Southern Cross Goldfields Limited

Transcription

Independent Expert’s Report and Financial Services Guide
24 October 2014
Southern Cross Goldfields Limited – Independent Expert’s Report
The Directors
Level 6
344 Queen Street
Brisbane QLD 4000
Attn: Mr David Kinsman
24 October 2014
Dear Sirs
Independent Expert’s Report and Financial Services Guide
Introduction
Southern Cross Goldfields Limited (“Southern Cross”, the “Company” or “SXG”) is an
Australian mining and exploration company focused on precious metals projects. Currently,
Southern Cross’ main focus is the development of its Manuka silver project (“Manuka
Project”)1 and the Mt Boppy gold project (“Mt Boppy Project”) both located in New South
Wales. As at 10 October 2014, SXG had a market capitalisation of approximately A$16
million.
Southern Cross has recently secured funding for its projects from TrailStone UK Limited
(“TrailStone”). The funding (“TrailStone Funding”) comprises the following:
• A gold loan facility totalling A$25 million (“Gold Loan Facility”). The Company has
recently drawn-down approximately A$11.65 million from the Gold Loan Facility2.
TrailStone was granted a first ranking fixed and floating charge over all the assets and
undertaking of the Company.
• A$35 million credit loan facility (Credit Facility”) to be drawn down in stages from the
first half of 2015. TrailStone was granted a second ranking fixed and floating charge over
all the assets and undertaking of the Company.
• A placement of A$1 million (“Placement”) to subscribe for 100 million new fully paid
ordinary shares (SXG Shares) at 1c per share3. This equates to an interest in the undiluted
share capital of the Company of 7.58%. The Placement was completed on 17 October
2014.
Southern Cross acquired the Manuka Project on 5 September 2014 from the receivers of its previous owners Cobar Consolidated
Resources Limited. It was formally known as the Wonawinta Project.
2 We note that the full draw-down of the Gold Loan is still subject to certain administrative post-completion conditions which are
expected to be met before the Shareholders meeting.
3 We note that the Placement was only completed on 17 October 2014.
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2
The terms of the TrailStone Funding requires SXG to issue 1 billion warrants (“Warrants”)
to TrailStone as partial consideration for TrailStone entering into the Credit Facility. The
Warrants were issued to TrailStone on 17 October 2014. Set out below are the key terms of
the Warrants:
• Strike price – 1.3c per Warrant.
• Maturity date – 31 December 2019.
• Transferrable with minimum administrative conditions required to be fulfilled.
• Exercise options:
− If SXG shareholders not associated with TrailStone (“Non-Associated Shareholders”)
do approve the exercise of the Warrants, then TrailStone has two options:
i)
Full Settlement Option – the Warrants will be exercisable into 1 billion SXG
Shares anytime up to the maturity date by the payment of the total strike price
of A$13 million (“Proposed Exercise”).
ii) Net Settlement Option – this effectively provides for a cashless exercise of the
Warrants. The number of shares to be issued to TrailStone will only be based
on the difference between the trading prices at the time of exercise and the
strike price of 1.3 cents. Each Warrant will convert into a number of SXG
Shares determined by the following formula
In the money value of the Warrants4/ 95% VWAP5
As discussed in the reasonableness consideration, the Net Settlement Option is
more financially advantageous for TrailStone, however the Full Settlement
Option will provide TrailStone with a greater interest in the issued capital of the
Company. Refer to our discussions in the reasonableness section of the
executive summary.
− If Non-Associated Shareholders do not approve the exercise of the Warrants, then
TrailStone has two options:
i)
Net Settlement Option – the Warrants will convert into that maximum number
of SXG Shares such that TrailStone will have an interest in the share capital of
the Company not exceeding the 20% threshold established by Chapter 6 of the
Corporations Act and the Company has sufficient capacity under ASX Listing
Rule 7.1 and 7.1A to issue the SXG Shares6. The issue by SXG of this capped
number of shares does not require Non-Associated Shareholders approval
under the Corporation Act or ASX Listing Rules.
The difference (if any) between the SXG trading price at the time the exercise notice is served and 1.3c, being the strike price.
95% of the 30 trading day Volume Weighted Average Share Price on the ASX.
6 ASX Listing Rule 7.1 establishes that a company cannot issue more than 15% of the issued capital in any 12 month period without
shareholders’ approval. ASX Listing Rule 7.1A provides an entity with the ability to issue an additional 10% of the share capital over and
above the limit established by ASX Listing Rule 7.1 subject to shareholders’ approval.
4
5
3
ii) Cash Settlement Option – SXG will pay TrailStone an amount determined as
the difference between the SXG 30-trading day VWAP at the time the exercise
notice is lodged and 1.3c (the strike price) multiplied by the number of
Warrants on issue. The cash settlement can be paid either promptly7 or in eight
quarterly equal instalments. Interest will accrue on the unpaid cash amount at
16% per annum.
We note that if the SXG trading prices on the ASX are lower than the strike price at the
time of exercise, there is no value in the Warrants under any of the exercise options
available to TrailStone.
If Non-Associated Shareholders approve the Proposed Exercise, TrailStone will not be
able to opt for the Cash Settlement Option.
Upon exercise of the Warrants under the Full Settlement Option, TrailStone’s shareholding
in SXG will increase from 7.58% to approximately 47.42% on an undiluted basis but
including the shares issued upon the Placement.
Subject to their directors’ fiduciary duties, the Directors of Southern Cross unanimously
recommend that the Non-Associated Shareholders vote in favour of the Proposed Exercise.
Each Director intends to vote all shares they own or control in favour of the resolution to
approve the Proposed Exercise.
Purpose of the report
The Directors of Southern Cross have engaged Grant Thornton Corporate Finance Pty Ltd
(“Grant Thornton Corporate Finance”) to prepare an independent expert’s report to
express an opinion as to whether the issue of up to 1 billion SXG Shares to TrailStone upon
exercise of the Warrants is fair and reasonable to the Non-Associated Shareholders in
accordance with Item 7 of Section 611 of the Corporations Act, 2001.
For the purpose of this report, independent technical specialists, namely AMC Consultants
Pty Ltd (“AMC”) and Grays Asset Services (“Grays”), were engaged to conduct an
independent review and assessment of the mineral assets held by Southern Cross and the
plant and equipment associated with the Manuka Project.
AMC’s report (the “AMC Report”) and Grays’ report (the “Grays Report”) are included as
Appendix D and Appendix E to this report respectively.
7
Within five business days of receiving the relevant notice of exercise.
4
Basis of assessment
In accordance with the requirements of ASIC Regulatory Guide 111 Contents of expert reports
(“RG 111”), we have estimated whether or not the Proposed Exercise is fair for the NonAssociated Shareholders by comparing the fair market value of SXG before the Proposed
Exercise on a control basis with the fair market value of SXG post the Proposed Exercise
on a minority basis. We have also analysed the likely advantages, disadvantages and other
factors to be considered by the Non-Associated Shareholders in relation to the Proposed
Exercise.
Summary of opinion
Grant Thornton Corporate Finance has concluded that the Proposed Exercise is
NOT FAIR BUT REASONABLE to Non-Associated Shareholders.
Fairness assessment
Set out below is a summary of our valuation assessment.
Assessment of fairness - Proposed Ex ercise (Non-Participating Shareholders)
Low
High
Mid-point
Reference
(cents)
(cents)
(cents)
Fair market v alue of Southern Cross before Proposed Ex ercise (on a control basis)
6
1.800
3.791
2.795
Fair market v alue of Southern Cross after Proposed Ex ercise (on a minority basis)
7
1.348
2.219
1.784
(0.452)
(1.571)
(1.012)
(25.1)%
(41.5)%
(36.2)%
Increase / (decrease) in v alue per Southern Cross Share
Increase / (decrease) in value per Southern Cross Share (%)
Section
Source: GTCF calculations
Our assessment of the fair market value of SXG on a control basis before the Proposed
Exercise is higher than our assessment of SXG on a minority basis after the Proposed
Exercise. Accordingly, we have concluded that the Proposed Exercise is not fair to the
Non-Associated Shareholders.
SXG Shareholders should be aware that our assessment of the value per SXG Share post
the Proposed Exercise does not reflect the price at which SXG Shares will trade if the
Proposed Exercise is approved. The price at which SXG Shares will ultimately trade
depends on a range of factors including the liquidity of SXG Shares, macro-economic
conditions, the underlying performance of the business and the supply and demand for
SXG Shares.
Further, we note that our valuation assessment of SXG is based on the fair market value
concept and it does not reflect the risks attached to the potential capital structure of the
Company going forward which could be materially weighted toward debt funding if the
Gold Facility and the Credit Facility are fully drawn down and in the absence of a large
capital raising.
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Sensitivity analysis on the value of the Warrants
We note that in our valuation assessment of SXG post the Proposed Exercise, we have had
regard to the Full Settlement Option due to the following:
• SXG is seeking Non-Associated Shareholders’ approval for the issue of up to 1 billion
shares to TrailStone (i.e. scenario under the Full Settlement Option).
• It is not possible at this point in time to calculate the number of shares to be issued to
TrailStone under the Net Settlement Option8.
In assessing the fair market value of Southern Cross after the Proposed Exercise, we have
allowed for the funds of A$13 million that would be received from TrailStone at the time of
exercise of the Warrants and the additional 1 billion shares to be issued upon exercise.
However, we have also considered in our valuation assessment the time value of the
Warrants as if the Warrants were exercised at the time of maturity (i.e. 31 December 2019).
The time value9 of the Warrants has been assessed at approximately A$9 million. Refer to
section 7.2 for further details.
Given it is not known at this point in time when and if TrailStone will exercise the Warrants,
we have set out in the table below a sensitivity analysis of the value of SXG after the
Proposed Exercise in conjunction with exercise of the Warrants immediately after
Shareholders’ approval of the Proposed Exercise and half way through the maturity period
(31 December 2017).
Section
Base
Immediate
Mid-period
Reference
Case
Ex ercise
Ex ercise
Adjusted equity v alue of Southern Cross on a minority basis (post) - mid-point ($000)
7.1
41,365
41,365
41,365
Add back the v alue of the Warrants - mid-point (1) ($000)
7,2
-
6,922
3,461
41,365
48,287
44,826
2,319,551
2,319,551
2,319,551
1.783
2.082
1.933
Number of Southern Cross shares before the Proposed Transaction
Equity v alue of Southern Cross on a minority basis (post Warrants adj.) ($000)
Number of shares outstanding (diluted) (in '000s shares)
7.3
Equity value per shares (post Warrants adj.) - cents
Source: Management
Note (1) - Calculated on a minority basis
Reasonableness assessment
For the purpose of assessing whether or not the Proposed Exercise is reasonable to the
Non-Associated Shareholders of Southern Cross, we have considered the following likely
advantages, disadvantages and other factors associated with the Proposed Exercise.
In order to calculate the number of SXG Shares to be issued to TrailStone under the Net Settlement Option, the exercise date and the
share price at the time of exercise are required.
9 Investors are willing to pay a premium (time value) over the intrinsic value of the Warrants (difference between the trading prices and
the strike price as given the exercise price is fixed, any future increases in the share price of SXG will be reflected by commensurate
gains in the intrinsic value. Given the Warrants have a maturity of 5 years, the time value of money is significant.
8
6
Advantages
Avoidance of paying the Cash Settlement Option
If the Proposed Exercise is not approved, the Company may be required to pay the Cash
Settlement Option upon conversion of the Warrants. As set out in the table below, the value
of the Cash Settlement Option may be material in circumstances where SXG’s share price
materially increases over the life of the Warrants.
Cash Settlement Option sensitiv ity
SXG Trading prices (cents)
1.50
2.50
3.50
4.50
Strike price (cents)
1.30
1.30
1.30
1.30
Difference (cents)
0.20
1.20
2.20
3.20
1,000
1,000
1,000
1,000
2,000,000
12,000,000
22,000,000
32,000,000
No. w arrants on issue (millions)
Cash Settlement Option Payment ($)
In relation to the above potential cash payment, we note the following:
• SXG is a small exploration and development company with limited cash resources and it
may be required to access additional debt and/or equity funding in order to be able to
pay the Cash Settlement Option. This additional funding may not necessarily be available,
which may jeopardise the ability of the Company to continue as a going concern, or it
may only be available at terms materially dilutive for Non-Associated Shareholders.
• Whilst the Company currently has a significant undrawn facility as part of the TrailStone
Funding, we note that there are restrictions on the use of the TrailStone Funding which
cannot be utilised to repay other external debt or liabilities such as the Cash Settlement
Option payment.
• As at the date of this report, the market capitalisation of SXG is approximately A$16
million and the drawn-down debt facility is approximately A$11.65 million which implies
a market gearing (debt/equity) of 77%. This is atypically high for an
exploration/development company. The gearing level may further increase if additional
debt is drawn down from the TrailStone Funding (A$48.5 million of undrawn facilities).
In our opinion, if the Cash Settlement Option payment becomes due and payable, the
Company may face challenges to raise additional debt facilities if the current market
conditions and gold price still prevail at the time of exercise of the Warrants.
By approving the Proposed Exercise, the Non-Associated Shareholders remove potential
risks attached to the Cash Settlement Option payment.
Greater alignment of the interest between TrailStone and the Non-Associated Shareholders
Upon exercise of the Warrants, if TrailStone opts for the Full Settlement Option, it will
acquire a relevant interest in the Company of approximately 47.42% on an undiluted basis
and become a strategic investor/partner in the Company. TrailStone may also provide
further financial and operational support going forward if required. In addition, TrailStone
will be further aligned with the interests of the Non-Associated Shareholders rather than
predominately being the major secured creditor of the Company.
7
Capital injection of A$13 million.
If the Proposed Exercise is approved and TrailStone elects for the Full Settlement Option,
TrailStone will be required to pay A$13 million in cash upon exercise of the Warrants. We
note the following advantages for the Company:
• The additional cash resources may assist the Company in funding some of the upfront
capital expenditure to expedite the commencement of production at its key projects if the
Warrants are exercised shortly after the Shareholders meeting.
• The A$13 million cash injection may assist SXG in having a more balanced capital
structure and mitigate any potential future financial risks arising from adverse market
conditions.
However, as discussed in more details in the other factors section of this executive
summary, TrailStone may opt for the Net Settlement Option which does not provide any
additional cash to SXG.
Warrant Strike Price represents a premium to the current share price
The strike price of the Warrants is at a premium to the historical trading prices of SXG and
in line with the current trading prices.
Southern Cross Goldfields
Share price
Strike price
(cents)
(cents)
Premium / Discount
(%)
Closing price of SXG before 8 July 141
1.000
1.300
30.0%
Closing price of SXG before 5 September 142
0.800
1.300
62.5%
5 day VWAP of SXG up to 9 October 2014
1.334
1.300
(2.5)%
1 month VWAP of SXG up to 9 October 2014
1.139
1.300
14.1%
1.090
1.300
19.3%
1.103
1.300
17.9%
Note (1): On 8 July 2014, Southern Cross announced new debt funding of A$60 million with TrailStone
Note (2): On 5 September 2014, Southern Cross announced the revision of the funding with TrailStone and the removal of equity-raise pre-condition
Source: Capital IQ and GTCF calculations
Disadvantages
The Proposed Exercise is not fair
The Proposed Exercise is not fair based on our valuation of SXG on a control basis before
the Proposed Exercise. However, we note that the Warrants have already been issued and
accordingly the terms, including the strike price, cannot be amended and Non-Associated
Shareholders are only asked to vote on the Proposed Exercise.
8
Dilution for existing shareholders of SXG
The exercise of the Warrants will result in a significant dilution for the Non-Associated
Shareholders’ interest in the Company. However, whilst the interest of the Non-Associated
Shareholders in the current assets of SXG will be diluted materially upon exercise of the
Warrants, they will also receive a similar pro-rata interest in the A$13 million cash injection
if TrailStone opts for the Full Settlement Option. If TrailStone opts for the Net Settlement
Option, there will be no mitigation to Non-Associated Shareholders’ dilution.
Decreases the likelihood of future takeover offer
Upon exercise of the Warrants if the Full Settlement Option is selected, TrailStone will hold
47.42% of the enlarged issued capital of SXG on an undiluted basis. This shareholding
would likely represent a potential deterrent to a takeover bid for the Company. In our
opinion, the likelihood of the Company receiving a takeover offer will reduce upon
conversion of the Warrants.
Other factors
Full exercise of the Warrants vs Net Settlement Option
The substance of the terms of the Warrants are such that in our opinion if Non-Associated
Shareholders’ approval is obtained in relation to the Proposed Exercise, TrailStone may be
better off, purely from a financial perspective, to opt for the Net Settlement Option due to
the following:
• It will not be required to pay the strike price of 1.3 cents per share (totalling A$13
million).
• Based on the formula for the calculation of the shares to be issued under the Net
Settlement Option, TrailStone will benefit from a 5% discount to the 30 trading day
VWAP.
• The Net Settlement Option always offers a superior financial outcome to TrailStone as
set out in the sensitivity analysis below.
Full Warrant Ex ercise
Net Settlement Option
SXG Trading prices (cents)
1.50
2.50
3.50
4.50
1.50
2.50
3.50
4.50
Strike price (cents)
1.30
1.30
1.30
1.30
1.30
1.30
1.30
1.30
Difference (cents)
0.20
1.20
2.20
3.20
0.20
1.20
2.20
3.20
1,000
1,000
1,000
1,000
140
505
662
749
Market v alue of the shares issued upon ex ercise ($)
15,000,000
25,000,000
35,000,000
45,000,000
2,105,263
12,631,579
23,157,895
33,684,211
Less total strike price paid by Trailstone ($)
(13,000,000)
(13,000,000)
(13,000,000)
(13,000,000)
2,000,000
12,000,000
22,000,000
32,000,000
2,105,263
12,631,579
23,157,895
33,684,211
47.42%
47.42%
47.42%
47.42%
16.46%
33.17%
38.44%
41.03%
No. shares to be issued (millions) (1)
Net market value for Trailstone ($)
Trailstone Shareholding in SXG (%)
-
-
-
-
Note (1): Under the Net Settlement Option is determined as the value difference divided by 95% of the trading price and multiplied by the number of
Warrants on issue.
Notwithstanding the discussion above, TrailStone may decide to opt for the Full Settlement
Option in order to achieve a greater shareholding in SXG. As set out in the table above,
where SXG’s trading prices are marginally above the strike price, the number of shares to be
issued to TrailStone under the Net Settlement Option is limited and accordingly its
influence over the Company may be diminished.
9
Alternative monetisation option for TrailStone
If the Proposed Exercise is not approved, TrailStone may seek to monetise the Warrants by
selling them to a number of parties in order to ensure that upon exercise the takeover
provision in Section 6 of the Corporations Act and ASX Listing Rules 7.1 and 7.1A are not
breached10.
The Warrants and the TrailStone Funding
We note that whilst SXG is only seeking Shareholders’ approval for the exercise of the
Warrants, the Warrants were issued to TrailStone as part of the TrailStone Funding. The
Gold Facility, Credit Facility and the Warrants were negotiated as part of a unique funding
arrangement.
It is likely that without the potential upside offered to TrailStone by the Warrants, the
TrailStone Funding would have not be made available to the Company based on the existing
terms. The Warrants will become valuable to TrailStone only in conjunction with an
increase of the share price above the strike price (1.3 cents). Non-Associated Shareholders
will also benefit from this share price growth. In addition, the terms of the Warrants fully
align the interest of TrailStone to those of the Non-Associated Shareholders.
Valuation of SXG on a 100% basis
As discussed in our fairness section above, our valuation assessment of SXG before the
Proposed Exercise has been undertaken on a 100% basis and incorporating the application
of a premium for control in accordance with the requirements of RG111. However, we note
that upon exercise of the Warrants, TrailStone will approximately hold 47.42% of the
undiluted issued capital of the Company if the Full Settlement Option is selected. Under the
Net Settlement Option, TrailStone’s shareholding may be materially lower than 47.42%
depending on the trading prices of SXG.
TrailStone has also indicated that it currently has no intention to change the members of the
Board of the Company. In our opinion, it is unlikely that TrailStone would be willing to pay
a full premium for control under these circumstances.
Directors’ recommendations and intentions
Subject to their directors’ fiduciary duties, the Directors of Southern Cross unanimously
recommend that the Non-Associated Shareholders vote in favour of the Proposed Exercise.
Each Director intends to vote all shares they own or control in favour of the resolution to
approve the Proposed Exercise.
Reasonableness conclusion
ASX Listing Rule 7.1 establishes that a company cannot issue more than 15% of the issued capital in any 12 month period without
shareholders’ approval. ASX Listing Rule 7.1A provides an entity with the ability to issue an additional 10% of the share capital over and
above the limit established by ASX Listing Rule 7.1 subject to shareholders’ approval. In addition, Section 606 of the Corporations Act
prohibits the acquisition of a relevant interest in the issued voting shares of a company if the acquisition results in the person’s voting
power in the company increasing from either below 20% to more than 20%, or from a starting point between 20% and 90%, without
making an offer to all shareholders of the company.
10
10
Based on the qualitative factors identified, it is our opinion that the Proposed Exercise is
reasonable to the Non-Associated Shareholders.
Overall conclusion
After considering the abovementioned quantitative and qualitative factors relevant to the
Non-Associated Shareholders, we have formed our opinion that the Proposed Exercise is
NOT FAIR BUT REASONABLE for the Non-Associated Shareholders.
Other matters
Grant Thornton Corporate Finance has prepared a Financial Services Guide in accordance
with the Corporations Act. The Financial Services Guide is set out in the following section.
The decision as to whether or not to approve the Proposed Exercise is a matter for each
shareholder of Southern Cross based on their own views of value of Southern Cross and
expectations about future market conditions, Southern Cross’ performance, risk profile and
investment strategy. If the shareholders are in doubt about the action they should take in
relation to the Proposed Exercise, they should seek their own professional advice.
Yours faithfully
GRANT THORNTON CORPORATE FINANCE PTY LTD
ANDREA DE CIAN
Director
LIZ SMITH
Director
11
24 October 2014
Financial Services Guide
1
Grant Thornton Corporate Finance Pty Ltd
Grant Thornton Corporate Finance Pty Ltd (“Grant Thornton Corporate Finance”)
carries on a business, and has a registered office, at Level 17, 383 Kent Street, Sydney NSW
2000. Grant Thornton Corporate Finance holds Australian Financial Services Licence No
247140 authorising it to provide financial product advice in relation to securities and
superannuation funds to wholesale and retail clients.
Grant Thornton Corporate Finance has been engaged by Southern Cross Goldfields
Limited (“Southern Cross” or “the Company”) to provide general financial product
advice in the form of an independent expert’s report in relation to the proposed issue of
ordinary shares to TrailStone UK Ltd (“TrailStone”). This report is included in the Notice
of Meeting and Explanatory Memorandum in relation to the Proposed Exercise.
2
Financial Services Guide
This Financial Services Guide (“FSG”) has been prepared in accordance with the
Corporations Act, 2001 and provides important information to help retail clients make a
decision as to their use of general financial product advice in a report, the services we offer,
information about us, our dispute resolution process and how we are remunerated.
3
General financial product advice
In our report we provide general financial product advice. The advice in a report does not
take into account your personal objectives, financial situation or needs.
Grant Thornton Corporate Finance does not accept instructions from retail clients. Grant
Thornton Corporate Finance provides no financial services directly to retail clients and
receives no remuneration from retail clients for financial services. Grant Thornton
Corporate Finance does not provide any personal retail financial product advice directly to
retail investors nor does it provide market-related advice directly to retail investors.
4
Remuneration
When providing the Report, Grant Thornton Corporate Finance’s client is the Company.
Grant Thornton Corporate Finance receives its remuneration from the Company. In respect
of the Report, Grant Thornton Corporate Finance will receive from SGX a fee of
approximately A$70,000 plus GST, which is based on commercial rates plus reimbursement
of out-of-pocket expenses in relation to the preparation of the report. Our directors and
employees providing financial services receive an annual salary, a performance bonus or
profit share depending on their level of seniority.
Except for the fees referred to above, no related body corporate of Grant Thornton
Corporate Finance, or any of the directors or employees of Grant Thornton Corporate
Finance or any of those related bodies or any associate receives any other remuneration or
other benefit attributable to the preparation of and provision of this report.
12
5
Independence
Grant Thornton Corporate Finance is required to be independent of SGX and TrailStone in
order to provide this report. The guidelines for independence in the preparation of an
independent expert’s report are set out in Regulatory Guide 112 Independence of expert issued
by the Australian Securities and Investments Commission (“ASIC”). The following
information in relation to the independence of Grant Thornton Corporate Finance is stated
below.
“Grant Thornton Corporate Finance and its related entities do not have at the date of this report, and have
not had within the previous two years, any shareholding in or other relationship with Southern Cross and
Southern Cross (and associated entities) that could reasonably be regarded as capable of affecting its ability to
provide an unbiased opinion in relation the Proposed Exercise.
Grant Thornton Corporate Finance has no involvement with, or interest in the outcome of the Proposed
Exercise, other than the preparation of this report.
Grant Thornton Corporate Finance will receive a fee based on commercial rates for the preparation of this
report. This fee is not contingent on the outcome of the Proposed Exercise. Grant Thornton Corporate
Finance’s out of pocket expenses in relation to the preparation of the report will be reimbursed. Grant
Thornton Corporate Finance will receive no other benefit for the preparation of this report.
Grant Thornton Corporate Finance considers itself to be independent in terms of Regulatory Guide 112
“Independence of expert” issued by the ASIC.
6
Complaints process
Grant Thornton Corporate Finance has an internal complaint handling mechanism and is a
member of the Financial Industry Complaints Services Complaints Handling Tribunal, No
F-3986. All complaints must be in writing and addressed to the Chief Executive Officer at
Grant Thornton Corporate Finance. We will endeavour to resolve all complaints within 30
days of receiving the complaint. If the complaint has not been satisfactorily dealt with, the
complaint can be referred to the Financial Ombudsman Service who can be contacted at:
PO Box 579 – Collins Street West
Melbourne, VIC 8007
Telephone: 1800 335 405
Grant Thornton Corporate Finance is only responsible for this report and this FSG.
Complaints or questions about the Notice of Meeting and Explanatory Memorandum
should not be directed to Grant Thornton Corporate Finance. Grant Thornton Corporate
Finance will not respond in any way that might involve any provision of financial product
advice to any retail investor.
Compensation arrangements
Grant Thornton Corporate Finance has professional indemnity insurance cover under its
professional indemnity insurance policy. This policy meets the compensation arrangement
requirements of section 912B of the Corporations Act, 2001.
13
Contents
Page
1
Outline of the Proposed Exercise
14
2
Purpose and scope of the report
16
3
Profile of the industry
19
4
Profile of Southern Cross
29
5
Valuation methodologies
43
6
Valuation assessment of Southern Cross before the Proposed Exercise
47
7
Valuation assessment of Southern Cross after the Proposed Exercise
73
8
Source of information, disclaimer and consents
76
Appendix A – Valuation methodologies
79
Appendix B – Discount Rate
81
Appendix C - Description of comparable companies
88
Appendix D - Glossary
89
Appendix E – AMC Report
91
Appendix F – Grays Report
92
14
1
1.1
Outline of the Proposed Exercise
Background
As discussed in the executive summary, Southern Cross recently secured A$61 million
funding for its development and pre-production mineral projects from TrailStone as
summarised below:
• A debt package of up to A$60 million comprising the Gold Loan Facility and the
Credit Facility (refer to section 4.3 for details).
• A placement of A$1 million at 1c per share.
In accordance with the terms of the above TrailStone Funding arrangements, on 17
October 2014, TrailStone was issued 1 billion warrants. Upon conversion of the Warrants
under the Full Settlement Option, TrailStone will increase its interest in the Company
from 7.58%% to 47.42%.
In conjunction with the above funding and the Proposed Exercise, TrailStone will be
permitted to appoint a director or an observer to the Board of SXG if it holds at least
10% equity interest in SXG.
As set out in section 3.6 of the Notice of Meeting and Explanatory Memorandum, we
understand that TrialStone does not have current intentions to sell any of the assets of
the Company, change the composition of the Board/Management or the financial
policies of the Company.
We note that in conjunction with the Proposed Exercise, SXG is seeking shareholders’
approval for a number of additional matters such as
• Consolidating the share capital on 1:30 ratio.
• Changing the Company’s name to Black Oak Minerals Limited.
• The ability to issue equity securities up to 10% of the issued capital of the Company in
accordance with ASX Listing Rule 7.1A.
We have not formed a view or included the above ancillary matters in our consideration
of the Proposed Exercise.
1.1
Effects of the Proposed Exercise
If the Proposed Exercise is approved by the Non-Associated Shareholders and upon
exercise conversion of the Warrants, we note the following:
• TrailStone’s interest in SXG would increase from 7.58% to approximately 47.42% on
an undiluted basis if the Full Settlement Option is selected.
15
• The total number of shares on issue will increase from 1.32 billion (including the
Placement) to 2.32 billion under the Full Settlement Option.
• TrailStone will be able to appoint a director or observer to the Board of the Company.
16
2
Purpose and scope of the report
Section 606 of the Corporations Act prohibits the acquisition of a relevant interest in the
issued voting shares of a company if the acquisition results in the person’s voting power
in the company increasing from either below 20% to more than 20%, or from a starting
point between 20% and 90%, without making an offer to all shareholders of the
company.
Item 7 of Section 611 of the Corporations Act allows the shareholders not associated
with the acquiring company (“Non-Associated Shareholders”) to waive this prohibition
by passing a resolution at a general meeting. Regulatory Guide 74 “Acquisitions agreed to
by shareholders” (“RG 74”) and Regulatory Guide 111 “Content of expert reports” (“RG
111”) issued by ASIC set out the view of ASIC on the operation of Item 7 of Section 611
of the Corporations Act.
RG 74 requires that shareholders approving a resolution pursuant to Section 623 of the
Corporations Act (the predecessor to Item 7 of Section 611 of the Corporations Act) be
provided with a comprehensive analysis of the proposal, including whether or not the
proposal is fair and reasonable to the Non-Associated Shareholders. The Directors may
satisfy their obligations to provide such an analysis by either:
• Commissioning an independent expert’s report; or
• Undertaking a detailed examination of the proposal themselves and preparing a report
for the Non-Associated Shareholders.
If the Proposed Exercise is completed, TrailStone may increase its current shareholding
interest in the Company from approximately 7.58% up to approximately 47.42%.
Accordingly, the Directors of Southern Cross have engaged Grant Thornton Corporate
Finance to prepare an independent expert’s report stating whether, in its opinion, the
Proposed Exercise is fair and reasonable to the Non-Associated Shareholders for the
purposes of Item 7 of Section 611 of the Corporations Act.
2.1
Basis of assessment
In preparing our report, Grant Thornton Corporate Finance has had regard to the
Regulatory Guides issued by ASIC, particularly RG 111, which states that an issue of
shares requiring approval under Item 7 of Section 611 of the Corporations Act should be
analysed as if it were a takeover bid. Accordingly, we have assessed the Proposed
Exercise with reference to Section 640 of the Corporations Act.
RG 111 states that:
• An offer is considered fair if the value of the offer price or consideration is equal to or
greater than the value of the securities that are the subject of the offer. The
comparison should be made assuming 100% ownership of the target company
irrespective of whether the consideration offered is scrip or cash and without
17
consideration of the percentage holding of the offeror or its associates in the target
company.
• An offer is considered reasonable if it is fair. If the offer is not fair it may still be
reasonable after considering other significant factors which justify the acceptance of
the offer in the absence of a higher bid. ASIC has identified the following factors
which an expert might consider when determining whether an offer is reasonable:
-
The offeror’s pre-existing entitlement, if any, in the shares of the target company.
-
Other significant shareholding blocks in the target company.
-
The liquidity of the market in the target company’s securities.
-
Taxation losses, cash flow or other benefits through achieving 100% ownership
of the target company.
-
Any special value of the target company to the offeror, such as particular
technology and the potential to write off outstanding loans from the target
company.
-
The likely market price if the offer is unsuccessful.
-
The value to an alternative offeror and likelihood of an alternative offer being
made.
Grant Thornton Corporate Finance has determined whether the Proposed Exercise is fair
to the Non-Associated Shareholders by comparing the fair market value of Southern
Cross Shares before the Proposed Exercise on a 100% control basis with the fair market
value of Southern Cross Shares after the Proposed Exercise on a minority basis.
In considering whether the Proposed Exercise is reasonable to the Non-Associated
Shareholders, we have considered a number of factors, including:
• Whether the Proposed Exercise is fair.
• The implications to Southern Cross and the Non-Associated Shareholders if the
Proposed Exercise is not approved.
• Other likely advantages and disadvantages associated with the Proposed Exercise as
required by RG111.
• Other costs and risks associated with the Proposed Exercise that could potentially
affect the Non-Associated Shareholders of Southern Cross.
For the purpose of this report, two independent technical specialists, AMC and Grays
were engaged to conduct independent geological and technical assessment of the assets of
Southern Cross.
18
2.2
Independence
Prior to accepting this engagement, Grant Thornton Corporate Finance considered its
independence with respect to the Proposed Exercise with reference to the ASIC
Regulatory Guide 112 “Independence of Expert’s Reports” (“RG 112”).
Grant Thornton Corporate Finance has no involvement with, or interest in, the outcome
of the approval of the Proposed Exercise other than that of an independent expert. Grant
Thornton Corporate Finance is entitled to receive a fee based on commercial rates and
including reimbursement of out-of-pocket expenses for the preparation of this report.
Except for these fees, Grant Thornton Corporate Finance will not be entitled to any
other pecuniary or other benefit, whether direct or indirect, in connection with the
issuing of this report. The payment of this fee is in no way contingent upon the success
or failure of the Proposed Exercise.
We note that Grant Thornton Corporate Finance prepared an Independent Expert’s
Report in relation to the merger between Southern Cross and Polymetals in May 2013.
2.3
Consent and other matters
Our report is to be read in conjunction with the Notice of Meeting and Explanatory
Memorandum dated on or around 17 October 2014 in which this report is included, and
is prepared for the exclusive purpose of assisting the Non-Associated Shareholders in
their consideration of the Proposed Exercise. This report should not be used for any
other purpose.
Grant Thornton Corporate Finance consents to the issue of this report in its form and
context and consents to its inclusion in the Notice of Meeting and Explanatory
Memorandum.
This report constitutes general financial product advice only and in undertaking our
assessment, we have considered the likely impact of the Proposed Exercise to the NonAssociated Shareholders as a whole. We have not considered the potential impact of the
Proposed Exercise on individual Southern Cross shareholders. Individual shareholders
have different financial circumstances and it is neither practicable nor possible to
consider the implications of the Proposed Exercise on individual shareholders.
The decision of whether or not to approve the Proposed Exercise is a matter for each
Southern Cross shareholder based on their own views of value of Southern Cross and
expectations about future market conditions, Southern Cross’ performance, risk profile
and investment strategy. If Southern Cross Shareholders are in doubt about the action
they should take in relation to the Proposed Exercise, they should seek their own
professional advice.
19
3
Profile of the industry
Southern Cross’ current asset portfolio predominately consists of gold and silver deposits
located in Australia. Accordingly we have provided a brief overview of the gold and silver
mining industries below.
3.1
3.1.1
Gold
Overview
Gold is a precious metal used primarily in the fabrication of jewellery, electronics and
other industrial applications and as an investment asset for store of value and hedging.
Gold is actively traded on the international commodity markets and experiences daily
price fluctuations as determined by global demand and supply factors.
Since 2007, volatility in global financial markets (resulting from the Global Financial
Crisis (“GFC”)) and concerns in relation to European sovereign debt levels (“European
Debt Crisis”) has significantly increased the demand for gold as an investment asset. The
price of gold peaked at US$1,730/oz in mid-2012, triggering an expansion of existing
mines as well as the development of new gold exploration projects.
3.1.2
Key drivers affecting gold exploration and production
The key drivers affecting gold exploration and production include:
• Demand for gold – the demand for gold exploration and production is primarily
derived from investment demand and the demand for related end products such as
jewellery.
• Gold prices – low gold prices tend to have a negative impact on the level of gold
exploration and development activities and vice versa.
• Exchange rates – gold is usually traded in US dollars, therefore relative exchange rates
are an important factor affecting the level of global gold trading and demand.
• Political and regulatory factors – gold exploration activities are considered high risk
undertakings as there is a considerable amount of risk and uncertainty surrounding the
commercial viability of such projects. Tenements located in countries with well-defined
regulatory processes and a stable political environment may be more attractive to gold
explorers and producers as they are less risky than unregulated and politically unstable
countries.
• Funding requirements – given the inherent riskiness of the gold mining industry, the
availability and cost of capital to fund such projects can significantly impact on the
level of gold exploration and production activities being undertaken.
• Mine/location specific factors – each mine/location is exposed to unique factors that
affect the feasibility of continued exploration and production.
20
3.1.3
Demand
Demand for gold is mainly driven by gold fabrication, global investment trends and
market/economic conditions. The graph below illustrates historical gold demand by
category:
Historical global gold demand by category
6,000
20%
5,000
15%
10%
3,000
2,000
5%
1,000
-
-
Demand growth (%)
Tonnes
4,000
(1,000)
(5)%
(2,000)
(3,000)
(10)%
2007
2008
2009
2010
2011
2012
Jewellery
Investments
Official sector purchases
Growth in demand
2013
LTM*
Other primary demand
* Last 12 months (LTM) measured from the third quarter of 2013 to the second quarter of 2014 inclusive
Source: World Gold Council
Fabrication
The demand for gold has historically been driven by the demand for fabrication of
jewellery and industrial equipment (“Primary Demand”). However, recently Primary
Demand as a proportion of total demand has declined significantly from approximately
80.6% in 2007 to 66.1% in the last twelve months due to increasing interest in gold as an
investment asset11.
The level of Primary Demand is highly seasonal as demand in India and China is strongly
linked to traditional festivities. China and India were the largest consumers by volume in
the last twelve months, together accounting for approximately 65% of global demand for
jewellery.
Investment
Investors generally consider gold as a relatively safe investment asset mainly because the
price of gold has historically been negatively correlated to movements in the general
global economy and other main financial assets. As a result, gold is often used for
hedging and as a store of wealth. Volatility caused by the GFC, political unrest in the
Middle East, foreign exchange fluctuations and the European Debt Crisis have caused
investors to sell off other riskier assets in order to purchase gold for its unique properties
as an investment asset.
11
Gold Demand Trends, Second Quarter 2014, World Gold Council, August 2014
21
Increasing interest in gold as an investment asset has also led to an increase in the variety
of gold investment products, such as gold exchange traded funds (“ETFs”), which are
publicity listed investment funds that hold gold as their primary asset.
Investment demand for gold has recently also included the net purchase of gold by
central banks and official sector institutions12 (“Official Sector”). The Official Sector
became net buyers of gold in 2010. In a number of developing countries experiencing
rapid economic growth, the significant expansion of foreign exchange reserves has
required central banks to increase gold holdings in order to hedge against adverse
movements in foreign exchange reserve movements. Also, the GFC and the European
Debt Crisis have raised concerns in relation to the dominance of the Euro and the US
dollar in foreign exchange reserves and has prompted many central banks to diversify
reserve assets holdings through the purchase of gold.
Since 2003, investment has represented the strongest source of growth in the demand for
gold. However, investment demand decreased substantially in 2013 by approximately
42% from 2012 levels due mainly to actual and expected improvement in global
economic conditions, particularly in the US. During the first two quarters in 2014,
investment demand was still recorded at a similar level to that in 2013 primarily due to
the lack of price volatility in the economy13 as well as recent bribery and corruption
scandals in China14 and the negative impacts on the Indian Government’s ban on coin
imports.
3.1.4
Supply
The supply of gold is mainly sourced from mine production and the recycling of scrap
gold. The graph below illustrates historical gold supply by category:
Official sector institutions include all departments and agencies of national governments such as exchange authorities and fiscal
agents that undertake activities similar to those of treasury, central bank or stabilisation fund.
13 As a result of the global economy’s recovery. Gold investments would become relatively less attractive when there is no price
volatility in the economy.
14 Demand for gold bars and coins along with other luxury gifts decreased substantially in China after the revelation of bribery and
corruption of Chinese leaders.
12
22
5,000
25%
4,000
20%
3,000
15%
2,000
10%
1,000
5%
-
Supply growth (%)
Tonnes
Historical global gold supply by category
-
(1,000)
(5)%
2007
2008
2009
Mine production
2010
Recycled gold
2011
2012
2013
LTM*
Official sector sales
Growth in supply
* Last 12 months measured from the third quarter of 2013 to the second quarter of 2014 inclusive
Source: World Gold Council
Gold supply decreased by approximately 0.7% in 2012 and a further 4.5% in 2013, or
2.2% in the last twelve months. This was primarily due to a contraction in gold recycling.
This is particularly evident in the US and other developed economies, where conditions
are less conducive to recycling due to the expected economic recovery and gold prices are
expected to remain below their peaks as a result. Among developing countries, India was
the only country that had an increase in recycling activity15.
2013 gold production by country is illustrated in the graph below:
Historical gold production in Australia
Tonnes
Australia
9%
Other
45%
20%
10%
(10)%
(20)%
2007 2008 2009 2010 2011 2012 2013
Australia
United States
8%
Russia
8%
Peru
Canada South Africa
6%
4%
5%
Source: U.S. Geological Survey, Mineral Commodity Summaries, February 2014
With approximately 255 tonnes of gold produced, Australia was the world’s second
largest gold producer in 2013 after China. Australia is also regarded as one of the world’s
top gold reserves holders with approximately 9.9 billion tonnes of ore reserves, which
accounts for approximately 19% of the world estimated gold reserves. The majority of
gold mines in Australia are located in Western Australia, operated by gold producers
Indian consumers increased their exchange and sale of existing gold jewellery items in order to finance their gold demand
associated with Akshaya Tritiya, wedding and other special occasions.
15
Growth (%)
China
15%
350
250
150
50
(50)
(150)
(250)
23
including Barrick Gold Corporation, Newcrest Mining Limited, Newmont Mining
Corporation, Gold Fields Limited and AngloGold Ashanti Limited. These producers’
gold production made up over 70% of Australian gold output.
Historically, the Australian gold industry performed well during the GFC and European
Debt Crisis period since gold is a counter-cyclical investment16. With the improvements
of the world economy in combination with strong Australian dollars since 2011, gold
production in Australia diminished in line with the world’s gold price during the same
period.
3.1.5
Gold prices
Set out below is the daily historical price of gold between September 2004 and September
2014:
Historical gold price from 2004 to date
2,000
1,800
1,600
US$ / oz
1,400
1,200
1,000
800
600
400
200
0
Sep 04 Jul 05 May 06 Mar 07 Jan 08 Nov 08 Sep 09 Jul 10 May 11 Mar 12 Jan 13 Nov 13 Sep 14
Gold price (Nominal)
Gold price (Real)
*Real prices are based on an average US inflation rate over the last 10 years of 2.34%
Over the period reflected in the graph above, the price of gold increased from a nominal
price of approximately US$410/oz in 2004 to a high of US$1,890/oz in 2011. This
represents a CAGR of 24% in the gold price over this period. In April 2013, gold
decreased significantly by 19.7% from the quarterly high of US$1,721/oz in fourth
quarter of 2012 to a low of US$1,361/oz as a 15 April 2013, representing the lowest price
gold had traded at in over two years. Since this time, gold prices have been volatile. As at
8 October 2014, the spot price of gold was US$1,230.4 / oz.
3.1.6
Outlook
The price of gold is forecast to gradually decrease in the short to medium term in line
with the expected recovery and stabilisation of the global economy and financial markets,
and increased supply levels.
16
Investors would prefer investing in gold when the world economy is not performing well.
24
Set out below is a summary of broker forecasts for the price of gold for 2014 onwards:
Historical and Forecast gold price
Forecast
Actual
2,000
1,750
US$/oz
1,500
1,250
1,000
750
500
2009
2010
2011
2012
2013
Low
2014
2015
Average
2016
Median
2017
2018
2019
Long Term
High
Note: Average and median forecast gold prices are immaterially different from 2017 onwards
Source: Various broker reports
Future long term growth in demand is expected to be driven by the Chinese market
primarily due to its increasing economic prosperity and high levels of savings. However,
China is also the world’s largest producer of gold. While currently China’s gold mining
industry consists of mostly small-scale unsophisticated producers that are unable to
operate on a global platform, it is expected that in the medium to long term these
producers will be able to acquire more sophisticated technology and mining techniques,
and expand their supply across China and to global markets.
3.2
3.2.1
Silver
Overview
Silver is a commonly used metal given its malleability as well as its high electrical and
thermal conductivity characteristics. Silver is widely used in the electrical and electronics,
and medical17 industries. Other major silver uses include coinage, film and jewellery
manufacture. As silver, lead and zinc typically occur together in complex mineral deposits
they are usually co-mined and co-produced. These deposits can also contain copper and
gold to a lesser extent.
The silver, lead and zinc ore mining industry has grown at a rate 4.8% over the last five
years. The increase reflects higher silver prices, which offset declines in the prices of lead
and zinc ore. These declines did, however, contribute to higher demand and sales
volumes for zinc and lead over the period. Silver volumes have declined in the past five
years as downstream companies that use silver in their manufacturing processes turned to
17
The use of silver for x-rays and radiography.
25
substitute metals or reduced demand. Similar to gold, silver ore prices peaked in 2011-12
on the back of speculative activity. Industry revenue is forecast to increase over the next
five years, due to the interplay of higher output, stronger US dollar prices for silver, lead
and zinc and a weaker Australian dollar.
3.2.2
Key drivers affecting silver exploration and production
The key drivers affecting silver exploration and production are similar to the gold
industry and accordingly they have not been repeated here (refer to section 3.1.2 for
details).
3.2.3
Demand
The graph below illustrates historical silver demand by category.
Historical global silver demand by category
1,500
40%
30%
1,000
Million ounces
10%
-
(10)%
(500)
Demand growth (%)
20%
500
(20)%
(1,000)
(30)%
(1,500)
(40)%
2007
2008
2009
2010
2011
Jewellery
Investment
Silverware
Growth in demand
2012
2013
Industry fabrication
Source: Silver Institute, Thomson Reuters and GTCF analysis
Demand for silver dropped dramatically in 2009 (primarily because of a drop in industrial
and investment demand) due to the negative impacts of the GFC. Demand in 2010 was
restored as a result of the recovery of developed economies and the steady GDP growth
in emerging markets. During the period between 2011 and 2012, demand for silver fell
back to GFC levels primary driven by the negative impact of the European Debt Crisis.
In 2013, despite a slight decline in silver demand for industrial fabrication18, total demand
for silver increased by 17% and almost restored to pre-GFC levels. The increase was due
to the increase in jewellery demand as well as bars and coins investment (dominantly
driven by the increase in silver demand in India).
3.2.4
Supply
The supply of silver is mainly sourced from mine production and the recycling of scrap
silver. The graph below illustrates historical silver supply by category:
Industrial fabrication in 2013 dropped by 3% in Europe due to weak economic performance and 7% in the US as a result of lower
demand in solar panels and electronics industry. The drop in silver demand in Europe and the US was offset by a 9% increase in
demand in China primary driven by the strong gains in its electrical and electronics as well as ethylene oxide industry.
18
26
Historical global silver supply by category
1,100
Million ounces
900
700
500
300
100
%
(100)
2007
2008
2009
2010
2011
2012
2013
2007
2008
2009
2010
2011
2012
2013
20%
15%
10%
5%
(5)%
Mine production
Official sector sales
Scrap
Net hedging supply
Growth in supply
Source: Silver Institute, Thomson Reuters and GTCF analysis
Silver supply peaked up in 2010 with double-digit growth rate number driven by the
expansion of current operations by current silver producers including Peñasquito and
Palmarejo mines in Mexico, Pirquitas mine in Argentina, and Cannington’s operations in
Australia. During 2011 and 2012, as a result of the decrease in silver supply from the
government sector and silver producers’ hedging activities, supply of silver dropped by
approximately 3% per annum.
2013 silver production by country is set out below:
Mexico
21%
Historical silver production in Australia
Other
41%
China
15%
Canada
US
3%
4%
2,250
1,750
1,250
750
250
(250)
15%
10%
5%
(5)%
(10)%
Growth (%)
Tonnes
Australia
6%
2007 2008 2009 2010 2011 2012 2013
Chile Bolivia
5%
5%
Australia
Source: Silver Institute and GTCF analysis
With approximately 1,700 tonnes of silver produced, Australia was the world’s third
largest silver producer in 2013 after Mexico (5,400 tonnes) and China (4,000 tonnes).
Australia is also regarded as one of the world’s top silver reserves holders with
approximately 88,000 tonnes of ore reserves, which accounts for approximately 17% of
the world’s estimated silver reserves. The majority of silver mining and production
operations in Australia are located in Queensland, especially in the Mt Isa area.
27
3.2.5
Silver prices
Set out below is the daily historical price of silver between September 2004 and
September 2014:
Historical silver price from 2004 to date
60
US$ / oz
50
40
30
20
10
0
Sep 04 Jul 05 May 06 Mar 07 Jan 08 Nov 08 Sep 09 Jul 10 May 11 Mar 12 Jan 13 Nov 13 Sep 14
Silver price (Nominal)
Silver price (Real)
*Real prices are based on an average US inflation rate over the last 10 years of 2.34%
Source: Capital IQ, Silver Institute and GTCF calculations
Over the period illustrated, silver prices peaked at US$48.6/oz (nominal) in 2011 and
were at a low of US$6.8/oz (nominal) in 2004. The peak in 2011 was driven by strong
global silver demand as a result of its extensive industrial use in electrical components,
solar panels, batteries and mirrors, and jewellery. In addition, silver prices also increased
in line with the growth in gold prices, which was partly driven by speculative investments.
From about 2013 onwards, silver prices gradually returned to their 2010 level driven by
slower demand growth as well as due to the relinquishment of silver derivatives and
physical inventories by investors. As at 8 October 2014, the spot price of silver was
US$18.6 / oz.
3.2.6
Outlook
Over the next five years to 2019, the price of silver is forecast to increase compared to
the current price level primarily because of increasing demand from other industrial
productions. However, the increase in silver prices is expected to be at a slower rate than
that in the pre-GFC period due to the increase in supply as a result of additional
exploration and development as well as the substitution effects on silver by consumers
(which reduces silver demand) when its price increases.
Set out below is a summary of broker forecasts for the price of silver for 2014 onwards:
28
Historical and forecast silver price
35
Actual
Forecast
US$/oz
30
25
20
15
10
2009
2010
2011
2012
2013
Low
2014
Average
2015
Median
Note: Average and median forecast prices are immaterial different from 2017 onwards
Source: Various broker reports
2016
High
2017
2018
Long Term
29
4
4.1
Profile of Southern Cross
Company overview
Southern Cross is an Australian minerals resources company, engaged in the exploration
and development of precious metals projects. Southern Cross was spun out of Polaris
Nickel NL in 2007 and was listed on the ASX in March 2008. In August 2013, Southern
Cross completed its merger with Polymetals Mining Ltd (“Polymetals”) via a Scheme of
Arrangement (“SOA”).
Southern Cross’ key asset portfolio comprises the following projects:
• A 100% owned silver producing mine located in New South Wales (the “Manuka
Project”)
• A 100% interest in a gold pre-production development and exploration project located
in New South Wales (the “Mt Boppy Project”).
• A 100% owned gold pre-development and exploration project located in Western
Australia (the “Marda Project”).
• A 100% owned gold exploration project located 200km north of the Marda Project in
Western Australia (the “Sandstone Project”)
• A 100% owned base metals project (primarily copper) in Western Australia (the
“Copper Bore Project”)
• A 30% owned nickel rights project located 190km south of the Marda Project (the
“Southern Cross Nickel Project”)
The map below illustrates the location of Southern Cross’ key assets in Australia (we note
that the Wonawinta Project has recently been renamed the Manuka Project).
Note: The Manuka Project was previously known as the Wonawinta Project
Source: Southern Cross’s Company website
30
4.2
Assets overview
4.2.1
The Mt Boppy Project
Southern Cross holds a 100% interest in the Canbelego tenements in New South Wales
which comprises the Mt Boppy Project and 204 km2 of exploration tenements in the
Lachlan Fold Belt. Polymetals19 acquired the Mt Boppy gold mine in 1993 and operated
an open pit and processing plant on the site from 2002 to 2005, after which the mine was
placed under care and maintenance.
In 2011, Polymetals commenced exploration activities at Canbelego to identify additional
mineral resources. Given that this region has historically produced in excess of five
million ounces of gold, Polymetals implemented a multi-phased strategy which included
redeveloping the Mt Boppy gold mine, identifying additional feed to extend its life, and
seeking similar Mt Boppy style deposits across its Canbelego tenements via targeted
exploration.
The following table summarises Mt Boppy’s current attributable JORC20 defined mineral
resources and reserves:
Mt Boppy Resources
Tonnes
Gold grade
Gold
(kt)
(g/t)
(koz)
Measured
39
6.4
8
Indicated
646
4.0
84
82
3.6
9
766
4.1
102
Inferred
Total
Note (1): Mt Boppy resources were estimated at 2.5 g/t cut-off for Mt Boppy and 1.0 g/t cut off for Boppy South.
Note (2): The Measured and Indicated Mineral resources are inclusive of those Mineral Resources modified to produce the Ore Reserves.
Source: Southern Cross’s financial statement for the period ended 30 June 2014
Mt Boppy Ore Reserv es
Tonnes
Gold grade
Gold
(kt)
(g/t)
(koz)
Prov en
42
5.6
8
Probable
507
4.2
68
Total
549
4.3
76
Note: (1) The Ore reserves exclude inferred resources of 30,000 tonnes @ 4.69 g/t Au (4.500 oz Au) which are contained within the planned
open pit. The Ore reserves also exclude 10,000 tonnes @ 2 g/t Au (640 oz Au) of un-classified material.
Source: Southern Cross Scheme Booklet, Southern Cross’s ASX announcements dated 23 December 2013 and AMC Report.
In January 2013, Polymetals completed a feasibility study (“FS”) for the Mt Boppy
Project which resulted in the granting of licences including a mining lease and
environmental protection licence. Key statistics concluded from the FS with latest
updates as at the date of this report are summarised below:
Southern Cross merged with Polymetals in August 2013
Southern Cross Management have advised that this information is disclosed under the JORC code 2004 and has not been
updated to comply with JORC 2012, however they are of the view that the information would not materially change
19
20
31
Key assumptions of the Mt Boppy Project
Projected economic life (y ears)
Ore mined ov er projected life (tonnes)
2.7
619,905
Av erage grade - Gold (g/t)
4.09
Av erage recov ery factor - Gold
80%
Gold produced ov er projected life (oz)
Source: Southern Cross’s ASX announcements and Management
63,924
As part of this FS, the Company was envisaging that the mined ore will be processed at
the Mt Boppy gold mine using the existing plant, upgraded to treat 300 thousand tonnes
per annum (“ktpa”). Specifically, SXG intended to refurbish the existing Carbon-in-Leach
(“CIL”) process plant with the addition of a flotation and concentrate fine grinding
circuit.
However, following Southern Cross’ recent acquisition of the Manuka Project (refer to
section 4.2.2 below), Southern Cross Management have decided to abandon its plans to
upgrade the processing plant at Mt Boppy and instead utilise the plant at the Manuka
Project which will involve shipping the ore from Mt Boppy to Manuka for processing.
According to Southern Cross Management, this will have the effect of saving
approximately A$9 million in up-front capital expenditure, which will be offset by
increased haulage costs. It is also expected that the modern Manuka plant will result in
improved process efficiencies and better recoveries.
As at the date of our report, a definitive feasibility study document has not been
developed for the Mt Boppy Project. The lack of a formal feasibility study increases the
risk of the project, however we do note that Southern Cross have secured funding for its
projects. AMC notes that statutory approvals are in place and the project is permitted to
commence operations. AMC also state that a total of seven months should be allowed
for procurement, construction and commissioning of the plant, hence the earliest start up
for mining is H1 2015 and for processing ore is H2 2015.
The mine and plant are located on mining leases and gold leases that are surrounded by
exploration licence EL5852 and EL5842 held by Southern Cross.
4.2.2
The Manuka Project
The Manuka Project is a silver project in the production stage that Southern Cross
acquired a 100% interest from the receivers of its previous owner, Cobar Consolidated
Resources Ltd (“CCR”)21 in September 2014. The acquisition included cash
consideration of $375,000 and $5.8 million being applied to replace environmental bonds.
Based on a review of the ASX announcements of CCR, we understand that CCR
appointed voluntary administrators in March 2014 as CCR had not been able to raise the
required debt and equity funding to repay a A$15 million debt facility.
The Manuka Project is located around the Cobar Basin in central New South Wales. It is
estimated to have approximately 60 Moz of silver mineral resources and 9 Moz of silver
21
CCR is currently placed into liquidation following CCR’s creditors at the Second Creditors Meeting dated 12 June 2014.
32
ore reserves. The tenements cover an area of about 842km2 consisting of seven
exploration licences and one mining lease. The Manuka Project is considered to be one of
the largest pure silver project in Australia. CCR had commenced mining from two pits
and produced 1 Moz of silver to December 2013 before production was halted because
of problems with operations.
A FS study was obtained by CCR in June 2010. Key outcomes of the FS are summarised
below:
Manuka Project - Key parameters
Mining method
Open pit
Mine life (y ears)
5
Initial plant throughput
800 Ktpa ov er the first 3 y ears, 1 Mtpa ov er y ear 4 and 5
Metallurgical recov ery
90%
Initial av erage annual silv er production
2.8 Moz
Initial capital cost
A$27.7 million
C1 cash operating cost
$10 / Ag oz
Pre-tax Net Present Value ("NPV") @8.4% discount rate
A$27 million
Internal rate of return ("IRR")
39%
Source: Manuka’s Feasibility Study
The following tables summarise the most recent estimates of JORC22-defined mineral
resources and ore reserves for the Manuka Project:
Manuka Resources 1
Tonnes
Silv er grade
Silv er
(Mt)
(g/t)
(Moz)
4.2
58
7.9
Wonawinta2
Measured
Indicated
5.9
54
10.1
Inferred
31.4
42
41.9
41.5
45
59.9
Measured
-
-
-
Indicated
-
-
-
1.8
47
2.7
Sub total
De Nardi
2
Inferred
Sub total
1.8
47
2.7
43.3
45
62.6
Tonnes
Silv er grade
Silv er
(Mt)
(g/t)
(Moz)
Prov en
1.8
81
4.6
Probable
1.7
72
3.9
Total
3.5
77
8.5
Stocks (Prov ed)
0.3
84
0.7
Total
3.8
78
9.2
Total
Note (1): Cut-off grade of 22 g/t Ag equivalent
Note (2): Followed 2012 JORC Code for Manuka and 2004 JORC Code for De Nardi
Source: Southern Cross’s ASX announcement dated 5 September 2014 and AMC Report
Manuka Ore Reserv es 1 2
Note (1): Ore reserves are included in the Mineral Resources in the table above
Note (2): Cut-off grade of 22 g/t Ag equivalent
Source: Southern Cross’s ASX announcement dated 5 September 2014
22
The Manuka mineral resource was reported by CCR in accordance with JORC 2012
33
The acquisition of the Manuka Project includes process plant and infrastructure
developed at a cost of more than $60 million which has capacity to produce over 2 Moz
of silver per annum. The process plant and infrastructure is expected to provide Southern
Cross with capital savings benefits for its Mt Boppy Project by allowing it to cancel the
upgrading plans for the processing plant at Mt Boppy.
The Manuka Project is expected to commence producing in H1 2015 after a A$2 million
plant upgrade in order to address production problems that plagued its previous
operations. Specifically, Management plans to install a larger 1500kW ball mill from
Kalgoorlie to resolve grinding and recovery issues that affected production under CCR.
Southern Cross will initially focus on the processing of circa 350,000 tonnes of stockpiled
ore before resuming mining and production from the two existing pits.
4.2.3
The Marda Project
The Marda Project represents a greenfields gold operation located 200km north of
Southern Cross in Western Australia.
The table below summarises the JORC23 mineral resource estimate within the Marda
deposit:
Deposit
Measured
Tonnes
Indicated
Grade Ounces
Tonnes
Inferred
Grade Ounces
Tonnes
Total
Grade Ounces
Tonnes
Grade
Ounces
Kt
Au g/t
Koz
Kt
Au g/t
Koz
Kt
Au g/t
Koz
Kt
Au g/t
Koz
Py thon
569
1.9
34
14
1.7
1
32
1.8
2
615
1.8
36
Dugite
294
1.9
18
8
1.5
0
11
1.4
0
312
1.9
19
Goldstream
100
4.4
14
63
2.6
5
74
3.0
7
238
3.4
26
Dolly Pot
416
3.0
40
103
2.0
7
176
1.8
10
694
2.5
57
King Brow n
738
2.0
46
40
1.6
2
192
1.9
12
970
1.9
60
Golden Orb
210
2.0
13
1
1.4
0
1
1.3
0
212
1.9
13
Die Hardy
-
-
-
319
2.4
25
361
1.9
22
680
2.2
47
Red legs
-
-
-
983
1.4
47
589
1.5
28
1,572
1.5
75
105
British Hill
Battler
Total
-
-
-
970
1.9
59
951
1.5
46
1,921
1.7
361
2.7
31
39
3.5
4
52
3.5
6
453
2.9
42
2,688
2.3
197
2,542
1.8
149
2,437
1.7
133
7,668
1.9
480
Source: Southern Cross’ Financial Statement for the period ended 30 June 2014
The table below summarises the JORC mineral ore reserves within the Marda deposit:
Tonnes
(kt)
Prov ed
Probable
Total
Source: Southern Cross’ Financial Statement for the period dated 30 June 2014
Grade Ounces
(g/t)
(oz)
1,715
2.4
660
2.1
130
46
2,375
2.3
175
The Marda Project comprises 15 small open pits across ten project areas that will be
mined using company owned mining fleet and conventional open pit mining techniques.
Southern Cross Management have advised that this information is disclosed under the JORC code 2004 and has not been
updated to comply with JORC 2012, however they are of the view that the information would not materially change
23
34
Mining of the 15 pits will commence at different stages over the five year life of the
Marda Project.
In May 2012, a FS was completed which confirmed the viability of a standalone
greenfields gold project. In December 2013, an updated FS was released which improved
the Marda Project’s economics. Key outcomes of the updated FS are set out in the table
below:
Marda Project - Key parameters
Feasibility Study parameters
Open pit production
2.4 Mt @2.29g/t Au for 179,000 ounces
Initial plant throughput
720,000 tonnes per annum
Metallurgical recov ery
93%
Initial av erage annual gold production
50,000 ounces ov er 3.5 y ears
Pre-tax operating cash flow
A$130 million
C1 cash operating cost
A$784 per ounce
Capital cost1
A$31.7 million
Note (1): With cash requirement totalled A$24.4 million
Source: Southern Cross’ ASX announcement dated 20 December 2013 ‘Marda Gold Project: FS Review Additional Information’
For the quarter ended 30 June 2014, Southern Cross continued its regional auger drilling
on infill sampling surrounding the Evanston Shear Zone. In particular, Southern Cross
focused on the Whaler Prospect located to the northeast of Thresher target and the
Snaggletooth Prospect located to the southwest of the Reef target.
In December 2013, Southern Cross exercised its option to acquire certain gold deposits
(Red Legs and Die Hardy) located 30km north of the Marda Project from Barranco
Resources NL. This transaction continues Southern Cross’ strategy of regional gold
consolidation.
According to Southern Cross Management the Marda Project is in the process of
undertaking final permits to be able to commence production.
The mine and plant are located on an area with 25 mining leases and 94 exploration
licences held by Southern Cross. Further details are set out in AMC’s report.
4.2.4
Sandstone Project
Southern Cross acquired the Sandstone Project from Troy Resources in August 2012 for
a cash and scrip consideration24. The Sandstone Project, is located 220 km north of
Southern Cross’ Marda Project, and has approximately 720,000 ounces of gold resource
inventory.
The Sandstone Project was acquired in order to give Southern Cross access to a fully
permitted gold plant capable of being relocated to the Marda Project. The relocation is
expected to facilitate earlier commencement of gold production in the Marda Project.
The purchase consideration for the transaction included a payment of A$2.3 million in cash, a replacement of environmental
bonds of A$2.7 million, a 2% net smelter royalty on production from the Sandstone tenements, and 43.7 million unlisted options in
Southern Cross at an exercise price of A$0.10 per share
24
35
The table below summarises JORC mineral resource estimate for the Sandstone Project:
Tonnes
Grade
Ounces
Indicated
1,932,000
2.32
145,200
Inferred
Total
12,586,000
14,518,000
1.42
1.54
574,400
719,600
Source: Southern Cross Half yearly report ended 31 December 2012
Southern Cross Management has run a competitive process for the sale of the tenements
relating to the Sandstone Project and they have received a number of offers. The
Company has provided an option to a potential purchaser for a number of key tenements
and contracts are anticipated to be signed this year to dispose of all tenements. Total
consideration comprises cash and contingent payments. In addition the sales contemplate
the transfer of rehabilitation liabilities to the purchasers. For confidentiality reasons, we
are not able to disclose more details.
4.2.5
Other tenements
In addition to the projects outlined above, Southern Cross also has base metals prospects
across its tenement portfolio. Some of the key base metals projects are discussed in
further detail below.
Copper Bore Project
The Copper Bore Project is located 400 kms north-east of Perth at the northern end of
the Marda Project’s region within the Central Yilgarn mineral province. Exploration
conducted during FY2012 led to the discovery of highly prospective volcanogenic
massive sulphide (‘VMS’) trend extending over 18 km from Southern Gossan to north of
Copper Bore. As at the date of the report, exploration and development work at the
Copper Bore Project was scaled back to focus on activities at the Mt Boppy Project and
Marda Project.
Nickel Project
In August 2011, Southern Cross entered into a Joint Venture Agreement (“Western Areas
JV Agreement”) with Western Areas NL (“Western Areas”), for Western Areas to acquire
70% of Southern Cross’ nickel rights across its tenement portfolio in the Marda and
Southern Cross regions of Western Australia. Western Areas acquired the rights for a
purchase consideration of A$1.5 million in cash along with minimum funding
commitments of A$1 million on nickel sulphide exploration during the first year after the
completion of the Western Areas JV Agreement, followed by minimum annual
expenditure commitments of A$250,000 to year 5 and A$300,000 thereafter until the end
of the life of mine.
36
4.3
Funding
As discussed in section 1, Southern Cross has recently secured the TrailStone Funding.
The purpose of the funding was to enable Southern Cross to pay the consideration for
the acquisition of the Manuka Project and continue the development of its key projects
(Manuka and Mt Boppy Projects).
As at our valuation date, Southern Cross had drawn down approximately A$11.65 million
from the Gold Facility which was used by Southern Cross to complete the acquisition of
the Manuka Project (cash consideration of $370,000 plus $5.8 million to replace existing
environmental bonds), and to repay A$5 million to Southern Cross’ previous financiers
(RMB Australia Holdings Limited).
4.3.1 Forward Gold Purchase Agreement (Gold Facility25)
Key terms of the Gold Facility are:
• Face value of the facility – A$25 million- which is a prepayment towards future
delivery of gold.
• Southern Cross is to sell 33,000 ounces of gold (the “Contract Quantity of Gold”) to
TrailStone at a fixed gold price of A$1,374.
• Conditions precedent – as at the date of this report, all major conditions precedent for
the draw-down of the loan have been met. However, the full draw down of the gold
loan is subject to certain administrative conditions which are expected to be met
before the Southern Cross Shareholders’ meeting.
• The Gold Loan is to be applied to the repayment of all amounts owing to RMB
Australia Holdings Limited and RMB Resources Limited (Southern Cross’ previous
financier), to fund the acquisition of the Manuka Project and the capital and operating
expenditure of Southern Cross’ other projects.
• The Gold Facility has a first ranking fixed and floating charge over all the assets and
undertakings of the Company.
4.3.2 TrailStone Credit Facility
Key terms of the Credit Facility are:
• Provision of A$35 million.
• The Credit Facility can be drawn down (in accordance with set amounts) no earlier
than seven months after the Effective Date (being 16 September 2014).
The Forward Gold Agreement is between TrailStone Netherlands I Cooperatief UA and Southern Cross and was entered into on
3 July 2014. There were two amendments to this agreement, Deed of Amendment – Forward Gold Purchase Agreement was
entered into on 17 July 2014 and Second Deed of Amendment – Forward Gold Purchase Agreement.
25
37
• The draw-downs are subject to certain conditions including the capital and operating
expenditures in relation to the Company’s key projects being within certain pre-defined
limits, SXG continuing to deliver gold in accordance with the Gold Facility and the
AUD gold price trades not below A$1,200 for 30 days prior to each draw.
• The Credit Facility bears interest at 16% per annum payable every three months.
• The Credit Facility ranks second behind the Gold Facility.
• The Warrants are issued as partial consideration for TrailStone entering into the Credit
Facility.
4.4
Financial information
4.4.1 Financial Performance
The following table sets out Southern Cross’ historical financial performance for the sixmonth period ended 31 December 2013 (“HY2013”)26 and the twelve-month period
ended 30 June 2014 (“FY2014”):
Southern Cross Goldfields Ltd
Consolidated statement of financial performance for the period ended
Stated in A$000s unless stated otherw ise
30-Jun-13
6-month
12-month
Audited
31-Dec-13
30-Jun-14
A$000
Rev iew ed
Audited
Revenues
Other income
-
5,068
6,358
36
5,068
6,358
Administration and corporate ex penses
(1,875)
(2,051)
(3,408)
Ex ploration ex penses
(3,237)
(1,608)
(2,974)
Pre-dev elopment ex penses
(2,976)
(629)
(1,614)
Share-based ex penses
(325)
(322)
(808)
Impairment of tenements
(580)
(833)
(2,223)
(8,993)
(5,443)
(11,027)
Total revenues
Expenses
Total operating expenses
Depreciation ex penses
EBITDA
Interest rev enue
EBIT
Income tax ex penses
Net Income (Loss) after income tax
(117)
(52)
(153)
(9,073)
(427)
(4,822)
116
126
195
(8,957)
(301)
(4,627)
-
-
(787)
(8,957)
(301)
(5,414)
Source: Southern Cross’s financial statements for FY13 and FY14
With regard to the above, we note that:
• The other income balance of approximately A$5.1 million (HY 2013) and A$6.4
million (FY2014) was made up by the following:
As Southern Cross completed its merger with Polymetals in August 2013, it is not meaningful to present financial information
before this date.
26
38
− Approximately A$3.6 million of net gain on acquisition of Polymetals in August
2013.
− A$1.4 million of reversal of deferred consideration in respect of the Turner River
Project which was divested.
− A$1.29 million from a research and development refund.
• Exploration expenses mainly comprise of expenses associated with drilling activities,
employees, consultants and contractors and tenements rent and rates.
• Pre-development expenses relate to the Marda Project and the Mt Boppy Project.
• Impairment of tenements of approximately A$2.0 million mostly relates to exploration
assets at the Turner River Project tenements (A$0.8 million) and the Sandstone Project
tenements (A$1.2 million).
4.4.2 Financial Position
The following table sets out Southern Cross’s financial position as at 30 December 2013
and 30 June 2014:
Consolidated statements of financial position as at
30-Jun-13
31-Dec-13
30-Jun-14
Audited
Rev iew ed
Audited
A$000
A$001
A$000
Cash and cash equiv alents
1,835
7,026
2,718
Trade and other receiv ables
38
17
395
241
-
Southern Cross Gold Fields Ltd
Current assets
Other assets
Assets classified as held for sale
Total current assets
-
515
469
1,873
7,799
3,582
Non-current assets
Trade and other receiv ables
74
334
115
Property , plant and equipment
2,190
3,967
4,244
Tenement acquisition costs
4,478
8,680
6,813
Other financial assets
2,751
408
408
Total non-current assets
9,493
13,389
11,580
11,366
21,188
15,162
1,170
945
783
98
69
112
Loans
7,000
7,000
5,000
Total current liabilities
8,268
8,014
5,895
1,017
1,468
1,434
Total assets
Current liabilities
Trade and other pay ables
Prov isions
Non-current liabilities
Prov isions
-
-
787
Total non-current liabilities
Deferred tax liability
1,017
1,468
2,221
Total liabilities
9,285
9,482
8,116
Net assets
2,081
11,706
7,046
Source: Southern Cross’s financial statements for the period ended 30 December 2013 and 30 June 2014
39
We note the following in relation to the consolidated financial positions:
31 December 2013
• Cash and cash equivalent of A$7.0 million primarily relates to:
− The A$2.8 million refund of environmental bonds received in relation to the
Sandstone Project as a result of Southern Cross opting into the new West Australian
DMP Mine Rehabilitation Fund27.
− The sale of corporate offices in Samford, Queensland during November 2013
totalling A$1.5 million.
• Interest bearing debt of A$7 million is a secured bank loan with RMB Australia
Holdings Ltd (“RMB”) in relation to the Sandstone debt facility. The loan was
subsequently paid out through funds drawn down from the TrailStone Facility.
30 June 2014
• Southern Cross’s cash balance reduced to A$2.7 million as at 30 June 2014 primarily
due to an update of the Marda Project feasibility study, working capital funding and the
partial repayment of A$2m of the RMB loan.
• As at 30 June 2014, the current liabilities materially exceeded the current assets.
However, we note that on 23 September 2014, the external loan of A$5 million was
repaid via the draw-down of the Gold Facility.
• Assets held for sale balance relates to the Sandstone Project tenements which have
subsequently been sold.
• Tenement acquisition costs reduced primarily due to of the termination of the Turner
River Project and the impairment charges relating to the Sandstone Project’s
exploration assets.
• In March 2014, the A$7 million secured loan with RMB was partially repaid.
Subsequent to balance date, the loan has been fully repaid using funds from the
TrailStone Facility.
• Deferred tax liability of A$0.8 million relates to temporary differences in exploration
expenditure.
4.5
Capital Structure
As at the date of this report, Southern Cross has the following securities on issue:
The Mining Rehabilitation Fund (MRF) is a new pooled fund contributed to by Western Australian mining operators. Money in the
Fund will be available to fund rehabilitation of abandoned mines in the State.
27
40
• 1,319,550,815 fully paid listed ordinary shares (“Southern Cross Shares”).
• 365,245,829 unlisted options with various expiry dates and exercise prices (“Southern
Cross Options”).
We also note that Southern Cross has issued one billion warrants to TrailStone as part of
the TrailStone Facility.
4.5.1 Southern Cross Shares
Top shareholders
The following table sets out the top ten shareholders of Southern Cross as at 13 October
2014:
Top shareholders
Number of
shares
%
361,577,438
29.6%
Mineral Resources Limited
36,056,221
3.0%
Washington H. Soul Pattinson and Company Limited
22,000,000
1.8%
Terranov a, Frank
20,934,828
1.7%
Siang, Hai Teoh
18,888,867
1.5%
Law ry , Elaine Claire
18,009,486
1.5%
Western Areas Limited
14,739,721
1.2%
Strata Drilling WA Pty Ltd
10,000,000
0.8%
Kinsman, Janine Maree
6,875,000
0.6%
Sproule, Dav id William
RJ Grundy Pty Ltd
6,500,000
0.5%
Total top 10 shareholders
515,581,561
42.3%
Other shareholders
703,969,259
57.7%
1,219,550,820
100.0%
Total
Source: Capital IQ and Southern Cross’s Appendix 3B
Share price performance
Set out below are the share price movements of Southern Cross between October 2012
and October 2014:
41
Share price (A$)
0.060
1
14
2
0.050
Volume
16,000,000
15
14,000,000
3
4
12,000,000
5
0.040
10,000,000
13
0.030
7
6
8,000,000
12
8
10
6,000,000
9
0.020
11
4,000,000
0.010
Annual/Half Year Report
Quarterly Cash Flow Report
Year
-
Oct 14
Aug 14
Jun 14
Apr 14
Feb 14
Dec 13
Oct 13
Aug 13
Jun 13
Apr 13
Feb 13
Oct 12
-
Dec 12
2,000,000
Month
Source: Capital IQ, ASX announcements and GTCF analysis
Over the period, Southern Cross’ share price traded from a high of A$0.05 in October
2012 to a low of A$0.01 in July 2013. Over the last twelve months, trading volumes have
been low, with the share volume traded each month being approximately 1.63% of the
total outstanding number of shares on average. However, we note that liquidity has
reached 6.1% in total over the last month.
Also in respect of the diagram above, we note the following key events.
#
1
Date
24 Oct 2012
2
25 Oct 2012
3
10 Dec 2012
4
28 Feb 2013
5
27 Mar 2013
6
8 Apr 2013
7
21 Jun 2013
8
30 Jul 2013
9
10 Dec 2013
10
25 Mar 2014
11
08 Jul 2014
12
19 Aug 2014
13
5 Sep 2014
Comments
Southern Cross announced it has mandated international resource finance specialist RMB to arrange 100%
of the financing requirements for the acquisition of Sandstone Project. Share price closed at A$0.048.
Southern Cross announced it has raised an additional A$1.5 million to complete the A$5.2 million rights
issue announced on 24 August 2012. Share price closed at A$0.049.
Southern Cross announced it has signed the formal Sale Agreement for the acquisition of the Sandstone
Gold Project from Troy Resources. Share price closed at A$0.043.
Southern Cross announced it has identified several significant new gold targets from systematic regional
auger drilling soiling programmes within its extensive Marda tenement package. Share price closed at
A$0.037.
Southern Cross announced it has finalised the acquisition of Sandstone Resources. Share price closed at
A$0.033.
Southern Cross announced it has entered into a SOA with Polymetals to merge, creating a significant,
diversified Australian gold company. Share price closed at $0.030.
Southern Cross and Polymetals released the Scheme Booklet and Notice of Meeting stating the Board of
Directors of both companies are unanimously in favour of the proposed merger. Share price closed at
$0.013.
Southern Cross Shareholders voted in favour of the merger between Southern Cross and Polymetals. Share
price closed at $0.01.
Southern Cross released the FS results for the Marda Project which confirmed the commerciality of the
Marda Project. Share price closed at $0.013.
The $7 million RMB debt facility issued by RMB Australia Holdings Ltd (“RMB”) was reduced to $5 million
as a result of Southern Cross’s $2 million repayment. In addition, RMB also extended the remaining debt
outstanding of $5 million’s repayment date for an extra 6-month. The RMB debt agreement was initially
entered into by Southern Cross in 2013 with a 12-month term in order to acquire the Sandstone Project.
Share price closed at $0.014.
Southern Cross announced new debt funding of $60 million and its intention to recapitalise to raise another
$6 million in equity. $5 million will be raised through a share placement to sophisticated and professional
investors for $0.01 per share. Share price closed at $0.011.
A share purchase plan was offered to raise funds for project developments and repayments of debt. Existing
shareholders were invited to subscribe for new shares at an issue price of 1 cent per share, which implied a
9% discount on the closing share price of 1.1 cents per share on 18 August 2014. Share price closed at
$0.011.
Southern Cross announced the acquisition of the Manuka Project in central New South Wales. The project,
42
#
Date
14
17 Sep 2014
15
29 Sep 2014
Comments
which has a 60 Moz silver Mineral Resource was acquired for $375,000 in cash plus an assumption of
remediation liabilities. Share price closed at $0.008.
Southern Cross issued 145 million ordinary shares and 73 million unlisted options. The volume of shares
traded reached a record high of 15 million shares. The share price closed at $0.010.
Southern Cross released the 30 June 2014 annual report to shareholders. Share price closed at $0.009.
Source: ASX’s announcements and GTCF analysis
4.5.2 Southern Cross Options
The following table sets out details relating to the Southern Cross Options:
Ex ercise
Options
Vesting
Grant date
Ex piry date
conditions
Option 1
25-Feb-12
24-Feb-15
Option 2
10-Oct-12
Option 3
price
No. of options
(A$)
No
10,000,000
0.100
10-Oct-17
No
43,665,000
0.100
10-Oct-12
10-Oct-15
Yes
2,500,000
0.100
Option 4
20-Dec-12
23-Nov -17
No
5,000,000
0.100
Option 5
22-Mar-13
21-Mar-15
No
34,255,319
0.047
Option 6
28-Nov -13
31-Dec-17
No
20,000,000
0.030
Option 7
28-Nov -13
31-Dec-17
No
20,000,000
0.040
Option 8
24-Mar-14
24-Mar-16
No
63,775,510
0.020
Option 9
17-19 Sep 14
31-Dec-19
No
166,050,000
0.013
Total
Source: Southern Cross’s ASX announcements
365,245,829
43
5
5.1
Introduction
We have assessed the fairness of the Proposed Exercise by comparing the fair market
value of Southern Cross shares before the Proposed Exercise on a control basis with the
fair market value of Southern Cross shares after the Proposed Exercise on a minority
basis.
In each case, Grant Thornton Corporate Finance has assessed the value of Southern
Cross shares using the concept of fair market value. Fair market value is commonly
defined as:
“the price that would be negotiated in an open and unrestricted market between a knowledgeable, willing
but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm’s length.”
Fair market value excludes any special value. Special value is the value that may accrue to
a particular purchaser. In a competitive bidding situation, potential purchasers may be
prepared to pay part, or all, of the special value that they expect to realise from the
acquisition to the seller.
5.2
RG111 outlines the appropriate methodologies that a valuer should generally consider
when valuing assets or securities for the purposes of, amongst other things, share buybacks, selective capital reductions, schemes of arrangement, takeovers and prospectuses.
These include:
• Discounted cash flow (“DCF”) method and the estimated realisable value of any
surplus assets.
• Application of earnings multiples to the estimated future maintainable earnings or cash
flows of the entity, added to the estimated realisable value of any surplus assets.
• Amount available for distribution to security holders on an orderly realisation of assets.
• Quoted price for listed securities, when there is a liquid and active market.
• Any recent genuine offers received by the target for any business units or assets as a
basis for valuation of those business units or assets.
Further details on these methodologies are set out in Appendix A of this report. Each of
these methodologies is appropriate in certain circumstances.
RG111 does not prescribe the above methodologies as the method(s) that an expert
should use in preparing their report. The decision as to which methodology to use lies
with the expert based on the expert’s skill and judgement and after considering the
unique circumstances of the entity or asset being valued. In general, an expert would have
44
regard to valuation theory, the accepted and most common market practice in valuing the
entity or asset in question and the availability of relevant information.
5.3
Selected valuation methodology
Grant Thornton Corporate Finance has selected the market value of net assets as the
primary method to assess Southern Cross’ equity value prior to the Proposed Exercise.
The market value of net assets is based on the sum of parts of Southern Cross operating
and exploration assets, and other assets and liabilities. Specifically, in assessing the fair
market value of Southern Cross, Grant Thornton Corporate Finance has aggregated:
• The market value of its key mineral assets, i.e. the Marda Project, the Mt Boppy
Project, (collectively referred to as the “Gold Projects”) and the Manuka Project.
• The value of other assets and liabilities owned by Southern Cross.
• Deducted costs associated with the Proposed Exercise.
The Gold Projects
The market value of the Gold Projects was assessed using the DCF valuation method,
given that:
• Southern Cross Management has prepared cash flow forecasts in relation to these
assets based on the current level of reserves and resources.
• Extensive gold mining has been undertaken in the Mt Boppy Project in the past.
• The Gold Projects are relatively advanced, with feasibility studies completed.
• Grant Thornton Corporate Finance has engaged AMC to independently review the
technical assumptions in relation to the cash flow forecasts.
• The DCF method is the most appropriate approach in valuing assets with a finite life
such as mineral assets due to the depletion of reserves over time.
• The DCF method is the most appropriate approach in reflecting the significant level of
capital and time required for the development of mineral assets.
• The DCF method is one of the most commonly used methodologies for the valuation
of mineral assets.
Manuka Project
The market value of the Manuka Project was assessed by AMC and Grays. AMC assessed
a market value of the Manuka Project’s exploration assets (ie mineral resources and
reserves, mining lease and exploration assets) and Grays assessed a market value (on the
45
basis of market value for existing use and estimated auction realisation value) of the plant
and infrastructure associated with the Manuka Project.
AMC’s market value of the Manuka Project’s exploration properties was assessed by
applying two industry-standard valuation methods in accordance with the VALMIN
Code to arrive at a range and preferred value. The methods included a cost method, the
Past Exploration Expenditure method and a market-based method looking at comparable
and actual transactions. AMC state that given Southern Cross only recently acquired the
Manuka Project, no development and evaluation work has yet been conducted and
therefore the methods selected to value the Manuka Project are appropriate as it is not
possible to undertake a DCF approach. Further information is contained in AMC’s report
attached as Appendix D to this report.
Grays’ valuation of the plant and equipment at the Manuka Project has been carried out
using two methods: a market method, specifically, the Sales Analysis Method and a cost
method, specifically the Depreciated Replacement Cost Method. According to Grays,
these two methods are the commonly used methods for assets of the nature at the
Manuka Project. Further information is contained in Grays’ report attached as Appendix
E to this report.
We note that we have not able to assess the Manuka Project based on the DCF approach
due to the following:
• Southern Cross only acquired the Manuka Project in September 2014.
• A forecast financial model is yet to be proposed.
• The processing plant will require certain upgrades to improve the economics of the
project.
Sandstone Project
As the Sandstone Project has been sold we have assessed its value by reference to the sale
price.
In our assessment of the market value of net assets of Southern Cross, we have:
• Relied on AMC’s Report with regards to the reasonableness of the technical operating
assumptions for the Gold Projects.
• Relied on AMC’s Report with regards to the value of the Manuka Project.
• Relied on Grays’ Report with regards to the value of plant and equipment associated
with the Manuka Project.
• Assessed the appropriate discount rates, gold prices, silver prices and exchange rates to
apply to the forecast cash flows for the Gold Projects.
46
• Relied on AMC’s assessment of the value of other exploration assets held by Southern
Cross.
• Considered the value of the other assets and liabilities of Southern Cross as set out in
the audited statement of financial position as at 30 June 2014.
• Deducted the net present value of corporate overhead costs not directly related to the
exploration and exploitation of its mining assets.
• Considered the market value of other securities on issue such as options and warrants.
Prior to reaching our valuation conclusions, we have considered the reasonableness of
our valuation having regard to the market approach, specifically a rule of thumb valuation
methodology based on a multiple of resources. In addition, we have also considered the
quoted share price of Southern Cross.
5.4
Independent technical specialist for Southern Cross
For the purpose of this report, Grant Thornton Corporate Finance has engaged AMC to
review and express an opinion on the reasonableness of the technical assumptions
included in the financial model provided to Grant Thornton Corporate Finance by
Southern Cross Management, and to prepare a valuation of the exploration assets of the
Company which was completed in accordance with the VALMIN Code28.
In addition, Grant Thornton Corporate Finance has engaged Grays to review and express
an opinion on fair market value of the plant and equipment associated with the Manuka
Project.
A copy of AMC’s Report and Grays’ Report are included as Appendix D and Appendix
E to this report respectively.
The VALMIN Code is binding on members of the Australasian Institute of Mining and Metallurgy when preparing public
independent expert reports required by the Corporations Act concerning mineral and petroleum assets and securities. The purpose
of the VALMIN Code is to provide a set of fundamental principles and supporting recommendations regarding good professional
practice to assist those involved in the preparation of independent expert reports that are public and required for the assessment
and/or valuation of mineral and petroleum assets and securities so that the resulting reports will be reliable, thorough,
understandable and include all the material information required by investors and their advisers when making investment decisions.
28
47
6
Valuation assessment of Southern Cross before the Proposed
Exercise
As discussed in section 5, we have selected the sum of the parts valuation approach to
assess the fair market value of Southern Cross shares on a control basis before the
Proposed Exercise. In assessing the market value of net assets of Southern Cross, Grant
Thornton Corporate Finance has aggregated the following:
• Market value of the Mt Boppy Project
• Market value of the Manuka Project.
• Market value of the Marda Project
• Market value of other exploration assets owned by Southern Cross
• Value of other assets and liabilities owned by Southern Cross
• Deducted the net present value of corporate overhead costs not directly related to the
exploration and exploitation of its mining assets
• Considered the market value of other securities on issue such as options and warrants
Southern Cross before the Proposed Ex ercise
Low
High
Mid-point
Reference
A$000s
A$000s
A$000s
Fair v alue of Mt Boppy Project
6.1.6
14,118
16,731
15,425
Add: Fair v alue of Marda Project
6.2.6
28,541
40,776
34,659
Add: Fair v alue of Manuka Project
6.3
12,014
24,414
18,214
Add: Fair v alue of Sandstone Project
6.4
499
499
499
Add: Other ex ploration & dev elopment tenements
6.5
900
1,500
1,200
56,072
83,919
69,995
Add: Adjusted other assets & liabilities
6.6
(7,926)
(7,926)
(7,926)
Less: Value of Southern Cross' ex isting options
6.8
(2,166)
(2,496)
(2,331)
Less: Estimated corporate ov erheads ex penses
6.7
(13,853)
(13,853)
(13,853)
Less: Value of Southern Cross Warrants
6.9
(8,371)
(9,626)
(8,999)
23,756
50,018
36,887
1,319,551
1,319,551
1,319,551
1.800
3.791
2.795
Valuation assessment (in A$000s unless stated otherw ise)
Section
Total mining assets value
Equity value of Southern Cross on a control basis
Ex isting number of shares outstanding (shares) (in '000s)
4.5.1
Equity value per Southern Cross share on a control basis (cents)
As set out above, we have assessed the fair market value of Southern Cross before the
Proposed Exercise between 1.8 cent and 3.8 cent with a mid-point of 2.8 cent on a
control basis.
48
6.1
6.1.1
Mt Boppy Project
Introduction
We have assessed the fair market value of the Mt Boppy Project based on the DCF
methodology. Grant Thornton Corporate Finance has engaged AMC, to review and
express an opinion on the reasonableness of the technical assumptions included in the
financial model provided by Southern Cross Management (the “Boppy Model”) in
relation to the reserves, production profile, ore grades, operating and capital expenditure.
AMC has reviewed the Boppy Model and has modelled two production scenarios:
Boppy Base Case or Boppy Case 1: An operational plan of approximately 2.5 years
where the ore production is based primarily on ore reserves (JORC code defined)
estimates and a component of other mineral resources (JORC code defined) for which
AMC believe there is a high confidence of future conversion to ore reserves29. The
operating assumptions in relation to Boppy Case 1 are set out in Section 6.1.2.
Boppy Upside Case or Boppy Case 2: Includes reserves/resources under Boppy Case
1 with an additional 80kt of ore added at the end of the mine life to simulate the likely
conversion of mineral resources into ore reserves. The operating assumptions in relation
to Boppy Case 2 are set out in Section 6.1.3.
Based on AMC’s review and suggested changes to the Boppy Model, Grant Thornton
Corporate Finance has assessed the net present value of the Mt Boppy Project using
ungeared, real and post-tax cash flows, having regard to our assessment of the future gold
prices, economic factors and discount rate.
We also note that as a result of Southern Cross’ recent acquisition of the Manuka Project,
Southern Cross Management is currently intentioned to abandon its plans to upgrade the
plant at Mt Boppy and instead haul the ore for processing to the Manuka Project site.
This aspect has not been considered in the Boppy Model as Southern Cross Management
is at a preliminary stage of their analysis. However, Southern Cross Management are of
the view that the benefit in terms of the capital expenditure saved (approximately A$9
million) will be offset by the increased cost of haulage as well as the cost to modify the
plant and equipment at Manuka to process gold instead of silver. Southern Cross
Management have also advised that the processing costs at Manuka will be comparable to
those at Mt Boppy. AMC has reviewed the high level and indicative estimate undertaken
by the Company and it does not believe that it is unreasonable.
6.1.2
Operational assumptions Boppy Case 1
The key assumptions underpinning the forecast cash flows relating to the Boppy Case 1
are set out below.
29
Being a small volume of inferred mineral resources
49
Key assumptions of the Mt Boppy Project
2.5
619,905
3.88
75%
60,798
Note (1): Recovery factors are expected to be 70%, 72% and 74% respectively for the first three months of production. The recovery factors are
expected to be 75% from the fourth month onwards
Source: Boppy Model inclusive of AMC’s recommended adjustments
Production
As discussed earlier, the production profile has been independently reviewed by AMC.
Based on AMC’s review, recommendations were made to the operating assumptions in
the Boppy Model which have been incorporated in our valuation assessment and
discussed in further detail below. Refer to the AMC Report in Appendix E for complete
detail of the recommended modifications made to the operating assumptions.
The monthly projected production profile for the Mt Boppy Project over the life of mine
is presented in the following graphs based on Boppy Case 1.
Ore mined
Head grade
Source: Boppy Model
Jun 16
May 16
Apr 16
-
Mar 16
-
Feb 16
1
Jan 16
18,000
Dec 15
2
Nov 15
36,000
Oct 15
4
Sep 15
54,000
Aug 15
5
Jul 15
72,000
Jun 15
6
May 15
90,000
Head grade (%)
Ore mined (t)
Ore mined and head grade
50
Gold production and recovery factor
3,500
76%
75%
3,000
74%
73%
2,000
72%
1,500
71%
70%
1,000
Recovery factor (%)
Gold production (oz)
2,500
69%
500
68%
Gold production
Dec 17
Sep 17
Jun 17
Mar 17
Dec 16
Sep 16
Jun 16
Mar 16
Dec 15
Sep 15
67%
Jun 15
-
Recovery factor
Source: Boppy Model
We note the following in relation to the above graphs:
• AMC has noted that the majority of the design and analytical work is complete for the
assessment of redeveloping the Mt Boppy Project. AMC also understands that
statutory approvals are in place and the project is permitted to commence operations.
AMC are of the view that six to seven months should be allowed for procurement,
construction and commissioning of the plant. Therefore, the earliest likely start date
for mining is December 201430 and for processing ore is June 2015 which is reflected
in our valuation assessment.
• Based on the Development Plan completed in April 2014, the Mt Boppy Project is
expected to have a shorter operational life and a lower gold recovery rate (circa 3%)
resulting from the adoption of a simplified circuit.
• Excluding the first two months of milling, the forecast monthly ore milled is consistent
over the life of the mine. Southern Cross Management has prepared the mine plan for
approximately 31months primarily based on the current level of reserves.
• The total gold production over the production schedule is forecast to be approximately
60.8 koz. As the mill throughput is consistent throughout the mine life, changes in
annual gold production are mainly caused by varying gold grade.
• After the initial ramp up, the estimated recovery is approximately 75% over the mine
life and supported by metallurgical test work.
Operating costs
Operating costs include costs associated with mining, processing, royalty payments and
other overhead costs. The following graph summarises the forecast operating expenses
over the projected mine life.
30
Waste mining
51
Operating costs
20,000,000
1,400
Cost (A$))
18,000,000
1,200
16,000,000
1,000
14,000,000
800
A$
12,000,000
10,000,000
600
8,000,000
6,000,000
400
4,000,000
200
2,000,000
0
2015
Mining
2016
2017
Processing costs
Administration costs
Cost per oz
We note the following in relation to the operating costs:
• The operating costs in the Boppy Model are based on the findings from FS completed
in January 2013 and the subsequent development plan carried out in April 2014 and
independently reviewed by AMC.
• Other costs include administration costs related solely to the Mt Boppy Project
including costs for labour, vehicles, camp hire, etc.
• Royalty payments include a 4% royalty (after allowable deductions) to the NSW
Government and a 3% gross outturn royalty to Golden Cross Resources (“GCR”)
based on an agreement entered into between GCR and Polymetals in May 2005.
Capital expenditure
The forecast capital expenditure over the projected mine life is summarised below:
Capital expenditure
4,500,000
4,000,000
Capex (A$)
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Dec 14
Jan 15
Feb 15
Mar 15
Apr 15
May 15
Jun 15
52
We note the following in relation to the forecast capital expenditure:
• As the Mt Boppy Project is yet to be developed, the majority of the capital expenditure
is expected to be incurred on the initial development of the mine, including
construction/re-development of the processing plant and related infrastructure. We
note that we have assumed that ore production will commence in June 2015.
• In the redevelopment of Mt Boppy Gold Mine, Southern Cross had intended to rely
upon used and reconditioned equipment where possible. However, as discussed earlier,
following Southern Cross’ acquisition of the Manuka Project, the redevelopment of the
existing plant will be abandoned in favour of using the processing plant at the Manuka
Project site. This change has not been factored in the Mt Boppy Model, as completion
of the acquisition of the Manuka Project only occurred in September 2014.
• AMC believes that the capital costs (including pre-development costs and closure
costs) are appropriate.
• AMC note that the Boppy Model does not allow for sustaining capital expenditure,
however, in their view this is not unreasonable considering the relatively short life of
the project.
6.1.3
Operational assumptions Boppy Case 2
Boppy Case 2 incorporates the following adjustments to Boppy Case 1 undertaken by
AMC to account for the value of the other resources and exploration potential in relation
to Mt Boppy Project:
• An additional 80,000 tonnes of ore at a grade of 3.37 g/t is added to the end of the
mine life to simulate the likely conversion of mineral resources to ore reserves and the
likely success with exploration in the region. This tonnage is based on the assumption
that 50% of the remaining resource outside the pit converts to ore reserve at the head
grade produced at the end of the mine life.
• The additional tonnage is mined in one month at the end of the original mine life.
• Operating costs for the extended mine life are assumed to be the same as those
incurred in the last months of the financial model provided.
• A total of 66,640 ounces of gold is produced under the Boppy Case 2 assumptions
versus the 60,494 ounces of gold produced under the Boppy Case 1 assumptions.
6.1.4
Economic assumptions
Gold prices
For the purpose of forming a view on the appropriate gold prices to use for the valuation,
Grant Thornton Corporate Finance has had regard to the weighted average price of gold
set by the Gold Facility for 33,000 ounces and consensus estimate for the balance.
53
The Gold Facility provides that Southern Cross is to sell 33,000 ounces of gold to
TrailStone for an effective fixed price of A$1,374 (see 4.3.1 for further information).
Given this arrangement, the gold price adopted in the Mt Boppy Model is a weighted
average between A$1,374 and consensus estimate.
With respect to gold prices generally, we observe that given the volatility in commodity
markets, the current levels of commodity prices relative to historical long run prices, and
the widely varying views of industry analysts, assumptions regarding future gold prices are
inherently subject to considerable uncertainty. It should be noted that the value of the
mineral assets could vary materially based on changes in commodity price expectations.
The assumptions in relation to the gold prices adopted by Grant Thornton Corporate
Finance do not represent forecasts by Grant Thornton Corporate Finance but are
intended to reflect the assumptions that could reasonably be adopted by industry
participants in their pricing of resources assets and companies.
The sources for the gold prices are denominated in US dollars and are on a nominal basis
(i.e. inclusive of inflation expectations). We have re-expressed the nominal US dollar
denominated commodity prices into real Australian dollar denominated terms having
regards to the exchange rate assumptions discussed below and the Consumer Price Index
(“CPI”).
In our assessment of the gold prices, we have considered the following:
• Forecasts released by Consensus Economics Inc, “Energy & Metals Forecasts’ dated
18 August 2014.
• Consensus forecasts released by Capital IQ.
• Various brokers’ reports.
• Movement in spot and forward prices of gold.
We note that most commodity prices, particularly gold, have suffered recent declines in
2014. In the medium to long term, the price of gold is forecast to gradually decrease in
line with the expected recovery and stabilisation of the global economy and financial
markets, and increased supply levels.
Based on the analysis and discussion above, the following table summarises the real USdollar denominated prices for gold used in our valuation assessment.
Gold price assumptions
2014
2015
2016
2017
2018
Long Term
1,260
1,250
1,230
1,210
1,210
1,240
US$/oz (real terms)
GT adopted gold price
Source: Broker reports, publicly available information and Grant Thornton Corporate Finance assumptions
It is to be noted that due to short mining life of the Mt Boppy Project, the long term
economic assumptions (gold price, exchange rate etc.) are not relevant for the valuation
54
of the Mt Boppy Project. However, these long term economic assumptions are
considered for valuing the Marda Project.
Set out in the following graph, we have plotted our mid-point assessment of the long
term real gold price against the historical gold price (real) for the last 12 years.
Historical real gold price
2,000
1,800
1,600
US$ / oz
1,400
GTCF assessed long-term gold price (real) US$1,240
1,200
1,000
800
600
400
200
0
Sep 04
Sep 05
Sep 06
Sep 07
Sep 08
Sep 09
Sep 10
Gold price (Real)
Sep 11
Sep 12
Sep 13
Sep 14
Mid-point long term gold price
Source: Capital IQ
Exchange Rates
The following table summarises our assessment of the forecast real exchange rates
adopted in our valuation assessment:
US$/A$
Foreign ex change rate assumption (real)
2014
2015
2016
2017
2018
Long term
0.91
0.88
0.85
0.83
0.83
0.83
A$1.00 = US$
Ex change rate
Source: Capital IQ, Broker reports, publicly available information and GTCF assumptions
In our assessment of the exchange rates, we have considered the following:
• Various broker reports.
• Consensus estimates provided by Capital IQ.
• Movement in spot and forward exchange rates.
Inflation
For the purpose of our valuation assessment, we have adopted a blended long term
inflation rate of 2.3% per annum in line with the Reserve Bank of Australia target
inflation between 2% and 3% per annum and the US long term inflation rate of 2%. The
cash flows used in our valuation assessment are in real terms.
55
Discount rate
The cash flows assumptions associated with the Mt Boppy Project have been prepared on
a real, ungeared and post-tax basis. Accordingly, Grant Thornton Corporate Finance has
applied a real, post-tax Weighted Average Cost of Capital (“WACC”) between 10.7% and
11.8% with a mid-point of 11.2% in relation to the Mt Boppy Project31. Refer to
Appendix B for further details. Our assessment of the discount rate captures the
following risks:
• Uncertainty associated with the development stage nature of this asset.
• Risks identified in the AMC report including:
− Technical and metallurgical recovery risk due to pit mining of ore body at depth.
− Inferred Mineral Resource may be lower in volume and grade than current
estimates.
− Capital costs for plant refurbishments being difficult to estimate.
− Throughput not being achieved in the upgraded treatment plant.
We note that in our assessment of the discount rate, we have had regard to the target
capital structure for SXG’s assets in accordance with the fair market value principle. The
actual capital structure of SXG going forward is likely to be more weighted towards debt
than its peers if the TrailStone Funding is drawn down in full. The financial
circumstances of the Company and this additional risk have not been taken into account
in our assessment of the discount rate.
6.1.5
Other assumptions
• Depreciation – The Boppy Model provides an estimate for forecast monthly
depreciation and assumes that capital expenditure is depreciated on a straight line basis
over the current production schedule.
• Income tax - Income tax has been calculated by applying the Australian statutory
company tax rate of 30% to the notional taxable income after allowing for tax losses.
However, we have been advised by Southern Cross Management that the Company
has a tax loss balance of approximately A$44.1 million (gross) as at 30 June 2014
which, based on preliminary tax advice, is expected to be utilised across the Mt Boppy
Project and the Marda Project. We have incorporated a portion of Sothern Cross’ tax
losses in our calculation of fair market value of Mt Boppy with the balance being
utilised in our valuation assessment of the Marda Project.
31
For Mt Bobby Case 2 we have uplifted the discount rate by 0.5%for the last period where the additional 80kt of ore is produced
56
6.1.6
Valuation summary of Mt Boppy
The following table summarises our valuation assessment of Mt Boppy. We note that the
low and high ends of our range are estimated in conjunction with Mt Boppy Case 1 and
Case 2 respectively.
Mt Boppy Case 1
Mt Boppy Case 2
Mt Boppy Project
A$000s
A$000s
Fair v alue of Mt Boppy Project
14,118
16,731
Source: Grant Thornton Corporate Finance calculations
Grant Thornton Corporate Finance has assessed the market value of Mt Boppy Project
between A$14.1 million and A$16.7 million based on the DCF approach.
6.1.7
Gold premium
Gold companies have historically traded at a premium to their Net Asset Value (“NAV”).
Industry participants generally describe this as the “gold premium”. The gold premium is
typically explained by the following:
• The prospect of finding additional gold through successful exploration program which
will extend the life of mine beyond the free cash flow discrete period.
• Whilst the life of mine should theoretically be limited, the life of mine would generally
be extended if gold price increases allowed new resources and reserves to become
economically viable.
• Low perceived level of production and realisation risks.
• Gold optionality being the difference between the spot gold price and future gold price
based on the historical volatility of this commodity.
• Southern Cross Management’s flexibility in relation to the production schedule in
response to movements in the gold price.
In our opinion, the valuation assessment of Mt Boppy does not warrant the application
of a gold premium due to the following:
• Companies engaged in gold development are trading at a discount to their NAV in
general.32
• Southern Cross has only completed an indicative feasibility study in relation to the Mt
Boppy Project and is still a development project. There is a higher degree of
uncertainty and a lower confidence level in the forecast cash flows of development
32 The discussion in relation to the gold premium should be considered with caution as the outcome of the analysis is significantly
impacted by the assumptions adopted by each broker in relation to discount rate, gold price and exchange rates which in some
cases may differ materially from consensus estimates. Often investment analysts value gold projects as risk free assets which has a
significant effect on the NAV of the underlying project.
57
companies compared with production companies which may act as potential deterrent
for investors to pay a premium on the NAV.
• The short mine life of the Mt Boppy Project.
6.1.8
Sensitivity analysis
We have conducted certain sensitivity analysis on the Mt Boppy Project to highlight the
impact caused by movements in certain key variables such as exchange rate, gold price
and discount rate.
The following table summarises our results:
Sensitiv ities
In (A$000s unless stated otherw ise)
Base case
NPV of Mt Boppy Project
Low
High
14,118
16,731
% change
Low
High
Gold prices (real)
10% increase
17,381
20,670
23.1%
23.5%
10% decrease
10,856
12,792
(23.1)%
(23.5)%
1% increase
13,795
16,341
(2.3)%
(2.3)%
1% decrease
14,448
17,129
2.3%
2.4%
1% increase
15,088
17,821
6.9%
6.5%
1% decrease
13,806
16,433
(2.2)%
(1.8)%
Exchange rate
Discount rate
6.2
Marda Project
6.2.1 Introduction
We have assessed the fair market value of Marda Project based on the DCF
methodology. Grant Thornton Corporate Finance has engaged AMC to review and
express an opinion on the reasonableness of the technical assumptions included in the
financial model provided by Southern Cross Management (the “Marda Model”) in
relation to the reserves, production profile, ore grades, operating and capital expenditure.
AMC has prepared two production scenarios:
Marda Base Case or Marda Case 1: An operational plan of 3.5 years having regard to
the current level of JORC defined ore reserves and a component of JORC defined
resources that are included in the mine plan provided in the FS of November 2013. Based
on AMC’s review, the Marda Model assumes the commencement of project development
in August 2016 and processing of ore in February 2017.
58
Upside Marda Case or Marda Case 2: Marda Case 2 utilises the same assumptions as
Marda Case 1 for the first 3.5 years and includes an additional 900kt of ore at a grade of
2.2g/t added to the end of the mine life to reflect the likely conversion of mineral
resources into ore reserves as well as further exploration success in the Marda region33.
Based on AMC’s review and suggested changes to the Marda Model, Grant Thornton
Corporate Finance has assessed the net present value of the Marda Project using
ungeared, real and post-tax cash flows, having regard to our assessment of the future gold
prices, economic factors and discount rate.
6.2.2 Operational assumptions Marda Case 1
The key assumptions underpinning the forecast cash flows relating to the Marda Project
(Marda Case 1) are set out below.
Key assumptions of the Marda Project
3.5
2,438,360
2.19
93%
Source: Marda Model inclusive of AMC’s recommended adjustments.
158,576
Production
As discussed, the production profile has been independently reviewed by AMC. The
projected production profile for the Marda Project over the life of mine is presented in
the following graphs.
Ore processed and head grade
800,000
3.0
700,000
Ore processed (t)
2.0
500,000
400,000
1.5
300,000
1.0
200,000
0.5
100,000
-
2017
2018
Ore processed (tonnes)
2019
2020
Average head grade (g/t)
Source: Marda Financial Model inclusive of AMC’s recommended adjustments.
33
The 900kt represents 50% of the Marda Project’s inferred resource converting into ore reserves
Average head grade processed (g/t)
2.5
600,000
59
Gold production and recovery factor
60,000
100%
90%
80%
70%
40,000
60%
30,000
50%
40%
20,000
Recovery factor (%)
Gold production (oz)
50,000
30%
20%
10,000
10%
-
2017
2018
Gold production
2019
2020
Recovery factor
Source: Marda Financial Model inclusive of AMC’s recommended adjustments
We note the following in relation to the above graphs:
• Production of ore for the Marda Project will commence in February 2017.
• The Marda Model is based on Southern Cross mining fifteen small open pits across the
ten named project areas over the life of the operation. Mining will commence at the
pits at various points in time, with the two furthest pits commencing production in
Year 3. The mining sequence has been selected based on the higher confidence pits
being mined first, followed by the lower confidence pits being mined last.
• AMC adjusted the head grade to reflect a lower grade of diluting material than that
assumed in the FS. This resulted in the head grade reducing from 2.296 g/t to 2.18 g/t
over the life of the project.
• Southern Cross intends to use the plant and equipment from the Sandstone Project in
the Marda operations. The Sandstone plant is yet to be relocated. The processing plant
is planned at Marda with a capacity of up to 720 ktpa in the second year of the project
which is higher than the historical throughput for the Sandstone Project’s equipment
of 620 ktpa. AMC considers that there is potential to increase throughput provided
further upgrading of equipment is carried out.
• The total gold production over the production schedule is forecast to be approximately
160 koz. As discussed earlier, AMC has considered the value of the remaining
resources and exploration potential in Marda Case 2.
60
Operating costs
Operating costs include costs associated with mining, processing, mining lease costs,
royalty payments and other overhead costs. The following graph summarises the forecast
operating expenses over the projected mine life.
Operating costs
50
1,500
45
1,200
40
30
900
A$
Cost (A$m))
35
25
20
600
15
10
300
5
-
2017
2018
2019
2020
Mining
Mining lease
Processing
General Administration
Royalties
Cost per oz
We note the following in relation to the operating costs:
• The operating costs in the Marda Financial Model are based on an update by Southern
Cross Management of operating costs prepared by an independent technical specialist
in July 2012. AMC considers these forecasts to be consistent with costs for other
Australian gold projects with similar throughput and plant complexity.
• AMC has revised the operating cost to account for higher throughput rate of 720 ktpa
and changes in unit costs.
• Other costs include administration costs related solely to the Marda Project including
general staffing costs, accommodation, fly-in-fly-out provisions, etc.
• Royalty payments of 2.5% of total gold revenue payable to the Western Australia State
Government.
Capital expenditure
The forecast capital expenditure over the projected mine life is summarised below.
61
We note the following in relation to the forecast capital expenditure:
• As the Marda Project is yet to be developed, the majority of the capital expenditure is
expected to be incurred on the initial development of the mine, including construction
of the processing plant and related infrastructure.
• The Marda Model allows capital expenditure of $21.7 million inclusive of a 10%
contingency. AMC are of the view that the contingency should be 20% for the plant
and equipment items that form part of the total and hence have revised capital
expenditure to $23.6 million.
• The costs presented include the removal, refurbishment, relocation and installation of
plant and equipment of the Sandstone Project as well as infrastructure items including
camp, roads and airstrip, buildings, and water supply. AMC have allowed for an
additional 10% contingency for the cost of the upfront capital costs because in their
experience relocation and refurbishment of plant is uncertain.
• AMC notes that the Marda Model does not allow for sustaining capital, however, in
their view this is offset by the higher contingency proposed for the initial capital costs
and the relatively short life of the project.
• AMC believes the existing mine closure cost estimates in the Marda Model of A$2.2
million are reasonable.
6.2.3 Operational assumptions Marda Case 2
The following adjustments have been made by AMC in relation to the Marda Case 2:
• An additional 900,000 tonnes of ore at a grade of 2.20 g/t is added to the end of the
mine life. This tonnage is based on the assumption that 50% of the inferred resources
converts to ore reserve.
62
• Operating costs for the extended mine life are assumed to be the same as those
considered for year 2019.
• A total of approximately 214.8 koz of gold is produced under the Marda Case 2
assumptions versus the 158.6 koz of gold produced under the Marda Case 1
assumptions.
• An increased capital expenditure over the extension period to accommodate costs
associated with starting or extending open pits.
Further detail of the Marda Case 2 assumptions set out by AMC in the AMC report in
Appendix E.
6.2.4 Economic assumptions
We have relied upon the economic assumptions (i.e., gold price, exchange rate and
inflation) utilised in the valuation assessment of the Mt Boppy Project for our valuation
assessment of the Marda Project (see section 6.1.4 for further discussion of these
assumptions). However, in our valuation assessment of the Marda Project, we have
separately assessed the discount rate to account for the unique, specific risks associated
with the Marda Project.
Discount rate
The cash flows assumptions associated with the Marda Project have been prepared on a
real, ungeared and post-tax basis. Accordingly, Grant Thornton Corporate Finance has
applied a real, post-tax WACC of between 10.7% and 11.8% with a mid-point of 11.2%
in relation to the Marda Project 34. Refer to Appendix B for further details.
Our assessment of the discount rate takes into account the fact that the Marda Project is
a greenfields open pit operation in which no historical mining or ore processing has been
undertaken in the area. Further, we have considered the risks identified by AMC in
relation to the Marda Project.
6.2.5 Other assumptions
Depreciation – The Marda Financial Model provides an estimate for forecast monthly
depreciation and assumes that capital expenditure is depreciated over the life of mine.
Income tax - Income tax has been calculated by applying the Australian statutory company
tax rate of 30% to the notional taxable income after allowing for tax losses. As mentioned
in section 6.1.5 above, we have applied a portion of Southern Cross’ tax losses to offset
taxable income in the Marda Model. Based on the above factors, we have considered tax
losses in our valuation assessment for the Marda Project.
34 Similarly to our valuation assessment of Mt Boppy, we have uplifted the discount rate applied to the Marda Case 2 by 0.5% in
the outer years.
63
6.2.6 Valuation summary of the Marda Project
The following table summarises our valuation assessment of the Marda Project. We note
that the low and high ends of our range are estimated in conjunction with Marda Case 1
and Case 2 respectively.
Marda Case 1
Marda Case 2
Marda Project
A$000s
A$000s
Fair v alue of Marda Project
28,541
40,776
Source: Grant Thornton Corporate Finance calculations
Grant Thornton Corporate Finance has assessed the market value of the Marda Project
between A$28.5 million and A$40.8 million on a control basis.
6.2.7 Gold premium
Similarly to Mt Boppy, we have not applied a gold premium to our assessed NAV in our
valuation assessment of the Marda Project.
6.2.8 Sensitivity analysis
We have conducted certain sensitivity analysis on the Marda Project to highlight the
impact caused by movements in certain key variables. The following tables summarise
our results:
Sensitiv ities
In (A$000s unless stated otherw ise)
NPV of Marda Project
Low
High
28,541
40,776
10% increase
43,280
10% decrease
% change
Low
High
59,607
51.6%
46.2%
13,803
21,946
(51.6)%
(46.2)%
1% increase
27,082
38,912
(5.1)%
(4.6)%
1% decrease
30,030
42,678
5.2%
4.7%
1% increase
28,383
40,536
(0.6)%
(0.6)%
1% decrease
28,701
41,019
0.6%
0.6%
Base case
Gold prices (real)
Exchange rate
Discount rate
64
6.3
Manuka Project
AMC has assessed a value of the Manuka Project’s exploration properties by applying the
Past Exploration Expenditure method and a market-based method looking at comparable
and actual transactions.
In their consideration of the value of the Manuka Project, AMC state that they also had
regard to the price that Southern Cross paid being A$375,000 plus a commitment to
A$5.8 million of environmental liabilities associated with the leases.
Based on the above, AMC has calculated a range of values between A$4.3 million and
$16.7 million for the Manuka Project (refer to section 5 of the AMC Report).
Grays has assessed the market value of the plant and equipment pertaining to the Manuka
Project on the following basis:
• Market value for existing use of A$12 million.
• Estimated auction realisation value of A$3.4 million.
In our valuation assessment, we have adopted the mid-point of Grays’ assessment as we
are of the opinion that it better reflects the current status of the processing plant.
Accordingly, the total value of the Manuka Project has been estimated between A$12.0
million and A$24.4 million.
6.4
Sandstone Project
As the Sandstone Project’s tenements are in the process of being sold, we have assessed
the fair market value of this asset by reference to the expected sale price. We note that
Southern Cross will retain the plant and equipment relating to the Sandstone Project for
use in the Marda Project and has only sold the mining tenements and mining
information.
On 8 October 2014, Southern Cross executed an agreement to provide an option to a
potential purchaser to buy various mining tenements and mining information. The key
terms of the agreement are commercially sensitive and include the payment of contingent
consideration. In addition, another contract is expected to be signed for the sale of the
balance of the mining tenements later this year.
Based on the terms of the agreements and discussion with Management, we have adopted
a fair market value of A$0.5 million for the mining tenements relating to the Sandstone
Project based on the probability factors (assessed by Southern Cross Management) in
relation to the contingent consideration.
65
6.5
Other tenements owned by Southern Cross
AMC has separately assessed the value of exploration licence EL8452 located adjacent to
Mt Boppy mining leases and associated exploration potential. AMC has assessed the fair
value to be approximately A$0.2 million.
In addition, AMC has separately assessed the value of the northern part of the Marda
tenement are which does not have any defined resources but is considered to be
prospective for gold and base metal deposits. AMC has assessed the value of these
tenements to be in the range of A$0.65 million to A$1.3 million.
6.6
Other assets and liabilities owned by Southern Cross
For the purpose of this report, we have assessed the fair market value of other assets and
liabilities of Southern Cross based on the audited balance sheet as at 30 June 2014. The
net book value of those assets and liabilities are assumed to reflect their fair market
values.
The table below sets out the audited balance sheet as at 30 June 2014 and Grant
Thornton Corporate Finance’s adjustments to reflect Southern Cross’ other assets and
liabilities fair market value as at the date of this report:
66
Balance sheet
Section
30-Jun-14
Adjusted
Adjustments
balance
A$000s
A$000s
2,718
1,417
4,135
395
-
395
469
(469)
-
3,582
948
4,530
115
-
115
Reference /
unadj balance
Note
A$000s
Current assets
Cash and cash equiv alents
Note 1
Trade and other receiv ables (current)
Assets classified as held for sale
Note 2
Total current assets
Non-current assets
Trade and other receiv ables (non current)
Property , plant and equipment
Note 3
4,244
(4,244)
-
Tenement acquisition costs
Note 4
6,813
(6,813)
-
Other financial assets
Note 5
408
(408)
-
Total non-current assets
11,580
(11,465)
115
Total assets
15,162
(10,517)
4,645
783
-
783
Current liabilities
Trade and other pay ables
Prov isions (current)
Loans
Note 6
Total current liabilities
112
-
112
5,000
6,650
11,650
5,895
6,650
12,545
Non-current liabilities
Prov isions (non current)
Note 7
1,434
(1,408)
26
Deferred tax liability
Note 8
787
(787)
-
Total non-current liabilities
2,221
(2,195)
26
Total liabilities
8,116
4,455
12,571
Net assets
7,046
(14,972)
(7,926)
Total adjusted other assets and liabilities
Source: Southern Cross’ Financial Statement for the period ended 30 June 2014, Management and GTCF calculations
(7,926)
We note the following in relation to the above table:
Note 1 – Southern Cross Management have advised that the cash and cash equivalent
balance as at the Valuation Date is approximately A$3.3 million, which implies an uplift
of A$0.6 million from the cash balance as at 30 June 2014. In addition, we have adjusted
the cash balance for the Placement (A$1 million) and the transaction expenses estimated
in conjunction with the Proposed Exercise of A$200,000.
Note 2 – Assets classified as held for sale (A$469,000) refer to the Sandstone Project
mining tenements value which has been included in our valuation assessment elsewhere,
as set out in section 6.4.
Note 3 – The value of these assets has mostly been captured in the DCF analysis and/or
valuation assessments of the Mt Boppy Project, the Marda Project and the Sandstone
Project.
67
Note 4 – Tenement acquisition costs of A$6.8 million include the acquisition costs
related to tenements in the Mt Boppy Project, the Marda Project and the Sandstone
Project. Hence, the value has been captured in the valuation of those assets.
Note 5 – Other financial assets (A$408,000) relate to the Mt Boppy environmental bonds
and have been considered in our valuation of the Mt Boppy Project.
Note 6 – Loans (A$5 million) relate to the secured loan with RMB, which as mentioned
earlier in this report has been repaid from funds from the TrailStone Facility. In addition,
we have considered the A$11.65 million draw down from the Gold Facility.
Note 7 – Provisions (A$1.4 million) have been adjusted to exclude the rehabilitation
costs in relation to the Marda Project (A$1 million) and the Mt Boppy Project (A$0.4
million). The remaining balance relates to Southern Cross’ long service leave provisions.
Note 8 – Refers to deferred tax liabilities in relation to the timing differences which we
have not considered in our valuation assessment.
6.7
Corporate overheads
Southern Cross incurs on-going corporate costs which are not directly related to the
exploration and exploitation of its mining assets. These costs are associated with
maintaining offices, the executive management teams, finance and corporate
administration.
From a fair market value perspective for Southern Cross before the Proposed Exercise,
we have excluded from the capitalised value of corporate overheads costs associated with
maintaining a listing status such as annual listing fees, registry fees and non-Executive
Directors’ fees, which a potential purchaser of Southern Cross is unlikely to pay for.
Based on the discussions with Southern Cross Management, annual corporate overheads
excluding one-off expenses have been assessed at approximately A$2.9 million per
annum on a pre-tax basis.
We have assessed the capitalised value of the corporate overheads to be approximately
A$13.9 million having regard to the net present value of future net of tax corporate
overheads using our mid-point discount rate of 11.2%. Refer to Appendix B for further
details on the discount rate.
6.8
Options
Southern Cross currently has approximately 365.2 million Southern Cross Options on
issue as set out in section 4.5.2 with different exercise prices and expiry dates. The value
of the Southern Cross Options has been determined using the Binomial Option Model
with regard to the following key assumptions:
• The underlying share price of 1.3 cents which is consistent with the current trading
prices.
68
• Risk free rates in a range between 2.61% and 2.97%, being the yield on the average
yield of Australian Government Bonds with a comparable life to the Southern Cross
options.
• For those options with less than three years to expiry, we have assessed volatility over
the life of the Southern Cross options ranging from 93.5% to 147.4% which is
consistent with the historical volatility. For those options with more than three years
to expiry we have adopted volatility from 80% to 100% being a more conservative
view of future volatility given the longer period to expiry.
The following table sets out our calculations of the value of the Southern Cross Options:
Underly ing
Ex ercise
Remaining
share price
price
life
Interest rate
(Low )
Tree
(A$)
(A$)
Ex piry date
(Day s)
(%)
(%)
(%)
Option 1
0.013
0.100
24-Feb-15
136
2.61%
145.0%
145.0%
Binomial
Volatility
Options v alue Options v alue
Volatility (High) Value per option Value per option
(A$)
$
0.0001
(Low )
(A$) No. of options
$
(High)
(A$)
(A$)
0.0001
10,000,000 $
710 $
710
135,362
Option 2
0.013
0.100
10-Oct-17
1,095
2.72%
100.0%
100.0%
$
0.0014
$
0.0031
43,665,000 $
59,122 $
Option 3
0.013
0.100
10-Oct-15
365
2.61%
135.0%
135.0%
$
0.0011
$
0.0011
2,500,000 $
2,733 $
2,733
Option 4
0.013
0.100
23-Nov -17
1,139
2.72%
80.0%
100.0%
$
0.0015
$
0.0033
5,000,000 $
7,555 $
16,310
Option 5
0.013
0.047
21-Mar-15
163
2.61%
146.6%
146.6%
$
0.0011
$
0.0011
34,255,319 $
36,687 $
36,687
Option 6
0.013
0.030
31-Dec-17
1,177
2.72%
80.0%
100.0%
$
0.0047
$
0.0065
20,000,000 $
93,780 $
130,700
Option 7
0.013
0.040
31-Dec-17
1,177
2.72%
80.0%
100.0%
$
0.0056
$
0.0056
20,000,000 $
112,300 $
112,300
Option 8
0.013
0.020
24-Mar-16
531
2.61%
147.4%
147.4%
$
0.0073
$
0.0073
63,775,510 $
463,138 $
463,138
Option 9
0.013
0.013
31-Dec-19
1,907
2.97%
80.0%
100.0%
$
0.0084
$
0.0096
Total
166,050,000 $ 1,390,005 $ 1,598,397
365,245,829 $ 2,166,030 $ 2,496,337
Source: RBA Statistics, Capital IQ and GTCF calculations
Based on the above, we have assessed the total value of Southern Cross options to be in
the range between A$2.2 million and A$2.5 million.
6.9
Warrants
As at the date of our report, TrailStone had been issued with one billion warrants. We
have assessed the value of the Warrants using Binomial Option Theory with regard to the
following key assumptions:
• Strike price of 1.3 cents and maturity date of 31 December 2019
• The underlying share price of 1.3 cents which is consistent with the current trading
prices.
• A risk free rate of 2.97%, being the yield on the average yield of Australian
Government Bonds with a comparable life to the Warrants.
• Volatility ranging from 80% to 100%. We note that given the Warrants expire in five
years, we have adopted a more conservative view of the future volatility compared with
historical levels.
The following table sets out our calculations of the value of the Warrants:
69
Low
High
Underly ing share price (A$)
0.013
0.013
Ex ercise price (A$)
0.013
0.013
31-Dec-19
31-Dec-19
Interest rate (%)
Ex piry date
2.97%
2.97%
Volatility (%)
80.0%
100.0%
Value per Warrant (A$)
0.008
0.010
1,000,000,000
1,000,000,000
8,371,000
9,626,000
Number of Warrants
Value of Warrants (A$)
6.10 Number of shares on issue
The number of shares outstanding includes the shares on issue as at the date of this
report plus the 100 million ordinary shares to be issued upon completion of the
Placement.
6.11 Valuation cross check – Resource multiple
We have considered the reasonableness of our valuation assessment by comparing the
resources multiple implied by the sum of parts valuation to the resource multiple of listed
comparable companies in the gold mining industry in Australia.
This method only provides an indicative market value of Southern Cross as the resource
multiple may vary significantly between the different listed comparable companies due to
size of the deposit, grade, availability of infrastructure, cost structure and level of
development. In our selection of comparable companies, we have had regard to the
following factors:
• Flagship project focused on gold and silver in Australia.
• Status of development of the flagship project of the relevant company (i.e.
exploration/development phase).
• Size of the company, including market capitalisation.
• Resource and grade estimates.
6.11.1 Southern Cross’ Resource multiple implied in our valuation assessment
Our assessment of Southern Cross based on the net asset approach implies a resource
multiple between 21.3x and 39.1x on a control basis as summarised below:
70
Section
Resource multiple cross checkA$000s unless stated otherw ise
reference
Equity v alue of SXG on a control basis before the Proposed Ex ercise
6
Add: Net debt
Low
High
23,756
50,018
7,515
7,515
31,271
57,533
Total gold resources (koz)
1,471
1,471
Implied resource multiple (EV/oz)
21.3x
39.1x
6.6
Enterprise value of SXG on a control basis
Set out below are the resource multiples of broadly comparable companies that are
engaged in gold mining, either at a development or pre-development stage. Refer to
Appendix C for further details on these companies.
EV1
To tal
A verage
A ttribute
go ld
Inferred
Indicated
M easured
Ownership Reso urces
grade
Reso urces
Reso urces
Reso urces
A ttributable
go ld
reso urce
Reso urce
Reso urces metal ratio 3
(EV/metal
A ttributable co ntained reso urces
Other
M ultiple
A$m
Lo catio n2
%
Mt
g/t
M oz
M oz
M oz
M oz
M oz
Reso urce and Investment NL
66
WA
100%
34
1.79
0.61
1.23
0.13
-
1.97
33.6x
M utiny Go ld Limited
28
WA
93%
9
2.65
0.22
0.35
0.22
0.16
0.95
29.2x
M atsa Reso urces Limited
29
WA
30%
8
1.72
0.14
0.30
na
-
0.44
66.9x
P ho enix Go ld Limited
28
WA
100%
103
1.17
1.71
2.04
0.05
-
3.80
7.3x
8
VIC
96%
4
2.90
0.23
0.02
0.00
-
0.25
32.4x
Co mpany
GB M Go ld Ltd.
ratio )
Gasco yne Reso urces Limited
23
WA
99%
148
5.36
0.97
0.53
0.29
-
1.79
13.0x
Silver Lake Reso urces Limited
175
WA
100%
78
2.28
2.78
2.71
0.25
0.87
6.61
26.5x
Do ray M inerals Limited
82
WA
100%
1
10.80
0.10
0.28
0.07
-
0.44
186.3x
1
1.17
0.10
0.02
0.00
-
0.25
7.3x
48
3.58
0.84
0.93
0.14
0.13
2.03
49.4x
Lo w
A v e ra ge
M e dia n
H igh
22
2.46
0.42
0.44
0.13
-
1.37
30.8x
148
10.80
2.78
2.71
0.29
0.87
6.61
186.3x
Note (1): Enterprise value was calculated based on market capitalisation as at 9 October 2014 and latest net debt balance available
Note (2): Location of flagship assets
Note (3): Resource metal ratio is the sum of contained resources adjusted for the ratio of the resource price to the price of gold as at 9 October
2014 (gold price at US$1,225/oz, silver price at US$17/oz and copper price at US$6,660/t). Contained resources equals approximately
grade of resources x total resource tonnage (note we have assumed the contained resources as disclosed by each company in latest available resource
estimate as at 9 October 2014). We note that this gold metal ratio estimation calculation is for the purposes of our valuation and does not
attempt to estimate or reflect a reported gold equivalent under JORC Code 2012.
In relation to the above resource multiples we note that:
• The trading resource multiples have been calculated based on the market price for
minority or portfolio share holdings and do not include a premium for control.
• For the purpose of our valuation, we have calculated the attributable resources of each
company based on their ownership interest of each respective mineral asset.
• All else being equal, companies which operate mines at lower cash costs will trade at
higher multiples than those companies with higher cash costs.
• All else being equal, companies whose key assets are in a later stage of development
will trade at higher multiples than those companies at an earlier stage of development.
• All else being equal, larger companies will tend to trade at higher multiples than smaller
companies.
71
Notwithstanding the selection and assessment criteria set out above, the level of
comparability of the selected companies is limited given difference in grades, recoveries,
construction and operating costs compared with Southern Cross’ projects.
Whilst we have placed limited on the resource multiple of comparable companies, we
note that the median resource multiple of the comparable companies is approximately
30.8x on a minority basis which does not seem unreasonable compared with the resource
multiple of Southern Cross between 21.3x and 39.1x on a control basis.
6.12 Valuation cross check – Quoted security price
Prior to reaching our valuation conclusion, we have also considered the quoted security
price as a cross check to the values derived using the sum of parts approach. In
accordance with the requirements of RG111, we have considered the listed securities’
depth, liquidity, and whether or not the trading prices are likely to represent the market
value of Southern Cross.
The following table summarises the monthly trading volume of Southern Cross since
April 2013:
Volume
Monthly
Total v alue of
traded
VWAP
shares traded
Volume traded as
Month end
('000)
($)
($'000)
% of total shares
Apr 2013
8,243
0.0278
229
2.0%
May 2013
7,444
0.0205
152
1.8%
Jun 2013
12,340
0.0137
169
3.0%
Jul 2013
6,692
0.0166
111
1.6%
Aug 2013
9,503
0.0187
178
2.3%
Sep 2013
5,509
0.0210
116
0.6%
Oct 2013
17,225
0.0179
309
1.9%
Nov 2013
3,607
0.0143
52
0.4%
Dec 2013
2,357
0.0138
33
0.3%
Jan 2014
6,871
0.0149
103
0.8%
Feb 2014
14,125
0.0163
230
1.6%
Mar 2014
11,452
0.0152
174
1.3%
Apr 2014
2,397
0.0134
32
0.3%
May 2014
4,786
0.0125
60
0.5%
Jun 2014
8,353
0.0100
84
0.9%
Jul 2014
14,615
0.0113
165
1.6%
Aug 2014
18,811
0.0099
186
2.1%
Sep 2014
54,385
0.0106
575
6.1%
Low
0.27%
Median
1.61%
High
6.13%
We note from the table above the historical liquidity level of trading in Southern Cross
shares is low with only 1.9% of the share capital traded over the last 6 months on
average. However, we note that the liquidity in September 2014 increased substantially
from Southern Cross’ historical liquidity.
72
Given the limited level of depth and liquidity in the market for Southern Cross Shares
overall, we have not relied on this valuation methodology for the purposes of our
valuation assessment.
73
Valuation assessment of Southern Cross after the Proposed Exercise
7
In this section of the report, we have estimated the fair market value of the shares in
Southern Cross after the Proposed Exercise on a minority interest basis.
In assessing the fair market value of Southern Cross after the Proposed Exercise, Grant
Thornton Corporate Finance has aggregated the following:
• The market value of Southern Cross before the Proposed Exercise on a control basis
• Applied a minority basis.
• Consider the proceeds from the exercise of the Warrants and the dilutionary impact of
the Warrants
Southern Cross after the Proposed Ex ercise
Equity value of Southern Cross on a control basis
Less: Minority discount %
Low
High
Mid-point
Reference
A$000s
A$000s
A$000s
6
23,756
50,018
36,887
23%
23%
23%
18,274
38,475
28,375
13,000
13,000
13,000
31,274
51,475
41,375
2,319,551
2,319,551
2,319,551
1.348
2.219
1.784
Section
Valuation assessment (in A$000s unless stated otherw ise)
30.0%
30.0%
7.1
Equity value of Southern Cross on a minority basis (post)
Add: Cash receiv ed from ex ercise of w arrants
7.2
Adjusted equity value of Southern Cross on a minority basis (post)
Number of shares outstanding (diluted) (in '000s shares)
7.3
Equity value per Southern Cross share on a minority basis (cents)
As set out above, we have assessed the fair market value of Southern Cross after the
Proposed Exercise between 1.35 cent and 2.22 cent with a mid-point of 1.78 cent on a
minority basis.
7.1
Minority discount
In arriving at a market value of Southern Cross on a minority basis we have applied a
discount to the valuation of Southern Cross on a control basis. Evidence from Australian
studies indicates that the premium for control on successful takeovers has typically been
in the range of 20% to 40% in Australia. The minority discount range implied by the
inverse of the premium for control is between 17% and 29%35. In our valuation
assessment, we have adopted a minority discount of 23% which is approximately the
midpoint of the range of the minority discount.
7.2
Impact of the Warrants Exercise
As discussed in the executive summary to this report, if Non-Associated Shareholders
approve the Proposed Exercise, TrailStone will have two options to exercise the
Warrants:
35
Minority interest discount = 1-(1/1+control premium))
74
• Full Settlement Options, whereby TrailStone will be issued 1 billion shares after the
payment of a total strike price of A$13 million.
• Net Settlement Option which allows for a cashless exercise of the Warrants. Under
this scenario, the number of shares to be issued to TrailStone can only be determined
at the time of exercise and it will depend on SXG’s trading prices at the point in time.
In our valuation assessment of SXG after the Proposed Exercise, we have had regard to
the Full Settlement Option due to the following:
• SXG is seeking Non-Associated Shareholders’ approval for the issue of up to 1 billion
shares to TrailStone in accordance with the Full Settlement Option.
• It is not possible at this point in time to calculate the number of shares to be issued to
TrailStone under the Net Settlement Option.
In assessing the fair market value of Southern Cross after the Proposed Transaction, we
have allowed for the funds of A$13 million that would be received from TrailStone at the
time of exercise of the Warrants, however, we have also left in our valuation assessment
the time value of the Warrants assessed at approximately A$9 million (mid-point) before
the Proposed Exercise due to the following:
• Given that SXG does not pay any dividend and it is not expected to do so in the
foreseeable future, it is unlikely that TrailStone will exercise the Warrants right away.
• Any rationale investors will try to maximise the time value of the Warrants and
accordingly exercise the Warrants towards the maturity date.
• If the Warrants are exercised right away, the time value of the Warrants, assessed at
A$9 million (mid-point) before the Proposed Conversion, will be foregone by
TrailStone and passed/shared with the SXG Shareholders as a whole.
• TrailStone can realise the time value of the Warrants or a large component of it by
selling the Warrants to a number of investors.
• Our valuation approach is conservative and provides an indication to the NonAssociated Shareholders of the maximum level of dilution.
• The key reason why TrailStone may decide to exercise the Warrants immediately would
be to ensure a greater control over the affairs of the Company as its shareholding will
increase from 7.58% to approximately 47.42%. However, we note the following:
− TrailStone is entitled to appoint a board member if it holds more than 10% of the
issued capital of the Company. Accordingly, it will be sufficient to exercise a small
component of the Warrants to be entitled to this right.
− TrailStone has provided the Company with A$60 million funding facilities and
accordingly it should already be in a position to have a strong influence over the
75
operations of the Company going forward given it has a first and second ranking
securities over all assets and undertakings of Southern Cross.
Base on the above discussion, we are of the opinion that our valuation assumption in
relation to the Warrants is reasonable.
7.3
Number of shares on issue
The number of shares on issue before the Proposed Exercise has been increased by 1
billion to take into account the exercise of the Warrants.
76
8
8.1
Source of information, disclaimer and consents
Sources of information
In preparing this report, Grant Thornton Corporate Finance has used various sources of
information, including:
• Draft Notice of Meeting
• Technical expert report by AMC and Grays
• TrailStone Funding Agreements
• Financial Model provided by Southern Cross Management for the Mt Boppy Project
and the Marda Project
• Discussion with Southern Cross Management and technical experts
• Capital IQ
• ASX announcements
• Southern Cross’ website
• Other documents customary for this type of report
8.2
Qualifications and independence
Grant Thornton Corporate Finance Pty Ltd holds Australian Financial Service Licence
number 247140 under the Corporations Act and its authorised representatives are
qualified to provide this report.
Grant Thornton Corporate Finance provides a full range of corporate finance services
and has advised on numerous takeovers, corporate valuations, acquisitions, and
restructures. Prior to accepting this engagement, Grant Thornton Corporate Finance
considered its independence with respect to Southern Cross and all other parties involved
in the Proposed Exercise with reference to the ASIC Regulatory Guide 112
“Independence of experts” and APES 110 “Code of Ethics for Professional
Accountants” issued by the Accounting Professional and Ethical Standard Board. We
have concluded that there are no conflicts of interest with respect to Southern Cross, its
shareholders and all other parties involved in the Proposed Exercise.
Grant Thornton Corporate Finance and its related entities do not have at the date of this
report, and have not had within the previous two years, any shareholding in or other
relationship with Southern Cross or its associated entities that could reasonably be
regarded as capable of affecting its ability to provide an unbiased opinion in relation to
the Proposed Exercise.
77
Grant Thornton Corporate Finance has no involvement with, or interest in the outcome
of the Proposed Exercise, other than the preparation of this report.
Grant Thornton Corporate Finance will receive a fee based on commercial rates for the
preparation of this report. This fee is not contingent on the outcome of the Proposed
Exercise. Grant Thornton Corporate Finance’s out of pocket expenses in relation to the
preparation of the report will be reimbursed. Grant Thornton Corporate Finance will
receive no other benefit for the preparation of this report.
8.3
Limitations and reliance on information
This report and opinion is based on economic, market and other conditions prevailing at
the date of this report. Such conditions can change significantly over relatively short
periods of time.
Grant Thornton Corporate Finance has prepared this report on the basis of financial and
other information provided by Southern Cross and publicly available information. Grant
Thornton Corporate Finance has considered and relied upon this information. Grant
Thornton Corporate Finance has no reason to believe that any information supplied was
false or that any material information has been withheld. Grant Thornton Corporate
Finance has evaluated the information provided by Southern Cross through inquiry,
analysis and review, and nothing has come to our attention to indicate the information
provided was materially misstated or would not afford reasonable grounds upon which to
base our report. Nothing in this report should be taken to imply that Grant Thornton
Corporate Finance has audited any information supplied to us, or has in any way carried
out an audit on the books of accounts or other records of Southern Cross.
This report has been prepared to assist the directors of Southern Cross in advising the
Southern Cross Shareholders in relation to the Proposed Exercise. This report should not
be used for any other purpose. In particular, it is not intended that this report should be
used for any purpose other than as an expression of Grant Thornton Corporate Finance’s
opinion as to whether the Proposed Exercise is fair and reasonable to the Southern Cross
Shareholders.
Southern Cross has indemnified Grant Thornton Corporate Finance, its affiliated
companies and their respective officers and employees, who may be involved in or in any
way associated with the performance of services contemplated by our engagement letter,
against any and all losses, claims, damages and liabilities arising out of or related to the
performance of those services whether by reason of their negligence or otherwise,
excepting gross negligence and wilful misconduct, and which arise from reliance on
information provided by Southern Cross, which Southern Cross knew or should have
known to be false and/or reliance on information, which was material information
Southern Cross had in its possession and which Southern Cross knew or should have
known to be material and which Southern Cross did not provide to Grant Thornton
Corporate Finance. Southern Cross will reimburse any indemnified party for all expenses
(including without limitation, legal expenses) on a full indemnity basis as they are
incurred.
78
8.4
Consents
Grant Thornton Corporate Finance consents to the issuing of this report in the form and
context in which it is included in the Notice of Meeting and Explanatory Memorandum
to be sent to the Southern Cross Shareholders. Neither the whole nor part of this report
nor any reference thereto may be included in or with or attached to any other document,
resolution, letter or statement without the prior written consent of Grant Thornton
Corporate Finance as to the form and content in which it appears.
Appendix A – Valuation methodologies
Capitalisation of future maintainable earnings
The capitalisation of future maintainable earnings multiplied by appropriate earnings
multiple is a suitable valuation method for businesses that are expected to trade profitably
into the foreseeable future. Maintainable earnings are the assessed sustainable profits that
can be derived by a company’s business and excludes any abnormal or “one off” profits or
losses.
This approach involves a review of the multiples at which shares in listed companies in the
same industry sector trade on the share market. These multiples give an indication of the
price payable by portfolio investors for the acquisition of a parcel shareholding in the
company.
Discounted future cash flows
An analysis of the net present value of forecast cash flows or DCF is a valuation technique
based on the premise that the value of the business is the present value of its future cash
flows. This technique is particularly suited to a business with a finite life. In applying this
method, the expected level of future cash flows are discounted by an appropriate discount
rate based on the weighted average cost of capital. The cost of equity capital, being a
component of the WACC, is estimated using the Capital Asset Pricing Model.
Predicting future cash flows is a complex exercise requiring assumptions as to the future
direction of the company, growth rates, operating and capital expenditure and numerous
other factors. An application of this method generally requires cash flow forecasts for a
minimum of five years.
Orderly realisation of assets
The amount that would be distributed to shareholders on an orderly realisation of assets is
based on the assumption that a company is liquidated with the funds realised from the sale
of its assets, after payment of all liabilities, including realisation costs and taxation charges
that arise, being distributed to shareholders.
Market value of quoted securities
Market value is the price per issued share as quoted on the ASX or other recognised
securities exchange. The share market price would, prima facie, constitute the market value
of the shares of a publicly traded company, although such market price usually reflects the
price paid for a minority holding or small parcel of shares, and does not reflect the market
value offering control to the acquirer.
80
Comparable market transactions
The comparable transactions method is the value of similar assets established through
comparative transactions to which is added the realisable value of surplus assets. The
comparable transactions method uses similar or comparative transactions to establish a
value for the current transaction.
Comparable transactions methodology involves applying multiples extracted from the
market transaction price of similar assets to the equivalent assets and earnings of the
company.
The risk attached to this valuation methodology is that in many cases, the relevant
transactions contain features that are unique to that transaction and it is often difficult to
establish sufficient detail of all the material factors that contributed to the transaction price.
81
Appendix B – Discount Rate
Introduction
The cash flows assumptions associated with the Mt Boppy and Marda Projects have been
prepared on a real, ungeared and post-tax basis. Accordingly, we have assessed a range of
real post-tax discount rates for the purpose of calculating the net present values of both
projects.
The discount rate was determined using the WACC formula. The WACC represents the
average of the rates of return required by providers of debt and equity capital to compensate
for the time value of money and the perceived risk or uncertainty of the cash flows,
weighted in proportion to the market value of the debt and equity capital provided.
However, we note that the selection of an appropriate discount rate is ultimately a matter of
professional judgment.
Under a classical tax system, the nominal WACC is calculated as follows:
WACC = R d ×
D
E
× (1 − t ) + R e ×
D+E
D+E
Where:
•
•
•
•
•
Re = the required rate of return on equity capital;
E = the market value of equity capital;
D = the market value of debt capital;
Rd = the required rate of return on debt capital; and
t = the statutory corporate tax rate.
WACC Inputs
Required rate of return on equity capital
We have used the Capital Asset Pricing Model (“CAPM”), which is commonly used by
practitioners, to calculate the required return on equity capital.
The CAPM assumes that an investor holds a large portfolio comprising risk-free and risky
investments. The total risk of an investment comprises systematic risk and unsystematic
risk. Systematic risk is the variability in an investment’s expected return that relates to
general movements in capital markets (such as the share market) while unsystematic risk is
the variability that relates to matters that are unsystematic to the investment being valued.
The CAPM assumes that unsystematic risk can be avoided by holding investments as part of
a large and well-diversified portfolio and that the investor will only require a rate of return
sufficient to compensate for the additional, non-diversifiable systematic risk that the
investment brings to the portfolio. Diversification cannot eliminate the systematic risk due
to economy-wide factors that are assumed to affect all securities in a similar fashion.
Accordingly, whilst investors can eliminate unsystematic risk by diversifying their portfolio,
82
they will seek to be compensated for the non-diversifiable systematic risk by way of a risk
premium on the expected return. The extent of this compensation depends on the extent to
which the company’s returns are correlated with the market as a whole. The greater the
systematic risk faced by investors, the larger the required return on capital will be demanded
by investors.
The systematic risk is measured by the investment’s beta. The beta is a measure of the covariance of the expected returns of the investment with the expected returns on a
hypothetical portfolio comprising all investments in the market - it is a measure of the
investment’s relative risk.
A risk-free investment has a beta of zero and the market portfolio has a beta of one. The
greater the systematic risk of an investment the higher the beta of the investment.
The CAPM assumes that the return required by an investor in respect of an investment will
be a combination of the risk-free rate of return and a premium for systematic risk, which is
measured by multiplying the beta of the investment by the return earned on the market
portfolio in excess of the risk-free rate.
Under the CAPM, the required nominal rate of return on equity (Re) is estimated as follows:
R e = R f + βe (R m − R f )
Where:
• Rf = risk free rate
• βe = expected equity beta of the investment
• (Rm – Rf) = market risk premium
Risk free rate
In the absence of an official risk free rate, the yield on government bonds (in an appropriate
jurisdiction) is commonly used as a proxy. We have observed the yield on the 10-year
Australian Commonwealth Government Bond over several intervals from a period of 5
trading days to 10 trading years as set out in the table below:
Australia Gov ernment Debt - 10 Year
as at
28 September 2014
Range
Daily av erage
Prev ious 5 trading day s
3.14%
-
3.37%
3.27%
3.14%
-
3.37%
3.31%
3.14%
-
3.37%
3.29%
3.14%
-
4.02%
3.57%
3.14%
-
4.04%
3.66%
Prev ious 1 y ear trading
3.14%
-
4.26%
3.81%
Prev ious 2 y ears trading
2.84%
-
4.26%
3.59%
2.71%
-
4.58%
3.62%
2.71%
-
5.88%
4.47%
2.71%
-
6.79%
5.07%
Source: Capital IQ
83
Given the unprecedented, historically low Australian Commonwealth Government Bond
yields as a result of the volatility in global equity markets and debt crisis in Europe, we
believe utilising a long-term average yield is reasonable given the current economic climate.
Accordingly, we have adopted a risk free rate of 4.5%, which is consistent with our view of
an appropriate long-term risk free rate estimate.
Market risk premium
The market risk premium represents the additional return an investor expects to receive to
compensate for additional risk associated with investing in equities as opposed to assets on
which a risk free rate of return is earned.
Empirical studies of the historical risk premium in Australia over periods of up to 100 years
suggest the premium is between 6% and 8%. For the purpose of the WACC assessment,
Grant Thornton Corporate Finance has adopted a market risk premium of 6%. This is
consistent with our assumption in relation to the long term risk free rate.
Beta
The beta measures the expected relative risk of the equity in a company. The choice of the
beta requires judgement and necessarily involves subjective assessment as it is subject to
measurement issues and a high degree of variation.
An equity beta includes the effect of gearing on equity returns and reflects the riskiness of
returns to equity holders. However, an asset beta excludes the impact of gearing and reflects
the riskiness of returns on the asset, rather than returns to equity holders. Asset betas can be
compared across asset classes independent of the impact of the financial structure adopted
by the owners of the business.
Equity betas are typically calculated from historical data. These are then used as a proxy for
the future which assumes that the relative risk of the past will continue into the future.
Therefore, there is no right equity beta and it is important not to simply apply historical
equity betas when calculating the cost of equity.
For the purpose of this report, we have had regard to the observed betas (equity betas) of
pre-production companies engaged in gold exploration and development activities in
Australia.
Summarised below are the equity betas of the comparable companies based on five years of
monthly observations.
84
Company
Country
Beta analy sis
Market Cap Gold production
Equity
$'million commencement
Beta¹
R squared
Gearing
Ungeared
Regeared
Ratio¹
Beta
Beta
Group 1 - Australian gold/ silver explorers/ developers
RNI NL
Australia
51
na
1.83
0.10
17.0%
1.64
1.76
Mutiny Gold Limited
Australia
23
na
1.37
0.15
18.7%
1.21
1.31
Matsa Resources Limited
Australia
32
na
0.96
0.08
0.0%
0.96
1.04
Phoenix Gold Limited
Australia
37
na
0.94
0.29
0.0%
0.94
1.01
GBM Gold Ltd.
Australia
5
na
(0.31)
0.14
16.7%
NM
NM
Gascoy ne Resources Limited
Australia
24
na
0.78
0.07
0.0%
0.78
0.84
Norton Gold Fields Limited
Australia
121
Sep-05
1.10
0.40
41.6%
0.85
0.92
RAND Mining Ltd.
Australia
35
Jun-06
1.49
0.09
3.4%
1.46
1.57
Silv er Lake Resources Limited
Australia
186
Jun-10
0.57
0.62
1.7%
ST Barbara Ltd.
Australia
66
Jun-00
(0.27)
0.65
105.5%
Group 2 - Australian gold/ silver producers
0.56
0.60
NM
NM
1.41
Tribune Resources Limited
Australia
151
Jun-06
1.34
0.38
4.1%
1.30
Unity Mining Limited
Australia
10
Jun-06
0.17
0.32
0.0%
0.17
0.19
Doray Minerals Limited
Australia
82
Aug-13
3.59
0.17
5.8%
3.45
3.72
Average (all)
1.19
0.28
14%
1.36
1.46
Median (all)
1.34
0.29
3%
1.30
1.41
Average (excluded unreliable betas)2
1.10
0.37
22%
1.21
1.31
Median (excluded unreliable betas)2
1.02
0.35
5%
0.94
1.01
Note (1): Equity betas are calculated using data provided by CapitalIQ. The betas are based on a five-year period with monthly observations and
have been degeared based on the average gearing ratio over five years.
Note (2): We have included Norton Gold Fields, RAND Mining, St Barbara, Tribune Resources, Unity Mining compared to the comparable
companies list in our resource multiple cross check as these companies are mature gold producers. Hence, although they would give a reasonable
benchmark for the beta analysis, mature gold producers would distort the resource multiple calculation.
The asset betas of the selected company are calculated by adjusting the equity betas for the
effect of gearing to obtain an estimate of the business risk of the comparables, a process
commonly referred as degearing. We have then recalculated the equity beta based on an
assumed ‘optimal’ capital structure deemed appropriate for the business (regearing). This is a
subjective exercise, which carries a significant possibility of estimation error.
We used the following formula to undertake the degearing and regearing exercise:


β e = β a 1 +
D

× (1 − t )
E

Where:
• βe = Equity beta
• βa = Asset beta
• t = corporate tax rate
The betas are de-geared using the average gearing36 level over the period in which the betas
were observed and then re-geared using a debt ratio between 10% and 20%. The gearing
ratio has been determined after considering the gearing levels of Southern Cross and the
comparable companies.
We note that in our assessment of the discount rate, we have had regard to the target capital
structure for SXG’s assets in accordance with the fair market value principle. The actual
capital structure of SXG going forward could be more weighted towards debt than
comparable companies if the TrailStone Funding is drawn down in full. The financial
36
Gearing ratio represents Net debt/Market capitalisation
85
circumstances of the Company and this additional risk have not been taken into account in
our assessment of the discount rate.
It should be noted that the above betas are drawn from the actual and observed historic
relationship between risk and returns. From these actual results, the expected relationship is
estimated generally on the basis of extrapolating past results. Despite the arbitrary nature of
the calculations it is important to assess their commercial reasonableness. That is, to assess
how closely the observed relationship is likely to deviate from the expected relationship.
Consequently, while measured equity betas of the listed comparable companies provide
useful benchmarks against which the equity beta used in estimating the cost of equity for the
pre-development assets, the selection of an unsystematic equity beta requires a level of
judgement.
For the purposes of this valuation, we have selected a beta range of between 1.30 and 1.40
to calculate the required rate of return on equity capital for the Mt Boppy Project and the
Marda Project.
Specific risk premium
Specific risk premium represents the additional return an investor expects to receive to
compensate for country, size and project related risks not reflected in the beta of the
observed comparable companies.
In assessing the appropriate specific risk premium to be applied, we have considered the
following:
• Uncertainty associated with the early stage nature of this asset;
• Risk associated with successfully converting mineral resources to ore reserves; and
• Economic viability of extending the life of the mine.
• Higher technical and metallurgical recovery risk associated with the Mt Boppy Project
due to pit mining of ore body at a greater depth compared to the Marda Project. In
addition, the level of study for the Mt Boppy Project is not as advanced as the Marda
Project.
Based on the above, we have adopted a specific risk premium of 2.0% for both of the Mt
Boppy Project and the Marda Project. We note that the selection of the specific risk
premium involves a certain level of professional judgement and as a result, the total specific
risk premium is not fully quantifiable with analytical data.
Cost of debt
For the purpose of estimating the cost of debt, Grant Thornton Corporate Finance has
considered the following.
86
• The weighted average interest rate on credit outstanding for small businesses over the last
12 month as published by the Reserve Bank of Australia.
• Cost of debt for comparable companies.
• The TrailStone funding arrangement.
Based on the above, Grant Thornton Corporate Finance has adopted a cost of debt of 9%.
We note that Southern Cross have had a significant balance of tax losses and would be likely
to have any material tax liabilities during the life of mines for the Mt Boppy Project and the
Marda Project. According, we have adopted the same cost of debt after tax of 9%.
Capital structure
Grant Thornton Corporate Finance has considered the gearing ratio which a hypothetical
purchaser of the business would adopt in order to generate a balanced return given the
inherent risks associated with debt financing. Factors which a hypothetical purchaser may
consider include the shareholders’ return after interest payments, and the business’ ability to
raise external debt.
The appropriate level of gearing that is utilised in determining WACC for a particular
company should be the “target” gearing ratio, rather than the actual level of gearing, which
may fluctuate over the life of a company. The target or optimal gearing level can therefore
be derived based on the trade-off theory which stipulates that the target level of gearing for
a project is one at which the present value of the tax benefits from the deductibility of
interest are offset by present value of costs of financial distress. In practice, the target level
of gearing is evaluated based on the quality and variability of cash flows. These are
determined by:
• the quality and life cycle of a company;
• working capital;
• level of capital expenditure; and
• the risk profile of the assets.
In determining the appropriate capital structure, we have had regard to the current capital
structure of the comparable companies.
For the purpose of the valuation, Grant Thornton Corporate Finance has adopted average
debt-to-asset ratio of comparable companies in a range between of 10% debt and 20% of
debt.
87
WACC calculation
Nominal WACC
The nominal discount rate for the Mt Boppy Project and Marda Project, determined using
the WACC formula, are set out below.
Mt Boppy Project
WACC calculation
Marda Project
Low
High
Low
High
Risk free rate
4.5%
4.5%
4.5%
4.5%
Beta
1.30
1.40
1.30
1.40
Market risk premium
6.0%
6.0%
6.0%
6.0%
Cost of equity
Specific risk premium
2.0%
2.0%
2.0%
2.0%
Cost of equity
14.3%
14.9%
14.3%
14.9%
9.0%
9.0%
9.0%
9.0%
0%
0%
0%
0%
9.0%
9.0%
9.0%
9.0%
Proportion of debt
20%
10%
20%
10%
Proportion of equity
80%
90%
80%
90%
100%
100%
100%
100%
13.2%
14.3%
13.2%
14.3%
Cost of debt
Cost of debt (pre tax )
Tax
Cost of debt (post tax)
Capital structure
WACC (post tax)
Source: Capital IQ and calculations
Real WACC
The forecast cash flows of the Mt Boppy Project and the Marda Project have been prepared
on real terms. We have determined the WACC on real terms by ‘deflating’ the nominal
WACCs determined above by the long-term Australian inflation expectation of 2.5%
utilising the Fisher equation, as follows:
(1+rreal) = (1+rnominal) / (1+i)
Where:
• rreal = real WACC
• I = long term forecast rate of inflation
• rnominal = nominal WACC
The real discount rate adopted for Mt Boppy Project and the Marda Project are summarised
below:
Mt Boppy Project
Marda Project
WACC calculation in real terms
Low
High
Low
High
Nominal WACC
13.2%
14.3%
13.2%
14.3%
AU & US blended long term inflation
2.3%
2.3%
2.3%
2.3%
WACC (post tax) (real)
10.7%
11.8%
10.7%
11.8%
Mid-point
Source: GTCF Calculations
11.2%
11.2%
88
Appendix C - Description of comparable companies
Company
Description
Australian gold explorers and developers
RNI NL
Mutiny Gold Limited
Matsa Resources
Limited
Phoenix Gold Limited
GBM Gold Ltd
Gascoyne Resources
Limited
RNI NL explores for, evaluates, and develops mineral tenements in Western Australia. The company
explores for copper and gold deposits. It holds a 100% interest in the Grosvenor gold project that covers an
area of approximately 1,800 square kilometers in the Bryah Basin; and owns a 51% interest in the
Horseshoe Lights East project located in Bryah Basin.
Mutiny Gold Ltd explores for, evaluates, and develops mineral properties in Western Australia. The
company primarily explores for gold, copper, silver, and nickel deposits. It holds interests in Gullewa gold
copper project covering an area of 530 square kilometers located in the South Murchison region; the White
Well gold project located in the Tuckabianna region; and the Widgie South nickel project located in the
Widgiemooltha region of Western Australia.
Matsa Resources Limited, together with its subsidiaries, explores for and develops mineral properties in
Australia and Thailand. It primarily explores for gold and other base metals, including nickel, copper, and
iron ore.
Phoenix Gold Ltd explores for, develops, and produces gold properties in Australia. It primarily owns a 100%
interest in the Castle Hill gold project located northwest of Kalgoorlie. As of June 30, 2014, the company had
an interest in 323 tenements covering an area of 550 square kilometers located in the Eastern Goldfields of
Western Australia.
GBM Gold Limited is engaged in the exploration and production of gold properties. It holds interests in
various properties located in Central Victoria, Australia. The company was formerly known as Greater
Bendigo Gold Mines Limited and changed its name to GBM Gold Limited in June 2011.
Gascoyne Resources Limited engages in the exploration and development of gold and base metal projects
in Australia. The company holds exploration licenses and applications totaling approximately 4,500 square
kilometers in the Gascoyne and Murchison regions of Western Australia. It principally owns 100% interest in
the Glenburgh gold project that covers a tenement area of approximately 2,000 square kilometers located in
the Southern Gascoyne region of Western Australia.
Australian gold/silver producers
Norton Gold Fields Limited explores for, mines, processes, produces, and sells gold in Australia. It also
explores for silver. The company primarily owns and operates a 100% interest in the Paddington mining and
exploration tenement package that covers an area of 718 km2 located in the Kalgoorlie Goldfields. In
addition, it is involved in the evaluation, development, and construction and eventual operation of a gold
tailings recovery and processing operation in Queensland.
Rand Mining Limited explores, develops, and produces mineral resources. The company primarily explores
RAND Mining Ltd.
for gold and silver in Australia. It also has an option to acquire Tapeta iron ore project covering an area of
599.82 square kilometers located in Northern-Central Liberia, West Africa.
Silver Lake Resources Limited operates as a gold producing and exploration company, as well as explores
Silver Lake Resources
and evaluates copper and silver properties in Australia. It holds interests in the Mount Monger goldfield that
Limited
covers an area of 1,728 km2 located to the southeast of Kalgoorlie; the Murchison goldfield located between
Mount Magnet and Cue areas; and the Great Southern Project that covers an area of 2,500 km 2 located
near the town of Ravensthorpe (WA).
St Barbara Limited explores, develops, produces, and sells gold. Its properties include the Leonora
ST Barbara Ltd.
operations, including the Gwalia and King of the Hills mines located in Western Australia; the Simberi gold
mine in Papua New Guinea; and the Gold Ridge mine in the Solomon Islands.
Tribune Resources
Tribune Resources Limited explores, develops, and produces mineral properties primarily in Australia. The
Limited
company explores for gold and silver deposits. It focuses on the East Kundana joint venture tenements
located in Australia. The company is based in South Perth, Australia.
Unity Mining Limited, together with its subsidiaries, is engaged in the exploration, development, and
Unity Mining Limited
production of gold and silver in Australia. The company operates through Henty Gold Mine and Dargues
Gold Mine segments. It primarily owns and operates the Henty Gold Mine on the West Coast of Tasmania;
and develops the Dargues Gold Mine Project in New South Wales.
Doray Minerals Limited acquires, explores for, and develops gold properties in Australia. The company
holds 100% interests in the Andy Well gold project located to the north of Meekatharra in the Murchison
Doray Minerals Limited
region of Western Australia; Murchison goldfields projects covering approximately 1,500 square kilometers
in Western Australia; and a portfolio of South Australian projects located within the Central Gawler Gold
Province in South Australia.
Norton Gold Fields
Limited
89
Appendix D - Glossary
A$ or $
Australian dollar
AMC
AMC Consultants Pty Ltd
AMC Report
AMC’s report
APES 110
“Code of Ethics for Professional Accountants” issued by the Accounting Professional and Ethical
Standard Board
ASIC
Australian Securities and Investments Commission
ASX
Australian Securities Exchange
ATO
Australian Taxation Office
Boppy Model (The)
Financial Model provided by Southern Cross Management in relation to the Mt Boppy Project
CAPM
Capital Asset Pricing Model
CCR
Cobar Consolidated Ltd
CIL
Carbon-In-Leach
(The) Company
Contract Quantity of Gold
Southern Cross’ sale of 33,000 ounces of gold to TrailStone
Copper Bore Project
Base metal project (copper project) in Western Australia
Corporations Act
Corporations Act 2001
CPI
Consumer Price Index
Credit Facility
TrailStone’ s credit loan facility to Southern Cross with a limit of up to A$35 million
DCF
Discounted cash flow
EFTs
Exchange Traded Funds
European Debt Crisis
European sovereign debt levels
FS
Feasibility Study
FSG
The Financial Services Guide
FY20xx
Financial year 20xx (ended 31 June 20xx)
GCR
Golden Cross Resources
GFC
Global Financial Crisis
Gold Loan Facility
TrailStone’ s gold funding facility to Southern Cross with a limit of up to A$25 million
Gold Premium
Gold companies have historically traded at a premium to their net asset value
Gold Projects
The Marda Project and the Mt Boppy Project
Grant Thornton Corporate Finance or GTCF
Grays
Grays Asset Services
Grays Report
Grays’ report
HY20xx
Half-year 20xx (ended 31 December 20xx)
JORC
Joint Ore Reserves Committee
JV
Joint Venture
Ktpa
Thousand tonnes per annum
Manuka Project
Silver project located in New South Wales
Marda Model (The)
Financial Model provided by Southern Cross Management in relation to the Marda Project
Marda Project
Gold project located in Western Australia
90
Mt Boppy Project
Gold project located in New South Wales
NAV
Net Asset Value
Non-Associated Shareholders
Southern Cross’ Shareholders who are not associated with TrailStone
Placement
TrailStone’ s 100 million share subscription to Southern Cross at 1 cent per share on 17 October
2014
Polymetals
Polymetals Mining Ltd
Primary Demand
Demand for fabrication of jewellery and industrial equipment
Proposed Exercise
1 billion Warrants issued to TrailStone would be exercised into 1 billion Southern Cross’ ordinary
shares anytime up to the Maturity date (31 December 2019) with a strike price of 1.3 cents per
Warrant
Official Sector
Central Banks and Official Sector institutions
RG 74
ASIC Regulatory Guide 74 “Acquisitions agreed to by shareholders”
RG 111
ASIC Regulatory Guide 111 “Content of expert reports”
RG 112
ASIC Regulatory Guide 112 “Independence of Expert’s Reports”
RMB
RMB Australia Holdings Ltd
Sandstone Project
Gold project located 200km north of the Marda Project in Western Australia
SOA
Scheme of Arrangement
Southern Cross
Southern Cross Management
Southern Cross’ management
Southern Cross’ Nickel Project
Nickel project located 190km south of the Marda Project
Southern Cross’ Options
365,245,829 unlisted SXG options
Southern Cross’ Shares
1,319,550,815 fully paid listed SXG ordinary shares
SXG
TrailStone
TrailStone UK Limited
TrailStone Funding
TrailStone recently funded Southern Cross’ projects with facilities up to A$60 million
VWAP
Volume Weighted Average Price
WACC
Weighted Average Cost of Capital
Warrants
The number of warrants that Southern Cross need to issue as partial consideration for TrailStone
entering into the Credit Facility
Western Areas
Western Areas NL
Western Areas JV Agreement
Joint Venture Agreement between Southern Cross and Western Areas NL in August 2011
91
Appendix E – AMC Report
ABN 58 008 129 164
Ground Floor, 9 Havelock Street
WEST PERTH WA 6005
AUSTRALIA
T
F
E
W
+61 8 6330 1100
+61 8 6330 1199
[email protected]
amcconsultants.com
Report
Independent Technical Specialist's Report
AMC Project 214064
13 October 2014
214064
13 October 2014
The Directors
Level 17, 383 Kent Street
SYDNEY NSW 2000
Dear Sirs
SOUTHERN CROSS GOLDFIELDS
INDEPENDENT TECHNICAL SPECIALIST'S REPORT
Southern Cross Goldfields Limited (Southern Cross) has appointed Grant Thornton Corporate Finance Pty
Ltd (Grant Thornton or the Expert) to prepare an independent expert report (IER) in relation to the proposed
exercise of warrants and issue of shares to Trailstone UK Limited to be approved at a meeting of
shareholders (Proposed Transaction).
Southern Cross has appointed AMC Consultants Pty Ltd (AMC) to provide an independent technical
specialist's report (ITSR), under instruction from Grant Thornton on the mineral assets of Southern Cross
(Mineral Assets).
In 2013, Southern Cross merged with Polymetals Mining Limited (Polymetals) and therefore acquired the Mt
Boppy assets in NSW. In September 2014 Southern Cross purchased the Manuka Silver Lead project
(previously known as Wonawinta).
In relation to the ITSR, Grant Thornton has instructed AMC to undertake a technical review and prepare a
technical valuation of the exploration assets and, where appropriate, to develop production cases for the
mineral assets of Southern Cross.
The scope of the ITSR as advised by Grant Thornton to AMC includes:
x
A description of the mineral assets.
x
Examination of geology, Mineral Resources and Ore Reserves, development plans, mining aspects,
processing methods, production schedules, capital costs and operating costs, and exploration
potential for each operation or development project.
x
Valuation of the exploration properties to the extent they are not covered by the life-of-mine production
cases for the operations and development projects.
AMC has provided production cases for the Marda and Mt Boppy assets including capital and operating cost
projections, with pre-tax revenues to Grant Thornton to allow Grant Thornton to calculate net present values
for the respective projects. AMC believes the production cases are based on reasonable grounds.
AMC has provided exploration values for the Manuka project recently acquired by Southern Cross. Due to
the unavailability of a detailed production scenario and uncertainty around key information AMC and the
Expert agreed that an exploration valuation approach would be appropriate for Manuka.
Exploration values were also estimated for the exploration properties adjacent to the Marda and Mt Boppy
projects that are not valued in AMC’s production cases. AMC has not valued the Sandstone assets of
Southern Cross as we understand this property is being divested.
In general terms, AMC has modelled two production cases for each operation and development project.
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Case 1 is typically based on Ore Reserve (2004 JORC Code1 defined) estimates and that part of other
Mineral Resources (JORC Code defined) and exploration potential for which AMC judges there is a high
confidence of future conversion to Ore Reserves.
Case 2 typically adds mining and processing tonnages to those of Case 1 which AMC judges to represent
potential further additions to Ore Reserves from existing Mineral Resources and from readily demonstrable
exploration potential, but to a lesser confidence level than in Case 1. Nevertheless, AMC believes that the
Case 2 production cases are also based on reasonable grounds.
The production cases developed by AMC include capital and operating cost schedules based on information
provided Southern Cross. Those costs do not include off-site costs such as head office or corporate costs,
which are to be considered by Grant Thornton.
The Mt Boppy Production Case 1 consists of the following:
x
The mining and processing of gold ore based on the life-of-mine (LOM) plan provided in the feasibility
study and financial model.
x
610 kt of gold ore at a head grade of 3.88 g/t gold is mined and processed over a 31 month period.
110 kt of low grade ore also processed
x
A total of 61 koz of gold are produced.
Case 2 includes the treatment of additional Mineral Resources.
The Marda Production Case 1 consists of the following:
x
The mine and processing schedule are based on the 3.5 year LOM plan provided in the Feasibility
Study with a limited amount of ore added to end of the mine life.
x
Total ore processed is 2.4 Mt at a head grade of 2.18 g/t.
x
Total gold production of 160 koz of gold.
x
Initial capital expenditure of $23.6M for plant and infrastructure plus $9.3M for the establishment of
haul roads based on the feasibility study.
The Marda Production Case 2 includes the treatment of additional Mineral Resources.
AMC has provided Grant Thornton with valuations of the exploration assets of Southern Cross that are
located remote from their development projects, or have not been considered in production cases.
For exploration assets, it is not possible to project cash flows and/or production estimates with sufficient
confidence to rely on discounted cash flow methodology. AMC has therefore considered other methods to
value the exploration assets. These methods are commonly used in Australia to value exploration projects
and are discussed in this report.
The VALMIN Code2 defines a Technical Value as an assessment of future net economic benefit. And a Fair
Market Value is defined as one which is based on an adjusted Technical Value, a premium or discount
relating to market, strategic or other considerations. AMC's values of exploration assets are Fair Market
Values. AMC considered the current market conditions in determining the exploration values.
In summary, the range of the exploration valuations prepared by AMC is shown below:
1
2
Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code 2004 Edition,
Effective December 2004, Prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy,
Australian Institute of Geoscientists and Minerals Council of Australia (JORC).
Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports.
The VALMIN Code 2005 Edition, Prepared by the VALMIN Committee, a joint committee of the Australasian Institute of Mining and
Metallurgy, the Australian Institute of Geoscientists and the Mineral Industry Consultants Association with the participation of the
Australian Securities and Investment Commission, the Australian Stock Exchange Limited, the Minerals Council of Australia, the
Petroleum Exploration Society of Australia, the Securities Association of Australia and representatives from the Australian finance
sector
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214064
Table I shows the exploration values for Southern Cross.
Table I
Exploration Values
Location
Mt Boppy
Low
($M)
High
($M)
0.2
0.2
Marda
0.7
1.3
Manuka
4.3
16.7
Total
5.2
18.2
AMC's combined value for Southern Cross exploration projects is $5.2M to $18.2M.
AMC has completed its engagement as a Specialist in accordance with the VALMIN Code to the extent that
the code is relevant to AMC's engagement.
AMC's use, in this report, of the terms Mineral Resources and Ore Reserves is in accordance with the JORC
Code.
Principal sources of information considered by AMC in the preparation of this report are listed in Appendix A.
AMC has previously visited the Marda, Mt Boppy and Manuka sites. AMC has reviewed material technical
reports and management information and held discussions with management staff of Southern Cross. AMC
has not audited the information provided to it, but has aimed to satisfy itself that all of the information has
been prepared in accordance with proper industry standards and is based on data that AMC considers to be
of acceptable quality and reliability. Where AMC has not been so satisfied, AMC has included comment in
this report and made modifications to the estimates and forecasts provided by AMC to Grant Thornton.
AMC presents the ITSR which follows in the form of:
x
Mineral Assets.
x
Valuation Methods and Macroeconomic Factors.
x
Company assets.
x
Qualifications.
All monetary figures in this report are expressed in 2013 Australian Dollars ($) or United States Dollars (US$)
unless otherwise noted. Costs are presented on a cash cost basis unless otherwise specified.
For definitions of abbreviations used in this report, refer to Appendix B, and for contributors to this report,
refer to Appendix C.
Yours faithfully
The signatory has given permission
to use their signature in this AMC
document
D Varcoe
MAusIMM
Principal Mining Engineer
amcconsultants.com
document
D Lee
FAusIMM
Underground Manager, Perth/Principal Mining Engineer
iii
214064
Contents
1
Mineral assets ..........................................................................................................................................1
2
Valuation methods and macroeconomic factors ...................................................................................... 3
1.1 Valuation methods ......................................................................................................................... 3
1.1.1
Operations and development projects ....................................................................... 3
1.2 Exploration ..................................................................................................................................... 3
3
Mt Boppy gold project............................................................................................................................... 5
3.1.1
Introduction ................................................................................................................ 5
3.1.2
Geology ..................................................................................................................... 6
3.1.2.1 Mineral Resources ..................................................................................... 7
3.1.2.2 Exploration ................................................................................................. 8
3.1.3
Mining ........................................................................................................................9
3.1.4
Ore Reserves............................................................................................................. 9
3.1.5
Processing operations ............................................................................................. 10
3.1.5.1 Proposed flowsheet..................................................................................10
3.2 Equipment selection and condition .............................................................................................. 12
3.2.1
Crushing .................................................................................................................. 12
3.2.2
Grinding ................................................................................................................... 12
3.2.3
Leaching and adsorption ......................................................................................... 12
3.2.4
Elution, carbon regeneration and gold room ...........................................................12
3.2.5
Tailings disposal ...................................................................................................... 12
3.2.6
Water supply ............................................................................................................ 13
3.2.7
Power supply ........................................................................................................... 14
3.3 Projected plant performance ........................................................................................................ 14
3.4 Processing plant cost estimates .................................................................................................. 14
3.4.1
Operating costs........................................................................................................ 14
3.4.2
Capital costs ............................................................................................................ 14
3.4.2.1 Worker's camps........................................................................................ 15
3.4.2.2 Water supply ............................................................................................ 15
3.4.3
Environment............................................................................................................. 15
3.4.3.1 Overview .................................................................................................. 15
3.4.3.2 Individual environmental issues ............................................................... 16
3.4.4
Project implementation ............................................................................................ 17
3.4.5
AMC production cases ............................................................................................ 18
3.4.6
Exploration valuation ............................................................................................... 18
3.4.7
Opportunities and risks ............................................................................................ 19
4
Marda gold project .................................................................................................................................. 20
4.1.1
Introduction .............................................................................................................. 20
4.1.2
Geology ................................................................................................................... 21
4.1.2.1 Northern deposits ..................................................................................... 21
4.1.2.2 Southern deposits ....................................................................................22
4.1.3
Resources................................................................................................................ 22
4.1.3.1 Western Areas NL (Southern Cross 30% nickel interest, 100%
non-nickel interest) ................................................................................... 23
4.1.4
Exploration ............................................................................................................... 23
4.1.4.1 Gold .......................................................................................................... 23
4.1.4.2 Red Boomerang .......................................................................................23
4.1.4.3 Lancelot .................................................................................................... 23
4.1.4.4 White Pointer ............................................................................................ 23
4.1.4.5 Thresher ................................................................................................... 24
4.1.4.6 Copper Bore ............................................................................................. 24
4.1.4.7 Mining ....................................................................................................... 24
4.1.4.8 Ore Reserves ........................................................................................... 25
4.1.5
Metallurgy and processing....................................................................................... 25
4.1.5.1 Introduction............................................................................................... 25
4.1.5.2 Metallurgical test work..............................................................................26
4.1.5.3 Process plant............................................................................................ 27
4.1.5.4 Gold recovery ........................................................................................... 27
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4.1.6
4.1.7
4.1.8
4.1.9
4.1.10
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4.1.5.5 Plant throughput ....................................................................................... 28
4.1.5.6 Capital estimate plant and infrastructure ................................................. 28
4.1.5.7 Operating cost estimate ........................................................................... 29
Environment............................................................................................................. 29
4.1.6.1 Overview .................................................................................................. 29
4.1.6.2 Individual environmental issues ............................................................... 30
Project implementation ............................................................................................ 32
AMC Production Cases ........................................................................................... 32
Exploration valuation ............................................................................................... 33
Opportunities and risks ............................................................................................ 33
5
Manuka silver project ............................................................................................................................. 35
5.1 Geology ........................................................................................................................................ 35
5.2 Mineral Resources ....................................................................................................................... 37
5.3 Ore Reserves ............................................................................................................................... 38
5.4 Manuka silver processing plant .................................................................................................... 39
5.4.1
Recent performance ................................................................................................ 39
5.4.2
Treatment of Mt Boppy ROM ore at Manuka .......................................................... 40
5.5 Exploration ................................................................................................................................... 40
5.6 Risks and opportunities ................................................................................................................ 41
5.7 Valuation ...................................................................................................................................... 41
5.7.1
Valuation methods ................................................................................................... 41
5.7.2
Actual and comparable transactions ....................................................................... 41
5.7.3
Past exploration expenditure method ...................................................................... 42
5.7.4
Preferred value ........................................................................................................ 42
6
Qualifications ..........................................................................................................................................43
Tables
Table 1.1
Table 1.2
Table 1.3
Table 1.4
Table 1.5
Table 3.1
Table 3.2
Table 3.3
Table 3.4
Table 4.1
Table 4.2
Table 4.3
Table 4.4
Table 4.5
Table 5.1
Table 5.2
Gold Mineral Resources ........................................................................................................... 1
Silver Mineral Resources .......................................................................................................... 2
Gold Ore Reserves – Mt Boppy ................................................................................................ 2
Gold Ore Reserves – Marda .....................................................................................................2
Silver Ore Reserves – Manuka .................................................................................................2
Mt Boppy Mineral Resources at 30 June 2014 (includes Mt Boppy South) ............................. 7
Ore Reserves for Mt Boppy at 30 June 2014 ......................................................................... 10
Mt Boppy CIL plant – Opex .....................................................................................................14
Mt Boppy CIL plant – Capex ...................................................................................................15
Marda Gold Project – Mineral Resources as at 30 June 2014 ............................................... 22
Marda Gold Project – Ore Reserves at 30 June 2014 ............................................................ 25
Mean comminution test parameters ....................................................................................... 26
Southern Cross capital estimate summary for plant and infrastructure .................................. 28
Marda operating cost estimate................................................................................................ 29
Manuka Mineral Resource at November 2013 and De Nardi Mineral Resource at October
2006 ........................................................................................................................................ 37
Southern Cross – Manuka exploration values ........................................................................ 42
Figures
Figure 3.1
Figure 3.2
Figure 3.3
Figure 3.4
Figure 3.5
Figure 4.1
Mt Boppy project location.......................................................................................................... 5
Canbelego exploration licence location .................................................................................... 6
Mt Boppy geological domains ...................................................................................................8
Mt Boppy proposed flowsheet................................................................................................. 11
Mt Boppy water balance ......................................................................................................... 13
Location of Marda gold project................................................................................................ 20
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Figure 5.1
Figure 5.2
Figure 5.3
Figure 5.4
Figure 5.5
214064
Manuka tenement location ......................................................................................................35
Manuka regional geology ........................................................................................................ 36
Manuka geology cross-section ............................................................................................... 37
Location of Manuka and De Nardi Mineral Resources and exploration targets ..................... 38
Manuka proposed pits............................................................................................................. 39
Appendices
Appendix A
Appendix B
Appendix C
Appendix D
Principal sources of information
Abbreviations
Report contributors
Tenements
Distribution list
1 e-copy to Mr David Kinsman, Southern Cross Goldfields Limited
1 e-copy to AMC Perth office
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214064
1 Mineral assets
Southern Cross holds the following assets:
x
The Mt Boppy Gold Mine located near Canbelego NSW. The Mt Boppy Gold Mine comprises a
Mineral Resource, open pit mine, gold treatment plant and mining and exploration licences. This
project is on care and maintenance.
x
The Marda project comprising granted mining leases, prospecting licences, exploration licences,
miscellaneous licences, and general purpose and retention leases in the Marda area to the north of
Southern Cross in WA and in the Battler and British Hill areas south of Southern Cross.
x
The Manuka (previously known as Wonawinta) silver project which was acquired in September 2014
from the administrators of Cobar Consolidated Resources Ltd (CCR), and is located approximately
85 km south of Cobar in New South Wales. Manuka comprises a Mineral Resource, an Ore Reserve,
an open pit mine, a silver–lead treatment plant and mining and exploration licences. Manuka was
placed on care and maintenance early in 2014.
x
The Sandstone gold project located near the town of Sandstone approximately 730 km north-east of
Perth in the East Murchison Mineral Field, WA. The Sandstone project consists of granted mining
leases, prospecting licences, exploration licences, miscellaneous licences and includes a gold
treatment plant.
Southern Cross has provided AMC with current information on the standing of its Western Australian and
NSW tenements.
AMC has reviewed the Preliminary Tenement Status Report, dated 22 September 2014, by GRT Lawyers
(GRT) referred to as the Wonawinta Independent Tenement Report. While the Wonawinta Independent
Tenement Report states not all the required information for a full tenement status report was available, it
states that “ML1659, is held in good standing” and “EL 6515, 7515, 7516, and EL 7345 are held in good
standing” as at 19 September 2014. AMC has been advised that a renewal application has been lodged for
EL 6623, 6482 and 6302 with the NSW Department of Trade & Investment, Resources & Energy (NSW
Department) and Southern Cross has held discussions with the NSW Department to ensure the renewals are
not effected during the period of the change of ownership.
Southern Cross has advised that the tenements at Marda and Mt Boppy are in good standing in that the
rents, rates and reporting obligations are up to date and there is no legal action against any of the material
tenements. The information provided to AMC is in order.
Accordingly, AMC has prepared this ITSR on the basis that the tenements are in good standing.
The tenements are listed in Appendix D.
Southern Cross has advised AMC that it is the process of selling the Sandstone tenement package while
retaining the treatment plant and mine camp assets and therefore this project has not been reviewed or
valued by AMC.
Southern Cross has reported Mineral Resources as restated in Table 1.1 and Table 1.2, and Ore Reserves
as restated in Table 1.3, Table 1.4 and Table 1.5. For the purposes of this ITSR AMC has not reviewed the
Sandstone Mineral Resources or the Manuka Ore Reserves.
Table 1.1
Gold Mineral Resources
Project
Measured Resource
Tonnes
(kt)
Mt Boppy (including Mt Boppy South)
Marda
Sandstone
Total
Grade
(g/t Au)
Indicated Resource
Tonnes
(kt)
Grade
(g/t Au)
Inferred Resource
Tonnes
(kt)
Grade
(g/t Au)
39
6.4
646
4.0
82
3.6
2,688
2.3
2,542
1.8
2437
1.7
-
1,932
2.3
12,586
1.4
2.3
5120
2.3
15,105
1.5
2,727
Note: Totals may not add due to rounding.
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Table 1.2
Silver Mineral Resources
Project
Measured Resource
Manuka
Table 1.3
Tonnes
(kt)
Grade
(g/t Ag)
Tonnes
(kt)
Grade
(g/t Ag)
4,200
58
5,900
54
31,400
42
–
–
–
–
1,800
47
4,200
58
5,900
54
33,200
42
Gold Ore Reserves – Mt Boppy
Proved
Tonnes
Grade
(kt)
42
Table 1.4
Probable
Tonnes
Grade
(g/t Au)
Contained
Gold
(koz Au)
(kt)
5.6
7.6
507
Total
Tonnes
Grade
(g/t Au)
Contained
Gold
(koz Au)
(kt)
(g/t Au)
Contained
Gold
(koz Au)
4.2
68
549
4.3
76
Gold Ore Reserves – Marda
Proved
Tonnes
Grade
(kt)
1,715
Table 1.5
Inferred Resource
Grade
(g/t Ag)
De Nardi
Total
Indicated Resource
Tonnes
(kt)
Probable
Tonnes
Grade
(g/t Au)
Contained
Gold
(koz Au)
(kt)
2.4
130
660
Total
Tonnes
Grade
(g/t Au)
Contained
Gold
(koz Au)
(kt)
(g/t Au)
Contained
Gold
(koz Au)
2.1
46
2,375
2.3
175
Silver Ore Reserves – Manuka
Project
Manuka
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Classification
Tonnes
(Mt)
Grade
Contained Metal
Ag
(g/t)
Pb
(%)
Ag
(Moz)
Pb
(kt)
Proven
1.8
81
1.0
4.6
18
Probable
1.7
72
0.9
3.9
16
Stocks (Proven)
0.3
84
1.1
0.7
3
Total
3.7
78
1.0
9.2
37
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2 Valuation methods and macroeconomic factors
1.1
Valuation methods
The methods used by AMC for valuation of the mineral assets of Southern Cross can be described as
follows.
1.1.1
Operations and development projects
Where projections of production physicals and related costs can be reasonably determined for an operation
or development project, it is accepted industry practice to prepare discounted cash flow (DCF) models to
determine net present value (NPV) estimates. Accordingly, for each of the operations and development
projects reviewed for Southern Cross, AMC has prepared production and capital and operating cost
projections "production cases". Grant Thornton then prepared DCFs based on those projections of physicals
and costs, and macroeconomic inputs.
AMC believes the scenarios are based on reasonable grounds.
1.2
Exploration
The valuation of exploration projects, particularly those for which it is not possible to quantify Mineral
Resources, is very subjective. There are, however, several generally accepted procedures to value
exploration projects and AMC has used such methods as appropriate to arrive at balanced judgments of
value.
Where possible, AMC attempts to use more than one method before selecting the valuation appropriate to
that project. Values are rounded, and outliers in contributing estimates are sometimes excluded.
The past expenditure method
A prospectivity enhancement multiplier (PEM) generally between 0.5 and 3.0 is applied to past expenditure
which AMC judges to be effective in regard to future prospectivity.
The yardstick value method
Rules of thumb, or yardstick values, can be used for properties where a Mineral Resource has been
quantified. A value per contained metal unit (e.g. ounce of gold or gold equivalent) is assigned to an actual
Mineral Resource or to a preliminary mineralization estimate.
In considering transactions, AMC has determined ranges that reflect the difference in classification between
Inferred and Indicated Resources and consideration of factors including the size of the deposit, proximity to
existing operations, and known metallurgical issues.
Actual or comparable transaction method
A value is determined by reference to either actual transactions for the property in question (Actual
Transaction method) or to recent transactions for projects considered to be similar to those under review
(Comparable Transaction method). Comparable Transactions are converted to a value per unit area.
Joint Venture terms method
Many transactions on exploration tenements are of a farm-in nature and AMC assesses a "cash equivalent"
value for them from the terms of the "deemed expenditure" on the property at the time of the deal discounted
by a time and probability factor for the likelihood that the farm-in will complete its earning requirement. AMC
adjusts the resulting value for any other terms of the joint venture and/or for the results of work carried out
since the commencement of the farm-in.
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Expected value method
An Expected Value valuation can be applied where there is sufficient information to enable an indicative NPV
calculation, which takes into account the costs of that ongoing exploration and with a probability/risk factor
for the chances of that exploration being successful.
This method is most relevant when the exploration area is closely associated with an existing mining
operation or development project where a production scenario has been developed.
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3 Mt Boppy gold project
3.1.1 Introduction
The Mt Boppy Gold Mine (Mt Boppy) is located in the Lachlan Fold Belt centred around Canbelego, located
46 km east of Cobar in New South Wales (Figure 3.1). The region has produced in excess of 5 Moz of gold.
AMC understands that Southern Cross is considering, subject to further review, treating the Mt Boppy ore at
the recently acquired Manuka Silver project approximately 150 km from Mt Boppy. AMC has developed
production cases for Mt Boppy based on the scenario where the ore is treated at Mt Boppy and has provided
a separate exploration valuation for Manuka.
Figure 3.1
Mt Boppy project location
Note: MLA281 is now ML1681
Mt Boppy itself has historical production of 490 koz gold in the period since 1901. Polymetals (now Southern
Cross) acquired the mine in 1993 and operated an open pit and processing operation on the site between
2002 and 2005. A total of 500 kt of ore was treated through the existing treatment plant. The plant has been
on care and maintenance since 2005.
Southern Cross has identified additional Mineral Resources around and below the existing open pit and has
developed a plan to mine a cutback on the open pit. The ore which is predominantly fresh rock will be treated
in the existing treatment plant following an upgrade to the flowsheet.
AMC conducted a site visit to Mt Boppy in 2013.
AMC has referenced the key document called Mt Boppy Gold Mine Development Plan V1 dated February
2014 (Development Plan) in its review of Mt Boppy.
The mine and plant are located on mining leases and gold leases that are surrounded by exploration licence
EL 5842 also held by Southern Cross. The deposit was discovered in 1896 and mined by underground
methods up to 1923. Exploration was conducted up to the 1960s and exploration drilling by Southern Cross
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since 2003 identified additional gold mineralization at depth. Treatment of tailings and open pit mining of
oxide mineralization was carried out until 2005.
Southern Cross acquired the tenements covering the mine in 1992 for $0.1M. The adjacent exploration
licence (EL 5842) was acquired in 2008 for $0.5M. The Mt Boppy tenements comprise:
x
Four gold mining leases.
x
Two mining leases.
x
One mining purpose lease.
x
One exploration licence.
The leases (Figure 3.1) cover an area of 2.5 km2 and the exploration licence (Figure 3.2) covers 204.6 km2.
Figure 3.2
Canbelego exploration licence location
3.1.2 Geology
The Mt Boppy deposit is located in the northern part of Devonian Canbelego-Mineral Hill Rift Zone
surrounded by the flanking Kopyje Shelf in the Palaeozoic Lachlan Fold Belt.
Gold mineralization occurs within both the Ordovician (Girilambone Group) and the Devonian (Baledmund
Formation) rocks. Mineralization hosted in the Baledmund Formation is characterized by gold with minor
zinc, copper and lead hosted in brecciated and silicified sediments and quartz veining in shear zones. The
shear zones are associated with a west-dipping normal fault which down throws Baledmund Formation rocks
on its western side against Girilambone Group rocks on it eastern side.
The Main Lode, which was mined underground, strikes approximately north-south. The best mineralization
adjacent to the Main Lode occurs in the Baledmund Formation. The Main Lode stopes are filled with
mineralized tailings material that forms part of the Mineral Resource.
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Within the Mt Boppy open pit, the Main Lode is a quartz vein, developed along a normal west-dipping fault.
The Main Lode strikes approximately north-south and dips at approximately 80º west; however it shows
considerable variation in strike and dip. These variations appear to be associated with gold mineralization
development in the wall rock to the lode. The best mineralization in the wall rocks occurs within the
Baledmund Formation rocks on the western side of the Main Lode where the lode has a shallower dip.
At the northern end of the pit, the Main Lode is truncated at an acute angle by the West Lode fault. The fault
dips to the east and displaces the Girilambone Group phyllite on its western side against the Baledmund
Formation sericitic siltstone on its eastern side. The West Lode is about 1 m to 2 m wide and is largely a fault
breccia clasts of phyllite, sericitic siltstone and quartz.
The mineralization at Mt Boppy is hosted by brecciated and silicified fine-grained sediments and quartz
veins. The gold mineralization contains minor zinc, copper and lead. Minor carbonate, siderite and dolomite
alteration is associated with the mineralization.
3.1.2.1
Mineral Resources
Mount Boppy Mineral Resources are listed in Table 3.1.
Table 3.1
Mt Boppy Mineral Resources at 30 June 2014 (includes Mt Boppy South)
Measured Resource
Indicated Resource
Inferred Resource
Tonnes
(kt)
Grade
(g/t)
Tonnes
(kt)
Grade
(g/t)
Tonnes
(kt)
Grade
(g/t)
39
6.4
646
4.0
82
3.6
Mt Boppy Mineral Resources are reported to the 2004 JORC Code3.
Drilling at Mt Boppy has been carried out in a number of campaigns and consists of percussion, Reverse
Circulation (RC) and diamond drilling in addition to blast hole drilling in the previously mined open pit.
Southern Cross completed the most recent drilling programme in 2011 with seven RC drillholes and 18
diamond drillholes completed. Drillhole collars were surveyed and downhole surveys completed. Drillhole
collars from older drilling programmes were resurveyed. Drill cuttings and core were geologically logged and
drill logs are available for older drillholes.
Samples were analysed for gold by fire assay with AAS finish. The recent programme was supported by
assay quality control protocols.
The Mineral Resource estimate is based on interpretation of four geological domains (Figure 3.3):
x
Historical stopes with fill.
x
Low-grade mineralization on the footwall of the Main Lode structure.
x
High-grade mineralization immediately adjacent to the Main Lode structure on the hangingwall.
x
Low-grade mineralization on the hangingwall to the Main Lode structure and the high-grade domain.
3
Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code 2004 Edition,
Effective December 2004, Prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy,
Australian Institute of Geoscientists and Minerals Council of Australia (JORC)
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Figure 3.3
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Mt Boppy geological domains
The Mineral Resource estimate is a conventional block model with grade estimated using ordinary kriging
(OK) with estimation parameters determined from a study of variography. The stope fill was assigned a
uniform average value of 3.6 g/t Au reflecting the mean grade of drillhole samples intersecting the fill.
Bulk densities were assigned based on mean values for oxide, transition and fresh rock. The resource
estimate is classified as Measured, Indicated and Inferred Resources based on confidence in the geological
and grade continuity reflecting drillhole spacing. The Mineral Resources are reported at a 2.5 g/t Au cut-off
grade (COG). The stope fill is classified as Indicated Resource.
The Mt Boppy Mineral Resource has been estimated using accepted industry practice and was classified
and reported in accordance with the 2004 JORC Code. In reporting Mineral Resources, Southern Cross has
stated that it is not aware of any new information or data that materially affects estimates of Mineral
Resources and that all material assumptions and technical parameters underpinning the estimates have not
materially changed. AMC considers it appropriate to assign an average grade to the stope fill and while it is
classified as Indicated Resource, there is greater uncertainty in local grade estimation in the fill than in the in
situ Mineral Resource.
The Boppy South (about 950 m south of Mt Boppy) Mineral Resource estimate is based on drilling at about
20 m x 20 m spacing completed by Southern Cross and previous tenement holders. The Mineral Resource
estimate is a conventional block model with grade estimated using inverse distance squared. The estimate is
classified as Indicated and Inferred Resources based on confidence in the geological and grade continuity
reflecting drillhole spacing. The Mineral Resource is reported at a 1.0 g/t Au COG.
3.1.2.2
Exploration
In addition to resource definition drilling at Mt Boppy, exploration has been carried out on other targets in the
exploration licence both by the previous tenement holder and Southern Cross. Southern Cross drilled 35
drillholes on the other targets in 2012.
Drilling has been carried out at a number of prospects where gold mineralization had been identified by
previous exploration. Drilling at most prospects generally failed to identify significant mineralization to
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encourage resource delineation drilling. Drilling at Mt Boppy South led to the estimation of a small Mineral
Resource.
Reprocessing of induced polarization data collected by previous tenement holders identified three
chargeability anomalies not previously tested that have been recently drilled, awaiting assay results.
3.1.3 Mining
Mt Boppy was previously mined by open pit methods in the period 2002 to 2005. Southern Cross engaged
an independent technical specialist to undertake a pit optimization and design study on the project reported
in the Development Plan. Work included a Whittle pit optimization which developed an optimum pit shell. The
shell formed the basis of a more detailed mine design. The design represents a cutback to the existing pit
with a final design depth of 130 m. Measured, Indicated and Inferred Mineral Resources were used in
developing the mine plan.
Southern Cross personnel developed a mine schedule and a financial model based on the pit design. AMC
has reviewed the pit design, mine schedule and financial model.
Southern Cross engaged an independent technical specialist to conduct a geotechnical review of the
proposed Mt Boppy open pit. In AMC's opinion the geotechnical report is to an acceptable standard. The
independent technical specialist was concerned about the overall safety associated with mining the southeast wall of the open pit due to the proposed steep overall slope and recommended an additional berm be
incorporated into the design. A revised pit design has been developed. The Mineral Resource includes an
area of material previously mined by underground methods and now assumed to be backfilled. The backfill
grade is estimated at a constant gold grade of 3.6 g/t Au. There is a risk this grade is not consistent, that the
void is not completely filled and that fill comprising timber may not be fully suitable for processing.
Southern Cross engaged independent technical specialist to undertake a hydrogeological review of the
proposed Mt Boppy operation. The report viewed was dated June 2012. In this report a likely pit dewatering
volume of 7 L/s to 8 L/s is noted. This is a manageable volume and should not present a significant issue to
the proposed operation. The report also concludes:
x
Ponding of water would occur on the tailings storage facility (TSF) and evaporation dam (at the former
TSF location).
x
Surplus water in excess of the TSF and evaporation dam storage capacity would not be generated.
x
The evaporation dam will be utilized near the maximum operating level (maximising evaporation) for a
period of approximately two years.
x
Water in the evaporation dam and TSF will draw down post-closure due to evaporative losses.
In AMC's opinion the water issues are manageable as described by the hydrogeological review.
Southern Cross developed a mining cost model based on a dry hire mining fleet option. Quotes for dry hire of
mining equipment were received from local vendors. The mining fleet consists of 90 t class excavators and
40 t haul trucks. The support equipment also supplied on a dry hire basis is suitable for the project. AMC
reviewed the mining costs and productivities in May 2014. AMC noted in that review that the unit mining cost
estimated at that time of $4.19/t material moved was a reasonable estimate. The current financial model for
the project shows a mining cost of approximately $3.90/t which has been increased by 10% to reflect AMC‘s
view in the AMC production cases.
Due to the use of dry hire mining fleet and the short life of the project there is no capital budgeted for mining
operations. Workshop and site establishment capital is included in the dry hire arrangement. The financial
model included a residual value for the ultimate sale of mining equipment which was removed in AMC’s
production cases.
3.1.4 Ore Reserves
The pit optimization report formed the basis for the development of an Ore Reserve statement for the project.
Table 3.2 shows the estimate Ore Reserves for Mt Boppy.
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Table 3.2
Ore Reserves for Mt Boppy at 30 June 2014
Ore Reserve
Category
Tonnes
(kt)
Proved
Gold
Grade
(g/t Au)
Contained
Gold
(koz Au)
42
5.6
7.6
Probable
507
4.2
68
Total
549
4.3
76
AMC notes the mine plan shows a scheduled inventory is 610 kt. This inventory is based on an updated pit
design presenting slightly more material than the Ore Reserve pit design plus a contribution from Inferred
Mineral Resources within the new pit design. AMC finds that the new inventory is a reasonable estimate.
Key assumptions used for the Ore Reserve calculations include:
x
Mining dilution 10%.
x
Mine recovery 95%.
x
Gold price $1,350/oz.
AMC notes that, at lower gold prices, some of the Mineral Resource may not be economic.
3.1.5 Processing operations
Southern Cross treated purchased tailings from the Elura Mine from 1993 to 2002, yielding 32 t of silver and
5 koz of gold. From 2002 to 2005, Southern Cross operated an open pit mine at Mt Boppy and produced
68 koz of gold from 500 kt of ore.
The Mt Boppy plant has remained idle since 2005. The overall development concept requires processing for
approximately 30 months of 25 kt per month. The shortness of the overall campaign presents economic
challenges such as the danger of over-capitalization, and the need to quickly attain forecast plant
performance.
AMC visited the Project in May 2013. At that time, some minor work had been done on the plant in
preparation for actual refurbishment. Leach tanks were inspected and found to be in adequate condition for a
nominal three-year operational campaign. Tank foundations were excavated and prepared for repouring, and
some work had begun on construction of piping and electrical raceways. Shortly after the site visit, the
Project was put on hold and all work on the site ceased due to a lack of available capital. It is reported by
Southern Cross that the plant remains essentially in the same condition as it was during the May 2013
inspection.
3.1.5.1
Proposed flowsheet
At the time of the May 2013 site visit, Southern Cross had developed a processing flowsheet that featured
two-stage crushing, primary grinding, flotation, regrinding of flotation concentrate, and CIL leaching of both
flotation concentrate and tails. Southern Cross pursued this arrangement through to in-house engineering,
and detailed capital and operating cost estimates were produced.
The project has recently been reactivated, and a Development Plan was completed in April 2014 by a
Southern Cross team, with the assistance of specialized consultants as required. The new project team
re-examined the testwork that had been done in 2012 and decided on a simplified flowsheet (shown in
Figure 3.4) using single-stage crushing, two-stage grinding, and CIL leaching. It was decided that the
improved gold recovery (indicated in the testwork) provided by the original flowsheet (by flotation and
regrinding of flotation concentrate) did not justify the additional capital requirement and operational
complexity introduced.
AMC concurs with the change. The operational life of three years is short and the trade-off of approximately
3% in recovery for a significantly simplified circuit is logically sound from a project risk management
perspective. In addition, the two-stage grinding circuit in the new flow sheet will produce a finer overall
product for leaching and there may not even be a 'recovery penalty' to be paid.
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Figure 3.4
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Mt Boppy proposed flowsheet
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3.2
3.2.1
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Equipment selection and condition
Crushing
ROM ore will be crushed through a primary jaw crusher to a P80 passing size of 44 mm. The second hand
unit selected is a Pegson 1180 Premier Track that is available from Sandstone. The crusher has a capacity
of 200 tph which is well above the 156 tph capacity required to meet design. The unit will be assessed and
reconditioned to assure full nameplate capacity is available.
3.2.2
Grinding
Two-stage grinding will be employed, as shown in Figure 3.4. It is intended to reach a P80 size between
75 µm and 50 µm. Testwork has shown that gold recovery is not overly sensitive to particle size, as long as
P80 is less than 75 µm.
A suitable primary grinding mill has been located and visually inspected in Kalgoorlie. The unit is 4.0 m by
6.7 m with a 1,500 kW motor. Southern Cross intends to replace the motor and will fully overhaul the mill and
all systems at installation.
The existing mill on site (3 m by 3 m, 600 kW) will be configured as the second stage unit.
Comminution testing of Mt Boppy ore returned BWi values greater than 18 kWh/t, indicating that the ore is
hard and abrasive. The size of the primary mill should permit the designed feed rate of 37 tph to be met, the
two-stage combination arrangement has not been quantitatively evaluated to determine the likely throughput
while producing the required P80 size of 50 µm to 75 µm. Southern Cross intends to contract for a Metsim
investigation to be performed to simulate the performance of the proposed grinding circuit. AMC concurs with
this measure.
3.2.3
Leaching and adsorption
The existing eight leach tanks will be used in their original locations in the plant. Tanks have been assessed
and found to be in adequate condition for a three-year campaign. Tank supports and foundations have been
evaluated and repaired as required.
Mt Boppy ore was found to exhibit distinct 'preg robbing' characteristics during testing at ALS Ammtec in
2012. A carbonaceous fraction in the ore that includes graphite was found to have the ability to re-complex
gold liberated by cyanide which severely reduces gold recovery to the leach liquor phase. This effect is
counteracted somewhat by having carbon in contact with the leach slurry at all times such that free gold can
be immediately adsorbed by the carbon before it can be 'robbed' by the carbonaceous fraction of the ore.
This arrangement has been included in the Mt Boppy flow sheet.
The tanks provide total residence time of 24 hours at design flow rates. My Boppy ore has been
characterized as having relatively rapid leach kinetics in the 75 µm to 50 µm range, but with a refractory
component that is virtually unleachable, even at 20 µm or less. This fraction was investigated and the lack of
response to cyanide found to be due to intimate, micro-association of gold particles with sulphides
(predominantly pyrite and sphalerite) which are impervious to cyanide attack.
Therefore, the refractory portion of the gold will be unavailable for recovery using a simple cyanide leach
circuit such as this. Tests have shown that 24 hours will be more than sufficient to leach and recover the
readily leachable portion of the gold present in plant feed.
3.2.4
Elution, carbon regeneration and gold room
All basic equipment, including a 1.5 t pressure Zadra elution circuit will be relocated from Sandstone. The
equipment worked well in the past, is well known to Southern Cross operators, and can be expected to
perform to specification.
3.2.5
Tailings disposal
Plant tailings will be deposited in a tailings storage facility (TSF) to be constructed on the site of non-acidforming (NAF) mine waste rock. The TSF will hold 576,000 t (360,000 m3) of tailings produced during the
three-year campaign. In addition, the TSF must also hold 412,000 m3 of potentially-acid-forming (PAF) waste
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rock from the mine. A partitioning strategy and method of construction has been developed by Allan Watson
Associates; the designers of the TSF, to allow both tailings and PAF to be deposited concurrently in the
facility.
The TSF has been designed to also retain waters from a 72 hour, 1-in-100 year rainfall event.
A cyanide detox circuit has been included in the plant to ensure that tailings discharged to the TSF contain
less than 30 ppm of CNWAD. Testwork was carried out by ALS Ammtec to select an appropriate detox
method, and to determine dosage rates for reagents. The INCO SO2/Air method was found to perform
adequately with the addition of copper sulphate, and has been used in the design of the plant.
The tailings management system has been researched and appropriate parts designed by reputable,
qualified professionals. It appears to be fit for purpose.
3.2.6
Water supply
The steady-state water balance for the plant is shown in Figure 3.5 where it indicates a required extraction
rate from Bore 1 of 51 m3/h. Several issues arise regarding this source of water. The bore is only permitted
for 250 MLpa (28.5 m3/h steady state) and it will in any case be obliterated by the advance of the mine.
Currently an abundance of water has collected in the dormant mine. This water has to be removed to begin
mining, after which water from the pit will contribute to the overall water requirements of the plant and the
town.
Operators are aware of the issues and are working on definitive plans. AMC recommends that all waterrelated issues be reviewed in total to ensure that a sound water management plan is in in place to cover
development and operational phases of the project.
Figure 3.5
Mt Boppy water balance
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3.2.7
Power supply
Power will be supplied via transmission lines from the NSW electricity grid to the existing Mt Boppy
substation. It is estimated that 2,000 kW will be required. All new motor control centres and switch gear will
be required to meet modern Australian electrical standards. This expense has been anticipated and is
included in the capital expenditure schedule.
3.3
Projected plant performance
The plant is nominally designed for a throughput of 300 ktpa.
The crushing plant is nominally designed to operate at 156 tph, 12 hours per day, 200 days per year; with a
utilization of available time of 80%. This duty roster is modest, and should be well within the capacity of the
equipment. In addition, the Sandstone crusher that will be installed has a nominal capacity of 200 tph,
making the possible crushing throughput even higher.
As discussed previously, simulation studies will be required to determine the feed rate (tph) that can be
expected from the grinding circuit while treating hard Mt Boppy ore. Southern Cross has modelled the plant
throughput on the basis of 37 tph, and continuous operation with an overall utilization of time of 92%. 92%
overall utilization is an ambitious target, especially for a plant with many used components that may require
downtime for adjustments, repairs, and component replacement. Mechanical availability of 97%, and
operational utilization of available time of 95% would be required to generate an overall utilization greater
than 92%. AMC supports the estimated ramp-up schedule of the overall plant utilization; commencing at 87%
and increasing monthly by 1% to reach 92% after five months which is included in the financial model.
The financial model assumes a recovery of 75% throughout the life of the project. This figure is supported by
the leaching testwork completed in 2012 and is reasonable. The low recovery is the result of the presence of
a refractory portion in the ore that does not respond to CIL cyanide leaching as previously discussed.
No ramp-up in recoveries has been provided in the model. AMC recommends a three month period at the
start of operations with recoveries of 70%, 72%, and 74%; to allow operators to fine tune circuit parameters.
3.4
3.4.1
Processing plant cost estimates
Operating costs
The unit processing operating cost of $26.00/t processed has been developed from first principles by
Southern Cross staff. Table 3.3 shows the breakdown by cost element. Cost element numbers are similar to
those estimated for the project in 2013 with the exception of Power. The updated Power cost of $2.49/t is
69% lower than the cost estimated in 2013. The earlier estimate was based on a tariff of 13.1¢/kWh which
had been charged at Mt Boppy in the past. Following active negotiations with Essential Energy, a contracted
tariff for the mine, plant and camp of 4.7 ¢/kWh has been established (a 64% reduction).
The processing unit cost is reasonable for a plant of this type and scale with the very low power tariff.
Table 3.3
Mt Boppy CIL plant – Opex
Cost Element
Labour
3.4.2
$/t
10.70
Consumables
9.19
Maintenance
3.00
Power
2.49
Crushing
0.37
G&A
0.25
Total
26.00
Capital costs
Capital costs for the processing plant were estimated by Southern Cross at $10.9M, including 20%
contingency against all items; comprised as shown in Table 3.4. This figure compares favourably with the
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capital cost of a comparably sized, all-new construction plant of $28M (Australian Metal Cost Guide,
R2Mining, 2012).
Table 3.4
Mt Boppy CIL plant – Capex
Area
Summary Comment
Area Cost
($)
EPCM
In house project management
Crushing
Open circuit jaw crushing utilising Sandstone mobile unit
1,377,872
Grinding and classification
Installation of 1500kW mill with existing mill as regrind
Lime storage
Refurbishment of existing leach tanks
87,313
Leach feed thickener
Use of existing Mt Boppy equipment
174,110
Carbon in leach (CIL)
729,178
Gold room and elution
Use of Sandstone Pressure Zadra circuit
563,747
Reagents
291,936
CN detoxification
New construction
241,427
Utilities
Expand existing camp with White Dam buildings
497,696
Site office
Mix of Mt Boppy and White Dam buildings
Tails storage facility
Mining contractor construction
87,250
2,099,242
227,445
1,820,046
Camp
Expand existing camp with White Dam buildings
341,050
Light vehicles
Existing Southern Cross vehicles, purchase used vehicles
105,775
Mobile plant
Existing Sandstone plant, purchase used Cat 966 loader
203,450
First fill
211,240
Total (inclusive of 20% contingency)
10,870,500
The models do not allow for sustaining capital which is reasonable due to the relatively short life of the
project.
The estimate has generally been prepared in a methodical manner and documented thoroughly and is
reasonable.
3.4.2.1
Worker's camps
Southern Cross currently operates a small, serviced camp in Canbelego for company geologists and mine
caretakers. The development plan refers to the relocation of a camp from the either the White Dam project or
from Manuka. There is a capital allowance in the financial model – due to the uncertainty of this cost
estimate AMC removed the residual value for the mine camp from the model.
3.4.2.2
Water supply
Mt Boppy is in a region of very low rainfall (approximately 300 mm per year) therefore the mine must rely on
bore water for processing. The plant requires 450 ML/pa of make-up water, however only 240 ML/pa is
available under the existing permit. Currently the intention is to bridge the shortfall by dewatering the pit.
Southern Cross states that the inventory currently in the pit together with future inflow will be adequate for
the 2-year life of the mine.
3.4.3 Environment
3.4.3.1
Overview
As a previously-operational mine, Mt Boppy has a recent history of environmental feasibility and
performance, facilitating the obtaining of environmental approvals required for the recommencement of
operations. Moreover, technical environmental challenges are relatively uncontentious, and are considered
to be manageable using established and recognized environmental management strategies. Practicable
environmental management plans have been developed to ensure environmental protection.
Biodiversity and conservation issues are of minor significance, and acid and metalliferous drainage is
demonstrably manageable in this dry environment.
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Water management poses a significant approvals risk, as excess mine dewater must now be managed (a
result of off-site processing and lowered water demand).
Another sensitive environmental issue will be community relations, reflecting the operation’s close proximity
to Canbelego township.
Additionally, AMC was unable to review a closure cost estimate, but believes this liability unlikely to amount
to more than several million dollars.
It is unclear if the proposed pit-lake closure strategy involves the risk of increasing salinity. Additional
hydrogeological modelling could quantify this risk, which might be raised by regulators.
3.4.3.2
Individual environmental issues
Statutory environmental approvals
Other than planning law approvals, the most important environmental permit is an Environmental Protection
Licence (EPL). An EPL was applied for in August 2012, and AMC is advised that the EPL was issued in
January 2013. The EPL will need to be modified now that the processing will be carried out at Manuka,
obviating the need for a TSF at Mt Boppy. The discharge of excess mine dewater will also require statutory
assessment and approval; no definitive plans have yet been developed, and sensitivity will be required to
manage this issue.
The existing mining operations plan will also require modification to reflect the removal of the TSF from
planned development.
Permits to abstract groundwater have been obtained from the NSW Office of Water under the provisions of
the Water Management Act. Other, secondary, permits (heritage, dangerous goods etc.) are either in hand or
unlikely to prove problematical, as they are for the most part of a registration, rather than impactassessment, nature.
There is little likelihood that environmental impacts could trigger the requirements for assessment under the
EPBC Act.
AMC thus considers that statutory approvals are unlikely to delay or constrain project development.
Biodiversity and conservation
No conservation estate property or threatened flora species or vegetation community will be impacted by the
project; in part, this reflects the existence of little remnant native vegetation and its low conservation value
due to past modification by human activities.
There is theoretical potential for 14 conservation-sensitive fauna species to occur in the project area, but
even if they are present the nature and extent of disturbance is small on even a local scale as to make any
impacts of little consequence. A biodiversity offset program is considered unlikely to be necessary, reflecting
the inconsequential impact of the project on the local and regional biodiversity resource.
Acid and metalliferous drainage
Static (acid-base accounting) has identified around 20% of mine waste to be potentially acid-forming (PAF),
with the remainder non acid-forming (NAF). Little acid-consuming material is considered to exist.
It was initially proposed that PAF material be encapsulated within NAF waste within waste stockpiles, to form
a "store-and-release" cover to provide long-term isolation of PAF material from the oxygen and water
necessary to allow sulphide oxidation and acid drainage. In this relatively dry environment, such a strategy
poses no significant challenge. It was subsequently planned that PAF waste be stored in a then-planned
TSF, which would ultimately be capped to isolate the PAF material. The current plans for off-site processing
of ore, and the removal of the need for a new TSF, has demanded review of PAF management plans. It is
planned that an environmental geochemistry consultant be engaged to assess options: placement on an
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existing TSF and subsequent encapsulation; placement in the mined-out pit under water; encapsulation at
surface in a waste stockpile. AMC considers all, or a mix of, these strategies, to be reasonable.
While no kinetic (column-leach) test work has apparently been performed on PAF material, the fact that no
acid drainage has been reported in the past indicates a low risk, especially as the proposed mine
development is primarily a cutback and thus unlikely to expose higher-sulphur primary rock.
No near-neutral or mild-acid leaching test work has been conducted on mine waste, but analyses have
demonstrated that there is little enrichment with metals known to pose environmental risk. Circum-neutral
metal enrichment in drainage from final waste stockpiles can therefore be considered to be a small risk,
especially in this dry environment.
Water management
Project water supply will be, as in past operations, from pit dewatering and groundwater. The requisite
abstraction permits have reportedly been obtained.
Without the water demand from processing, management of excess mine dewater has become an issue, and
will need to be assessed by regulators. Modelling is being conducted to determine volumes involved and to
evaluate options for disposal of excess water. AMC has not reviewed disposal options, but does flag the risk
in gaining statutory approval; in the worst case, an evaporation pond, and possibly equipment to enhance
evaporation, might be required. The costs and feasibility of such a strategy cannot be determined at this
stage.
Groundwater modelling has shown a very low risk of impacts on other users, the nearest of whom is some
20 km away. Additionally, there are no groundwater-dependent ecosystems that will be impacted by drawdown resulting from pit dewatering and groundwater-abstraction activities.
Closure
Some disturbed areas, especially disused TSFs, have already been capped with inert material, so that only
less expensive surface preparation and revegetation are required in the future.
Closure strategies have been developed for various project areas. These represent current technology and
environmental protection concepts, and can reasonably be expected to meet statutory requirements.
Importantly, the strategies identify the desirability of progressive rehabilitation.
In particular, encapsulation of PAF mine waste is well designed, with this material progressively being placed
within and covered by inert waste to form a "store-and-release" cover.
Post decommissioning, it is proposed that a groundwater-fed lake be allowed to develop in the pit void. While
groundwater salinity is not high (2,000 mg/L to 2,500 mg/L total dissolved solids), there does exist a low risk
that the net evaporative climate of the project area could result in the long term in increasing salinity of the pit
lake.
A detailed estimate of closure costs was not provided for this review, but an environmental performance
bond calculation of $0.99M was reviewed. Throughout Australia, bonds are known to cover only a fraction of
actual closure costs – sometimes as little as 30%. AMC has developed an empirical estimate, based on
areas of disturbance and current rehabilitation status, and considers the allowance in the financial model to
be realistic. This sum does not include demolition costs, which are frequently offset by salvage revenue. Nor
does it include retrenchment and related costs that are commonly included in accounting-based closure
estimates.
3.4.4 Project implementation
AMC notes that the majority of the design and analytical work is complete for the assessment of
redeveloping Mt Boppy. AMC understands that statutory approvals are in place and the project is permitted
to start. A total of six to seven months should be allowed for procurement, construction and commissioning of
the plant. The earliest likely start-up date for mining is December 2014 and for processing ore is June 2015
with the critical path being the ore supply rather than the plant construction.
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3.4.5 AMC production cases
AMC has modelled two cases for Mt Boppy. The cases are projections of mining and processing tonnages,
gold grades and costs. The cases are provided to Grant Thornton for consideration of value.
Southern Cross provided AMC with a range of technical information: Mineral Resource models, Ore
Reserves, mine designs and schedules. AMC has prepared its cases based on this information.
Case 1, ore production, is based primarily on the open pit optimization study scenario using mainly the Ore
Reserves and a small volume of Inferred Mineral Resource, also contained in the production case as
presented by Southern Cross.
Case 2, ore production, includes that scheduled in Case 1, with the addition of 80 kt of ore added to the end
of the mine life to simulate the likely conversion of Mineral Resources to Ore Reserves and likely success
with exploration in the project area. The Mineral Resources defined at Mt Boppy outside the development
case proposed by Southern Cross are limited.
AMC believes that the two production cases described appropriately provide a value range on the Mineral
Resources and exploration potential for the greater Mt Boppy project by simulating the range of likely
outcomes for the project.
Mt Boppy Production Case 1 (Feasibility Case)
Key aspects of AMC's Case 1 model are:
x
The mining and processing schedules are based on the life-of-mine (LOM) plan provided in the
feasibility study and financial model.
x
610 kt of ore at a head grade of 3.88 g/t is mined and processed over a 31 month period. This
represents all of the Ore Reserves and approximately 40 kt of the Inferred Mineral Resource.
x
110 kt of low grade ore processed
x
x
AMC increased the estimated mining costs by 10%.
x
AMC applied a mine call factor of 95% to the mine grade which reduced the head grade from 4.09 to
3.88 g/t.
x
Open pit waste mining commences December 2014.
x
Average unit mining costs of $4.17/t of material moved are used.
x
Average processing costs of $26.00/t ore processed.
x
AMC deducted $600k from the assumed residual value of the camp and mining equipment.
Mt Boppy Production Case 2 (Feasibility Case plus additional inventory)
Key aspects of AMC's Case 2 model are:
x
Assumptions as in Case 1 initial production period.
x
An additional 80 kt of ore at a grade 3.4 g/t is added to the end of the mine life. The tonnage is based
on the assumption that the Inferred Mineral Resource and or equivalent exploration success
elsewhere converts to Ore Reserve at the head grade produced at the end of the mine life. AMC has
assumed that operating costs are the same as those incurred in the last months of the financial model
provided and have added these to the schedule.
x
AMC notes there is only limited additional Mineral Resource outside the current mine plan proposed
by Southern Cross.
x
3.4.6 Exploration valuation
The exploration licence (EL 5842) adjacent to the Mt Boppy mining leases was acquired in 2008 for $0.5M.
Recent drilling at most prospects generally failed to identify significant mineralization to encourage resource
delineation drilling. Results from other drilling are not yet available.
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AMC considers that a unit area value of $1,000/km2 can be assigned to this tenement indicating a value of
$0.2M.
3.4.7 Opportunities and risks
AMC considers that additional opportunities that might be available for Mt Boppy include:
x
AMC has not considered underground mining of additional resources in its evaluation as no work has
been undertaken in this regard. However, Mineral Resources at Mt Boppy may have a grade that
would support underground mining.
x
Overall plant recovery greater than the estimated 75% is achieved.
AMC considers that the following risks apply to Mt Boppy:
x
There is a risk that due to geotechnical issues the pit walls may need to be designed at a flatter angle
in the south-east corner of the pit, thus increasing the waste mining requirement.
x
The current estimate for mine dewatering volumes is a broad range with upper estimates likely to add
to the operating cost of the project.
x
Capital costs for plant refurbishments are difficult to estimate and could exceed the estimate.
x
Throughput is not achieved in the upgraded treatment plant.
x
The grade and tonnage of the stope backfill material is lower than estimated in the Mineral Resource.
x
The existing underground voids cause instability in the open pit final walls.
x
Inferred Mineral Resource used to support the feasibility study may be lower in tonnes and grade than
is currently modelled.
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4 Marda gold project
4.1.1 Introduction
The Marda Gold Project (Marda) is located in the Shire of Yilgarn in Western Australia and is approximately
400 km north-east of Perth and 150 km north of the town of Southern Cross (Figure 4.1). Southern Cross is
located approximately 400 km east of Perth and 200 km to the west of the mining centre of Kalgoorlie. A
feasibilty study was completed on the project in 2012 and updated in November 2013. The updated
feasibility study is called Marda Gold Project Feasibility Study V2 dated November 2013 (Feasibility Study).
This is a green-fields project with no development in place.
Figure 4.1
Location of Marda gold project
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Marda comprises:
x
x
x
x
A 720,000 tpa conventional CIP/CIL gold processing facility producing nominally 45,000 oz of gold per
year.
Up to ten open pit mining operations at Marda and satellite pits.
Infrastructure, maintenance, and administration facilities.
Accommodation and airstrip to support a fly-in-fly-out operation.
Mineral Resources total 7.7 Mt at 1.9 g/t with contained metal of 480 koz of gold of which 68% is in the
Measured and Indicated category. The reported Ore Reserve for the Marda is 2.4 Mt at a grade of 2.3 g/t
with 175 koz contained gold.
Additional exploration targets exist adjacent to the project and these areas are subject to current exploration
activities.
AMC visited the site in 2013 as part of a separate review of the Marda project.
The Southern Cross tenements in the Marda/Southern Cross area comprise:
x
25 mining leases.
x
94 exploration licences.
x
107 prospecting licences.
x
2 general purpose leases.
x
15 miscellaneous licences.
x
2 retention leases.
The Southern Cross tenements cover an area of about 3,260 km2.
4.1.2 Geology
Marda comprises two areas: Northern Deposits and Southern Deposits. The Northern Deposits include the
Marda Central deposits (Dolly Pot, Dugite, Python and Goldstream), the Die Hardy Deposits (Die Hardy and
Red Legs), King Brown and Golden Orb. The Southern Deposits comprise Battler and British Hill.
4.1.2.1
Northern deposits
The Northern Deposits are located 150 km north of Southern Cross within the Archaean Marda-Diemals
greenstone belt. The Marda-Diemals greenstone belt comprises ultramafic and mafic rocks with overlying
felsics, narrow interflow sediments and BIF. The greenstone belt is divided into two supracrustal successions
divided by an unconformity. The upper Marda Complex comprises thick sequences of rhyolitic and andesitic
volcanic, and associated felsic sediments. The lower succession comprises three associations based on
lithological assemblages. The lower association is dominated by tholeiitic basalt with ultramafic, gabbro and
mafic tuffaceous rocks. The middle association is characterized by the Jackson Range BIF and is dominated
by moderately thick, continuous BIF and chert. The upper association comprises a variety of rock types
including tholeiitic basalt, various chemical sediments and minor clastic and volcanic felsics.
The upper association of the lower succession hosts the Marda Central deposits. The lower association of
the lower succession hosts the King Brown and Golden Orb deposits.
The greenstone belt is surrounded and intruded by granitoids. Younger west-north-west and west-south-west
trending dykes are evident throughout the belt.
The Marda Central deposits comprise a series of discrete gold deposits within a highly deformed segment of
the Marda BIF and locally intercalated with mafic and ultramafic units. The deposits are characterized by
quartz veining accompanied by pyrite, silica and sericite alteration. The structural setting is dominated by
isoclinal folds, low angle shears and late, high angle cross faults.
The Golden Orb deposit comprises a chert BIF unit enclosed by a sequence of basalt, high magnesium
basalt, ultramafics and minor gabbro. The deposit has been interpreted to have developed in a dilational
position along a strike-slip shear.
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The Die Hardy and Red Legs deposits are associated with BIF in conjunction with variably trending shear
zones. Similarly, gold mineralization at Mt King is interpreted to be concentrated around the intersection of
cross cutting faults and the BIFs.
The King Brown deposit is hosted in highly weathered ultramafic saprolitic clays interspersed with narrow BIF
units.
Complete oxidation extends to between 45 m below surface and 80 m below surface and locally reaches
depths of greater than 100 m.
4.1.2.2
Southern deposits
Mineralization at the Battler Deposit is associated with one major easterly-dipping north-trending shear zone
in conjunction with a major north-north-west-trending, steeply east-dipping splay shear zone.
British Hill mineralization is associated with BIF-hosted quartz veining associated with north-trending,
subvertical shear zones within a mafic-ultramafic greenstone sequence. Three main shears have been
identified.
4.1.3 Resources
Mineral Resources for Marda at 30 June 2014 are listed in Table 4.1. AMC has independently reviewed the
Mineral Resource estimates for Marda Central, King Brown, Golden Orb, Barranco Option, British Hill and
Battler in 2013. There have been minor changes to individual estimates since then which are not significant.
The key change is the removal of the Mt King estimate from the stated Mineral Resources.
Table 4.1
Marda Gold Project – Mineral Resources as at 30 June 2014
Deposit
Dolly Pot
Cut-off
Grade
(Au g/t)
1
Tonnes
(kt)
569
Proved
Probable
Grade Ounces Tonnes Grade Ounces Tonnes
(g/t Au) (koz Au)
(kt)
(g/t Au) (koz Au)
(kt)
1.9
34
14
1.7
1
32
Total
Grade Ounces
(g/t Au) (koz Au)
1.8
2
<1
Dugite
1
294
1.9
18
8
1.5
<1
11
1.4
King Brown
1
100
4.4
14
63
2.6
5
74
3.0
7
Golden Orb
1
416
3.0
40
103
2.0
7
176
1.8
10
Python
1
738
2.0
46
40
1.6
2
192
1.9
12
Goldstream
1
210
2.0
13
1
1.4
<1
1
1.3
<1
Red Legs
1
-
-
-
319
2.4
25
361
1.9
22
Die Hardy
1
-
-
-
983
1.5
47
589
1.5
28
Battler
1
361
2.7
31
39
3.5
4
52
3.5
6
British Hill
Total
1
-
970
1.9
59
951
1.5
46
2,542
1.8
149
2,437
1.7
133
2,688
2.3
197
The following comments apply to all resources estimated by Ravensgate during 2012. The resource
estimates are based mostly on diamond and RC drilling.
Drilling completed by Southern Cross Goldfields Limited (Southern Cross) in 2011 was carried out using
common industry practice with assay quality control in place. Drillhole collars are surveyed and downhole
surveys are carried out.
RC sample recovery was observed to be good although diamond core recovery was poor for most of
Northern Deposits except King Brown.
Historic quality control data is incomplete. Extensive validation of historic data was completed by an
independent consultant and Ravensgate accepted the historic data as acceptable to use for the resource
estimates.
The interpretations for the resource estimates were developed relying on drillhole logging and based on
lithological control. A nominal lower COG of 0.5 g/t Au was used to interpret the mineralization.
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All of the deposits have a number of mineralized domains. Assays within the domains were composited to
1 m. The influence of statistical outliers on grade estimation was limited through top-cutting and by restricting
the distance of influence of the outliers. Grades were estimated into the block models using OK. Estimation
parameters for the resource estimates were determined from variography studies.
Bulk density data comprise 532 measurements collected from diamond core. Bulk density values vary
between the deposits, and were applied according to rock type and elevation.
Mineral Resource estimates were classified as Measured, Indicated or Inferred Resources based on a
confidence item value calculated from a number of parameters and then used to describe levels of
interpolation confidence. Mineral Resources are reported with Ore Reserves excluded.
The majority of Mineral Resources within a $1,475/oz optimized pit design is classified as Measured. This is
reasonable where drilling data is dense and has been validated, and where there is good continuity of
mineralization. Where it has not been possible to validate a significant amount of historical drilling data
confidence in the resource estimate is less certain. AMC notes using lower gold price assumptions may
impact the Mineral Resource estimation.
AMC considers that Marda Mineral Resource estimates have been prepared using accepted industry
practice and have been classified in accordance with the 2004 JORC Code.
4.1.3.1
Western Areas NL (Southern Cross 30% nickel interest, 100% non-nickel interest)
In August 2011, Southern Cross entered into an agreement with Western Areas NL whereby Western Areas
NL acquired 70% of Southern Cross's nickel rights across much of Southern Cross's tenement package. The
agreement excluded some tenements including the tenements at the Copper Bore Project and the Non-iron
Rights on Radar Iron's tenement.
Previous exploration undertaken identified multiple nickel sulphide targets, including a 66 km strike length
with known favourable nickel sulphide olivine cumulate host rocks. Western Areas NL are currently planning
auger geochemical surveys and air core drilling on the Perrinvale Project (Southern Cross has non-iron
rights in Perrinvale).
4.1.4 Exploration
4.1.4.1
Gold
Review of regional exploration in 2011-2012 identified high priority targets along the Evanston Shear Zone
and Andromeda Trend. Auger drilling tested priority targets identified in the review, particularly a largely
undrilled gold trend extending over a strike length of 30 km.
4.1.4.2
Red Boomerang
The Red Boomerang prospect lies along the Evanston Shear Zone. Previous drilling intersected porphyryhosted mineralization including 6 m at 23.8 g/t Au and 11 m at 4.7 g/t Au. Four lines of auger drilling was
conducted over a 2 km strike at 400 m spacing, and defined a +100 ppb Au anomaly extending over a strike
length of 1.3 km.
4.1.4.3
Lancelot
The Lancelot prospect lies along the Evanston Shear Zone, immediately north of the Gwendolyn tenement
(Vector Resources). Auger drilling returned results of up to 3,000 ppb Au. Subsequent auger drilling at 40 m
centres along 200 m to 800 m spaced lines confirm a semi-continuous 5 km long anomaly greater than
40 ppb Au along the main trend between Lancelot and Gwendolyn. These results build on previous RC
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.
4.1.4.4
White Pointer
The White Pointer prospect is approximately 40 km north-west of the proposed gold treatment facility at
Marda and 500 m north-west of Red Boomerang. A gold anomaly has been defined by auger drilling at 40
centres along 200 m spaced lines. The anomaly is defined by values of +40 ppb Au has been identified over
a strike length of 2.2 km with a +100 ppb Au core over 1 km.
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Thresher
The Thresher prospect is approximately 60 km north-west of the proposed gold treatment facility at Marda.
This prospect lies close to the Evanston Shear Zone and parallel to an adjacent magnetic unit. A gold
anomaly defined by values of +40 ppb Au has been identified over a strike length of 800 m with a +100 ppb
Au core over 400 m.
4.1.4.6
Copper Bore
Auger drilling was conducted during February 2012 to test for anomalous mineralization at the Copper Bore
trend and extension of to the south of Southern Gossan. The drilling identified anomalous grades up to 652
ppm Cu along a 1.3 km strike about 2 km north-west of Southern Gossan. Anomalous gold grades include
250 ppb Au 1.3 km south-east of Southern Gossan and 54 ppb Au west of Southern Gossan.
A downhole electro-magnetic survey was also completed over a 10 km trend between Copper Bore and
Southern Gossan during 2012. Ten drillholes were surveyed. Of 17 anomalies identified. Six of the identified
anomalies are related to base metal sulphide occurrences that have already been drill-tested.
A reconnaissance survey west of the Copper Bore trend identified a wide quartz veined shear zone
characterized by micaceous schist with up to 10% box-work texture after pyrite. The shear zone appears to
strike over 10 km and is up to 50 m wide. Rock chip samples from the shear zone returned a peak result of
3.38 g/t Au from a quartz vein in gabbro. Other exploration targets associated with this shear are thrust-fold
structures, which returned 0.5 g/t Au at two separate outcrops 800 m apart.
4.1.4.7
Mining
The Marda mining study utilizes Mineral Resource estimates undertaken in 2012 and 2013 following the
completion of additional drilling during 2011. Open pit optimizations, designs, and mining schedules have
been developed by Southern Cross and its consultants using these Mineral Resource estimates.
Southern Cross proposes mining fifteen small open pits across the ten named project areas using a
company-owned and managed mining fleet and conventional open pit mining techniques. Mining is planned
to commence in the Marda Central, Golden Orb and King Brown areas before commencing at Die Hardy and
Red Legs in Year 2, and at the two furthest projects (British Hill and Battler) in Year 3. The mining sequence
is logically based on the higher value and higher confidence pits early in the schedule with lower
value/confidence pits mined at the end of the mine life.
A gold processing plant is planned at Marda with a capacity of 720 ktpa.
Marda comprises shallow open pits ranging in depths of between 45 m and 100 m. The material to be mined
is predominantly oxide mineralization. The proposed mining fleet comprises a 120 tonne excavator and a
truck fleet of three 40 tonne trucks. Blasting is planned across all materials to assist productivity and to
provide blasthole grade control samples. Southern Cross plans to lease the mining fleet and associated
equipment. Ore haulage from satellite pits will be undertaken using conventional road trains capable of
hauling on public and private roads. Southern Cross plans to utilize a contractor to undertake the road based
ore haulage. This is a conventional approach typical of open pit mining in WA.
All maintenance facilities and associated services are to be provided by Southern Cross.
The open pit designs incorporate narrow 7.5 m wide ramps to reduce stripping costs associated with small
pits. The geotechnical studies are preliminary, however they did identify the risk of ramp crest failure. Ramp
crest failure on narrow ramps would interrupt production although the existence of multiple pits and ore
stockpiles offsets this risk to some extent.
The overall mining schedule shows a high rate of vertical development. In AMC's opinion the mining
schedule will be difficult to achieve. This risk is offset by the availability of multiple pits and ore stockpiles.
Southern Cross added ore dilution and an ore recovery factor to the pit inventory prior to developing the mine
schedule which is standard industry practice. However, in AMC's opinion, the dilution factor of 5% with an
expected 100 % mine recovery is optimistic. A number of the ore zones are quite narrow and combined with
a very high mining rate will result in higher dilution and ore losses. AMC has factored head grades in the
cash flow model by 95% to better reflect the likely ore recovery from the mines.
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In AMC's opinion the overall mining cost estimate appears reasonable for Marda. However, the road haulage
costs appeared to be very low and these have been adjusted by AMC in its production cases to reflect the
costs of $0.14/tkm to $0.17/tkm reported in the Feasibility Study.
4.1.4.8
Ore Reserves
The Ore Reserves for Marda were developed as part of the November 2013 feasibility study. The Ore
Reserves are based on the development of the ten open pit projects using the current Mineral Resource
models. Ore Reserves were calculated at a gold price of $1,475/oz and are shown in Table 4.2. AMC notes
using lower gold price assumptions is likely to impact the Ore Reserves estimation.
Table 4.2
Marda Gold Project – Ore Reserves at 30 June 2014
Deposit
Cut-off
Grade
(Au g/t)
0.80
Tonnes
(kt)
370.4
Dugite
0.80
212.7
1.9
12.9
0.3
1.5
-
213.0
2.0
12.9
King Brown
0.88
87.2
4.5
12.6
11.5
2.7
1.0
98.7
4.5
13.6
Golden Orb
0.87
270.6
3.1
27.2
9.4
2.0
0.6
280.0
3.2
27.8
Python
0.80
551.9
1.9
33.7
2.8
1.4
0.1
554.7
2.0
33.8
Goldstream
0.80
86.0
2.4
6.6
-
-
86.0
2.5
6.6
Red Legs
0.90
-
-
162.8
2.9
15.3
162.8
3.1
15.3
Die Hardy
0.90
-
-
395.7
1.6
20.7
395.7
1.6
20.7
Battler
1.29
136.1
16.2
6.2
5.7
1.1
142.3
4.0
17.3
British Hill
1.52
Dolly Pot
Total
1,714.9
Proved
Probable
(g/t Au) (koz Au)
(kt)
(g/t Au) (koz Au)
(kt)
1.7
20.7
0.3
1.2
370.7
3.7
2.4
-
Total
Grade Ounces
(g/t Au) (koz Au)
1.8
20.7
-
71.4
2.9
6.7
71.4
4.6
6.7
130
660.4
2.1
46
2,375.3
2.3
175.4
AMC notes that approximately 4% of the inventory supporting the feasibility study is in the Inferred Mineral
Resource category. This is not a material concern for the project.
Table 4.2
Marda Gold Project – Ore Reserves at 30 June 2014
Deposit
Cut-off
Grade
(Au g/t)
0.80
Tonnes
(kt)
370.4
Dugite
0.80
212.7
1.9
12.9
0.3
1.5
-
213.0
2.0
12.9
King Brown
0.88
87.2
4.5
12.6
11.5
2.7
1.0
98.7
4.5
13.6
Golden Orb
0.87
270.6
3.1
27.2
9.4
2.0
0.6
280.0
3.2
27.8
Python
0.80
551.9
1.9
33.7
2.8
1.4
0.1
554.7
2.0
33.8
Goldstream
0.80
86.0
2.4
6.6
-
-
86.0
2.5
6.6
Red Legs
0.90
-
-
162.8
2.9
15.3
162.8
3.1
15.3
Die Hardy
0.90
-
-
395.7
1.6
20.7
395.7
1.6
20.7
Battler
1.29
136.1
16.2
6.2
5.7
1.1
142.3
4.0
17.3
British Hill
1.52
Dolly Pot
Total
1,714.9
Proved
Probable
(g/t Au) (koz Au)
(kt)
(g/t Au) (koz Au)
(kt)
1.7
20.7
0.3
1.2
370.7
3.7
2.4
-
Total
Grade Ounces
(g/t Au) (koz Au)
1.8
20.7
-
71.4
2.9
6.7
71.4
4.6
6.7
130
660.4
2.1
46
2,375.3
2.3
175.4
Source: Southern Cross Marda Feasibility Study November 2013
4.1.5 Metallurgy and processing
4.1.5.1
Introduction
It is proposed that ore mined from Marda will be treated in a nominal 720 ktpa conventional cyanidation
treatment facility employing CIL for gold recovery.
Ore to be fed to the proposed process facility will be sourced from ten discrete gold resources as described
in the geological section of this review. Ore from different resource pits will be blended to suit the
requirements of the processing plant. Metallurgical test work programmes on samples of ore from Marda
have been undertaken over approximately ten years.
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During 2012 Southern Cross acquired the Sandstone processing facility. Southern Cross contracted
independent technical specialists to undertake an engineering study to prepare cost estimates for a 0.5 Mtpa
process plant installation involving utilization of the refurbished plant equipment to be relocated from
Sandstone to Marda. In 2013 a revised cost estimate was prepared internally by Southern Cross for a
process plant with an increased nominal capacity of 720 ktpa.
4.1.5.2
Metallurgical test work
Historical metallurgical test work undertaken between the 1991 and 2011 showed that tested samples from
the Marda Central deposits were all relatively free milling ores with cyanidation gold extractions varying
between 84% and 97%. Comminution testing of oxide and primary samples indicated that the ore types
tested could be classified as moderate to hard.
A comprehensive programme of metallurgical test work was undertaken in 2012 on samples from the major
ore deposits. The metallurgical assumptions are reasonably based on the test work results.
In early operations ore milled will be from the Dugite, King Brown, Goldstream, Dollypot and Python pits
followed by increasing amounts of Python, Golden Orb, Die Hardy and Red Legs ore, followed by ore from
the British Hill and Battler deposits. AMC notes that very little test work has been conducted on the Die
Hardy, Red Legs, British Hill and Battler deposits. These four deposits account for approximately 35% of
total LOM gold oz to be fed to the mill.
Comminution testing
Results for key comminution parameters derived from both historical and recent comminution testing are
presented in Table 4.3, together with the proportion of LOM ore tonnes to be treated in the plant. Parameters
tested were Unconfined Compressive Strength (UCS), Crushing Work Index (CWi), Bond Rod Mill Work
Index (RWi), Bond Ball Mill Work Index (BWi), Abrasion Index (Ai) and SAG Mill Competency (SMC).
Table 4.3
Mean comminution test parameters
Deposit
1
Ore in LOM
Schedule
(%)
Mean Test Work Comminution Parameter Value
UCS
(Mpa)
CWi
(kWh/t)
RWi
(kWh/t)
BWi
(kWh/t)
1
Ai
–
SMC
Golden Orb
11.8
–
–
–
9.0
King Brown
4.1
–
–
11.4
9.5
Dolly Pot
15.2
32.4
6.9
18.0
17.2
0.49
57
Python
22.8
15.0
5.9
16.3
17.1
0.48
86
Dugite
8.7
11.0
13.3
17.9
17.7
0.26
71
Goldstream
3.5
11.7
6.6
18.1
17.8
0.38
77
0.02
–
337
Tested by comparative index only.
AMC considers that the results fall within expectations for hardness of the various ore types based on the
geological descriptions and core photos. AMC notes that due to lack of sample availability, the comminution
variability testing for the King Brown and Golden Orb deposits is below what would normally be undertaken
in a definitive study. However, given the size of Marda and the ability to blend from multiple ore sources,
AMC considers that the risks to comminution design and plant throughput are low.
Gravity and cyanidation leaching tests
Head analyses of the samples tested show generally low levels of elements detrimental to gold recovery by
cyanidation. Some samples were slightly elevated in base metals, but considering the ability to blend with
multiple pits AMC does not consider this is a significant risk to processing.
Gravity and cyanidation testing was undertaken at grind sizes of P80 150 µm and 75 µm to evaluate grind
size dependence.
Key points from a review of the gravity and cyanidation testing as noted by AMC are:
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x
x
x
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All samples tested contain a high proportion of gravity gold and therefore justify the inclusion of an
efficient gravity gold recovery circuit.
Overall recovery results from the combined gravity and cyanidation leaching tests are very satisfactory
with an arithmetic mean result of all samples at around 94%. Most ore sources exhibit fast leaching
characteristics with the majority of gold leached in 8 hours. Goldstream ore results show the lowest
recovery.
The recovery dependence on grind size for the range tested was generally low with the exception of
Goldstream which showed a 5% to 10% increase in recovery at the finer size. Blends containing
Goldstream ore would therefore benefit from finer grinding.
The mean gold grade of the tested samples is generally higher than the LOM grades of the equivalent
ore deposit as presented in the Feasibility Study mine schedule. The biggest deviations are with the
King Brown and Python deposits for which tested samples are around double the scheduled grade.
The high grade of these tested ore samples might overstate potential recovery for these scheduled ore
types, and therefore there is a risk that recovery will be lower than that tested.
Reagent consumptions are moderate for cyanide and moderate to high for lime.
4.1.5.3
Process plant
Background information
Southern Cross acquired the Sandstone processing facility and plans to utilize as much of the plant as
possible for refurbishment and relocation to Marda. The existing mills at Sandstone are not suited to the
proposed higher throughput of the Marda plant. It is therefore proposed to purchase a used suitable single
stage primary mill for installation at Marda. Primary crushing will be undertaken using the relocated primary
crusher from Sandstone. Southern Cross plan to refurbish, relocate and install the remaining Sandstone
appropriate processing equipment to Marda and upgrade where required to suit the design throughput.
Processing circuit
The key unit operations and equipment utilized for the processing facility are as follows:
x
Primary crushing using the existing track-mounted Terex-Pegson jaw crusher relocated from
Sandstone.
x
Stacking conveyors relocated from Sandstone for direct feeding the mill via a feed bin and apron
feeder.
x
Single stage milling in a proposed 4.00 m diameter x 6.7 m long primary mill powered by a 1.80 MW
motor. A used mill of this size has been identified for procurement. Circuit classification using an
upgraded cyclone cluster relocated from Sandstone.
x
Gravity gold recovery in an automatic discharge 36" Knelson gravity concentrator to be procured for
installation at Marda. Gravity gold contained in Knelson concentrate to be further upgraded in the gold
room utilising existing tabling equipment from Sandstone, followed by smelting.
x
CIL leaching using nine mechanically agitated tanks in series. All tanks to be refurbished and
relocated from Sandstone.
x
Recovery of gold from carbon using an integral 1.5 t carbon capacity elution and electrowinning facility
relocated from Sandstone. Carbon reactivation in a horizontal diesel fired kiln.
x
Reagent mixing and distribution systems, water systems, diesel storage all relocated from Sandstone.
The cyanide mixing unit will be relocated from Mt Boppy.
4.1.5.4
Gold recovery
Based on an assessment of test work results of samples from ore sources treated in the first two years, AMC
considers that the mean recovery will be approximately 93% which is in agreement with the constant 93%
recovery as presented in the financial model. AMC is of the opinion that it is not possible to make accurate
recovery predictions over the last two years of the project without additional test work on samples from the
deposits treated in the latter part of the schedule. AMC has not modified its production cases to account for
this uncertainty.
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4.1.5.5
Plant throughput
Annual ore throughput in the financial model ramps up to 720 ktpa in the second operating year of the
project.
AMC considers that the identified primary mill proposed to be procured for the project should have the
capacity to achieve the 720 ktpa target throughput in the first two years of operation. There has been
insufficient comminution testing on the later ore sources to accurately predict plant throughput over the last
two years of ore treatment. Southern Cross has made provision for a regrind mill to be relocated from
Sandstone to increase comminution capacity in the event of a capacity shortfall. AMC considers that further
comminution testing is required to confirm milling capacity in the last two years.
Historical records of operations at Sandstone shows that the process plant previously operated up to a
maximum rate of 600 ktpa. AMC considers that some further upgrading of equipment items may be required
during the refurbishment and relocation to suit the new design throughput of 720 ktpa.
4.1.5.6
Capital estimate plant and infrastructure
Southern Cross prepared a capital estimate for plant and infrastructure, based on information provided by
independent technical specialists in November 2012. This estimate was prepared to an accuracy level of
±20% and included a 20% contingency based on a nominal plant capacity of 500 ktpa. Southern Cross have
prepared a revised capital estimate for the plant and infrastructure using an in-house company approach in
November 2013. The revised estimate is reported to be at a ±10% and includes a contingency of 10% and is
based on an increased plant capacity of 720 ktpa. For the new estimate the costs presented include the
removal, refurbishment, relocation and installation of plant and equipment as well as infrastructure items
including camp, roads and airstrip, buildings/workshops, and water supply and an identified secondhand mill
required to achieve the increased throughput.. A preliminary estimate for tailings storage requirements is
also included. The capital cost summary is shown in Table 4.4.
Southern Cross capital estimate summary for plant and infrastructure
Table 4.4
Cost Centre
AMC Report
May 2013
Capex
($M)
Southern
Cross
Sept 2014
Capex
($M)
Marda Infrastructure
Accommodation camp, roads, airstrip, buildings/workshops
8.26
4.08
4.59
3.42
Plant and Equipment
Sandstone equipment refurbishment and relocation
Additional equipment and installation costs
13.17
9.11
Mobile plant and vehicles
0.33
0.62
Upgrade requirements
1.44
0.00
Plant and Infrastructure Contingencies (overruns)
5.26
1.78
Tailings Dam (including contingency)
1.98
2.06
Project Supervision
0.30
0.32
First Fills
0.45
0.25
35.70
21.70
Owners Costs
Total Processing and Infrastructure
1
Costs exclude GST
It should be noted that there are some reductions in scope in the latest estimate in regards to process
improvements to be made to the relocated plant and these scope reductions account for some of the cost
savings in the revised estimate. In addition, there has been a decrease in overall unit costs across the
construction industry with the current low activity in the industry. AMC has concerns, however, that additional
contingency is required in the latest estimate due to the need for a more detailed engineering since
relocation and refurbishments are hard to estimate and the uncertainty of second-hand equipment pricing.
AMC has increased the contingency in its production case models to 20% for plant and infrastructure items
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increasing the total capital to $23.6M. The models do not allow for sustaining capital which is offset by the
higher contingency proposed for the initial capital and the relatively short life of the project.
4.1.5.7
Operating cost estimate
Southern Cross prepared an operating cost estimate based on an assessment by independent technical
specialists in the July 2012 study with an average operating cost of $30/t. The operating cost estimate has
been revised by Southern Cross to account for the increased throughput rate of 720 ktpa, and account for
changes in unit costs since this time.
The updated cost estimate is presented in Error! Reference source not found..
Table 4.5
Marda operating cost estimate
Cost Centre
Operating Cost
LOM
($M)
Mean LOM
($/t ore treated)
Salaries and labour
12.20
5.01
Reagents and operating consumables
26.16
10.73
Power
21.72
8.91
Maintenance
3.05
1.25
Overhead
0.61
0.25
63.75
26.14
Total Process Operating Costs
AMC considers the mean LOM unit operating cost of $26/t ore to be in general agreement with treatment
costs for other Australian gold projects of a similar throughput and plant complexity.
4.1.6 Environment
4.1.6.1
Overview
Marda appears to involve no environmental risks that cannot be managed with well established strategies
and techniques, although hydrogeology and some geochemistry reports were not available for this review.
Statutory environmental approval is likely to be uncontroversial, as potential environmental impacts have
been well characterized and their manageability demonstrated. Extensive consultation with regulators has
been important in managing approvals-related risks.
While there are fauna conservation issues (rare/endangered species), these fauna are likely to be only
marginally impacted by project activities. Moreover, studies conducted for the project are likely to enhance
scientific knowledge of the occurrence and auto-ecology of these species, thereby supporting conservation
efforts by the relevant agencies. Importantly, conservation risks to approval have been mitigated by close
and regular liaison with the agencies.
Acid mine drainage is an inconsequential risk at the four Marda Central deposits. Results of geochemical test
work for the King Brown and Golden Orb deposits were not available for this review. At Marda Central, much
of the sulphur present in mine waste occurs as sulphates, rather than sulphides and, even where sulphides
are present, relatively large volumes of carbonate also occur. Similarly, risks of circum-neutral metal
enrichment of leachates from waste stockpiles have been shown to be low: potential metal pollutants in labile
forms are not present at elevated concentrations, and significant acid-neutralising capacity is likely to be
available in stored waste.
Water supply from existing and proposed bores at Marda is reported to be adequate for project needs,
although hydrogeological reports were not available for this review. While excess water is unlikely (pits are
reported to be dry to full mining depth), the disposal to land or water-course of significant volumes of excess
water would attract close scrutiny from regulators.
Closure poses no technical challenges at Marda, based on current information. The closure provision of
$2.2M is considered by AMC to be reasonable, reflecting the relatively small disturbance footprint of the
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project. This situation could change, however, if mined pits partially refilled with groundwater – rehandling of
mine waste to backfill pits above the re-established water table would result in additional, yet-to-bedetermined, closure costs.
4.1.6.2
Individual environmental issues
Statutory environmental approval
Portions of the project area are included in a proposed Dual Purpose Mining and Conservation Reserve.
AMC considers this not to pose a significant risk, as mining is legally an acceptable land use, subject to
agreement and consultation with the regulator. Other companies in the region are in comparable situations,
and the dual-use model is now well established. The lengthy and detailed consultation conducted with
government agencies by Southern Cross is considered to have ensured adequate security of tenure and
purpose for the project.
State environmental approval will not involve the lengthy and complex processes of Part IV of the EP Act,
administered by the EPA. The EPA has advised that potential impacts are easily manageable by other
agencies; that decision was appealed by a conservation NGO, but the appeal was dismissed by the Minister
for the Environment.
A Works Approval (to construct) and a Licence (to operate) will be required under Part V of the EP Act,
administered by the Department of Environmental Regulation (DER). These are relatively routine processes,
compared with those of Part IV of the EP Act, and are unlikely to delay project implementation.
The Mining Proposal processes of the Mining Act, administered by the Department of Mines and Petroleum
(DMP) will also be required. A Mining Proposal has been submitted to the DMP and been through two minor
revisions – the most recent dealing with non-environmental matters. The DMP undertakes to complete its
assessment of proposals within 30 days of receiving a final version, so that approval is expected in the
immediate future.
The federal EPBC Act could theoretically be triggered by the occurrence at Marda of "threatened fauna
species and communities" (species include the Malleefowl and Major Mitchell's Cockatoo). However,
targeted surveys for Malleefowl and assessment of risks to the cockatoo have identified low and manageable
risk of impacts. On this basis, it is possible that no referral will be made under the EPBC Act. The Act
requires referral only of proposals likely to cause significant impacts and, while there is a risk that the
proposal could be referred by another party, AMC considers referral to be unnecessary. It is common
practice for a professional consultant to complete the referral pro forma document and, if appropriate,
endorse it as "referral not necessary". This document is then available if the proposal is referred by others, to
quickly have the referral discontinued.
The Native Vegetation Clearing Permit required for the project has been obtained.
Flora and fauna
Flora and vegetation conservation issues are of minor significance at Marda. No Declared Rare Flora (DRF)
or Threatened Ecological Communities (TECs) will be impacted. Priority Flora Species (PFS) which do occur
on the project area have been reviewed by the relevant agencies on a regional basis and, while some
modification of project facility locations may be required, no significant impediment to implementation is
considered likely. A proposed Priority Ecological Community (PEC) in the region is considered unlikely to
constrain project development, because the location of facilities has been discussed at length with DMP and
DEC.
Conservation-sensitive fauna species (two wishbone spiders, a pseudoscorpion, the Malleefowl and Major
Mitchell's Cockatoo) have been recorded in the environs of the project, but impacts on all species are
considered by AMC to be easily manageable. Lengthy consultation with the Department of Parks and Wildlife
(DPaW) has been carried out, and management plans developed to meet DPaW requirements for those
mining disturbances within the Conservation Reserve.
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The spiders and pseudoscorpion do not occur on areas proposed for disturbance, and are thus most unlikely
to be impacted, given the implementation of environmental management plans which prevent disturbance of
land outside approved envelopes.
A targeted survey for Malleefowl revealed no active (current use) or recently active (1 to 5 years) nesting
mounds on the Southern Cross tenements. Three inactive mounds were found, but none in areas proposed
for disturbance. Some 400 ha of potential Malleefowl habitat was identified in the environs of the project, but
only a small amount (some 6%) occurs on areas of proposed disturbance. Management of potential
Malleefowl impacts is a regional issue, with the greatest risk at Marda being from traffic deaths. Workforce
education and monitoring will form part of the operating environmental management plan for Marda, and can
reasonably be expected to manage impacts.
Impacts on the Major Mitchell's Cockatoo are considered likely to be small, as this volant species can avoid
disturbance and seek alternative habitat, of which there are large undisturbed tracts in the region.
Assessment of potential impacts on conservation-sensitive fauna at Marda have been characterized by close
and regular consultation with the DEC. Minuted meetings have been held, and the DEC appears to be aware
of both the low risks of significant impacts and the contribution to a broader understanding of the autoecology of some of these species, particularly the Malleefowl. AMC therefore considers it unlikely that
consideration of fauna impacts will significantly affect environmental approval and ongoing operation.
Acid and metalliferous drainage
Based on rigorous geochemical test work conducted on representative samples using recognized
techniques, risks of acid and metalliferous drainage (AMD) in waste rock at Marda Central (four pits) have
been shown to be extremely low.
Sulphide sulphur concentrations in waste rock are mostly below the rule-of-thumb threshold of 0.3%S, and
occurrences of carbonate and other acid-neutralising compounds are significant. By far the greater
proportion of samples were shown to be NAF, and the few samples judged by acid-base accounting to be
PAF were shown to be NAF after more detailed testing. The only significant volumes of PAF material is
located below the proposed pit floor.
Leaching test work has also shown the risks of circum-neutral metal enrichment of drainage from stockpiled
waste rock to be low.
While AMD risks at Marda Central are considered by AMC to be low, no rigorous test work results were
available for this review. The risk of AMD challenges at the King Brown and Golden Orb deposits therefore
cannot be dismissed absolutely.
Water management
Southern Cross advises that project water demand will be met from existing and proposed bores at Marda,
but no hydrogeology reports were available for this review. Based on limited drill-hole sampling, no
dewatering of mine pits has been judged likely to be necessary, but AMC has not been able to rigorously
assess this view. Should dewatering in excess of project demand prove necessary, disposal to land or
nearby water-courses could attract the scrutiny of regulators (DEC and the Department of Water (DoW)).
While such a situation is unlikely in the low-rainfall area of the project, and with relatively shallow pits
planned, there are regional precedents for the development of unforeseen excess-water issues. Mining
below the water table at King Brown is likely to produce dewater volumes in excess of demand, and the
establishment of an evaporation pond, possibly with sprinklers or other evaporation enhancement
equipment, has been countenanced. AMC has not reviewed costs of such a strategy.
Groundwater in the project area is saline and, while adequate for processing and (after reverse osmosis)
potable supply, unlikely to be required by other users. The project area is remote and sparsely inhabited, and
other mining operations in the area are unlikely to place demands on groundwater exploited by Southern
Cross.
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Rehabilitation and closure
Technical closure and rehabilitation issues at Marda are undemanding. The creation of safe, stable and nonpolluting landforms after mining will require no novel strategies or techniques. The lack of potential AMD
issues at Marda means that complex and expensive encapsulation of PAF waste will not be needed, and
simple landscaping of waste stockpiles, with appropriate erosion-control and water-capture structures, can
easily meet DMP guidelines. It is noted again here that rigorous geochemistry test work results for the King
Brown and Golden Orb deposits were not available for this review, so AMD risks, and implications for
closure, have not been assessed for those deposits.
A closure plan forms part of the Mining Proposal currently awaiting DMP approval. It allows for possible
backfill of the mine pit above the pre-existing water table in the 51H Zone at King Brown, which lies within the
DPaW management area. Backfilling is unlikely to be required at other areas, where mining below the water
table is not planned.
Given the small disturbance footprint of the project and the improbability of needing to manage acidgenerating waste rock, the existing closure cost estimate of $2.2M is considered by AMC to be adequate and
reasonable, subject to the AMD question noted immediately above, and to the following qualification.
It is noted that the DEC has a general stance across the mining industry of opposition to the formation of pitlakes after mining. While it has been assumed that all proposed pits at Marda are above the water table,
AMC has not sighted hydrogeological reports confirming this view. If the water table is such that pit lakes
could form after mining, backfilling to several metres above natural water table could be demanded by DEC
and DMP. Without detailed hydrogeological information, it is not possible to quantify the volume of backfill
involved, and thus the amount and cost or rehandling mine waste.
4.1.7 Project implementation
A formal feasibility document exists for Marda thus making the process of financing and approvals
straightforward. six to nine months should be allowed for procurement, construction and commissioning.
Southern Cross show commencement of construction as August 2016 which allows adequate time for all
approvals.
4.1.8 AMC Production Cases
AMC has modelled two cases for Marda. The cases are projections of mining and processing tonnages, gold
grades and costs. The cases are provided to Grant Thornton for consideration of value.
Southern Cross provided AMC with a range of technical information: Mineral Resource models, Ore
Reserves, mine designs and schedules and a Feasibility Study. AMC has prepared its cases based on this
information.
Case 1, ore production, is primarily based on the Feasibility Study scenario using Ore Reserves, and that
part of Mineral Resources included in the mine plan provided.
Case 2, ore production, includes the inventory scheduled in Case 1, with the addition of just over one year
production simulated to reflect the likely conversion of additional Mineral Resources to Ore Reserves and
likely success with exploration in the Marda region. AMC has included additional production to extend the
mine life to reflect further exploration success.
The two production cases are designed to provide a lower and upper range of likely outcomes for the Marda
Project.
AMC believes that the two production cases described appropriately provide a value on the Mineral
Resources and exploration potential for the greater Marda Gold project.
Marda Case 1 (Feasibility Case)
Key aspects of AMC's case 1 model are:
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x
x
x
x
x
x
x
x
x
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The mine schedule and processing schedule are essentially based on the 3.5 year LOM plan provided
in the Feasibility Study with a limited amount of ore added to end of the mine life.
Project development commences in August 2016 and Processing begins in February 2017.
Operating and capital costs are generally based on those provided in the feasibility study.
Ore transport costs were modified from the Financial model provided
Average unit mining costs of $3.57/t of material moved are used.
Average processing costs of $26/t ore processed are used.
Total ore processed is 2.4 Mt at a head grade of 2.18 g/t.
AMC adjusted the head grade to reflect a lower grade of diluting material than that assumed in the
feasibility study, higher dilution and an ore loss component based on the AMC review of the Mineral
Resource model, this had the effect of lowering the head grade from 2.29 g/t to 2.18 g/t over the life of
the project.
Initial capital expenditure of $23.6M for plant and infrastructure plus $9.3M for the establishment of
haul roads based on the feasibility study.
Plant, mine and camp residual values were reduced by $3.0M compared to the Feasibility Study as, in
AMC’s opinion, these estimates were too high.
Marda Case 2 (Feasibility Case plus additional inventory)
Key aspects of AMC's case 2 model are:
x
x
x
Assumptions as in case 1 for the first 3.5 years of production.
An additional 900 kt of ore at a grade 2.2 g/t is added to the end of the mine life. AMC has assumed
that operating costs are the same as those incurred in prior years for the extension period. The head
grade is based on the project average. The 0.9 Mt represents 50% of the Marda Inferred Resource
converting to Ore Reserves. The average project head grade has been applied.
4.1.9 Exploration valuation
AMC considers that the production cases indicate an appropriate value for groups of tenements hosting
Mineral Resources. In the Marda area, tenements hosting Mineral Resources occupy about half of the
overall tenement area. The northern part of the Marda tenement area (about 650 km2) does not host any
Mineral Resources but remains prospective for gold and base metals as previously described. AMC
considers it appropriate to assign a value of $1,000/km2 to $2,000/km2 indicating a range of values for this
area of $0.65M to $1.3M.
4.1.10 Opportunities and risks
AMC considers that additional opportunities that might be available for Marda include:
x
A significant resource remains outside and below the open pits at Marda. Reductions in cost structures
and/or an increase in gold price would allow more of this material to be mined economically.
x
AMC has not considered underground mining of additional resources in its evaluation as no work has
been undertaken in this regard. However, a number of the Mineral Resources at Marda have a grade
that might support underground mining.
AMC considers that the following risks apply to Marda:
x
Marda is a green-fields open pit operation. There is no historical mining or ore processing in the area,
therefore there is a level of risk associated with the key assumptions for the project such as mine
dewatering, geotechnical and productivity assumptions.
x
The advance rate assumed for the open pits is high, however this is offset to an extent by the number
of ore sources available and the ore stockpiles built up during the operation.
x
AMC's production cases include Inferred Mineral Resources and assumed further exploration success.
Based on AMC's assessment of the large Mineral Resource inventory and exploration prospectivity in
the area, AMC considers that there is a reasonable basis for including these in its production cases.
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However, it is not certain if further exploration will result in the determination of additional Mineral
Resources and Ore Reserves.
Lower metallurgical recoveries are possible in later years of the project because of limited specific test
work on the ore scheduled to be treated in those years.
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Manuka silver project
The Manuka Ag-Pb project (Manuka) was acquired by Southern Cross in September 2014 from
administrators of Cobar Consolidated Resources Ltd (CCR), and is located approximately 85 km south of
Cobar in New South Wales. The Southern Cross tenements (Figure 5.1) cover an area of about 842 km2
consisting of:
x
Seven exploration licences.
x
One mining lease.
Manuka is one of the largest pure silver projects in Australia. CCR acquired an interest in the tenements in
2007, completed a feasibility study in June 2010 and commissioned open pit operations in March 2012.
Silver and lead production was delayed due to unexpected technical mining difficulties, principally related to
material hardness and plant processing challenges. CCR commenced mining at Manuka from two pits, the
Manuka and Boundary open pits, and produced 1 Moz of silver to December 2013 before operations were
halted. Mining plans envisaged a series of shallow open pits, to produce silver bullion from conventional
cyanide leach, with addition of a gravity circuit to produce lead concentrate.
Figure 5.1
5.1
Manuka tenement location
Geology
The Manuka project is a silver-rich Mississippi Valley-type (MVT) Ag-Pb deposit hosted in and above
limestone, and lies near the western margin of the Palaeozoic Cobar basin. The principal silver
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mineralization occurs in a secondary oxide blanket above the primary MVT-style Ag-Pb-Zn mineralization.
The mineralization occurs in Early Devonian sedimentary rocks, including Booth Limestone and Gundaroo
Sandstone of the Winduck Group.
Ag-Pb-Zn mineralization within the project area occurs as a 6 km length zone along the Manuka anticline.
The mineralization is stratabound and directly related to the position of the Early Devonian Booth Limestone.
Most mineralization occurs on the western limb of the anticline, but the eastern limb hosts some of the
mineralization to the north.
The main mineralization at Manuka lies beneath a layer of colluvial and alluvial sediments within a broad
valley. A silver-rich supergene blanket (up to 160 m wide and 30 m thick) is present at the interface between
ferruginous and manganiferous clays that are derived from the Booth Limestone. No discrete silver minerals
have been identified, although silver is accommodated in the matrices of many of the minerals that occur in
the supergene and primary zones. The primary sulphides are sphalerite, galena and trace to minor pyrite in a
dolomite and calcite gangue. Silver mineralization in the primary zone is of lower grade. The Manuka
regional geology is shown in Figure 5.2 and a typical cross-section through the Manuka deposit at the
partially mined Boundary pit is shown in Figure 5.3.
Figure 5.2
Manuka regional geology
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Figure 5.3
5.2
Manuka geology cross-section
Mineral Resources
Mineral Resources are summarized for Manuka and De Nardi (Table 5.1). De Nardi is a small silver resource
20 km north of Manuka in the Gundaroo prospect. Figure 5.4 shows the location of the Manuka and De Nardi
resources. The Manuka Mineral Resource was reported by CCR in accordance with the 2012 JORC Code,
and the De Nardi Mineral Resource was reported by CCR in accordance with the 2004 JORC Code.
Additional historic resources have been reported in the past for the McKinnons gold deposit, but this has
been effectively mined out. Based on publicly reported mine production figures, AMC estimates 3.3 Moz
(1.1Mt @ 92 g/t Ag) have been mined from the Boundary and Manuka pits at Manuka. Table 5.1 summarizes
the remaining reported Mineral Resources within the Southern Cross tenements.
Table 5.1
Manuka Mineral Resource at November 2013 and De Nardi Mineral Resource at
October 2006
Project
Manuka
4
De Nardi
Total
5
Classification
5
Grade
Ag
(g/t)
Contained Metal
Pb
(%)
Ag
(Moz)
Pb
(kt)
Measured
4.2
58
0.8
7.9
33
Indicated
5.9
54
0.8
10.1
46
Inferred
31.4
42
0.4
41.9
124
Total
41.5
45
0.5
59.9
203
Measured
–
–
–
–
–
Indicated
–
–
–
–
–
Inferred
1.8
47.1
–
2.7
–
Total
1.8
47.1
–
2.7
–
Measured
4.2
58
0.8
7.9
33
Indicated
4
Tonnes
(Mt)
5.9
54
0.8
10.1
46
Inferred
33.2
42
0.4
44.6
124
Total
43.3
45
0.5
62.6
203
CCR, ASX Release, 5 March 2014: Investor Presentation
CCR, Quarterly Activities, 30 October 2006
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The Manuka and De Nardi Mineral Resources have been classified and reported in accordance with the
2012 JORC Code for Manuka and the 2004 JORC Code for De Nardi.
Thickness of the mineralized domains at Manuka averages around 13 m. The mineralization is overlain by an
average of around 36 m of barren overburden. Estimated Mineral Resources extend to around 100 m depth
with approximately one third sourced from depths of greater than 50 m. Densities were applied to the
estimates on the basis of a lithological domain interpretation supplied by CCR, and density values specified
by CCR which range from 2.0 t/m3 for oxidized clays to 2.6 t/m3 for sulphide limestone. Figure 5.4 shows the
location of the various Mineral Resources
Figure 5.4
5.3
Location of Manuka and De Nardi Mineral Resources and exploration targets
Ore Reserves
CCR reported an Ore Reserve estimate at end November 2013 using a silver price of $22/oz and a lead
price $2,200/t, with an envisaged four years of remaining mine life. AMC notes that Southern Cross has not
revised the Ore Reserve using up to date economic and technical parameters considering the project was
placed into administration in 2014 after the most recent Ore Reserves update. AMC has not reviewed either
the Ore Reserve or the data supporting the estimation of that Ore Reserve for the Manuka project due to the
unavailability of the key economic and technical data needed for such a review. The planned open pits
detailed in the mine plans are shown in Figure 5.5.
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Figure 5.5
5.4
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Manuka proposed pits
Manuka silver processing plant
5.4.1 Recent performance
In 2010, RMDSTEM Limited (RMDSTEM) completed a feasibility study for CCR for the Manuka Silver
Project. The plant was designed to process at 0.8 Mtpa and to recover lead by gravity techniques, and silver
using cyanide leaching, carbon adsorption, and Merrill-Crowe gold recovery (deposition on zinc dust). The
plant was constructed and commissioned, but was not able to perform as expected. Operation of the gravity
circuit to recover anglesite (PbSO4) and cerussite (PbCO3) has been abandoned following continuing
operational problems including degradation of the lead-containing minerals, excessive sliming, and
consequent poor lead recoveries. The front-end of the plant was designed without a comminution capability;
relying on a log washer/repulper to place clays and other soft materials in solution. A 400 hp ball mill has
since been added to the plant following ongoing struggles with harder feed material that required grinding to
liberate silver-containing particles for leaching.
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In February 2014, CCR commissioned a review of the Manuka plant by Aurifex Pty Ltd (Aurifex). Aurifex’s
report is entitled "Site Observations and Comment on Process Facility Operations and Future Opportunities".
Aurifex made the following observations:
x
The plant will physically operate at the designed rate of 104 tph, resulting in throughput of 830,000 tpa
at an industry-standard operating time utilization of 91.3% (8,000 operating hours per year).
x
The plant was designed for relatively soft, clean, predominantly clay-like feed material. Coarse
material causes operating disruptions, discarding of coarser material that often grades higher than
average feed resulted in low production and metal loss.
x
There are numerous opportunities for operational improvements that have been identified throughout
the circuit.
x
As the softer clay feed stock depletes (nominally by the end of 2015), a fully functioning comminution
circuit will be required to maintain the feed rate to the plant.
x
Aurifex identified opportunities to increase the feed rate of the plant, targeting a feed rate of 130 tph by
using a number of modifications to the circuit;
Optimising the current ball mill by adjusting mill speed, the ball size and the ball load in the mill
Addition of more leaching vessels and/or more leach capacity overall
Improving the carbon management within the circuit
Improving the addition of reagents to the circuit
x
Silver recovery ranging from 74% to 76% was stated for the options modelled.
Southern Cross has stated that it is recognized that a finer grind will be required to increase silver recovery in
the plant. This is in accord with test work on drill core that was completed for the Manuka feasibility study
that identified a P80 size of 106 µm as being necessary to achieve extractions greater than 80% which is
Southern Cross’s short-term goal. AMC understands that Southern Cross proposes to add a new, first stage
of grinding using a 1,500 kW (2,000 hp) ball mill which the company has purchased. The estimation of the
actual performance of the plant (feed rate and grind size of product) using two-stage grinding will require
additional test work and modelling.
5.4.2 Treatment of Mt Boppy ROM ore at Manuka
It has been proposed to treat Mt Boppy gold ore at the Manuka plant as an alternative to rather completing
the reconstruction of the old Mt Boppy plant. The Manuka plant was operating until early 2014 and is in
reasonable condition. The Mt Boppy ROM ore can be expected to be hard and quite abrasive, especially
compared to the softer, friable Manuka ore. A Bond Ball Mill Index (BWi) of 18.1 kWh/t was recorded during
standard testing on the Mt Boppy ore. In addition, gold particle size is fine and associations with sulphides
present are somewhat complex, leading to a portion of the gold being refractory under cyanide leach. Test
work indicated that a recovery of 80% would be possible using two-stage grinding to achieve a very fine
grind with a P80 of 20 µm. While indications are that the recovery of gold from Mt Boppy ore is metallurgically
possible in the Manuka plant, estimation of actual plant performance (operating cost, feed rate and gold
recovery) will require test work and modelling. Southern Cross notes that the Manuka plant provides a
nominal 21.8 hours of leach and adsorption residence time which is twice what would be present at a
reconstructed Mt Boppy plant; which would suggest the Manuka plant will be able to match or exceed the
80% gold recovery estimated for Mt Boppy, provided that effective comminution is provided by the upgraded
grinding circuit. This is of course subject to appropriate levels of test work and engineering.
Southern Cross have estimated a capital cost to add crushing and grinding capacity to the Manuka plant at a
cost of $3.5M with only minor modifications required to the rest of the plant. This analysis is preliminary
without engineering or test work to support it. AMC finds that the estimate is of the correct order for the
scope of works envisaged and is lower than the capital estimate to refurbish the Mt Boppy gold plant.
However, the scope may change as further work is undertaken.
The estimated haulage cost for transporting the ore from Mt Boppy to Manuka, a distance of 152 km, is
$19.74/t. This appears to be a reasonable estimate.
5.5
Exploration
Since the exploration tenements were acquired recently, no development and evaluation work has yet been
conducted by Southern Cross on the Manuka project.
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The Manuka package of tenements has been extensively explored for silver and base metals by CCR and
others over many years. The principal exploration targets are MVT-type Ag-Pb-Zn mineralization and
supergene silver accumulations at or adjacent to major structures. There are approximately 70km of
prospective ‘basin bounding’ structures within the current tenements.
Most silver mineralization intersected to date is relatively shallow (<100m). The majority of prospective
ground is under cover and associated in some way with major structures. In addition to the Manuka mine
area, several other prospective areas have been identified and partially evaluated. A significant exploration
prospect is at Gundaroo, which includes the Ridge and De Nardi prospects. At the Ridge, CCR reported
intersecting ore grade widths of shallow stratiform and deeper vein-related Zn-Pb-Ag-Cu mineralization. CCR
reported at least eight further exploration targets that remain relatively untested, both near mine (along strike
in either direction and down dip) and regionally. This includes anomalies identified through geochemical
sampling and a 1622 line km geophysical electromagnetic VTEM survey over the tenements, which identified
electromagnetic conductors to 200m below surface. Several VTEM anomalies coincide with geochemical
anomalies.
Early Devonian limestone is widely acknowledged as a favourable host to primary mineralization in the
Cobar Basin. The Exploration Licences currently held by CCR are dominated by the units of the Winduck
Group (shown in Figure 5.3 and Figure 5.4) and as such are considered highly prospective. In addition, the
tenements are situated along major structures in the region. On the eastern side of the Cobar Basin,
significant mineralization is closely linked to major structures and their intersections with favourable host
rocks.
5.6
Risks and opportunities
There is uncertainty around the operating cost estimates for the Manuka project with further work required in
the areas of: detailed test work, engineering and supply contract negotiations.
The successful treatment of Mt Boppy ore at Manuka requires changes to the existing plant, including
installation of a larger ball mill, which entails some, likely minimal, development risk..
Transport of large volumes of material by road from Mt Boppy requires road permits which are the subject of
ongoing discussion with the authorities, but have not yet been obtained.
The project was designed and commissioned in a high silver price environment and therefore aspects of the
project may not be economic at today’s prices. Further economic modelling is required to determine this.
However Manuka contains a large silver Resource parts of which may be economic at lower metal prices.
As this project has only recently been acquired by Southern Cross a detailed assessment of the mine and
plant continues and technical risks and efficiencies may be uncovered.
5.7
Valuation
AMC conducted an exploration valuation of Manuka as at the valuation date of 13 October 2014.
5.7.1 Valuation methods
Two common valuation methods were applied to arrive at a range of values and a preferred value. These
included the Past Exploration Expenditure (PEM) method and the Comparable and Actual Transactions
market-based method, applying a resource-based yardstick, as described in Section 1.4.
5.7.2 Actual and comparable transactions
AMC considered the actual transaction and three comparable transactions as follows:
x
The Actual Transaction involved purchase of Manuka for a sum of $375,000 plus a commitment to
$5.8m of environmental liabilities associated with the leases. The assets included the Mineral
Resources and Ore Reserves, plant and infrastructure facilities, mining lease and exploration licences.
x
The capital raising by Alcoyne Resources in November 2009 for the Texas project at Twin Hills, Mt
Gunyan in Texas, Queensland, which includes a smaller yet higher-grade silver Mineral Resource and
heap leach silver mine as well as exploration properties.
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x
x
The July 2014 purchase of remaining interests in the Paris silver project in South Australia by
Investigator Resources, which includes a small yet high-grade silver Mineral Resource of similar
morphology.
The August 2011 acquisition of the Bowdens project in Mudgee, NSW, by Kingsgate Consolidated,
which includes a larger silver Mineral Resource of similar grade plus low-grade Pb and Zn, which AMC
considered as a comparable transaction outlier.
The Bowdens transaction was considered an outlier and was excluded from consideration. The transaction
occurred at a peak of the market, at very high silver prices, and the deposit contained higher base metals
credits. The other comparable transactions referenced contained silver Mineral Resources and occurred at a
time of similar silver prices to the current transaction. AMC applied a discount of 25% to valuations indicated
by these transactions to reflect their value within the context of the current depressed market conditions.
In considering the actual transaction, AMC included the value of the environmental liability commitments as
well as the purchase price to arrive at a value of $6.2M. The Manuka Independent Tenement Report
indicates the details of a security of $5.5M for Manuka ML 1659 and a further $0.5M of cash securities
lodged in 2010 for five ELs. In AMC’s opinion, including the environmental commitments is an appropriate
part of the Actual Transaction value considering the Mineral Resources, the prospectivity, the assets, and the
obligations in holding the leases. Considering the yardstick values determined for these transactions and
applying a discount to reflect the current depressed market conditions, AMC determined a range of values of
between $0.07/oz and $0.20/oz of silver in Mineral Resources, indicating a range of values between $4.3M
and $12.4M.
5.7.3 Past exploration expenditure method
Using the past expenditure method, AMC considered the past five years of expenditure, and deducted a
nominal allowance for non-direct exploration expenditure to arrive at a total of $6.6M. AMC considered that
this exploration led to definition of the Mineral Resource and enhanced the prospectivity and value of the
tenement. A Prospectively Enhancement Multiplier (PEM) range of 1.5 to 2.5 was applied to exploration
expenditure, and indicated a range of $10.0M to $16.7M.
5.7.4 Preferred value
On the basis of these methods, AMC has estimated a range of values between $4.3M and $16.7M with a
preferred value of $7.6M for the Manuka properties (Table 5.2).
Table 5.2
Southern Cross – Manuka exploration values
Location
Manuka tenements
Preferred Value
amcconsultants.com
High
($M)
Low
($M)
4.3
16.7
7.6
42
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6 Qualifications
AMC is a firm of mineral industry consultants whose activities include the preparation of due diligence reports
on, and reviews of, mining and exploration projects for equity and debt funding and for public reports. In
these assignments, AMC and its subconsultants have acted as independent parties. Although we do not
consider it a conflict, AMC has had recent roles reviewing the Mt Boppy Development plan, provided an
independent technical specialists report to Grant Thornton when Southern Cross merged with Polymetals
and has also reviewed the Marda gold project feasibility study Neither AMC nor its subconsultants have any
business relationship with Grant Thornton, Polymetals or Southern Cross other than the carrying out of
individual consulting assignments as engaged.
While some employees of AMC and its subconsultants may have small direct or beneficial shareholdings in
Southern Cross, neither AMC nor the contributors to this report nor members of their immediate families
have any interests in Southern Cross that could be reasonably construed to affect their independence. AMC
has no pecuniary interest, association or employment relationship with Grant Thornton or Southern Cross.
AMC is being paid a fee by Southern Cross according to its normal per diem rates and out-of-pocket
expenses in the preparation of this report. AMC's fee is not contingent upon the outcome of the Proposed
Transaction.
In correspondence relating to our engagement, Southern Cross agreed to comply with those obligations of
the commissioning entity under the VALMIN Code including that to the best of its knowledge and
understanding, complete, accurate and true disclosure of all relevant material information will be made.
Southern Cross has represented in writing that to the best of their knowledge, they have provided AMC with
all material information relevant to their operations and projects described in this report.
In preparing this report, AMC has relied on information provided by Southern Cross, and AMC has no reason
to believe that information is materially misleading or incomplete or contains any material errors. Southern
Cross has been provided with drafts of our report to enable correction of any factual errors and notation of
any material omissions. The views, statements, opinions and conclusions expressed by AMC are based on
the assumption that all data provided to it by Southern Cross are complete, factual and correct to the best of
their knowledge. This report and the conclusions in it are effective at 13 October 2014. Those conclusions
may change in the future with changes in relevant metal prices, exploration and other technical
developments in regard to the projects and the market for mineral properties.
Southern Cross has provided AMC with indemnities in regard to damages, losses and liabilities related to or
arising out of its engagement other than those arising from illegal acts, bad faith or negligence on its part or
its reliance on unauthorized statements from third parties.
This report has been provided to Grant Thornton for the purposes of forming its opinion in relation to the
Proposed Transaction. AMC has given its consent for its report to be appended to Grant Thornton's report
and for it to be provided to shareholders and has not withdrawn that consent before their lodgement with the
Australian Securities & Investments Commission. Neither this report nor any part of it may be used for any
other purpose without written consent.
The signatories to this report are corporate members of the AusIMM and bound by its Code of Ethics.
document
D Varcoe
MAusIMM
Principal Mining Engineer
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document
D Lee
FAusIMM
Underground Manager, Perth/Principal Mining Engineer
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Appendix A
Principal sources of information
In preparing this report, AMC has relied on information provided by Southern Cross.
GENERAL
AMC Report 213040 of May 2013.
AMC Report 214036 of September 2014.
AMC212109 - 27 March 2013 - Final Report.pdf.
Southern Cross ASX announcements.
Southern Cross annual reports.
Cobar Consolidated Resources ASX announcements.
Cobar Consolidated Resources Quarterly Reports.
Cobar Consolidated Resources Annual Reports.
Marda Gold Project Feasibility Study V2 dated November 2013.
Mt Boppy Gold Mine Development Plan V1 dated February 2014.
CCR Wonawinta Feasibility study 2010.
Corporate Model TSG incl Wonawinta – 150914.xlx.
Environment, Permitting and Hydrology
Environmental Impact Statement (and Appendices): Mt Boppy Gold Mine – Proposed Redevelopment
Project. Polymetals (Mt Boppy) Pty Ltd. November 2011.
Annual Environmental Management Report: Mt Boppy Gold Mine Canbelego NSW. Polymetals (Mt Boppy)
Pty Ltd. February 2013.
Life of Mine Tailings Management Strategy: Mt Boppy Gold Project. Polymetals (Mt Boppy) Pty Ltd.
November 2011. Allan Watson Associates. October 2012.
Mt Boppy Gold Mine – Proposed Redevelopment Project. Mining Operations Plan Version 3. Polymetals (Mt
Boppy) Pty Ltd. October 2012
Mine Waste Management Plan (MWMP) for the Mt Boppy Gold Mine, Canbelego, NSW. Report No. 611013MWMPv2. Environmental Earth Sciences Qld. October 2011.
Mining Lease Conditions, Mining Lease No. 1681. NSW Government, Department of Trade and Investment –
Resources and Energy Division. January 2013.
Mt Boppy Gold Mine Development Project: Overview. Polymetals Mining Limited. June 2012.
NAF and PAF Waste Field Testing. Polymetals Mining Limited. Safe Work Procedure. (Undated.)
Bamford Consulting Ecologists: Targeted Fauna Assessment, Mt Jackson. January 2013.
Bioscope Environmental: Biological and Environmental Physio-chemical studies of the Marda Project.
January 2013.
Bioscope Environmental: Known Flora and Vegetation Values of the Marda Project. January 2013.
Botanica Consulting, and Western Botanical: Various reports on flora and vegetation of Southern Cross
deposits Red Legs, Marda, King Brown and Die Hardy. 2012.
Cecchi, John B: Report on an Aboriginal Heritage Survey of Southern Cross Goldfields Ltd Marda Gold
Project Additional Areas and Die Hardy Road Widening. January 2013.
Precis Report – Potential for Acid Generation from Mining Wastes, Marda District. (Undated.)
Rapallo: Southern Cross Goldfields – Marda, Golden Orb, King Brown and Battler Projects. Feasibility Study;
Environmental. February 2012.
Rapallo: Level 2 Short-Range Endemic Survey of the Marda Tenement and Level 1 Short-Range Endemic
Survey of the Golden Orb and King Brown Tenements. June 2012.
Rapallo: Soils and Waste Rock Characterization for Marda Central Deposits. January 2013.
Rock Team: Southern Cross Goldfields – Marda Project; Summary. October 2012.
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Terrestrial Ecosystems: Short-Range Endemics for Southern Cross Goldfields multiple project areas.
January 2013.
Terrestrial Ecosystems: Tree Hollow Assessment for Cockatoos at Battler, King Brown, Marda and Golden
Orb. September 2011.
Geology, Resources and Exploration Property Valuations
201401 Wonawinta resource estimates prepared by MPR Geological
Reserves and Resources update (Wonawinta) FEB 2014.pdf
Polymetals Mining Limited, 2012: Mt Boppy Resource Update Report – January 2012.
Polymetals Mining Limited, 2012: Boppy Sth Resource Summary Report – September 2012.
Polymetals Mining Limited, 2012: Exploration Licence 5842 Canbelego Including Exploration Conducted
Within Ml311, GL3255, GL5836, GL5848, GL5898 & MPL240. 11th Annual Exploration Report For
The Reporting Period 20th April 2011 To 19th April 2012.
Ravensgate Consultants, 2012: Block Model Resource Estimation on the Discovery Zn, Ag & Pb Base
Metals Project for Lansdowne Resources Pty Ltd.
Ravensgate Consultants, 2012: Block Model Resource Estimation on the Orchard Tank Zn, Ag & Pb Base
Metals Project for Lansdowne Resources Pty Ltd.
Polymetals ASX Announcement 13 March 2013.
CCR: Annual Reports, 2006 to 2013.
CCR: ASX Release, 5 March 2014: Investor Presentation.
CCR: ESB26: DPI-MR Rehabilitation Cost Calculation Tool
CCR: Quarterly Activities, 30 October 2006.
CCR: Quarterly Activities reports, December 2006 to April 2014.
Mining and Modelling
20131122 Marda FinMdl_V3
20140627_MtBoppy_FinMdl_V701_TSG Model.xls
20140507_MtBoppy_Capex_V5.xls
1669-M01_MB_Optimization_Memo_v03.pdf.
Andys EM Letter and Overview (Polymetals).pdf.
Poly\Appendix E1 Hydrogeological Assessment (revised).pdf.
Poly\Appendix K2 SWMP (Final) 29 June 12.pdf.
ASX_28Sep2012_Annual_Report_2012.pdf.
ASX_29Jan2013_Mt Boppy Feasibility Announcement.pdf.
Copy of Opt Pit Totals from AMDAD Feb 13.xlsx.
MINENHIL00411AA_Mt_Boppy_Geotechnical_Reviewx.pdf.
Mt Boppy Development - project overview 20130115 V3.pdf.
Mt Boppy Financial and Cashflow 4-Feb-13 (V6C).xlsx.
Mt Boppy Plant Hire Proposal - MRA 8Nov12.pdf.
Mt Boppy Royalty Deed executed by GCR and GCO.pdf.
Ore Reserve Signoff Mt Boppy_SBuxton 290612.docx.
Prelim Hydrogeological Report KBR.pdf.
ASX_SXG_Feasibility_Study_090512_v2_Final 2.pdf.
ASX_SXG_Sandstone Acquisition_140812_Final.pdf.
Southern Cross Feasibility Summary - 011012 Draft V4.5 - Final.pdf.
Southern Cross Financial Model April 2013 - Revised for ITE comments.xlsx.
SouthernCross_Schedule_1475_v7_270412.xlsx.
Preliminary Tenement Status Report, dated 22 September 2014, by GRT Lawyers
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Metallurgy, Plant and Associated Infrastructure
METS: Report: Southern Cross Feasibility Study, Date: 20/07/2012, Doc No: J531-RP-000-002-C (Part of
Feasibility Study - Metallurgy Section 8).
Como Engineers: Report: Southern Cross Feasibility Study Marda Gold Project Definitive Feasibility Study,
July 2012 (Part Of Feasibility Study – Processing Plant Section 9).
Como Engineers: Report: Marda Gold Project Sandstone Plant Refurbishment and Relocation Study,
November 2012.
Rock Team: Report: Marda Gold Project Summary, October 2012.
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Appendix B
Abbreviations
$
$M
%
2004 JORC
Code
2012 JORC
Code
Ag
AMC
Au
Au
CCR
COG
DCF
Development
Plan
Expert
g
g/t
Grant Thornton
GRT
IER
ITSR
km
koz
ktpa
kt
LOM
Australian dollar unless otherwise specified
Dollars million
Percent
Australasian Code for Reporting of
Exploration Results, Mineral Resources and
Ore Reserves, The JORC Code 2004
Edition, Effective December 2004, Prepared
by the Joint Ore Reserves Committee of the
Australasian Institute of Mining and
Metallurgy, Australian Institute of
Geoscientists and Minerals Council of
Australia (JORC)
Australasian Code for Reporting of
Exploration Results, Mineral Resources and
Ore Reserves, The JORC Code 2012
Edition. Effective 20 December 2012 and
mandatory from 1 December 2013.
Prepared by the Joint Ore Reserves
Committee of the Australasian Institute of
Mining and Metallurgy, Australasian Institute
of Geoscientists and Minerals Council of
Australia (JORC).
Silver
Gold
Gold
Cobar Consolidated Resources Ltd
Cut-off grade
Discounted cash flow
Mt Boppy Gold Mine Development Plan V1
dated February 2014
Grant Thornton
gram
grams per tonne
GRT Lawyers
Independent expert's report
kilometres
thousand ounces
thousand tonnes per annum
thousand tonnes
life-of-mine
amcconsultants.com
M
m
2
m
3
m
Mineral Assets
mm
mRL
Mt
Mt Boppy
Mtpa
NPV
NSW
Department
OK
oz
PEM
Polymetals
Proposed
Transaction
RC
Southern Cross
t
tpa
TSF
VALMIN Code
million
metres
square metre
cubic metres
Mineral assets of Southern Cross
millimetres
reduced level
million tonnes
Mt Boppy Gold Mine
million tonnes per annum
Net present value
NSW Department of Trade & Investment,
Resources & Energy
Ordinary kriging
ounce
Prospectivity enhancement multiplier
Polymetals Mining Limited
proposed exercise of warrants and issue of
shares to Trailstone UK II Limited to be
approved at a meeting of shareholders
Reverse circulation
tonnes
tonnes per annum
tailings storage facility
Code for the Technical Assessment and
Valuation of Mineral and Petroleum Assets
and Securities for Independent Expert
Reports. The VALMIN Code 2005 Edition,
Prepared by the VALMIN Committee, a joint
committee of the Australasian Institute of
Mining and Metallurgy, the Australian
Institute of Geoscientists and the Mineral
Industry Consultants Association with the
participation of the Australian Securities and
Investment Commission, the Australian
Stock Exchange Limited, the Minerals
Council of Australia, the Petroleum
Exploration Society of Australia, the
Securities Association of Australia and
representatives from the Australian finance
sector.
Appendix B - 1
214064
Appendix C
Report contributors
The contributors to this report include the following:
Name
Qualifications
Affiliations
Involvement
David Lee
BEng (Mining)
AMC Principal Mining Engineer
Peer Reviewer.
Dean Carville
B App Sc (App. Geol)
AMC Geology Manager/ Principal
Geologist
Geology, Resources and
Exploration Property Valuations.
Alison Keogh
BSc (Geology) (Hons)
AMC Principal Geologist
Geology, Resources and
Exploration Property Valuations
Chris John
BSc (Agric) (Hons)
PhD
John Consulting Service, Director
Environment, Permitting and
Hydrology
David Varcoe
BEng (Mining) (Hons)
AMC Principal Mining Engineer
Project Manager and Review of
Mining and General Aspects.
Valuation modelling and technical
support.
Rob Chesher
BSc (Metallurgy)
(Hons)
AMC Corporate Manager/Principal
Consultant
Metallurgy, Plant and Associated
Infrastructure - Mt Boppy and
Turner River.
Tony Showell
BAppSc (Metallurgy)
AMC Associate – Metallurgist
Metallurgy, Processing and
Associated Infrastructure - Marda.
Maree Angus
BSc (Economic
Geology) (Hons)
MAusIMM
Assistance with the Manuka
evaluation
amcconsultants.com
Appendix C - 1
214064
Appendix D
Tenements
Southern Cross, Marda tenements WA
amcconsultants.com
Appendix D - 1
amcconsultants.com
214064
Appendix D - 2
amcconsultants.com
214064
Appendix D - 3
amcconsultants.com
214064
Appendix D - 4
214064
"E" :Exploration Licence WA
"P" :Prospecting Licence
"M" :Mining Lease
"L" :Miscellaneous Licence
"G" : General Purpose Lease
"R" : Retention Lease
amcconsultants.com
Appendix D - 5
214064
Mt Boppy tenements
Tenement
Project
GL_3255
GL_5836
GL_5848
GL_5898
ML_311*
MPL_240*
Mt
Mt
Mt
Mt
Mt
Mt
Boppy
Boppy
Boppy
Boppy
Boppy
Boppy
- Canbelego
- Canbelego
- Canbelego
- Canbelego
- Canbelego
- Canbelego
ML_1681
EL_5842
Mt Boppy - Canbelego
Canbelego
Grant Date
20/05/1926
15/06/1965
15/02/1968
21/06/1972
8/12/1976
17/01/1986
Expiry
Date
Area
(Ha)
20/05/2033
15/06/2033
15/06/2033
12/12/2033
12/12/2033
12/12/2033
8.3
6.0
8.6
7.5
10.1
17.8
12/12/2012 12/12/2033
19/04/2001 19/04/2016
188.2
20,460.0
Commitment 2014 Rent 2014
($)
($)
140,000
100,000
100
100
100
100
100
116
1,223
4,200
Manuka tenements
Tenement
Holders
Grant Date
Expiry
Date
Renewel
Date
Area Units
Area
(km 2)
Commitment 2014
($)
EL6302
CCR
23/09/2004 22/09/2014 22/09/2014
96
270
252,000
EL6623
CCR
30/08/2006 30/08/2014 30/08/2014
19
58
98,000
EL6482
CCR
18/11/2005 22/09/2014 22/09/2014
92
267
244,000
EL6155
CCR
17/11/2003 16/11/2015 16/11/2015
5
14?
34,000
EL7345
CCR
25/05/2009 25/05/2013 24/05/2016
59
172
178,000
EL7515
CCR
7/04/2010
7/04/2014
7/04/2014
7
20
47,000
EL7516
CCR
7/04/2010
7/04/2014
7/04/2014
14
41
88,000
ML1659
SCA
23/11/2011
NA
NA
923.8 Ha
"EL" :Exploration Licence
"ML and GL" :Mining Lease
"MPL" :Mining Purposes
amcconsultants.com
Appendix D - 6
214064
Australia
Adelaide
Brisbane
Level 1, 4 Greenhill Road
Wayville SA 5034 Australia
T +61 8 8201 1800
F +61 8 8201 1899
E [email protected]
Level 21, 179 Turbot Street
Brisbane Qld 4000 Australia
T +61 7 3230 9000
F +61 7 3230 9090
E [email protected]
Melbourne
Perth
Level 19, 114 William Street
Melbourne Vic 3000 Australia
T +61 3 8601 3300
F +61 3 8601 3399
E [email protected]
9 Havelock Street
West Perth WA 6005 Australia
T +61 8 6330 1100
F +61 8 6330 1199
E [email protected]
Canada
Toronto
Vancouver
90 Adelaide Street West, Suite 300
Toronto, Ontario M5H 3V9 Canada
T +1 416 640 1212
F +1 416 640 1290
E [email protected]
Suite 202, 200 Granville Street
Vancouver BC V6C 1S4 Canada
T +1 604 669 0044
F +1 604 669 1120
E [email protected]
United Kingdom
Maidenhead
Registered in England and Wales
Company No. 3688365
Level 7, Nicholsons House
Nicholsons Walk, Maidenhead
Berkshire SL6 1LD United Kingdom
T +44 1628 778 256
F +44 1628 638 956
E [email protected]
Registered Office: 11 Welbeck Street
London, W1G 9XZ United Kingdom
amcconsultants.com
amcconsultants.com
92
Appendix F – Grays Report
VALUATION
of
Silver Process Plant & Associated Equipment
In the matter of
Southern Cross Goldfields
Wonawinta Silver Mine
At the Mine Site
"Manuka Station", Shire Road 13, via Cobar, NSW
On the basis of
MARKET VALUE FOR EXISTING USE
ESTIMATED AUCTION REALISATION
Under Instructions From
Att: Andrea De Cian
Our Ref: Southern Cross Goldfields Limited - WONAWINTA SILVER MINE
Private and Confidential
Homebush Corporate Park
29-33 Carter Street
Lidcombe NSW 2141
A division of Grays (NSW) Pty Ltd
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
Regents Park BC NSW 2143
T 02 9741 9600
F 02 9741 9679
Our Ref: Southern Cross Goldfields Limited - WONAWINTA SILVER MINE
10 October 2014
Att: Andrea De Cian
0
Dear Sirs,
SOUTHERN CROSS GOLDFIELDS
"MANUKA STATION", SHIRE ROAD 13, VIA COBAR, NSW
We thank you for your instructions to value the Company’s assets. Our detailed report and valuation follows.
Subject to the matters set out in the letter and the enclosed Valuation and Report, the assessed values of the
assets detailed in this report are as follows:
$12,072,250
$3,355,600
Instructions & Information Provided
We have been asked to prepare an inventory and valuation of the Company's assets on the basis of Market Value
for Existing Use and Estimated Auction Realisation. We draw your attention to the definitions of these
methodologies in Annexure A.
Purpose of Valuation
This report has been prepared under instructions from Southern Cross Goldfields Limited for the proposed
exercise of warrents and issue of shares to Trailstone UK 11 Limited.
This valuation should not be used for any other purpose. If it is used for any other purpose then Grays Asset
Services will need to be contacted and the values and comments in this report may need to be revised to reflect
the amended purpose.
Southern Cross Wonawinta Mine valuation
Page 2
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Valuation Commentary
The Wonawinta Silver Mine is located approximately 120 km South of Cobar, NSW. The Company claims the
Wonawinta Silver Mine is the largest ‘pure’ silver project in Australia with its website claiming a 53Moz Ag
indicated / inferred resource and 26Moz Ag probable reserve. Many other mining operations produce Silver in
addition to other base metals; very few mines produce only Silver. We understand that the processing plant was
designed to allow extraction of Lead from the ore, however actual production has not seen this being possible on
a large scale without significant loss of Silver from the process; as such this area of the process plant is not used.
We have been advised the remaining life of mine is a further 5 years.
The construction of the processing plant on the site commenced in 2011 and was completed in 2012. A number
of modifications have been made since the initial commissioning date, including the addition of the Ball Mill. The
plant is made up of a number of operations including Washing, Milling, Screening, Absorption, Leaching, Elution
and Refining. The assets are generally similar to other assets used in the processing of other base metals (e.g
gold, lead, zinc) with the exception of the Log Washer. The plant has a capacity of 100t/hr of ore input at the
ROM; this plant would be considered to be relatively low capacity when compared to other processing plants.
In addition to the processing plant other assets on site include Power Generation, Fuel Storage, Water Treatment
and Handling, Accommodation Camps, Administration Buildings, Light Vehicles, Maintenance Workshops, Labs
etc. These support assets would have a broad market and would prove very popular if offered for sale.
The Mining sector as a whole over the past 18 months has seen major mining expansion projects placed on hold
and there is very little capital expenditure in the sector. Throughout Australia mines have closed, new projects
have been postponed and exploration has been reduced to a minimum. It is reasonable to assume that there
would be very few end user buyers for the equipment if it were to be sold for removal. However, mining
companies may be more inclined to purchase used equipment rather than new in an endeavour to limit capital
expenditure.
In arriving at our estimates of value we have utilised a number of sources of information including original invoices
obtained from the Company, Accounting Depreciation schedules provided by the Company, conversation with
equipment suppliers and conversations with used equipment dealers and relevant industry contacts. When
depreciating assets for Market Value for Existing Use we have assumed the remaining useful life equal to
remaining life of mine, allowing for a small residual value at the end of mine.
For many of the major processing assets there is little or no recent auction sales data or secondary market data
on which to base our values. This lack of data is due in part to the strength of the Mining Industry over the past 8
to 10 years and a limited number of mine closures. We have relied on a degree of professional judgement in
arriving at many of the auction values for these items based on equipment costs, age, location, condition etc
utilising our experience in the valuation and sale of similar large scale mining plants. Any person reading this
report should consider our auction value estimates in this light.
The timing of the commissioning is particularly relevant to the value of the plant and equipment given that in the
time since commissioning the Silver price has fallen dramatically, from an average price of approx. $35 USD per
Oz in 2011, to the current price of $19.76 USD.
A package of assets used in the Elution area were purchased by the Company from the USA and installed on site.
These assets are somewhat of an orphan asset in the Australian market and are not known or reputable brands.
Given this fact and the current soft second hand market an end user buyer for this equipment is not obvious in the
market.
Page 3
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
The Logwasher used in the processing plant was imported from the US Manufacturer and is an uncommon asset
to be seen in a plant such as this. Units such as this are more often used in quarry plants and are not widely used
in Australia. We understand this unit has operated in a harsh environment and is in need of repairs and upgrades,
particularly the main shafts. This unit may prove difficult to sell in a breakdown scenario.
Goods and Services Tax (“GST”) & Currency
Unless otherwise stated, all items detailed in this report have been valued on a GST EXCLUSIVE basis.
Currency of Valuation
The values detailed herein are current at the date of this report only. Changes in economic conditions or market
forces may have the effect of significantly and unexpectedly changing the values which have been assessed, over
a relatively short period of time (which may require the Valuation to be revised). No liability is accepted by Grays
Asset Services in respect of any loss or damage which may arise from any change in values caused by such
circumstances.
Without limiting the generality of the above provision, no responsibility or liability is accepted by Grays Asset
Services in circumstances where this Valuation or any part of it is relied upon after the expiry of three months
from the date of this report.
Valuation Approach
In assessing the value of the assets, we have considered the two most common approaches available being
“Sales Analysis Method” and “Depreciated Replacement Cost” which are described below.
a) Sales Analysis Method
This method is most commonly used to determine both the “Estimated Online Auction Realisable
Value” and / or current “Market Value” of an asset by way of reference to prices paid for similar or
equivalent assets either sold on the open market, or at a properly promoted Auction Sale. In order to
forecast the most probable “Value” for each asset, adjustments to the historical sales transactions
may need to be made in order to reflect the condition, location and any other factor which may
influence the value of the assets being appraised as compared to the historical transaction.
b) Depreciated Replacement Cost Method
This approach is an acceptable method of valuation used to determine both “Market Value” and / or
“Market Value for Existing Use”. In arriving at DRC firstly the gross current replacement cost is
established from information sourced from suppliers, publications and historical information. This cost
is then depreciated by factors providing for age, condition, estimated remaining useful life, economic,
functional and technological obsolescence.
We have adopted a combination of both the above for this valuation.
Page 4
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Leased and Third party Assets
Unless otherwise stated, the assets have been valued on the assumption that they are wholly owned and free of
all encumbrances. Specifically we have not attempted to identify any of the assets in this report on the national
PPSR register. We recommend that you make enquiries to determine whether in fact this is the case.
Please note that the categorisation of the assets in this report should not be taken as a representation of legal
ownership. Again, we recommend that you make your own enquiries in this regard.
Operating Lease / Rental and Third Party Items
In accordance with our standard practice, items thought to be subject to Operating Leases, Rental Agreements or
property of third parties have been listed for inventory purposes only, and not valued.
Excluded Items
The following have not been included within the scope of our work:
Mine Infrastructure such as Roads, Dams, Pipelines, Civil Works, Power Lines etc;
▪
Third party assets such as Mining Contractor Equipment, rental and hire equipment and other third
▪
party owned assets;
Items stored off site that we were not made aware of;
▪
Goodwill and all other forms of intellectual property including software;
▪
Licensed application software; and
▪
Items categorised as building fixtures. In undertaking our work we have only listed and valued
▪
separable items of plant and equipment. Items typically categorised as building fixtures include: fixed
walls and partitioning, signage, lighting, carpet, doors, cabling and wiring.
Items Valued on Sight Unseen Basis
In some instances valuation estimates may have been ascribed to items in this report on a "Sight Unseen" basis
due to an inability to sight items, or other limiting factors. Please note that valuation estimates ascribed to assets
in this report on a 'Sight Unseen' basis should be considered indicative only. Grays Asset Services accepts no
liability for reliance placed on assets valued on this basis.
General Qualifications
In addition to the above, please note the following:
§
§
§
§
§
We emphasise that the Estimated Auction Realisation values assume that all subject items are
included in an online public auction.
Our Estimated Auction Realisation values do not take into account cost of removal of the items or any
make-good requirements. We recommend that you consult us on a case by case basis if the assets
must be relocated prior to realisation.
The values shown for Market Value for Existing Use and Estimated Auction Realisation relate only to
the total value of assets and not to the individual values of the items.
The valuation is based on the assumption that the assets are, or are capable of being utilised as
assets of a profitable undertaking at the date of the valuation. No allowances have been or could be
allowed for future market or economic changes.
Our valuation is prepared on the basis that a full disclosure of all information and facts which may
affect the valuation has been made to us. Grays Asset Services does not accept any liability or
responsibility whatsoever for this Valuation unless full disclosure has been made. Accordingly, in all
cases we recommend that you should conduct your own investigation and analysis.
Page 5
§
§
§
§
§
§
§
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Please note that the categorisation of the assets in this report should not be taken as a representation
of legal ownership. Again, we recommend that you make your own enquiries in this regard.
The letter and the enclosed valuation have been prepared solely for the purpose of information and
analysis by you, for your use as recipient only. Therefore, without any prior written consent, the
enclosed valuation or report may not be reproduced, transmitted, included in any document circular or
statement or otherwise made available to any person.
The original signed and certified copy of this report should be considered as the only reliable source of
information. Soft or electronically transmitted copies may be subject to manipulation outside the
control of Grays Asset Services.
Grays Asset Services reserves the right to recall any copies of this report to amend any omission or
error.
Any reference to physical condition of assets as detailed in this report is based on a cursory visual
inspection undertaken by the valuer. Unless otherwise stated no mechanical or technical tests have
been carried out or relied upon. Values are attributed to assets in this report on the assumption that
they are fully operational, free of defects of any nature and comply with all relevant statutory rules and
regulations.
Neither the valuer or Grays Asset Services purports to be a technical expert on any asset included in
this report and our expertise is confined to the valuation practice.
The valuation is given in good faith and has been prepared from sources believed to be reliable at the
time. However, subject to qualifications gained in legislation (if any):
a) No warranty whatsoever is given in relation to the valuation; and
b) We and every person involved in the preparation of the valuation, expressly disclaim all
liability for any loss or damage (including economic and consequential loss) suffered by
any person acting or relying on the valuation, not withstanding any act or omission,
representation, negligence, default or lack of care by any person.
Should you require any further assistance in relation to this matter, please do not hesitate to contact the Valuer,
Chris Martin (AAPI Certified Practising Valuer) on 0413 627 712.
Yours faithfully,
GRAYS (VIC)
(VIC
(V
IC) PTY LTD
IC
____________________________________
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
__
Michael Pankhurst
(A.P.I. Certified Practising Valuer) (Plant
and Machinery)
Fenton
Fent
nton
nt
on H
Hea
Healy
ealy
ea
ly
Director
____________________________________
____
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
____
__
__
Chris Martin (AAPI, Plant & Machinery)
Valuer
Page 6
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Valuation Summary
Market Value
for Existing Use
$
Estimated
Auction
Realisation
$
SECTION 1
Process Plant
$6,745,100
$1,039,500
SECTION 2
Mine Auxiliary Plant
$2,726,150
$904,800
SECTION 3
Mine Camp
$2,290,000
$1,195,300
$311,000
$216,000
$12,072,250
$3,355,600
SECTION 4
Light Vehicles & Mobile Equipment
GRAND TOTAL
Page 7
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
20,000
8,000
30,000
12,000
55,000
25,000
125,000
25,000
175,000
50,000
15,000
4,000
8,000
1,000
15,000
4,000
8,000
1,000
SECTION 1 - PROCESS PLANT
AREA 310
1-1
1-2
1-3
1-4
1-5
1-6
1-7
1-8
1-9
1
1
1
1
1
2
1
1
1
ROM Bin (310-BN-01)
Approx 6m x 3m x 3.5m (H), steel fabricated
construction, grizzly screen, loading ramp complete
with access platform stairs lighting handrails etc.
ROM Bin Belt Feeder (310-FE-01)
1600mm (W) belt x approx 8.5m (L), 45kw drive motor
VSD with belt feed discharge chute, safety gates &
fencing, emergency trip wire
Conveyor - Log Wash Feed (310-LV-01)
Approx 40m (L) x 1050mm (W) belt, Tectron model 50
overbelt metal detector (310MD01) Continuous
weighing system, complete with conveyor head chute
access walkway, handrails, stairs, lighting, emergency
tripwire
Log Washer (310-SN-01)
Greystone Model: 46 inch. dia. x 35 WLST, twin Shaft,
S/No.LW46761129642GS, 150kw electric drive motor
with discharge chute
Double Deck Screen (310-SN-02)
Joest Model SRZN 210X6100, S/No.4569, DOM: 2011,
132TPH design capacity, 30kw drive motor with 10mm
& 2mm Polyurethane screens, undersize & oversize
chutes
Pumps
Vertical, water pressure, Javelin JV32-6, 11KW
Screen Undersize Hopper (310-HP-01)
Steel fabricated, approx 5m³ angled base with
discharge
Pump Screen Undersize (310-PP-03)
Warman 8/6 EAH, centrifugal slurry, powered by 30kw
electric drive motor
Log Wash Overflow Hopper (310-HP-02)
Steel fabricated construction, approx 4m³ with flexible
infeed piping, outfeed pneumatic gates & valves
Page 8
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
15,000
4,000
8,000
1,500
75,000
15,000
1,300,000
100,000
10,000
3,000
70,000
40,000
Sump Pump - Mill Area (310-PP-31)
Keto, powered by 11kw electric drive motor
8,000
1,500
Keto, powered by11kw electric drive motor
8,000
1,500
Keto, powered by 11kw electric drive motor
8,000
1,500
Pump - Ball Mill Outfeed
Warman 6/4
15,000
4,000
Contingency for Steel Support Structure to Area 310
Heavy duty bolted steel construction grid mesh
platforms, access stairs, hand rails, lighting, piping,
pipe & cable trays
150,000
7,000
Asset
No.
Qty
Description
1-10
1
Pump Log Wash Overflow (310-PP-01)
Warman 8/6 EAH, centrifugal slurry, powered by 30kw
electric drive motor
1-11
1-12
1-13
1-14
1-15
1-16
1-17
1-18
1-19
1-20
1
1
1
1
1
1
1
1
1
1
Sump Pump - Log Wash Area (310-PP-02)
Keto Model 2.5, powered by 7.5kw electric drive motor
Conveyor - Ball Mill Feed (310-CV-02)
Approx 35m (L) x 750mm (W) belt fitted with TC
Process equipment GT500 continuous belt weigher
complete with conveyor head chute, access walkways,
handrails, stairs, lighting, emergency trip wire
Ball Mill (310-ML-01)
Vickers Ruwolt 9ft x12ft wet overflow, powered by
400kw drive motor, LE Systems Auto lubrication,
complete with Ball Mill access walkways, stairs,
handrails, steel structural support, discharge chute,
hopper & concrete foundations
Chain Hoist - Ball Mill Feed
5 tonne Pacific Hoists, electric, with girder trolley
Stacking Conveyor - Ball Mill Scats
Ezy Stack Model TR8048, track mounted, Caterpillar
diesel engine, telescoping end
Page 9
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
8,000
1,000
15,000
4,000
60,000
15,000
40,000
15,000
30,000
10,000
54,000
25,000
6,500
2,500
20,000
4,500
Rougher Shaking Table No.1 (330-ST-01)
Holman - Wilfley, Model 8000
20,000
7,500
20,000
7,500
20,000
7,500
9,000
1,000
18,000
2,000
Description
Qty
AREA 330
1-21
1-22
1-23
1-24
1-25
1-26
1-27
1-28
1-29
1-30
1-31
1-32
1-33
1
1
1
1
1
1
1
1
1
1
1
1
2
Cyclone Feed Hopper (330-HP-01)
Steel fabricated Construction, approx 5m³ with bottom
discharge
Pump - Cyclone Feed (330-PP-06)
Warman 6/4 centrifugal slurry, powered by 55kw, 415V
electric motor
Cyclone Cluster (330-CY-01)
Weir Minerals, Carex Cyclones Model 250 CVX10, 6
cyclone cluster (only 4 installed), 73mm inlet diam.,
90mm vortex diam.
Rougher Spirals (330-SP-01)
Bank of 6 spiral separators, type MG6.3, twin start with
feed distributor (33-DS-01)
Middlings Spirals (330-SP-02)
Bank of 4 spiral separators, type MG6.3, twin start with
feed distributor (330-DS-02)
Spiral Tails Screen (330-SN-02)
Jost, type SUE, 1530 & 4270, S/No.4648, with feed
bar, oversize launder & undersize launder
Pump Classified Cyclone Underflow (330-PP-09)
Warman 4/3, with 22kw 415v motor & feed hopper
1.83m³
Pump Combined Leach Feed (330-PP-07)
Warman 6/4 AH, with 55kw 415v motor & 7.5m³ feed
hopper
Pump Rougher Shaking Table Feed (330-PP-14)
Warman 1.5/1, rubber lined, powered by Weg 5.5kw
415v motor & feed hopper
Pumps Cleaner Table Feed (330-PP-15A, 16A)
Warman BM1.5/1, rubber lined, powered by Weg
5.5kw 415v motor & with hopper
Page 10
Asset
No.
Qty
1-34
1
1-35
1-36
1-37
1-38
1-39
1
1
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
9,000
2,000
20,000
7,500
8,000
1,000
Pump Gravity Area Sump (330-PP-20)
M & Q size 65, powered by 11kw 415v motor
10,000
1,500
Contingency for Gravity Area Structural Steel Support
Heavy duty bolted steel, grid mesh walkways, access
stairs, land rails, lighting, pipework
250,000
10,000
8,000
2,000
450,000
40,000
2,500
400
528,000
80,000
3,000
500
40,000
5,000
20,000
3,000
Description
Pump Cleaner Table Tails (330-PP-17)
Warman BM1.5/1, rubber lined, powered by Weg
7.5kw 415v motor & with hopper
Cleaner Shaking Table No.1 (330-ST-D4)
Holman - Wilfley, Model 8000, with distributor
Tank Cleaner Concentrate Dewatering (330-TK-01)
Pump
Warman 4/3 CAH, S/No.4048373, powered by Taco
15kw 415v motor (not installed)
AREA 340
1-40
1-41
1-42
1-43
1-44
1-45
2
1
4
1
1
1
Leach Tanks (340-TK-01 & 02)
Approx 10.5m dia. X 12.5m (H), welded steel, approx
1million cu/mtr Each, with Mixtec agitators, model
4008S, powered by 55kw 415v motor
Leach Feed Distributor (340-DP-01)
Absorption Tanks (340-TK-03, 04, 05, 06)
Approx 8.4m dia. X 9.3m (H), approx 500cu/mtr
capacity, each with Mixtec agitators, Model 4005S,
powered by 30kw 415v motor, & each with intertank
screens & carbon transfer pump
Relocatable Building
Affordable 3m x 2.4m, air conditioned
Cyanide Analysis System
Olympic, TAC1000 online analyser & TAC1000 Wet
Box enclosure, air conditioned cabinet
Gantry Chain Hoist - Pacific 5 Tonne Pendant Control
(340-HT-02)
With structural steel support & mono rail
Page 11
Asset
No.
Qty
1-46
1
1-47
1-48
1-49
1-50
1
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
54,000
25,000
18,000
5,000
8,000
1,000
10,000
500
200,000
10,000
30,000
2,000
25,000
2,000
25,000
2,000
Tank, Acid Wash (350-TK-12)
3.05m dia. x 5.96m (H), conical base
35,000
2,000
Tank, Loaded Carbon (350-TK-08)
3.05m dia. x 5.96m (H), fibreglass, conical base
25,000
2,000
8,000
1,000
6,000
500
2,000
300
Description
Carbon Safety Screen (400-SN-1A)
Jost, type: SUE 1530 x 4270, (2011), with underflow
launder, structural steel support, access stairs, hand
rail & lighting
Pump Tailings Disposal (400-PP-01)
Warman 6/4 AH, powered by Toshiba 75kw 415v
electric motor
Sump Pump Tails Area (400-PP-03)
M & Q 65, powered by 11kw 415v electric motor
Screen Carbon Dewatering (350-SN-XX)
Model SB1200 sieve bend with carbon feed hopper
Contingency for Structural Steel Pipe & Cable
Supports to Leach & Absorption Areas including:
Pipe bridge, access walkways, lighting, handrails etc.
AREA 350
1-51
1-52
1-53
1-54
1-55
1-56
1-57
1-58
1
1
1
1
1
1
1
1
Loaded Carbon Screen (350-SN-01)
Ludowici Model UHS 1200/2400, with feed box,
overflow chute
Tank, Dilute Acid (350-TK-10)
36,000 litre capacity, 3.05m dia. x 4.5m (H), Scotia Int.
fibreglass with agitator & oversize screen
Tank, Dilute Caustic (350-TK-11)
36,000 litre capacity, 3.05m dia. x 4.5m (H), Scotia Int.
fibreglass with agitator
Pump, Loaded Carbon Transfer (350-PP-09)
Hydrostal 6/5, powered by 30hp 415V electric motor
Pump, Dilute Acid (350-PP-16)
Techniflo154mm, powered by 11kw 415V electric
motor
Pump, Dilute Caustic (350-PP)-17)
Goulds, powered by 11kw 415V electric motor
Page 12
Asset
No.
Qty
1-59
1
1-60
1-61
1-62
1-63
1-64
1-65
1-66
1-67
1-68
1-69
1
1
1
1
1
1
1
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
8,000
1,000
270,000
10,000
Sump Pump, Elution Column Area (350-PP-06)
Keto, powered by 7.5kw 415V motor
8,000
1,500
Pump, Stripping Column Transfer (350-PP-10)
Wenco Hydrostral model ESK-S 6x5
6,000
1,000
3,000
400
5,000
600
25,000
2,000
35,000
10,000
50,000
2,000
4,000
500
40,000
2,000
Description
Pump, Acid Wash Carbon Transfer (350-PP-15)
Hydrostal 6/5, powered by 30hp 415v electric motor
Elution Column (350-PV-01)
12 tonne strip vessel, 28.39kl, mfg Mark Steel Corp,
S/No NB2139, inside dia 90" (2.28m), height 20ft (6m),
with structural steel support, access stairs, hand rail &
lighting
Pump, Elution Drain (350-PP-11)
Sump Pump, Acid Wash (350-PP-19)
Keto, 415V electric motor
Heat Exchange Package
Bell & Gossett, comprising:
Primary cooling heat exchanger (350-HX-02);
Secondary cooling heat exchanger (350-HX-03);
Primary heat exchanger (350-HX-01);
& Water Circulation Pump (350-PP-08);
All mounted on steel base platform
Water Heater (350-HE-01)
Unilux, model ZF1200V, S/No A2320 (Year 2011), max
temp 350°F, natural gas fired
Tank Pregnant / Recirculation Solution (350-TK-02)
Welded steel, 6.1m dia x 9.15m(H), with insulated
external jacket
Pump, Pregnant / Recirculation Solution (350-PP-01)
Goulds, model 3196 2/3, powered by 20hp 415V motor
Tank, Barren / Retreatment Solution (350-TK-01)
Welded steel, dia 7.93m x 9.15m(H), with agitator,
insulated external jacket
Page 13
Asset
No.
Qty
1-70
1
1-71
1-72
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
360,000
75,000
15,000
1,000
2,400
500
15,000
1,750
Sump Pump (350-PP-7A)
Keto, model 1.5VS, powered by 7.5kw 415V motor
8,000
1,500
Pump
Twin diaphragm, Graco Husky 1590
1,000
300
600
200
120,000
45,000
80,000
15,000
140,000
35,000
180,000
20,000
Description
Carbon Regeneration Plant (350-KN-01)
Ansac, gas fired kiln, model HK1500LP, S/No K967
(August 2011), nominal capacity 1500kg/hour, dry
carbon, 4 burner, complete with pre dryer tank, kiln
feed screw, carbon feed hopper, structural steel
support, grid mesh walkways, access stairs & lighting
Tank
Barren Carbon, conical base
Pump, Barren Caron Transfer Water (350-PP-20)
Regent 100/285, powered by Weg 15kw 415V motor
SILVER ROOM
1-73
1-74
1-75
1-76
1-77
1-78
1-79
1-80
1
1
1
1
3
1
1
1
Zinc Feeder (350-FD-01)
K-Tron feeder, zinc mixing tank with agitator, vacuum
pump, Goulds precip filter feed pump, operation
platform & motor control panel
Water Blaster
Diesel engine
Filter Presses
Siemens Sidebar J-Press (350-FR-01,02,03), model
800N32-23/29-12/15DYLW, 24 membrane, Year 2011,
max feed pressure 100psi, hydraulic clamping
pressure 3700psi
Mercury Burn Off Kiln
Envirocare Retort Furnace, external dimension approx
3m x 1.5m x 1.5m, inner chamber approx 600mm dia
Mercury Burn Off Kiln
Retort Furnace, Furnace Technologies, model MUR-8585-12, external dimension approx 1.8m x 1.8m x 1.8m,
Mercury liquifying condenser tank, with SMC thermo
coder, model HRG010-A
Fume Extraction System
Internal & external ducting, Indux VT25PT wet
scrubber, 5.7m(H), 1.8m dia, Indux MA650 extraction
fan and deaeration tower
Page 14
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Asset
No.
Qty
Description
Market Value
for Existing
Use
$
1-81
1
Ingot Furnace
Furnace Engineering, model BF2508, natural gas fired
(Mfg July 2011), 1400mg per hour, Dore Mould trolley
47,000
20,000
Ventilation Fans
48", Quitecool, 240V, electric (one not servicable)
5,000
2,000
Sandblaster Cabinet
Hafco, model SBC990, S/No 052
1,000
750
45,000
1,000
6,000
2,400
30,000
3,000
Pallet Scale
Avery Weight-tronix
1,500
600
Pallet Racking
4 bay
1,600
800
5,000
2,000
34,000
5,000
8,000
1,000
45,000
5,500
8,000
1,000
1-82
1-83
1-84
1-85
1-86
1-87
1-88
1-89
2
1
1
1
1
1
1
1
Vault
Approx dimension 4m x 4m, steel/concrete
construction, digital & manual combination plate steel
internal lining
Portable Site Office (350-BD-02)
MBS, 6m x 3m, skid mounted, two office,
airconditioned
CCTV System
Panasonic, digital video recorder, 2 Vidipac video
switches, 16 camera system, monitor & cabinet
Miscellaneous Equipment including:
Pedestal drill, bench scales, bench grinder on
pedestal, 4 x 3 tier trolleys, step ladder
Estimated
Auction
Realisation
$
AREA 360 - REAGENTS AREA
1-90
1-91
1-92
1-93
1
1
1
1
Tank, Concentrated Sodium Hydroxide
Clark poly tank, 36,000 litre, complete with Global
Caustic Pump System, 3 pumps, control panel, poly
5,000 litre tank
Sump Pump (360-PP-07)
Keto, 7.5kw
Tank, Concentrated Hydrochloric Acid
Acid poly tank, 46,000 litre, complete with global
pumps system, 3 pumps, 5,000 litre poly tank
Keto, 7.5kw 415V motor
Page 15
Asset
No.
Qty
1-94
1
1-95
1-96
1-97
1-98
1
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
Tank, Sodium Solution Cyanide Storage
90,000 litres, mild steel
25,000
1,000
Keto, 7.5kw, model 1.5VS
8,000
1,000
Tank, Cyanide Mixing
With agitator & bag splitter
15,000
3,000
1,000
500
320,000
50,000
480,000
80,000
50,000
15,000
6,745,100
1,039,500
Description
Pump, Cyanide Transfer (360-PP-12)
Lime Silo (360-PKG-01)
Lime treatment plant comprising:
40 tonne hydrated lime storage silo with lime storage,
mixing & dosing facility, tank dimension 2.6m 1/s x
2.86m(H), approx 2.8 cu/mtrs. with Warman 1.5/1
transfer pump & sump pump
MINE ELECTRICAL MCCS
1-99
1-100
1
1
Contingency for Mine Electricals comprising:
Main electrical MCC;
Ball mill MCC;
Area 310 MCC:
Area 340 MCC:
Area 350 MCC;
Area 390 MCC:
Plus electrical cable, cable tray, instrumentation
Scrubber
Contatore Engineering, S/No 52260, make/model 5-210, capacity 20 ton, date of mfg 11 October 2011,
heavy truck axles & tynes (Not installed)
TOTAL SECTION 1
Page 16
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
60,000
35,000
60,000
35,000
60,000
35,000
50,000
10,000
120,000
75,000
120,000
75,000
120,000
75,000
SECTION 2 - MINE AUXILIARY PLANT
FUEL FARM
2-1
2-2
2-3
1
1
1
Diesel Fuel Storage Tank (500-TK-01)
Logitank, 70,688 litre, self bunded containerised type,
Class C1 Franklin Submersible Pump, S/No LSBU
7501 048, DOM: 11/2011
7501 069, DOM: 11/2011
7501 027, DOM: 11/2011
Note: Above 3 tanks share common bolted steel
access platform and below dispensing system
2-4
1
Container Control Shed comprising:
20ft container with bund floor, Graco 700 Series fuel
bowser, fuel filtration system, Pilot Trademaster 12 air
compressor with hose reel, swipe card/keypad digital
access & metering system, auto refill to day tanks in
Generator area
GENERATOR AREA
2-5
2-6
2-7
1
1
1
Generator 1 (700-DG-01)
Packaged Diesel Powered Generator, Cummins
C900D5, S/No I10S101409, DOM: 2010, 656kw prime,
720kw standby, 820kva prime, 900kva standby, LPG
injection technology
C900D5, S/No I10S101410, DOM: 2010, 656kw prime,
C900D5, S/No J10S101616, DOM: 2010, 656kw prime,
Page 17
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Asset
No.
Qty
Description
Market Value
for Existing
Use
$
2-8
1
Packaged Diesel Powered Generator, Cummins model
C275D5, S/No C11KBNW530, DOM: 2011, 275kva
standby, 250kva prime, 220kw standby, 200kw prime
40,000
25,000
Diesel Storage Tanks
Logitank Daytank, 4500 litre, mounted on skid base,
with canopy, complete with fuel lines from fuel farm
30,000
14,000
Pump - Process Water (390-PP-05)
Gould 100X65-250, 45kw electric motor, complete with
electrical control cabinet & float collection to dam
12,000
2,000
Pump - Raw Water (390-PP-03)
Gould 100X65-25, 45kw electric motor, complete with
electrical control cabinet & float collection to dam
12,000
2,000
20,000
10,000
12,000
3,000
35,000
8,000
6,000
1,000
275,000
50,000
2-9
2
Estimated
Auction
Realisation
$
WATER SYSTEMS
2-10
2-11
2-12
2-13
2-14
2-15
2-16
1
1
1
1
1
1
1
Fire Water Pump (100-PU-99181)
Southern Cross 15X125-400, coupled to Cummins 6
cylinder turbo diesel engine, model 6CTA8.3-C260,
Lowara vertical priming pump, 5.5kw, steel fuel tank,
electrical control cabinet, all mounted on galvanised
skid frame with engine canopy
Pump - Potable Water (390-PP-02)
Javelin JV45-3 vertical stainless steel multistage
pump, 11kw motor, with Vasco VSD
Tank - Potable Water (390-TK-02)
Bolted steel construction, approx 287,000 litre
capacity, with access ladder & level gauge
Bore Water Tank
Poly construction, approx 33,000 litre capacity
RO Package (390-RO-01)
Novatron, model BWE 350,000, S/No J658, DOM:
8/2011, 350kl/day, complete with Grundfos vertical
feed pump, pre filter, membrane filters, cleaning tank,
cleaning pump, flush tank, chemical dosing pumps, all
mounted in 40ft steel shipping container
Page 18
Asset
No.
Qty
2-17
1
2-18
2-19
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
45,000
10,000
10,000
2,000
65,000
10,000
100,000
15,000
Bore Pump
Lowara, 26kw, model Z660/14, submersible
5,000
500
Bore Pumps
Grundfos SP14/25, 7.5kw
6,000
1,500
24,000
10,000
5,000
2,500
Generator
FG Wilson, model PEP28, 22kva, S/No
FGWPEP28PHMU00187, Perkins turbo diesel engine
6,000
3,000
Submersible Pumps
Tailings Flokwip ARM75M
8,000
NCV
Description
Tank - Fresh Water (390-TK-01)
Bolted steel construction, approx 405,000 litre with
access ladder & level gauge
Pump - Fresh Water (390-PP-12)
Gould 100x65-250, 45kw electric motor, complete with
electrical control cabinet
Safety Shower System (390-WC-01) comprising:
Tank (390-TK-04) Poly construction, approx 33,000
litre;
Pump (390-PP-07) Grundfos vertical model CRE-20-7AF-A-E-HQQE, 7.5kw VSD;
Safety showers & reticulation to plant, 15 x showers
throughout
WASTE WATER TREATMENT
2-20
1
Admin Area Waste Water Treatment Unit
Ozzi Kleen SC50A (10kl/day), 1 container system
balance tank inground
BOREFIELDS
2-21
2-22
2-23
2-24
1
3
2
1
Generators
Kohler, model KR66, 60kva, DOM: 2012, 4 cylinder
turbo diesel, John Deere engine
Generator
Agrison, model GFS, 25kva, S/No 1310098
TAILINGS DAM
2-25
2-26
1
2
Page 19
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
22,000
10,000
22,000
10,000
10,000
3,000
6,500
2,000
50,000
10,000
125,000
15,000
10,000
4,000
9,000
2,500
COMPRESSOR HOUSE
2-27
2-28
2-29
2-30
2-31
1
1
1
1
1
Rotary Air Compressor (2)
Ingersoll Rand MM55, S/No 42537DKFGAKK, DOM:
11/2010, 8.5 bar, 55kw
Rotary Air Compressor (1)
Ingersoll Rand MM55, S/No 44044DKFGALB, DOM:
2/2011, 8.5 bar, 55kw
Air Dryer
Conquest Jemaco HX800K, S/No 11DHX1413
Vertical Air Receiver
Martinson VR3000-1175, S/No MAR-30440, complete
with associated filters etc, DOM: 6/2011
Compressor House Building (420-BD-01)
Approx 12 x 5m galvanised steel, heavy duty frame,
with colorbond clad exterior, 2 roller doors & pedestrian
doors
SILVER ROOM BUILDING
2-32
2-33
2-34
1
1
1
Silver Room Building
Approx 8 x 24m galvanised steel, heavy duty frame
with colorbond clad exterior, 3 roller doors & pedestrial
doors
Portable Building
Modular Building Systems (350-BD-03), approx 7m x
3m, with office & toilet
Contents to Above Building including:
Furniture, Dell All in One PC, Samsung printer,
Mercury vapour analyser Ion Science
Page 20
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
15,000
6,000
3,000
1,000
10,000
4,000
20,000
10,000
300,000
30,000
WORKSHOP / STORES BUILDING
WORKSHOP
2-35
2-36
2-37
2-38
2-39
1
1
1
1
1
Workshop Tools including:
WIA 270 Mig Welder with W64 wire feeder;
K & K pedestal Drill;
Fushion Q Box Poly Welder;
Abbott & Ashby Grinder;
CIG 200 Inverter Portable Welder;
4 x Bays Pallet Racking, 2.5m(H);
Haberle Cold Saw, model HL4, with roller in & outfeed
table;
Ventilation Fan, CGE Electrical, 48" Quietcool;
Heavy Duty Oxy Set;
Assorted heavy duty stele fabricated benches;
Pressure Washer, electric
Crane Man Cage
East West Engineering, 250kg capacity, model WPC8,
S/No 70559
Portable Building
Affordable Portables, 6m x 3m, S/No 3147,
airconditioned, single room
Contingency for Contents to Above Building including:
Fusamatic Poly Welder, straight line oxy cutter;
Metabo Magnetic Drill;
Unimig Plasma Cutter, CUT-40;
Assorted Power & Air Tools, power boards, hand tools,
consumables etc
Workshop Stores Building
Heavy duty galvanised frame, approx 35m x 23m,
colourbond clad exterior, with roller doors, access
doors, lighting etc
Page 21
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
10,000
4,000
17,000
4,500
2,000
600
6,000
2,500
8,000
3,500
8,000
3,500
8,000
3,500
STORES
2-40
2-41
2-42
1
1
1
Portable Building
Affordable Portables, 6m x 3m, single room,
airconditioned
Contents to Stores including:
7 x Bays Pallet Racking, approx 3.5m high;
2 x Bays Pallet Racking, approx 2.5m high;
20 x Bays Stores Racking, adjustable with timber
shelves, approx 2.4m(H);
1 x Floor Sweeper, Lavor SWL700ET, S/No 02140,
DOM: 2012;
1 x Stationery Cabinet, 2 door, steel;
1 x Flammables Liquids Cabinet, 250 litre
Stores Office Contents including:
2 x Desks;
2 x Stationery Cabinets;
3 x Chairs;
1 x Filing Cabinet;
1 x PC, Dell Vostro All In One, Core i3;
1 x Printer, Brother MFC-440CN;
Telstra Mobile Smart Antenna
LAB AREA
2-43
2-44
2-45
2-46
1
1
1
1
Portable Building
Approx 5m x 3.4m, single room, aircondtiioned, with
drafting bench & plan cabinet
Portable Building
Approx 5m x 3m, with tables, chairs, pie oven,
microwave, refrigerator, ice machine, Scotsman
MV306
Portable Building
Affordable Portables, approx 6m x 3m, airconditioned,
S/No 3189
Portable Building
Affordable Portables, approx 6m x 3m, airconditioned,
S/No 3159
Page 22
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
2,100
500
Fixed Lab Benches
Laminate, each with sink
1,250
500
Spectrophotometer
Metertech SP-830 Plus, 83003299
3,000
800
25,000
8,000
4,000
2,000
500
100
3,000
1,000
5,000
1,500
2,000
1,000
Magnetic Stirrers
SEM
450
150
Scale
Shinko Denshi, AJ-6200CE
150
50
Description
Qty
LAB OFFICE 1
2-47
1
Contents including:
1 x Fume Cupboard, Lab Systems (not installed);
1 x Atomic Absorption Spectrophotometer, GBC 903;
1 x Office Furniture & IT including: Desk, chair, 2 x
bookcases, 1 x Dell Precision T3500 Intel Xeon , S/No
37FID2S, 1 x Cisco SG300-10 Switch, 2 x 22" Dell
monitors
LAB OFFICE 2
2-48
2-49
2-50
5
1
1
XRF X-Ray Analyser
Innov-X Systems, model X-5000, S/No 202172, March
2012
ROCK LAB
2-51
2-52
2-53
2-54
2-55
2-56
2-57
1
1
1
1
2
3
1
Shipping Container
40ft, with A/C lighting distribution board, S/No
TTNU4779833
Sample Tumbler
Steel fabricated rollers, with single belt driven roller
Lab Oven
Qualtex, 240 volt
Laboratory Mill
Labtechnics, model 100100, S/No 0101001157402,
with hoist
Dust Extraction Cabinets
MARC, steel cabinet bench, with common dust
extraction motor
Page 23
Asset
No.
Qty
2-58
4
2-59
2-60
2-61
2-62
1
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
2,000
1,000
200
100
Lab Oven
Labec, with temperature control
3,000
1,000
Sieve Shaker
Steretronic, with assorted sieves
2,000
500
Allowance for Remaining Items to Lab including:
Glassware & minor items
2,000
500
Shipping Container
40ft, S/No TTNU5845104
4,000
2,000
Shipping Container
20ft, S/No PC1U3836925
3,000
1,500
10,000
10,000
Shipping Containers
40ft steel
8,000
4,000
Shipping Container
20ft steel
3,000
1,500
Shipping Containers
10ft steel
6,000
3,000
8,000
5,000
Description
Vacuum Pumps
Javac
Plate Heater
SEM
BEHIND STORES AREA
2-63
2-64
1
1
LAYDOWN YARD
2-65
1
Contingency for Contents including:
3 x Metso Pumps, assorted sizes;
Reo-bar, pipe, access walkways, hoppers;
2 x Elution Columns;
Steel liners, Ball Mill Girth Gear
GENERAL YARD AREA
2-66
2-67
2-68
2-69
2
1
3
1
Container Ramp
Drive up type, Precince, 7 tonne capacity, hydraulic
rise & fall
Page 24
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
150,000
50,000
35,000
15,000
5,000
2,500
65,000
25,000
125,000
40,000
MINE BUILDINGS
2-70
2-71
2-72
2-73
2-74
1
1
1
1
1
Relocatable Building (790-BD-01)
Main Administration Office, 12m x 24m (8 modules,
each 12m x 3m), 10 x offices, meeting room, crib room,
ducted airconditioning
First Aid Building, kitchen, toilet, open area, split
system airconditioning, sliding entry door, approx 10m
x 3m, Mfg Harnett Transportable Homes Building No
83, Wind rating N4, Build date May 2010
Communication Building, 6m x 3m, wall mounted,
airconditioned
Laundry & Training Room Building, S/No 3007, approx
12m x 90 (3 modules, each 3m x 12m), split system
airconditioning, training room, office, laundry, change
room, 3 x toilet cubicles, 3 x showers, 2 x basins
Male Change Rooms / Bath House, APB Modular,
S/No 19352, 53 & 54), 3 interconnecting modules, 12m
x 9m, designed wind load 45m/s, Mfg date September
2011, green colourbond cladding, fitted out with wire
mesh, personnel lockers, 8 x shower cubicles, 3 x
toilets cubicles, urinal
Page 25
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
MAIN OFFICE BUILDING CONTENTS
2-75
1
Admin Office Contents including:
1 x Desk;
1 x Credenza;
2 x Chairs;
1 x Stationery Cabinet;
1 x Bookcase;
1 x Bar Fridge;
2 x Filing Cabinets, 4 drawer;
Communications Cabinet, B & R wall mount;
Cisco S3000-20 Switch;
Cisco SG300-52;
PC, Dell Vostro, All In One, Core i5;
Shredder, Rexel;
Laminator, Marbig;
Binder, GBC;
Photocopier, Lanier MPC2051, S/No V9719400175
2-76
1
Office Contents including:
2 x Desks;
3 x Chairs;
2 x Bookcases;
1 x Filing Cabinet, 4 drawer;
Notebook, HP Probook, Core i5, with Dell 22" monitor;
Notebook, Dell with Dell 22" monitor;
Telstra Mobile Smart Antenna;
Blast Monitor Texcel 4227
2-77
1
Metallurgy Manager Office Contents including:
1 x Desk;
3 x Chairs;
PC, Dell All in One, Core i5
2-78
1
Operations GM Office Contents including:
2 x Desks;
2 x Chairs;
1 x Meeting Table;
1 x Whiteboard;
Notebook, Dell Core i7, with LG 23" monitor
Page 26
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Asset
No.
Qty
2-79
1
Mining Manager Office Contents including:
2 x Desks;
3 x Chairs;
1 x Bookcase;
1 x Credenza;
1 x Whiteboard;
1 x Printer, HP Designjet T790;
1 x Notebook, HP Probook, Core i7, with Lenovo 22"
monitor;
1 x Notebook, HP Probook, Core i7
2-80
1
Project & Exploration Office 1 Contents including:
2 x Desks;
3 x Chairs;
2 x Tables;
1 x Bookcase;
1 x PC, HP Z210 Workstation, Core i7, with 2 x
monitors;
1 x Printer, Canon iX4000
2-81
1
Project & Exploration Office 2 Contents including:
1 x Desk;
3 x Chairs;
2 x Bookcases;
1 x Table;
1 x Stationery Cabinet, half height;
1 x Locker, 2 door;
1 x Vertical Plan Cabinet;
1 x Notebook, Dell, Core i5;
1 x XRF Analyser, Thermo Scientific
2-82
1
Spare Office Contents including:
3 x Desks;
5 x Chairs;
Telstra Mobile Smart Antenna
2-83
1
Maintenance Office Contents including:
7 x Desks;
6 x Chairs;
6 x Bookcases;
1 x Whiteboard;
3 x Notebooks, Dell Vostro, Core i5;
Dell 22" monitor;
Dell 15" monitor;
Notebook, Dell Inspiron, Core i7;
PC, Dell All In One, Core i5;
Printer, Samsung CLX-6220FX
Description
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
Page 27
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Asset
No.
Qty
2-84
1
Projects Office Contents including:
6 x Desks;
8 x Chairs;
2 x Bookcases;
1 x Vertical Plan Cabinet;
1 x Plan bench, timber frame;
PC, Dell Vostro All In One, Core i3;
PC, HP Z210, Core i7, 1 x monitor;
2x PC's, HP Z210, Core i7, 2 x monitors;
Notebook HP, Probook Core i5, Dell monitor'
2-85
1
Meeting Room Contents including:
4 x Tables;
14 x Chairs;
1 x Credenza;
Electric Whiteboard;
HP Designjet 2000 Printer;
Notebook, Dell Vostro, Core i5;
Hitachi Projector, CP-WX3011;
Projector screen
2-86
1
Crib Room Contents including:
3 x Tables;
8 x Chairs;
Roband Pie Oven;
Sharp Microwave;
Refrigerator, Scope, 2 door;
Refrigerator, Kelvinator;
Water Cooler
2-87
1
Description
Safety Office Building Contents including:
2 x Desks;
1 x Chair;
2 x Filing Cabinets;
1 x Stationery Cabinet;
1 x PC, Dell Vostro, All In One, Core i3;
1 x Whiteboard
1 x Breath Tester, Honywell Envitec Alcoquant;
1 x First Aid Stretcher;
1 x Oxy Viva Ferno;
1 x Royal Flying Doctors service chest;
1 x Medi Lamp;
1 x Eye & Ear Inspection Lamp;
1 x Sphygmomanometer;
2 x Bar Fridges;
1 x Locker
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
45,000
10,000
15,000
5,000
Page 28
Asset
No.
Qty
2-88
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Emergency Response Equipment including:
6 x Breathering Apparatus, Scott Contour (year 2013),
with oxygen bottle, regulator gauges & masks;
Confined space rescue kit;
4 x harness & tripod, Everest;
Bag of rope;
6 x Fire retardant suits & hard hats;
Nardi Air compressor, model Atlantic P-1100, S/No
153371 (April 2013), 330 BAR, 4700psi
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
35,000
20,000
60,000
15,000
15,000
1,000
SERVER ROOM OFFICE
2-89
1
Communications Rack
Hallam, full height;
Switch, Cisco SG300-20;
Firewall, Oceanic Fortinet;
2 x Satellite Routers, Evolution iDirect X3;
WAN Device, Exinda 2061 Series;
Cellular Router, 2 x Netcom Call Direct Series;
1 x Server, HP Proliant ML150G6 Intel Xeon;
1 x Tapedrive HP Quantum;
1 x VPS Eaton 5110;
1 x Battery Backup with charger, inverter & 2 x lead
acid batteries
2-90
1
Satellite Dish
Approx 6ft diam
2-91
1
Radio Antenna
Twin Antenna with Orinoco AP-4000MR module
WEATHER STATION
2-92
1
Weather Station
Envirodata Weather Maestro, with wind vain tower,
Enviro data rain gauge, RG12H, solar panel, sensors &
control cabinet, with IBM Lenovo Notebook Core i5
(Located in Server Room)
Page 29
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
10,000
4,000
10,000
4,500
8,000
4,000
30,000
10,000
25,000
8,000
3,000
1,000
25,000
5,000
2,726,150
904,800
BUILDING 790-BD-04
2-93
1
Building 790-BD-04 Contents including:
8 x Tables;
5 x Chairs;
1 x Whiteboard;
1 x Bookcase;
2 x Maytag Commercial Washers, model
MAT15MNAGWO;
2 x Maytag Commercial Dryers, Model MDE17NBGW;
1 x Notebook Computer, Dell Vostro Core i7
CONTAINERS NEAR ADMIN OFFICE
2-94
2-95
3
1
Shipping Containers
20ft steel, complete with power lighting & central
canopy & flood lighting tower, contents including
benches, flammables liquid cabinet, core trays, Stihl
line trimmer
Ablutions Building
Approx 3m x 3m, 1 x urinal, 2 x WC, 1 x shower,
approx 3000litre poly tank
SITE ACCESS ROAD
2-96
1
Wheel Wash
Geowell, model DK-G01EX, S/No DKM-8459, 2.8m(W)
SURVEY EQUIPMENT
2-97
2-98
2-99
1
1
1
Total Station
Leica TS15, S/No 105988, complete with accessories,
tripods, staff etc
Electronic Level
Leica Sprinter 250M, S/No 2211083, complete with
accessories, tripods, staff etc
GPS Reference System
Leica Viva GNSS, with base unit, AS10 reference unit,
Pacific Crest positioning data link, mobile, Leica GPS
Repeater used in field
TOTAL SECTION 2
Page 30
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
960,000
560,000
120,000
50,000
50,000
25,000
90,000
40,000
65,000
40,000
320,000
200,000
35,000
15,000
SECTION 3 - MINE CAMP
3-1
3-2
3-3
3-4
3-5
3-6
3-7
16
2
1
1
1
1
1
Relocatable Living Quarters
MBS(2), APB (14), 4 room, Mfg 2012, with ensuite,
dimensions 14.5m x 3.5m, split system airconditioners,
rated wind speed 45m/s, furnished with single bed,
wardrobe, desk, chair, bar fridge, flatscreen television
& hot water system
Relocatable Living Quarters
APB, 3 room, Mfg 2012, each with disable bathrooms,
rated wind speed 45m/s, 14.5m x 3.5m, split system
airconditioners, furnished with single bed, wardrobe,
desk, chair, bar fridge, hot water systems & flatscreen
television
Male & female toilets, Mfg 2012, rated wind speed
45m/s, 12m x 3m, S/No 19718, Radiant 315 litre hot
water system
Laundry, Linen & Chemical Store, APB, S/No 19717
(Mfg 2012), 14.5m x 3m, fitted out with 8 x Maytag
dryers, 7 x Maytag washers, hot water system, 2 x split
system airconditioners
Gym & Recreation Room, APB, 6m x 12m, fully fitted
out with gym equipment, 54" CTV, billiard table,
kitchen
Kitchen / Diner, 18m x 12m, APB, comprising dining
area, office, cleaning room, airlock entry, kitchen, store
room, cold/freezer room, fully fitted out with
commercial kitchen equipment & dining furniture
Communications Room, APB, 6m x 3m, S/No 2478,
including communications equipment, 2 x
communication racks, MFB rack; 16 VAST set top
tuners; AV routers; Nomadisc AG5600 switch; Cisco
SF300/2XP switch; Satellite Router; Evolution model
Idirect X3, 4 x Hills AV switches; 2 x Satellite Dishes
Page 31
Asset
No.
Qty
3-8
1
3-9
3-10
3-11
3-12
1
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Mine Camp Miscellaneous Items including:
Bedding, linen, shower curtains, crockery, cutlery,
kitchen/dining furniture (cost stocktake provided
indicate approx $25,000)
Sewerage Treatment Plant
Ozzi Kleen, model SC75A-STP, capacity 15,000
litre/day, 2 container systems, with inground balance
tank
Power Generation Plant comprising:
2 x Cummins Packaged Gen Sets, model C275D5,
standby 275kw, primary 250kw. S/Nos L11K285981
(7000 hours approx), S/No L11K285921 (7500 hours
approx) Mfg date 2011
Diesel Storage System comprising:
Logitank, 70668 litre tank, self bunded, above ground,
model LSB75, Class C1 diesel, S/No 750109, plus
Logitank day tank, 4500 litre
Potable Water Plant comprising:
2 x Clark poly tanks, each 35,460 litres, plus 2 x
Javelin JV32-4B water pressure pumps, 7.5kw
pressure tank
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
15,000
5,000
130,000
35,000
80,000
50,000
90,000
50,000
25,000
5,000
100,000
40,000
30,000
12,000
15,000
6,000
5,000
2,000
7,000
3,000
ORIGINAL MINE CAMP
3-13
3-14
3-15
3-16
3-17
4
3
1
1
1
Relocatable Buildings
Modified 40ft shipping containers, 4 x room living
quarters, no ensuites, split system airconditioners,
furnished
Relocatable Buildings
Modified 20ft shipping containers, 2 x room living
quarters, no ensuites, split system airconditioners,
furnished
Male Ablution /Laundry, Ausbilt, approx 6m x 3m, 2 x
toilet cubicles, 3 x showers cubicles, 2 x vanity basins,
Maytag washer, Maytag dryer
Store Room, 5m x 3m
Ablution/Laundry, 2 x showers, 2 x toilets, laundry tub,
Simpson dryer, LG washer, modified 20ft shipping
container, 3 x hot water systems, split system
airconditioner
Page 32
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
10,000
4,500
25,000
10,000
60,000
20,000
2,500
1,500
30,000
15,000
Water Tanks
Poly, 10,00 litre capacity
2,000
800
Water Tank
Poly, approx 20,000 litre, Bushman type T6500
3,000
1,000
500
500
20,000
4,000
2,290,000
1,195,300
Asset
No.
Qty
Description
3-18
1
Female Ablution, 3 x bathrooms, modified 20ft shipping
container
3-19
3-20
3-21
3-22
3-23
3-24
3-25
3-26
1
1
1
1
3
1
1
1
Kitchen / Diner, with store room, APB, 12m x 3m, S/No
7337, kitchen equipment, refrigeration
Recreation Room, 12m x 12m, (4 x modular each 12m
x 3m) includes kitchen, male & female toilets, 2 x
offices, veranda, split system airconditioner, ice maker,
CTV
20 Shipping Container
Power Generator
FG Wilson, type MCA9098, 110kva, powered by
Perkins 4 cylinder diesel engine, with FG Wilson,
alternator, model PEP24, ID#
FGWPEP24KDMU00232, with inbuilt fuel tank, skid
enclosed with 20ft shipping container, approx 9000
hours
Club Car Golf Buggy
Sewerage Treatment Plant
Ozi-Kleen, non septic sewerage system, model X,
S/No 1569414664, (Year 2011), S/No 1618115151,
flow capacity 2000 litre / day, 240 volt, tank capacity
450 litre, packaged unit, all mounted in 20ft skid base
with forklift capabilities
TOTAL SECTION 3
Page 33
Asset
No.
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Qty
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
25,000
15,000
28,000
20,000
50,000
30,000
35,000
25,000
SECTION 4 - LIGHT VEHICLES & MOBILE
EQUIPMENT
4-1
4-2
4-3
4-4
1
1
1
1
Light Vehicle (LV04)
2010 Toyota Hilux SR Dual Cab Utility 4WD, Model
KUN26R;
VIN: MROFZ22G101028522;
Engine No: IKD7898117;
White duco with canopy;
3.0 D4D Diesel Engine;
5 Speed Manual Transmission;
Fitted with tow bar, bull bar, winch;
Odometer reading: 138,817kms;
Reg No: BP-48-RK;
Condition: Fair, interior poor, slight panel damage, R/H
front
2009 Mitsubishi Fuso Canter L7/800 Model
FE83DE4SRFAB;
VIN: JLFFE83DEOKJ00478;
GVM: 4,5000kg;
Diesel Engine;
4m dropside tray body;
Reg No: BQ-32-KX;
Condition: Poor/average, interior: poor
Ambulance (Emergency Response Vehicle) (LV08)
2007 Toyota Landcruiser 4WD Workmate Troop
Carrier;
VIN: JTERV71J600001061;
6 Cylinder Diesel;
Medical response equipment fitout;
Reg No: BV-40-BW;
Slight panel damage
2009 Toyota Landcruiser 4WD Wagon Workmate;
VIN: JTEEV73J600003248;
V8 Turbo Diesel;
Tow bar, bull bar;
Reg No: BP-22-CQ;
Tyres 2 poor, fair condition
Page 34
Asset
No.
Qty
4-5
1
4-6
4-7
4-8
4-9
1
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Commuter Bus (LV07)
2008 Toyota Hiace 200 Series;
SLWB 9.8, 12 seat;
VIN: JTFST22PX00004330;
White duco, D.4D diesel engine;
Automatic Transmission;
Reg No: BN-98-DA;
Good/fair condition
Light Vehicle (LV-10)
2012(Mar) Toyota Hilux Dual Cab Utility Model
KUN26R;
VIN: MROFZ22GX01179696;
3.0 D4D diesel engine;
Drop side tray body, mine specs, bull bar;
White duco;
Reg No: CGV-05K
Good condition
2000 Toyota Hilux 4WD Dual Cab Utility Model
LN167R;
VIN: MR033LNG707800728;
4 Cylinder 3 litre diesel engine;
5 Speed manual Transmission;
Reg No: AM-89-LC
Poor condition
2012(Feb) Toyota Hilux SR Dual Cab Utility model
KUN26R 4WD;
VIN: MROFZ22G901177387;
3.0 D4D diesel engine;
Aluminium drop side tray body, white duco;
Reg No: KUN-26R
Fair condition
Forklift Truck
2011 Caterpillar Model DP25NT;
S/No CT18C-70101;
2.5T capacity;
Diesel engine;
2105 hours;
Container masts;
Puncture proof solid tyres
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
25,000
18,000
32,000
25,000
12,000
8,000
32,000
25,000
18,000
12,000
Page 35
Asset
No.
Qty
4-10
1
4-11
4-12
4-13
1
1
1
29-33 Carter Street
Lidcombe NSW 2141
ABN 35 003 688 284
ACN 003 688 284
PO Box 366
T 02 9741 9600
F 02 9741 9679
Description
Commuter Bus (LV06)
2005(May) Toyota Hiace 200 Series;
VIN: JTFST22P700004690;
3 litre diesel engine;
Automatic Transmission;
White duco; 12 seat.
Reg No: BN-97-DA
Box Trailer
With Refrigerated Coolroom;
Approx 2.1m x 1m x 2m(H);
VIN: 6APBZTRLRBC006237;
Mfg by Victorian Trailers
Tandem Axle Trailer
2013 West Coast;
VIN: 6T9T20V97DOOEM029;
Unregistered;
Solar panel fitted;
With 300w inverter;
Enclosed 10 x 5 rescue trailer;
Lift Up Doors, LED lighting, fresh water tank
Fire Fighting Trailer
2012 Rapid Spray, galvanised, single axle;
Fitted with 1,000 litre plastic tank;
Aussie Pumps firefighting pump, powered by Yanmar
8hp diesel engine, fire hose reel
TOTAL SECTION 4
GRAND TOTAL
Market Value
for Existing
Use
$
Estimated
Auction
Realisation
$
25,000
18,000
6,000
4,500
18,000
12,000
5,000
3,500
311,000
216,000
12,072,250
3,355,600
Page 36
Annexure A
As requested this valuation has been prepared on the basis of MARKET VALUE FOR EXISTING USE which may be defined as:
MARKET VALUE FOR EXISTING USE is synonymous with Market Value Continued Use and/or Current Going Concern Value.
Market Value for Existing Use is defined as the estimated amount at which property might be expected to exchange by a willing buyer
and a willing seller, neither being under compulsion, and each having reasonable knowledge of the relevant facts, with equity to both.
Continued use assumes that the buyer and seller contemplate retention of the facilities at their present location for continuation of the
current operations. This opinion of market value is not intended to represent the amount that might be realised from a piecemeal
disposition of the property in the marketplace or from some other use of the property. These values are expressed in current dollars.
As requested this valuation has been prepared on the basis of ESTIMATED AUCTION REALISATION which may be defined as:
"The gross amount realisable at a properly promoted, conducted and attended public auction sale held by this Company under forced
sale conditions, and under present day economic trends”.
This takes into consideration such inflationary or depreciable conditions as physical location, difficulty of removal, adaptability or
specialisation, marketability, physical condition, overall appearance and total psychological appeal. It further takes into consideration
the ability to draw interested buyers.
Each item in this valuation has been individually assessed with regard to a total package auction sale, and the values shown are not
intended for the piecemeal selling of specific items by private treaty.
Should any of the major items appraised be withdrawn from sale, the overall attraction may not be as great and could adversely affect
the return on the balance of the sale. Furthermore, should the items be relocated elsewhere for sale e.g. Auction Rooms, it could
realise a lesser figure than shown. In the event of either situation occurring then a re-evaluation would be necessary.”
The original signed and certified copy of this report should be considered as the only reliable source of information. Soft or
electronically transmitted copies may be subject to manipulation outside the control of Grays Asset Services.
Grays Asset Services
Page 37

Southern Cross Goldfields Limited

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