Misima has several

areas of potential

along a 7km strike


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What could Misima look like? While early days, we believe, given the large tonnage, lower grade nature

of the deposit, the project lends itself to high tonnage mill throughput,

and we can envisage something in the order of 200kozpa for at least ten

years. We believe there already exists sufficient gold resources for such

an operation which, crucially, will drive unit costs down as all fixed costs

associated with remote island mining are diluted over a larger production

base.

Why we think there’s already ten years at ~200kozpa

The NI 43-101 Canadian exchange compliant Resource published in

August 2017 by WCB Resources is, by the code’s requirements, contained

in a mineable pit shell. The larger JORC compliant Resource, published

subsequently in November 2017 by KSN, includes tonnes outside the pit

shell, located adjacent to the current pit, as well as at depth. The

significance of the 2.3Moz Resource located in a pit-shell, is that the NI-

43101 is a closer proxy to a Reserve than a JORC Resource, in our view.

If more than 2moz are ultimately proven up into a Reserve, the project

would have around ten-years mine life at a production rate greater than

200koz per annum, assuming future recoveries are in line with historical

recoveries of around 91%.

Figure 6 – Conceptual throughput rates and production levels

Throughput mtpa 4.0 6.0 8.0

Grade g/t Au 1.0 1.0 1.0

Recovery % 91% 91% 91%

Annual production koz 117 176 234 Source: Curran & Co.

Can you make money at around 1g/t gold?

While Misima’s Resource gold grade is low relative to several ASX listed

developers and producers, there are examples of Australian producers

with assets of similar grade generating lucrative margins. Australia’s

Regis Resources (RRL AU) produced 324koz in FY17 at an AISC of $945/oz

mining an average head grade of 1.1g/t gold, repeating a similarly

impressive FY16 performance – Figure 7.

Figure 7 - RRL – FY17 and FY16 production performance

FY17 FY16 FY16 Moolart Well

Ore mined Mbcm 4.6 4.6 1.5

Waste mined Mbcm 25.6 22.6 5.8

Stripping ratio w:o 5.6 4.9 3.9

Ore mined Mt 10.9 10.8 3.0

Ore milled Mt 9.8 10.3 2.9

Head grade g/t 1.11 1.03 0.9

Recovery % 93% 90% 91%

Gold production koz 324 305 76

AISC A$/oz 944 927 934 Source: Regis Resources

Regis mined 1.1g/t

gold in FY17 at an AISC

of $945/oz

Current Resources

indicate ~200kozpa for

~ten years is possible


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A closer look at Regis is instructive

Regis’ production comes from several mines processed through three

processing plants, having a cumulative processing capacity of around

10mtpa. In Figure 7, we have separated the Moolart Well’s FY16

performance to illustrate that, despite the low grade and low throughput,

Regis was still capable of achieving AISC’s averaging $934/oz over the

year for a relatively low mill throughput operation of 3mtpa.

We view the Regis comparison as instructive because we think the high-

level production metrics at Regis operations - specifically, tonnage, strip

ratio and recovery - are broadly what may ultimately be achieved at

Kingston’s Misima operation.

Digging into Regis’ costs

Firstly, we believe that Regis is one of the better managed and operating

gold mining companies on the ASX, continually meeting or exceeding

targets, and replacing depletion with additional Reserves and Resources.

If we assume the same unit mining (for both ore and overburden) and

milling costs in FY17 and FY16, we can back calculate milling and mining

unit costs by taking into consideration total operating cash costs at the

operations, and the difference in strip ratios in both FY16 and FY17. Using

these assumptions and logic, we estimate the average unit milling costs

and unit mining costs are around $7.00/t and $2.40/t respectively over

FY16 and FY17.

Regis’ low operating costs prompted us to look further at the technical

aspects of the project that could be assisting in driving the low unit costs.

The Moolart Well gold deposit is a large oxide/laterite deposit. The ore is

relatively soft, which would be one factor leading to its low operating

costs.

Moolart Well metallurgy has low Bond Work Indexes and relatively high

grind sizes which assist in lowering milling costs. Similarly, Misima has

similarly favourable technical characteristics, which should assist in

achieving similarly low costs in our view.

Figure 8 – Technical aspects of Regis’ Moolart Well Ops vs Misima

Source: Various company reports, Technical studies

Technical /

Commercial comparison Moolart Well Ops. Misima

Power source Diesel Diesel

Ore / Waste material Kaolinite / Shales Carbonitite

Optimum grind size (microns) 150 100 - 450

Bond Work Index - Oxide 7 7

Bond Work Index - laterite 17 11

/ fresh ore

Lime consumption - oxide 4 - 5 4 - 4.5

Lime consumption - laterite 9 - 10

/ sulphide

Regis’ Moolart well

achieved an AISC of

$934/oz at 0.9g/t gold

Misima ore types lend

themselves to low cost

milling


Page | 8

The Tonnage-grade curve provides options

While the overall Resource grade is currently 1.1g/t for 2.8Moz, it is more

a factor of economics driven by cut-off grade assumptions. The cut-off

grade for the 2.8moz is 0.5g/t gold. However, at higher cut-off grades,

the Resource is still material. The grade tonnage table for the current

JORC Resource is shown in Figure 9.

Figure 9 – Misima JORC Resource – Tonnage-grade table

Cut-Off (g/t Au) Tonnes Au grade Contained gold

g/t Au Mt g/t Moz

0.5 82.3 1.1 2.8

0.6 62.8 1.2 2.5

0.7 49.5 1.4 2.2

0.8 39.9 1.5 2

0.9 32.8 1.7 1.8

Source: Resource announcement – November 2017

The tonnage-grade table illustrates there is clear scope to process higher

grade ore in the early years and stockpile lower grade ore for processing

at the end of the mine life. The trade-off is sometimes higher up-front

strip ratios and increased working capital commitments. However, this

high grading was pursued when the mine was originally operating, and

we suspect it will be a value accretive opportunity when the time arises

to optimise the mining schedule in future economic studies.

The wealth of historical operating data and technical analysis performed

on Misima as part of the previous operation is a major benefit for Kingston

in our view. This should assist in expediting, but perhaps more

importantly increasing the confidence of, future economic studies.

A note on capital costs

Given the nature of the deposit lends itself to high volume mining, we

expect the capital costs will be material. Figure 10 is a small group of

recent large scale open cut gold projects where a PFS or FS has been

completed, showing the mill throughput and initial capital expenditure

requirements. As expected, the capital intensity (as measured by capex

divided by mill throughput per annum) decreases when throughput is

higher. However, this can be more than offset by lower grades in some

cases.

Figure 10 – Capex intensity of a number of gold projects

Project Location

Mill

throuphput Capex Capex intensity

mtpa $m $/t milled pa

Woodlark PNG 1.90 187 98

Awak Mas Indonesia 2.50 233 93

Dalgaranga WA 2.50 86 34

Karlawinda WA 3.00 146 49

McPhillamy's NSW 7.00 215 31

Gruyere WA 7.50 532 71

Average 63

Source: Various company reports, Technical studies

At 0.8g/t cut-off, there

is 2Moz of gold in

Resources at 1.5g/t

Capex intensity of

large scale projects

vary considerably


Page | 9

At the upper end of the capex intensity chart is GPR’s PNG Woodlark

project now under the control of GeoPacific Resources (GPR AU – not

rated). The original DFS was completed in 2012 in a higher gold price

environment and reported a capex of US$160m. Subsequent to the DFS

announcement Kula Gold announced they estimated capital costs could

be brought down by ~US$20m. Our capex estimate is therefore US$140m

or $187m assuming an A$/US$ exchange rate of 0.75. GPR are currently

reviewing Resources and Reserves with an updated DFS due in mid-2018.

At the lower end of the capex intensity chart is Regis Resources (RRL AU

– not rated) McPhillamy’s project located in central NSW. It includes a

water pipeline at an estimated $38m. At a proposed throughput of 7mtpa,

the PFS capex estimate of $215m results in a capex intensity of $31/t

annual mill throughput. By way of comparison, Gold Road’s Gruyere

project has an estimated DFS level capex of $532m or $71/t annual

throughput based on a 7.5mtpa plant.

By looking at comparable projects and taking a subjective view on the

differences, we expect the capital intensity for a gold mine in Misima to

be in the range of $40-60/t annual throughput, which if we assumed a

similar throughput rate to McPhillamy’s and Gruyere, or 7mtpa would be

around $280-$420m.

Timetable and permitting process

Under the current PNG Mining Act, the State has the option to acquire a

participating interest of up to 30% by payment of sunk costs and then

contributing to construction capital costs on a pro-rata basis to the

project.

The decision by the State to elect to take up equity is made post the

company being issued a Mining Lease (ML). A Mining Lease Application

(MLA) is usually submitted in conjunction with a detailed Feasibility Study

and Development Proposal. In the case of Kula Gold’s Woodlark Island,

the MLA was submitted on 30 October 2012 and the ML was granted on

29 July 2014, 21 months post submitting the MLA. The time between

application and award of the ML for Woodlark was considered lengthy,

therefore, we consider our 18 months period as a reasonable assumption.

Figure 11 – Indicative timetable of events

Half Year ending Jun-

18 Dec-

18 Jun-

19 Dec-

19 Jun-

20 Dec-

20 Jun-

21 Dec-

21 Jun-

22 Dec-22

Drilling

Scoping Study

Feasibility Study

ML Submitted

Feas. Study Optimisation

Funding discussions

ML Granted

Construction

Production

Source: Curran & Co. estimate

Capex intensity of

large scale projects

vary considerably


Page | 10

Peer Comparisons

Figure 12 illustrates our estimate of where Kingston sits on the EV/oz

Resource table of ASX listed gold explorers and developers. We assume

that Kingston spends the $1.9m remaining to earn 70% of Misima, and

therefore its share of the Misima Resource is therefore 70% of 2.8moz,

or ~2Moz.

Kingston is currently trading in the lower range of the broad group at

~$14/oz Resources, relative to an average of around $40/oz.

Figure 12 – EV/oz Resources – ASX listed explorers/developers

Source: Curran & Co, Company announcements

Given the size of Misima Resource relative to its peers, we think the

comparison is even more compelling and highlights how undervalued

Kingston is based on this market metric.

Figure 12 is worth expanding on as the simple EV/oz metrics are crude by

nature and don’t take into account a myriad of factors, let-alone any

economic factors.

Focus Minerals (FML AU, not rated) has the lowest EV/oz of around $3/oz

and a Resource of almost 4moz. However, the Resources are spread over

11 projects in WA’s Laverton and Coolgardie regions. A PFS released by

the company in October 2017, focusing on producing an average of 32koz

per annum for just over four years appears to have underwhelmed the

market.

White Rock Minerals (WRM AU – not rated) projects are Mt Carrington in

north-eastern New South Wales and its Red Mountain project in Alaska.

Mt Carrington is subject to a DFS and current JORC Resources are

23.2Moz of silver and 341koz gold, two-thirds of which is in the Inferred

category. Red Mountain is a polymetallic Resource located over two

deposits containing 9.1Mt of ore at a zinc equivalent grade of 12.9%

(5.8% Zn, 2.6% Pb, 157g/t Ag, 0.9g/t Au).

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KSN is trading on a

very low EV/oz

Resource vs peers…


Page | 11

Azumah Resources (AZM AU, not rated) 2.1Moz Wa project is located in

Ghana’s north-west corner. In August 2017, Azumah struck a deal with a

US based group to earn in up to 47.5% of the Wa project for US$11.25m

in expenditure over a two-year period. A feasibility study completed in

2015 was based on 624koz gold Reserves producing around 90koz per

annum from five separate pits, for an initial seven-year mine life.

Nusantara Resources (NUS AU, not rated) is developing the Awak Mas

gold project in Indonesia which currently contains 1.74Moz in Resources.

A PFS completed in 2016 envisaged a ten-year operation producing

around 100koz per annum mining 1.4g/t gold ore at a project strip ratio

of around 3.5:1. All-in-sustaining-costs (AISC’s) are estimated at

US$500-700/oz and the capital cost is estimated to be US$150-175m.

Primary Gold (PGO AU, not rated) Resources of around 2moz are spread

between the 1.8Moz Mt Bundy project in the Northern Territory, and its

200koz Coolgardie project in Western Australia. A Scoping Study at the

Mt Bundy project released in April 2017 envisaged producing almost 1moz

over an initial nine-year mine life. The capital and average LOM operating

cost estimates for the 3mtpa operation were estimated to be $155m and

$1,050/oz respectively.

Cardinal Resources (CDV AU, not rated) is the stand-out on resource size

on our ASX listed explorers and developers chart – (Figure 13), with a

combined 7.4Moz gold resource (4.3Moz at 1.1g/t Indicated and 3.1Moz

Inferred at 1.2g/t) at its flagship Namdini project in north-east Ghana. A

PEA (Preliminary Economic Analysis) is expected to be completed in Mar

Q 2018. The LOM strip ratio is expected to be less than 1.5:1 and

recoveries are estimated at 86%. Despite, the large Resource, with an EV

of around $278m (27 Nov 2017), CDV is trading on an EV/oz resource of

around $38/oz.

Figure 13 – Size or Resources (100% basis)

Source: Curran & Co, Company announcements

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…especially

considering the size of

the Misima Resource


Page | 12

Kingston’s other Gold and Lithium Projects

While we believe Misima is Kingston’s most valuable asset, the company

has a portfolio of both gold and lithium exploration assets in Australia,

which we believe are not being ascribed any value by the market

presently. We suspect the company will look to opportunistically monetise

these assets in the short term, which would provide clear upside for

investors beyond our base case target price and assumptions.

Gold – Livingstone - 50koz gold Resource

The Livingstone Gold Project is an advanced exploration project with an

existing JORC2004 Inferred mineral resource of 49,900 ounces and

several high-grade drilling intersections that indicate excellent potential

for additional discoveries. Kingston exercised its option to purchase a 75%

interest in the Project in November 2017. Located 140km northwest of

Meekatharra in the Peak Hill mineral field of Western Australia,

Livingstone covers 204km2 of the western Bryah Basin, including;

• A JORC 2004 Inferred gold resource of 49,900oz

• Numerous high-grade intersections including:

o 18m @ 7.85g/t Au from 68m



Figure 14 – Kingston’s lithium and gold assets

Source: Company

Kingston has a suite of

prospective lithium

and gold assets in Aus


Page | 13

Lithium assets – all located in known lithium provinces

Kingston’s Bynoe/Wingate projects are within the 180km long Litchfield

Pegmatite Belt, near Darwin, NT. Exploration at the Bynoe project has

been focused on the Lei prospect where 12m at 1.43% LiO2 from 121m

was intersected targeting prospective geophysics targets. In our view, the

intersection is deep for an open cut mining operation but proves that the

area is clearly prospective.

One of KSN’s neighbours in the Bynoe is Core Exploration (CXO AU – not

rated), which has defined a 1.8mt @ 1.5% LiO2 for ~50kt LiCO3

equivalent at its Grants project (shown in Figure 15 below). CXO signed

a framework agreement with Chinese listed Yahua International in August

2017, which amongst other terms included a $2m placement of shares

and the right to negotiate commercial offtake terms for lithium

spodumene concentrate from its projects. In September 2017, CXO also

acquired the Bynoe assets off the third player in the region, Liontown

Resources (LTR AU– not rated), in a deal worth $3.5m plus a $1.5m

milestone payment upon defining a 5Mt resource. CXO currently has a

market capitalisation of ~$40m.

Figure 15 – Location of KSN’s Bynoe Project

Source: Company

Kingston has a suite of

prospective lithium

and gold assets in Aus


Page | 14

Kingston’s North Arunta projects include a number of tenements within

the Alcoota Pegmatite Region and the Barrow Creek Pegmatite Field within

the Arunta Region. Initial geochemical work has delivered encouraging

soil sampling and rock chip results with follow up drilling planned for 2018.

The Mt Cattlin Project is strategically located 14km south-west of the

established Mt Cattlin lithium mine and 15km from the town of

Ravensthorpe, providing an ideal infrastructure setting.

Kingston’s Greenbushes tenement adjoins the southern border of

Talison’s Greenbushes mine, the largest hard rock lithium mine in the

world. The site contains a series of mineralised pegmatites which have

intruded along the Donnybrook-Bridgetown shear zone.

The Mt Cattlin Project

is 14km SW of the Mt

Cattlin lithium mine


Page | 15

Spec Buy, target price $0.075ps Given the preliminary nature of the project, we have derived our target

price by applying $40/oz Resource in the ground attributable to Kingston

Resources. We assume Kingston spends the $2m to achieve its 70% share

over the course of the next 6-12 months. Hence, KSN’s share of 2.8Moz

is 1.96moz, which if we applied a valuation of $40/oz, results in an EV of

~$78m. This equates to approximately $0.075ps based on 1,009m shares

on issue.

Valuation discussion

Applying $40/oz Resource places KSN around the average of the ASX

listed peers shown in Figure 12. However, the valuation is largely

subjective, and in our minds we apply a discount due to perceived

sovereign risk in PNG compared to projects in Australia. The early stage

of development versus some peers that have completed feasibility studies

and are funded also warrants a discount in our view. Conversely, we think

KSN deserves a premium to many peers, given the size and pedigree of

the Resource and the wealth of technical knowledge already understood

due to previous mining of the orebody.

Cheaper stocks on the EV/oz basis have been discussed earlier in this

report. FML’s ~4moz is located over 11 projects while WRM’s Resources

are located over two projects, one of which is a polymetallic project. ERM,

which currently has an EV of around $40/oz, has 900koz of Resources,

which is spread over 3-4 projects in the Northern Territory and is

predominantly copper.

Is OreCorp (ORR AU) the closest comparison?

Perhaps ORR is the closest comparison for KSN, which is also valued at

an EV/oz gold Resource of ~$40. ORR is earning into the 3.1Moz Resource

Nyanzaga gold project in Tanzania and needs to fund the DFS to the order

of $14m to earn 25%. Afterwards, if the NPV is less than US$200m, ORR

can move to 51% by payment of US$5m. If the NPV is greater than

US$200m, its JV partner can elect to pay ORR a fixed multiple of its

original investment. ORR is also progressing a nickel/copper project in

Mauritania.

GeoPacific (GPR AU) is also a comparison

GPR controls the Woodlark Island gold project located ~180km north of

Misima. The project has an ML granted and the project contains 2.1Moz

and 766koz of Resources and Reserves respectively. A feasibility study

completed in 2012 reported a US$110m NPV (7% discount rate) and an

IRR of 22% using a US$1,400 gold price. The 2012 FS reported a 7-8 year

mine life producing ~100koz pa from three open pits with a 9:1 LOM strip

ratio, mined grade of ~2g/t gold and processing 1.8mtpa.

GPR are currently conducting a drill program and expect to release

updated Resources and Reserves in the short term accompanied with an

updated FS. GPR is currently trading at an EV/oz Resource of $20 (KSN is

$13/oz Resource at $0.025ps). While on the face of it, GPR provides a

Our $0.075ps target

price is based on

$40/oz Resource

GPR is developing the

Woodlark project

180km north of Misima


Page | 16

good market comparison, Woodlark is a series of high strip epithermal

gold pits while Misima is likely to be a lower strip, single pit operation,

with known, attractive metallurgy, and in our view holds clear growth

potential.

Stock catalysts

We expect drill results in 2018 will be the primary catalysts over the next

6-12 months, giving investors confidence the Resource will continue to

increase in quantity and quality. We expect this in turn will lead to

preliminary economic studies commencing in the next 12 months.

Risks

Technical risk must be considered much lower than a conventional

greenfield gold development given the depth and quantity of knowledge

that already exists regarding the current Resource, and the mineability

and processing characteristics of the ore. Originally, when the mine was

commissioned there were a number of technical hiccups in the processing

circuit that were overcome with relative ease. Kingston however already

has the benefit of this knowledge when designing all aspects of the mine.

For these reasons we view downside technical risk as minimal relative to

other pre-development peers in greenfield locations.

General risks

Resource risk. Given KSN’s projects are exploration there is no guarantee

that a viable economic project will be delineated and hence the company

remains exposed to resource risk.

Funding and capital management risk. Kingston remains unfunded to

finance the development of a mining project and therefore remains

subject to funding risk.

Construction and development risk. Construction and development of

mining assets are generally subject to approvals timelines, receipt of

permits, weather variability, access to skilled labour and technical

personnel, as well as key material inputs and mechanical components

which may cause delays to construction, commissioning and commercial

production.

Operational and capital cost risk. Markets for exploration, development

and mining inputs can fluctuate widely and cause significant differences

between planned and actual operating and capital costs. Key operating

costs are linked to energy and labour costs as well as access to, and

availability of, technical skills, operating equipment and consumables.

Commodity price and exchange rate risk. Miners are price takers and the

earnings and cashflows of mining companies remain exposed to changes

in underlying commodity prices and exchange rates.

Sovereign and regulatory risk. We consider PNG higher risk than Australia

with regard to regulations and timing of projects. Renewal of EL1747 and

the issuance of a Mining Licence within a reasonable timeframe, or at all,

are clear downside risks.

We expect drill results

in 2018 will be the

primary catalyst


Page | 17

Board and Management

Mr Anthony Wehby - Non-Executive Chairman

Mr Wehby was a founding director and subsequently Chairman of Aurelia

Metals Ltd, an ASX listing mining company, in his role he oversaw the

progression of the company from exploration through to production. Prior

roles include Chairman of Tellus Resources and a director of Harmony

Gold (Aust) Pty Ltd. Since 2001, Mr Wehby has also maintained a

corporate finance consulting practice. Prior to 2001 Mr Wehby was a

partner in PricewaterhouseCoopers for 19 years where he managed the

corporate finance operation of the Australian business.

Mr Andrew Corbett - Managing Director

Mr Corbett has operated in the mining industry for over 22 years. Prior

roles include Portfolio Manager of the Global Resource Fund at Perpetual

Investments and General Manager with Orica Mining Services, based in

Germany. Mine management and operational experience includes

contractor and owner mining experience combined with statutory mine

management responsibilities, mining engineer and project

evaluation/feasibility work. Mr Corbett has a Bachelor of Engineering

Mining (Honours) from Western Australian School of Mines, a Masters of

Business Administration from Newcastle University and a First Class Mine

Managers Certificate.

Mr Andrew Paterson - Executive Director

Andrew is a highly experienced geologist with a diverse career

incorporating operations, exploration and corporate roles in the gold,

nickel sulphide and iron ore industries. Andrew ran the Geology function

for Atlas Iron Limited from 2008 until late 2012. He has managed mining

and exploration teams for local and international mining companies in the

Yilgarn and Murchison goldfields of Western Australia. In 2006 Andrew

was the inaugural Managing Director of Mount Magnet South NL. Since

2014 he has been running a successful geological consultancy. Andrew

has a Bachelor of Engineering degree in Geology and a Graduate Diploma

in Mining, both from the Western Australian School of Mines, and 22 years

industry experience.

Mr Stuart Rechner - Non-Executive Director

Mr Rechner (BSc LLB GAIG GAICD) holds degrees in both geology and law

from the University of Western Australia and is graduate member of the

Australian Institute of Geoscientists and the Australian Institute of

Company Directors. For over ten years Mr Rechner was an Australian

diplomat responsible for the resources sector with postings to Beijing and

Jakarta.


Page | 18

Information Disclosure Each research analyst of this material certifies that the views expressed in this research material accurately reflect

the analyst's personal views about the subject securities and listed corporations. None of the listed corporations

reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection

with this material to any of the analyst(s).

Specific Disclosure Curran & Co. acted as advisor to the merger of KSN and WCB in 2017 and received fees for that service. A portion

of those fees were paid in shares. As a result, Curran & Co. holds shares in Kingston Resources. The analyst also

holds shares in Kingston Resources.

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