Calidus Resources Limited (CAI ASX) MINING – INITIATING COVEREAGE 26 July 2017 Brandon Hill Capital 1 Price Chart MAIN SHAREHOLDERS HOLDING Keras Resources 30.25% Eight Investment Partners 5.04% David Reeves 0.79% Keith Coughlan 0.62% Source: Bloomberg Research: Peter Rose Peter.Rose @brandonhillcapital.com www.brandonhillcapital.com Stock Data Share Price: 0.023 Market Cap (M): A$16.5 EV (M): A$15.5 Company Summary Calidus is the spin out of the Australian gold assets in Keras Resources. It is currently exploring the Warrawoona Gold district where it has consolidated a previously fragmented historic gold mining district. 52 Week Range (A$) 0.019 0.023 0.029 GOLD IN THE PILBARA, GOLD IN THE PILBARA, GOLD IN THE PILBARA, GOLD IN THE PILBARA, AUSTRALIA AUSTRALIA AUSTRALIA AUSTRALIA Investment Investment Investment Investment Case ase ase ase An investment in Calidus is an investment in brownfields gold exploration on a freshly consolidated set of leases in the Marble Bar district in the Pilbara region of Western Australia. These leases contain a 2012 JORC compliant gold resource of 5.78Mt grading 2.2g/t for 410k oz of gold. Calidus is actively drilling to increase both resource size and confidence and will deliver active news flow targeting a resource update in early 2018. High High High High Grade Grade Grade Grades The existing resource grade of 2.2g/t is one of the highest of the Australian open pit explorers/developers in our comparison universe and historical exploration indicates there are many significantly higher grade assays in the numerous targets on the leases that make up the Warrawoona Project. Although currently small, it is worth noting that the grade at Copenhagen is 6.1g/t. Nearby Coronation has similar intersections indicating that will also have a similar higher grade resource once delineated. These will significantly and positively, impact the economics and speed of payback once in production. Early Early Early Early Exploration Success Exploration Success Exploration Success Exploration Success Calidus has released the results of the first 17 RC holes drilled in the gap zone. Every hole intercepted gold mineralisation at relatively shallow depths with the best intercept being 27m @ 5.84g/t from 91m downhole. Allowing for the angle of the hole, this represents a true width of approximately 14m and a depth of around 65m. Valuation Valuation Valuation Valuation BHC believes that with the current exploration programme, Calidus will increase its ore resources by around 80% to more than 700koz’s. This could be higher, but Calidus wants to de-risk the orebodies, so some of the current drilling will be infill, designed to lift material from the Inferred to the Indicated categories. We believe that an increase in the resource quality will lift the EV/resource oz closer to their peers resulting in a conservative, 50% valuation uplift per resource oz. We believe a near term market capitalisation of circa A$39M or A$0.043/share is easily achievable, indicating an 85% uplift from the current share price of A$0.023. Upside Upside Upside Upside Potential Potential Potential Potential With the main orebodies open along strike and all orebodies open at depth, and only shallow drilling having been conducted to date, there is potential for a significant increase in resources, over and above that which the current round or drilling will deliver. One other major aspect is that some of the Pilbara resources run high grades, and with Copenhagen and Coronation running better than 6g/t there is upside potential from better grades. Politically Stable Politically Stable Politically Stable Politically Stable The project is located in Western Australia, a pro mining, politically stable jurisdiction. The project is based on existing mining leases which predate native title claims, eliminating many of the problems facing mining developments in Australia today. 0.010 0.015 0.020 0.025 0.030 Jun-17 Jul-17
Transcript
Calidus Resources Limited (CAI ASX)
MINING – INITIATING COVEREAGE 26 July 2017
Brandon Hill Capital 1
Price Chart
MAIN
SHAREHOLDERS HOLDING
Keras Resources 30.25%
Eight Investment Partners 5.04%
David Reeves 0.79%
Keith Coughlan 0.62%
Source: Bloomberg
Research:
Peter Rose
Peter.Rose @brandonhillcapital.com
www.brandonhillcapital.com
Stock Data
Share Price: 0.023
Market Cap (M): A$16.5
EV (M): A$15.5
Company Summary
Calidus is the spin out of the Australian gold assets in Keras Resources. It is currently exploring the Warrawoona Gold district where it has consolidated a previously fragmented historic gold mining district.
52 Week Range (A$)
0.019 0.023 0.029
GOLD IN THE PILBARA,GOLD IN THE PILBARA,GOLD IN THE PILBARA,GOLD IN THE PILBARA, AUSTRALIAAUSTRALIAAUSTRALIAAUSTRALIA
An investment in Calidus is an investment in brownfields gold exploration on a freshly
consolidated set of leases in the Marble Bar district in the Pilbara region of Western
Australia. These leases contain a 2012 JORC compliant gold resource of 5.78Mt grading
2.2g/t for 410k oz of gold. Calidus is actively drilling to increase both resource size and
confidence and will deliver active news flow targeting a resource update in early 2018.
High High High High GradeGradeGradeGradessss
The existing resource grade of 2.2g/t is one of the highest of the Australian open pit
explorers/developers in our comparison universe and historical exploration indicates
there are many significantly higher grade assays in the numerous targets on the leases
that make up the Warrawoona Project. Although currently small, it is worth noting that
the grade at Copenhagen is 6.1g/t. Nearby Coronation has similar intersections indicating
that will also have a similar higher grade resource once delineated. These will significantly
and positively, impact the economics and speed of payback once in production.
Early Early Early Early Exploration SuccessExploration SuccessExploration SuccessExploration Success
Calidus has released the results of the first 17 RC holes drilled in the gap zone. Every hole intercepted gold mineralisation at relatively shallow depths with the best intercept being 27m @ 5.84g/t from 91m downhole. Allowing for the angle of the hole, this represents a true width of approximately 14m and a depth of around 65m.
ValuationValuationValuationValuation
BHC believes that with the current exploration programme, Calidus will increase its ore resources by around 80% to more than 700koz’s. This could be higher, but Calidus wants to de-risk the orebodies, so some of the current drilling will be infill, designed to lift material from the Inferred to the Indicated categories. We believe that an increase in the resource quality will lift the EV/resource oz closer to their peers resulting in a conservative, 50% valuation uplift per resource oz. We believe a near term market capitalisation of circa A$39M or A$0.043/share is easily achievable, indicating an 85% uplift from the current share price of A$0.023.
With the main orebodies open along strike and all orebodies open at depth, and only shallow drilling having been conducted to date, there is potential for a significant increase in resources, over and above that which the current round or drilling will deliver. One other major aspect is that some of the Pilbara resources run high grades, and with Copenhagen and Coronation running better than 6g/t there is upside potential from better grades.
The project is located in Western Australia, a pro mining, politically stable jurisdiction. The project is based on existing mining leases which predate native title claims, eliminating many of the problems facing mining developments in Australia today.
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CONTENTS
Gold in the Pilbara, AustraliaGold in the Pilbara, AustraliaGold in the Pilbara, AustraliaGold in the Pilbara, Australia 1
The current strategy of Calidus is to increase resources, finalise the consolidation of the Warrawoona/Klondyke goldfield
in the Pilbara region of Western Australia and to develop a substantial gold mine. There is an existing JORC Compliant
(2012) resource of 410k oz at a grade of 2.2g/t with significant exploration upside. Following a successful IPO and capital
raising, the company plans to rapidly expand the current resources via brownfields extensions to current mineralisation
and regional targets.
Why the Pilbara
As with many mineral fields in Australia, this area of the Pilbara has been owned by many different mining companies which
has historically lead to sub-optimal development and exploration. The Warrawoona Goldfield has not seen a concerted
exploration programme since gold was discovered in 1897 due to the fragmented ownership of the area. This leaves it in
a unique position of having known outcropping gold mineralisation that has not been developed. Calidus, having
consolidated the main mineralised shear of the area is embarking on the first modern systematic exploration programme
to rapidly and cost effectively increase resource ounces.
Valuation BHC believes that with the current exploration programme, Calidus will increase its ore resources by around 80% to more than 700k oz’s. This could be higher, but Calidus has stated that it wants to de-risk the orebodies, so some of the current drilling will be infill, designed to lift material from the Inferred to the Indicated categories, and potentially to measured resources. We believe that an increase in the resource quality will lift the EV/resource oz closer to their peers resulting in a conservative, 50% valuation uplift per resource oz. Further, a larger resource of 700,000 oz’s will increase the valuation. When taking into account the dilution from an additional 250M shares being issued to Keras Resources Plc (from achieving a resources of more than 500k oz’s) and a lower cash balance of A$1.5M, we feel a market capitalisation of circa A$39M is easily achievable, indicating a ~85% uplift from the current share price of A$0.023. The 192.5M outstanding options are not included in this calculation.
Shallow Orebody
The Klondyke, Fieldings Gulley, Coronation and Copenhagen are relatively shallow orebodies 78% of the historically drilled
intercepts are shallower than 100m and exploration to date indicates the ore bodies continue at depth. There have been
many relatively high grade intercepts recorded over mineable widths and from surface and much of the 7km’s of Klondyke
shows outcropping on surface. Initially BHC anticipates that mining will be by open pit.
Metallurgy
Historic metallurgical test work, especially on the Klondyke which was tested extensively, indicated that the gold was free milling with some recoveries exceeding 93%. Given the shallow level of oxidation in the area, this is extremely important.
Infrastructure
The area is well serviced by existing infrastructure, being located only 20km outside of Marble Bar. There is a sealed road
from Marble Bar to Port Headland, which is only 2 hours away and a good all weather road from Marble Bar to the leases.
The leases are granted Mining Leases, which existed prior to the native title regime and have access to fresh water. Apart
from having the local Mining Registrar located in Marble Bar, the town also boasts a sealed airstrip and accommodation
Calidus holds a 100% interest in the Warrawoona Gold Project ('Warrawoona' or 'the Project') in the Pilbara region of
Western Australia. Warrawoona comprises a 100% interest in the Klondyke project and the right to mine the Haoma
tenements, which provide the Company with control over the Warrawoona Greenstone Belt. This is the first consolidation
of this part of the greenstone belt. Calidus continue to consolidate the Warrawoona Goldfield through negotiated deals
with existing tenement holders. The tenements cover Archaean aged greenstones of the prospective Warrawoona Group
of the Pilbara Supergroup of the East Pilbara Terrane.
Warrawoona Gold Project
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Renewed Interest in the Pilbara for Gold Mining
Recent interest in the Pilbara Goldfields really commenced in 2010 when Northern Star Resources purchased the Paulsens
operations, located 180km west of the mining town of Paraburdoo on the border of the Ashburton and West Pilbara Mineral
Fields, Western Australia. Despite underground mining having been conducted in the 1930’s, modern exploration did not
commence until 1976 when CRA acquired the leases. It then underwent several changes of ownership until Northern Star
acquired the assets. Currently, Paulsens mines around 0.47mtpa of ore to produce ~70k oz of gold at an AISC of around
US$900/oz.
Since that time, a number of other gold producers have emerged in the area and we mention a few of the more pertinent
below. (Exhibit 1)
Millennium MineralsMillennium MineralsMillennium MineralsMillennium Minerals (MOY ASX) is a 80,000 oz pa producer located 90km to the SSE of Warrawoona. It has a market
capitalisation of ~A$140M. Total resources stand at 1.28 Moz and the Company is completing an aggressive drill
programme to identify more oxide resources and in parallel looking at a sulphide processing route for its extensive
refractory ore resources. There are more details in appendix A.
Capricorn MCapricorn MCapricorn MCapricorn Metals Ltdetals Ltdetals Ltdetals Ltd (CMM ASX) acquired its flagship Karlawinda Gold Project at the beginning of 2016, and moved
quickly to de-risk the project over the past 12 months – upgrading the resource at the Bibra deposit to 31Mt grading 1.1g/t
for 1.14M oz of gold, and completing over 80,000m of resource drilling. A definitive feasibility study is due for completion
before the September quarter 2017. Capricorn has a market capitalisation of ~A$52M
Novo ResourcesNovo ResourcesNovo ResourcesNovo Resources (“Novo”) is a Canadian listed company with a market capitalisation of ~C$169M and is active in the
Pilbara Goldfields. Their main area of focus is immediately to the south of Calidus with the Beatons Creek project. This
currently has a total resource of 558oz with a grade of 2.7g/t and is located 10km from the Millenium Minerals processing
plant. Within the next 6 months Novo plans to release an updated Resource figure and a preliminary feasibility study. A
30kt bulk sample was taken for metallurgical purposes in 2016. Novo also owns the Blue Spec and Gold Spec properties in
the Nullagine area of the Pilbara. These two properties have a combined resource of 415kt grading 16.4g/t for 217k oz of
gold, however, both deposits have very high antimony grades which has a tendency to significantly drive down gold
recoveries due to the more complex metallurgy. We believe that most of the high value attributable to Novo is due to its
extensive gold package in the Pilbara and the announcement of the discovery of gold nuggets at Purdy’s Reward in July
2017. When the Comet Wells and Artemis Farmin JV are included, Novo has extensive leases in the area and Sumitomo
has agreed to partner with Novo in bringing Beatons Creek into production.
De Grey MinDe Grey MinDe Grey MinDe Grey Mining Ltding Ltding Ltding Ltd was established in 2002 and its current focus lies in the Pilbara region on the Turner River Project,
which has found to be prospective for gold mineralisation. Its Pilbara Gold Project has a total resource of 18.8Mt @ 1.7g/t
for 1.0M oz of gold with 54% being in the Measured and Indicated categories contained in several deposits with a plan to
process through a central facility. A scoping study is close to completion.
Kairos MineralsKairos MineralsKairos MineralsKairos Minerals commenced its maiden drilling programme in late 2016 and has already declared a JORC 2012 compliant
resource of 5.692Mt @ 1.42g/t for 258k oz of gold.
PantoroPantoroPantoroPantoro have recently developed their 100% owned Nicholsons Gold Project since acquiring its initial interest in April 2014.
It is currently producing 50k oz pa with targeted expansion up to 100k oz pa. Ore is being produced from an underground
mine and two small open pits are in near term development. More details are available in Appendix A.
The Warrawoona ConsolidationThe Warrawoona ConsolidationThe Warrawoona ConsolidationThe Warrawoona Consolidation –––– MergMergMergMerging the ing the ing the ing the KlondykeKlondykeKlondykeKlondyke ShearShearShearShear and other regional deposits and other regional deposits and other regional deposits and other regional deposits
On October 5 2016 Calidus acquired the Klondyke leases and Haoma tenements “HML Tenements” (which consist of
Copenhagen, Coronation and Fieldings Gully) in the first consolidation of the Warrawoona gold belt.
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The transactions has enabled the Company to access the entire klondyke shear which was historically owned by different
owners. This now gives the Company access to 7.5km strike of the main mineralised shear and the opportuity to join the
two separated resource area into one continuous 3km resourse, prior to any step out drillingThe immediate opportunity is
to close this “gap” area and deliver a resource along the entire strike and optimise any development scenario.
Also, as part of the acqusition of HML Tenements the Company has access to other regional deposits nearby being
Copenhangen, Coronation and Fieldings Gully which could provide further sources of ore in a development scenario.
These deposits are only 10km from the Klondyke shear.
Figure 3 illustrates the total Klondyke shear that is now accessible to the company following the acquisition of Klondyke
and option to purchase the HML tenements (in the green striped sections).
The project is located approximately 70km from Bamboo Creek and 90km from Millennium Minerals (see Exhibit 1) where
excess processing capacity may be available if a tolling option is pursued. In addition to the open-pit resources there is
the potential for underground mining on high grade lodes.
The The The The Acquisition of Klondyke and the HML Tenements Acquisition of Klondyke and the HML Tenements Acquisition of Klondyke and the HML Tenements Acquisition of Klondyke and the HML Tenements
Keras acquired 100% of Arcadia Minerals Pty Ltd (“Arcadia”) whom owned the Klondyke leases. The total consideration for
the acquisition was A$1.42M (£0.8M) in cash and the issue of 100,000,000 Keras ordinary shares, at a market price of 0.62p,
being the closing price on the 5 October 2016. These shares were subject to standard lockup and orderly trading terms. In
addition, Arcadia retains a 2.5% royalty of the gross value of the proceeds on production of gold from the tenements. The
royalty is capped at A$3.5M which will only commence post the production of 20,000 ounces from the Arcadia properties.
Haoma (HML) Tenements
Keras acquired the five year right to mine the HML Tenements and the irrevocable right to acquire within a 5 year period
the HML Tenements for a total consideration of A$1.25M, comprising A$500,000 in cash and a Convertible Note in the
amount of A$750,000 with the right to convert into Calidus ordinary shares at the 30 day VWAP post this announcement.
The agreement with HML represents a first step in a regional consolidation to create the critical mass required to develop
a stand-alone, owner operated open-pit gold mine in the Pilbara region of Western Australia.
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Klondyke Overview
Klondyke comprises four granted mining leases covering a total area of 490 hectares and has a JORC 2012 compliant
resource of 5.6Mt @ 2.08g/t gold ('Au') for 374,000 ounces, which is also open at depth.
The resource is currently confined to two separate 1km portions of the total 7.5km of mineralised strike length highlighting
the significant potential for a large increase in resource along the untested strike length. The company has completed a
10,000m RC drilling programme along the “gap” with the aim of connecting the strike length and increasing the resource.
Exhibit 5: Klondyke: Looking south-east along strike
The Copenhagen deposit is located in the western portion of the Warrawoona project area on Mining Lease (M45/240) of
6.0705 hectares.
Calidus have recently released a Mineral Resource estimate for the Copenhagen gold deposit of 0.17Mt @ 6.1g/t Au at a
grade cut-off of 0.5g/t Au for contained metal of 36,000oz which have been classified as Inferred Resources and reported
in accordance with the JORC Code (2012 Edition). These are shown above in Exhibit 8
The digital database assembled by Calidus for Copenhagen records 53 drill holes for the Copenhagen prospect. Drilling
used for the estimate has been completed using those RC drill holes for which assay data was available - a total of 19 RC
drill holes for 2,995m. 17 historic holes were drilled by Fortuna and HML prior to 1998 with two RC holes for 140m recently
completed by Calidus as part of their confirmatory drilling program over the Warrawoona project (refer Exhibit 5 above).
Holes were generally inclined at -60°to the southwest on a variable spacing averaging 25m x 25m.
Satellite Tenements Exploration History
Prior to 1940 the Copenhagen deposit had been worked via small scale excavation and fossicking defining the surface
expression of the high grade lode. RC drilling was undertaken in the 1980’s and 1990’s mainly by Fortuna Mining and HML.
Small scale open pit mining with a vat leach operation was built at the project in the 1980’s, ceasing in 1988 having
produced some 30Kt of oxidised ore. The gold grade won from this material was reported as 4.11g/t Au. A mineral resource
model was constructed by Continental Resource Management Pty Ltd in 1992.
Drilling of 2 check holes commenced in mid-November 2016 and were designed to test the veracity of the existing drill
holes. Both holes intersected thick, high-grade mineralisation.
• Hole KKC001: 18m @ 6.3g/t gold (‘Au’) from 33m (incl. 6m @ 9.27g/t Au from 34m) • Hole KKC002: 9m @ 6.9g/t Au from 49m (incl. 6m @ 9.47g/t Au from 49m)
Detailed mapping of the greater Klondyke area commenced prior to this and reported visible gold in chip samples,
extensive old workings and expansive shear zones.
Category Tonnes (Mt) Grade Au (g/t) Contained (oz)
• 2,000m into the existing western portion of the resource
• 2,000m of the Copenhagen and Coronation deposits
• 1,000m along strike extensions
Sept- Nov Second 10,000m drill programme
Q4 2017/Q1 2018 Resource update
Q3 2018 Commence PFS
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• Hole 17KLRC004: 7m @ 1.58g/t from 53m
• Hole 17KLRC006: 9m @ 1.21g/t from 113m
The second tranche of drill results was released on the 31st July 2017.
• Hole 17KLRC007: 2m @ 5.58g/t from 29m
• Hole 17KLRC007 : 6m @ 2.26g/t Au from 91m
• Hole 17KLRC007: 16m @ 2.62g/t Au from 124m
• Hole 17KLRC008: 15m @ 2.04g/t Au from 6m
• Hole 17KLRC008: 8m @ 1.43g/t Au from 55m
• Hole 17KLRC009: 20m @ 1.47g/t from 2m
• Hole 17KLRC013: 12m @ 1.45g/t from 8m
• Hole 17KLRC014: 14m @ 1.83g/t from 8m
• Hole 17KLRC015: 6m @ 2.56g/t from 61m
• Hole 17KLRC015: 6m @ 4.61g/t from 82m
• Hole 17KLRC016: 10m @ 1.15g/t from 72m
• Hole 17KLRC017: 5m @ 2.89g/t from 150m
These additional 11 RC holes represent a further 1,186m of drilling. Drilling in the gap area is now complete with the last
samples having been despatched to the laboratory. The rig is now moving to infill and twin holes in the existing resource
area to either side of the gap. This will assist in the next resource calculation which will cover the 3km of continuous
mineralisation that has been discovered to date.
The balance of the current 10,000m drilling programme will be completed in the September quarter 2017, and this includes
a further 4,174m into the Gap zone, which hosts the existing 374k oz Klondyke Resource.
Metallurgical test work has also commenced with initial sighter works underway on both the Klondyke and Copenhagen
deposits. Klondyke has had extensive metallurgical test work previously and the ore was shown to be free milling with gold
recoveries exceeding 93%. Test work will focus on gravity gold capture upfront before conventional CIL processing due to
the high level of visible gold in the deposit.
Environmental works have also commenced to ensure longer lead items required for a future development are being
advanced in a timely manner and to minimise any delays on the project from a regulatory perspective.
As part of the second 10,000m programme which is planned to be completed early in the fourth quarter of 2017, Fieldings
Gully will also be targeted as a review of this area has shown a non-compliant resource open in all directions that can be
quickly converted to additional resources. It is planned to complete this drilling this calendar year to allow a resource
upgrade soon thereafter.
Use of funds
The funds raised in the recent IPO will be used to repay a loan of A$2.9M used for the purchase of the project, an aggressive
exploration programme and corporate expenses over the next 2 years and exploration.
Expansion of operations & exploration A$3,500,000
Business development A$200,000
Expense of the offers A$803,286
Repayment of the D-Beta Loan A$2,905,000
General Working Capital( includes corporate & admin costs) A$1,086,714
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Metallurgy
Sporadic metallurgical test work has been completed over the Warrawoona project.
1994 CRA commissioned Ammtec to complete test work on a sample from the Kopcke’s area which
identified a high incidence of gravity gold. Gravity recovery from a Wilfley table was very high at 73%
and bulk cyanidation testing reported a 96.4% recovery after 24hr against a calculated head of 3.99g/t
Au. In 1995 Amdel completed a bulk sample test work program to evaluate the gold distributions of
the mineralisation, with large (89 – 587kg) samples of ore processed through a pilot plant comprising
an open circuit mill discharging to a rougher (Wilfley) table (P80 = 106μm) with the concentrate
reporting to a cleaner table and the rougher underflow reporting to flotation.
May 2007 In a conceptual level test program on Klondyke mineralisation was conducted at SGS Perth
laboratories to evaluate the metallurgy and determine basic economic and design parameters.
Existing diamond drill core and RC samples were used.
SGS generated a number of composites and completed assays, mineralogy, relative densities,
determination of bond crushing work index, bond abrasion, bond rod mill and bond ball mill
grindability test work, together with cyanidation test work (SGS Lakefield Oretest, 2007). The program
was designed to determine amenability to cyanide leaching in a milling process plant; amenability to
cyanide leaching in a heap leach plant; optimum crush size; design parameters for processing; key
economic operating parameters (recovery, reagent consumption and leach times); consumable and
utility requirements. The SGS test work confirmed the previous Ammtec and Amdel test work and
demonstrated that gold recoveries in cyanidation would be high, with all 17 (pulverised ore) bottle
roll tests achieving recoveries over 90%, with cyanide and lime reagent consumption at the low end
of normal usage. Core samples were also tested to determine standard bond crushing, rod milling
and ball milling indices; the bond crushing work index was exceptionally high, averaging 38kWh/t.
The high work index suggested care will be necessary in design of the comminution circuit and SAG
milling may be precluded.
2010 In 2010 OREX Mining tested four lump ore samples of oxidised schistose material from Klondyke. The
whole of each sample was stage crushed to passing a nominal 15mm with the coarse crushed particles
typically expressed as elongated slabs. A one kilogram head sample was split out and submitted for
assay, together with two one kilogram samples for test work. One sample was screened at 5mm and
0.5mm, and the fractions assayed. The remaining sample was subjected to bottle roll cyanidation for
60 hours without further crushing. The leach residues were screened at 5mm and 0.5mm and the
fractions assayed. Results suggested positive gold extraction was achieved with low to moderate
reagent consumption. Key observations from this test work were:
� The samples are grab samples and not representative.
� There is a relatively soft component to the ore as tested and raises the
possibility of good gold liberation being achieved by fine crushing without
grinding.
� In all cases significant gold extraction was achieved across all size fractions,
with the greatest extraction achieved from the <0.5mm fraction.
� Reagent consumption was low-moderate.
� Poor liberation of gold in the coarse fractions.
Mining
As Calidus is currently an exploration company with a relatively small resource there are no definitive mining plans as yet,
but we believe that any operation will probably commence as an open pit, truck and shovel operation.
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Capital Structure
Number Number Number Number Security Description Security Description Security Description Security Description 717,736,035 Fully paid ordinary shares 87,500,000 Quoted options exercisable at $0.025 each on or before 13 June 2019 31,000,000 Unquoted options exercisable at $0.025 each on or before 13 June 2020 24,000,000 Unquoted options exercisable at $0.03 each on or before 13 June 2020 50,000,000 Unquoted options exercisable at $0.02 each on or before 18 April 2021 250,000,000 Class A Performance Shares 275,000,000 Class B Performance Shares
The performance shares will be issued as delayed consideration to Keras Resources in the form of:
a) 250,000,000 performance shares will convert into fully paid purchaser shares on a one for one basis upon the earlier of:
• The announcement of a JORC 2012 compliant Indicated or Measured Resource of at least 6Mt with cut of grade
of 0.5g/t Au for at least 500,000oz of gold at the Klondyke Gold Project; or
• Sale (directly or indirectly) of all or part of the Purchaser’s Warrawoona Gold Project for a cash consideration of at
least $50,000,000.
b) 275,000,000 performance shares will convert into full paid purchaser shares on a one for one basis upon the earlier of:
• The announcement of a positive pre-feasibility study which demonstrates the project is commercially viable; or
• Sale (directly or indirectly) of all or part of the Purchaser’s Warrawoona Gold Project for a cash consideration of at
least $50,000,000.
As it stands, Keras Resources is a 30.25% shareholder of Calidus and assuming all performance targets are reached with no
additional equity being issued by Calidus, Keras will end up with circa 58.24% of the shares on issue. With a long track
record of accessing capital, Keras could prove a supportive shareholder by participating in future capital raises.
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VVVVALUATIONALUATIONALUATIONALUATION
Background
We have selected a number of the companies in the comparison table of the latest Calidus presentation with particular
focus on gold explorers or developers with potential open cut operations within Australia. We have also included two
producers in Pantoro and Millennium Minerals because they operate in the Pilbara and Kimberley, not too far from the
Calidus leases and demonstrate the potential to profitably produce in the region. Gold Road has been included as it
indicates the upside potential if a multi-million ounce orebody is discovered.
Valuation Technique
Historically we have valued gold resources at US$50 per ounce of resource, however, currently the average market
capitalisation for the explorers in Appendix A, excluding Calidus, is A$50.9/oz. On this metric, with a resource of 410koz,
the Warawoona gold project has an implied value of A$20.9M.
One of the key differentiators with explorers is the average grade of their resource. The Calidus Resource has an average
grade of 2.2g/t and we note that the closest to this in our comparison table is ABM Resources with a grade of 2.14g/t with
a smaller resource of 0.31M oz. Whilst they do have some gold in the Indicated category, their market capitalisation equates
to a value of A$111/oz. BHC believe that this bodes well for Calidus, where the current drilling programme is in part infill
drilling with the aim of de-risking the orebody, suggesting that the next ore resource calculation will deliver at least part of
the resource in the Indicated category. We also expect a significant percentage increase in the resource size given historical
and more recent drilling results in the tenement between the two resource envelopes of the Klondyke prospect.
The next key point on grade is the value derived from a profitable operation. Appendix A clearly shows that Pantoro has a measured resource of 0.77Mt grading 7.35g/t. They have a relatively small resource of 0.38M oz, however, the grade is very high at 7.43g/t. As a producer, Pantoro is de-risked but it demonstrates the upside potential for a similar production profile, with a resource of 0.38M oz, the market values Pantoro at A$501/oz.
It is also noted that the proposed Rothsay mine of Egan Street Resources has a resource of 0.26M oz at a grade of 11.6g/t.
The current proposal is to mine this using long hole open stoping with cemented rock fill pillars. This has an expected
mining cost of A$111/t and has a market capitalisation of A$57/oz.
Notwithstanding an initial open pit, if the Copenhagen deposit (and potentially the Coronation deposit) can be expanded
and the grade of 6g/t can be maintained, it would be profitable with a strip ratio of up to 30:1. This is just a scenario, but it
does indicate that the deposit(s) could be very profitable.
Conclusion
BHC believes that the ore resources at the Warrowoona /Klondyke gold project can easily be doubled in the short term.
Longer term we believe they can be expanded by significantly more than this. The current round of drilling is focusing on
infill drilling to raise the confidence levels by moving ore from the Inferred to the Measured and Indicated categories as
well as drilling between the two JORC resource envelopes on Klondyke. Further, the drilling at Copenhagen is expected
to result in an extension of the resource which we believe will continue to grade around 6g/t.
These moves will impact the value of Calidus three ways:
1. The increase in ore resources should raise the market capitalisation by A$42 for each additional ounce added to
the resources
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Brandon Hill Capital 23
2. There is also likely to be an improvement in terms of market capitalisation per ounce of resource related to higher
grades, and this is where the Copenhagen resource is so important
3. The de-risking of the orebodies as the category moves from Inferred through Indicated to Measures is most likely
to raise the market capitalisation per ounce of resource above A$42/oz.
4. Once the resource increases above 500k oz an additional 250M performance shares will be issued. Whilst this
should not impact the market capitalisation per ounce of resource, we do anticipate it will impact the share price
Up-side potential
Apart from the three short term impacts to the valuation of Calidus, there are some longer term impacts which could be substantial:
1. Most of the drilling to-date is shallow and has delineated the orebody to 150m depth which means the majority of the delineated resource could be potentially be mined by open pit at manageable strip ratios
2. Only sporadic metallurgical test work has been conducted on these ores. Some initial metallurgical studies have been budgeted for and positive results will further de-risk the project.
3. A positive pre-feasibility study would be expected to increase the valuation.
Valuation
With Calidus currently being an exploration company, we have to derive our valuation by comparison with similar gold
companies in the Pilbara. With a market capitalisation of A$32.3/inferred ounce of resource, Calidus is already trading at
a discount to most other gold explorers in the Pilbara and other parts of Western Australia.
BHC believes that with the current exploration programme, Calidus will increase its ore resources by around 80% to more
than 700,000oz’s. This could be higher, but Calidus has stated that it wants to de-risk the orebodies, so some of the current
drilling will be infill, designed to lift material from the Inferred to the Indicated categories, and potentially to measured
resources. We believe that an increase in the resource quality will lift the EV/resource oz closer to their peers resulting in a
conservative, 50% valuation uplift per resource oz. Further, a larger resource of 700,000 oz’s will increase the valuation.
When taking into account the dilution from an additional 250,000,000 shares being issued to Keras Resources Plc (from
achieving a resources of more than 500,000oz’s) and a lower cash balance of A$1.5M, we feel a market capitalisation of
circa A$39M is easily achievable, indicating a ~70% uplift from the current share price of A$0.024.
There is room for a significant increase in this outlook due to increasing the total resource further and also that we believe
Calidus should trade at a premium, not a discount to their lower grade peers. Further, as Calidus move through the phases
of feasibility, they can be valued on a DFS basis which should also prove positive.
Total Cost AISC A$1,054/oz A$1,186/oz A$945/oz A$1,020/oz A$549/oz $1,028/oz $1362/oz
Comments Operates on land Estimated project CAPEX Testwork completed Acquired Bronzewing Sold a 50% interest Definitive Feasibility Finalised a 6-month
owned by Traditional of $155M recently at Karlawinda Processing Hub in Gruyere to Goldfieldstargeted for Q3, 2017 option to 100%
Owners DFS completion by Recent completion for A$350M 1st production mid-2018ownership
Sep quarter 2017 of Julius Bankable 1st production 2018 High grade deposits gold equiv. Comes
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Brandon Hill Capital 33
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Calidus Resources Limited Initiating Coverage
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Brandon Hill Capital 34
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