Special Situation

9/23/2009
Gold Sector
Special Situation:
New Gold Producer Poised for Re-Rating
SA Shallow Miner Goes International with New Mine, Listing
We are initiating coverage on Gold One International (ASX:GDO,
JSE:GDO, OTCBB:GLDZY) with a buy recommendation based on
an extensive due diligence program, including a visit to both mine
sites and the company’s corporate offices in South Africa. We were
impressed by many factors, not the least of which was the level of
competence witnessed – both organizational as well as technical.
Strategic Energy Research and Capital, LLC
436 Springf ield Avenue, Suite 4
Summit, New Jersey 07901
Office: 908-918-0900
Fax: 908-918-0909
www.strat egicenergyresearc h.com
We urge the reader not to judge too harshly the location of Gold
One’s core assets (i.e. in South Africa). We argue that special
circumstances warrant a valuation that is less South African – or
more in line with the kind of values found outside of South Africa.
Mark Kellstrom
908-918-0900
[email protected]
AOL Instant Messenger: mkellsty
We believe that in discounting South African assets broadly, the
market may be throwing the baby out with the bathwater.
Douglas B. Foulsham
908-918-0900
foulsham@ strategicenergyresearch.com
AOL Instant Messenger: dbfoulshamserc
The fundamentals have come together nicely to put the company in
a position to reap big cashflow rewards over the next several years,
and we believe it is poised for a substantial re-rating in the market’s
eye. Our initial target is 1x NAV: US$6.51 (A$0.78 or ZAR 5, 27).
Successful ramp up at the flagship Modder East mine, a positive
feasibility study at its next flagship (Ventersburg) and higher gold
prices are some of the factors that might warrant a higher target.
George Ross
908-918-0900
ross@strategic energyresearch.c om
AOL Instant Messenger: gsr31958
Edmond J. Bugos
[email protected]
604-941-7049
604-607-5348
----------------------------Gold O ne Inter national Ltd
ASX:GDO, JSE:G DO , OTCBB:G LDZY
45 Empire Road, First Floor
Parkt own, 2193
Gauteng, South Africa
Phone: +27 11 726 1047
website: http://www.gold1.co. za
Ordinary Shares Issued: 805 mi lli on
Fully Dil uted Ordinairi es o/s: 856 mi llion
ASX/JSE Symbol: GDO
1 ADR = 10 Ordinary shares
NASDAQ Sym bol: GLDZY
Strategic Energy Research and Capital LLC, an affiliate of FCG Advisors does not rate or rank individual securities at this time. Information has
been obtained from sources believed to be reliable but Strategic Energy Research and Capital LLC, an affiliate of FCG Advisors does not
warrant its completeness or accuracy except with respect to any disclosures relative to a Strategic Energy Research and Capital LLC, an affiliate
of FCG Advisors and the analyst’s involvement with the issuer. Opinions and estimates constitute our judgment as of the date of this material
and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or
solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be
suitable for all investors. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or
needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of
this report must make its own independent decisions regarding any securities or financial instruments mentioned herein.
9/23/2009
Real Factors
Tonnes Milled
Ounces Produced
Yield (g/t)
Total Cash Costs US$/oz
Earnings & Multiples, US$
Net Earnings per ADR
-eps multiple (x)
Cash Flow per ADR
-cfps multiple (x)
EBITDA per ADR
-ebitda multiple (x)
2009
141,902
25,014
5.5
$900
2010
2011
824,642 1,325,000
146,685
192,000
5.5
4.5
$325
$275
2009
-$0.17
n/a
-$0.18
n/a
-$0.07
n/a
2010
$0.77
4.0x
$1.11
2.7x
$0.98
3.1x
2011
$1.12
2.7x
$1.65
1.8x
$1.45
2.1x
Shares/ADR's (millions)
Ordinary Shares (F/D)
ADR's (10:1)
2009
855.6
85.6
2010
900.0
90.0
2011
950.0
95.0
Assumptions
Gold Price US$/oz
Rand/USD Exchange
2009
$900
7.8
2010
$1,000
8.0
2011
$1,100
8.2
Valuation (millions)
Modder East
Sub Nigel 1
Ventersburg
New Kleinfontein & Turnbridge
Tulo
Sub Nigel 6
Etendeka
Bothaville
Total Project NAV
Net Debt
Additional Capital Dilution
NAV, net
NAV, per ADR or Share
US$
$385
$20
$69
$5
$16
$51
$11
$27
$584
$48
$21
$557
$6.51
ZAR
R 3,119
R 162
R 559
R 41
R 130
R 413
R 89
R 219
R 4,730
R 389
R 170
R 4,512
R 5.27
A$
$464
$24
$83
$6
$19
$61
$13
$33
$704
$58
$25
$671
$0.78
Share Structure
millions
Shares on Issue 31 Dec 2008
556.2
Tulo payments in 2009
0.7
Trinity share swaps in 2009
44.6
Share options exercised in 2009
27.1
Capital raises in 2009
90.1
Shares on Issue 25 Aug 2009
718.6
Options outstanding
50.6
Fully diluted shares on Issue 25 Aug 2009
769.2
Capital raise announced 24 Jun 2009
86.4
Shares issued post capital raise
805.0
Fully diluted shares post capital raise
855.6
Convertible Bonds 8.5%, US$3.93/adr
182.1
Total potential dilution (1, 2)
1,037.7
(1) under certain circumstances the bonds can convert at a lower
rate resulting in more dilution (2) the conversion does not affect
enterprise value per share under normal circumstances
Profit/Loss Stmt, US$millions
Revenue
Cost of Sales
Depreciation
G&A
Exploration
Finance Costs
Income Taxes
EBITDA
Net Earnings
2009
$20
$12
$2
$8
$6
$7
$0
-$6
-$15
2010
$155
$47
$10
$15
$5
$7
$2
$88
$69
2011
$215
$52
$10
$20
$5
$7
$15
$138
$106
Balance Sheet, US$millions
PP&E
Working Capital
Total Debt
Shareholders Equity
2009
$128
$11
$98
$43
2010
$138
$166
$94
$227
2011
$144
$377
$75
$467
Cashflow, US$millions
Net Cash from Operations
Net Cash, Investing Activities
Net Cash, Financing Activities
Net Increase/Decrease in Cash
Project Free Cashflow
2009
-$15
-$40
$43
-$12
-$55
2010
$100
-$13
$50
$137
$87
2011
$157
-$11
$50
$196
$146
Liquidity & Leverage Ratios
Cash
Current Ratio
Interest Cover
Debt/Equity
Debt/CF
2009
$15
2x
n/a
2x
n/a
2010
$152
16x
14x
0.4x
1x
2011
$348
16x
22x
0.2x
0.5x
Profitability Ratios
EBITDA / Sales
ROA
ROE
ROIC
2009
-30%
-10%
-34%
-5%
2010
57%
22%
31%
24%
2011
64%
22%
26%
21%
millions
152.2
120.5
108.2
0
12.5
272.8
694.4
% hldg
22%
17%
16%
0%
2%
39%
100%
US$
$11
$31
$10
$246
$303
$3.05
$3.55
ZAR
R 90
R 243
R 80
R 1,731
R 2,139
R 2.15
R 2.50
Top Gold One Shareholders 31 July 2009
African Global Capital
ADR Program, US Investors
Trinity Holdings
Uranium One
Gold Fields
Other
Fully Paid Issued Capital
Last Traded: A$0.325
Cash on hand as of Q2 (millions)
Cash from capital raise (millions)
Cash from options (millions)
Market capitalization (millions)
Enterprise value (millions)
Share Price, 8 September 2009
EV per share / ADR
2
A$
$14
$38
$12
$278
$343
$0.35
$0.40
9/23/2009
HIGHLIGHTS
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Landmark Year: transformed from South African development junior to international miner and producer
Attractive relative and absolute Valuation with significant re-rating potential
Flagship Modder East plant poured its first gold on 21 July 2009 (3 months ahead of schedule)
Exceptional potential to establish >5Moz resource at Ventersburg (fast tracking feasibility)
Listed on the Australian Stock Exchange via RTO in May 2009
Sub Nigel 1 mine/shaft successfully recommissioned in January (producing at about 85% of targeted rate)
Ample Project Pipeline with multi-million ounce exploration targets in Mozambique and Namibia
Shallow mining niche insulates company from the costly problems associated with mining at depth in SA
Targeting Australian mine safety standards by 2012
Modder East plant is the first new processing facility built on the East Rand in three decades
Innovative, experienced Management group brought two mines on line under budget and ahead of schedule
SAMREC, JORC, NI 43-101 compliant resources, reserves
BEE Transactions negotiated, subject to final approvals by government to become effective
Sound balance sheet with recent A$37.5 million financing
Fundamentals for bull market in gold intact
East Rand is most prolific gold field in Wits Rand, historically producing a quarter of South Africa’s gold
Football (Soccer) World Cup 2010 could be turning point for South African awareness
Gold One International is a recently emerged shallow gold miner that has started up two producing mines on the
East Rand this year, and has a portfolio of additional shallow exploration and development assets on the East Rand
and other parts of the Wits Rand Basin in South Africa – including its next potential flagship (Ventersburg).
In addition, the company holds a 100% interest in one deep mining prospect with a 5Moz NI 43-101 (part of which
is shallow); an attractive IOCG target in Namibia; and greenstone and alluvial prospects in Mozambique (blue sky).
Gold One’s shares are listed on the Johannesburg and Australian Stock Exchanges under the symbol GDO, and its
1
American Depository Receipts trade on the NASDAQ under symbol GLDZY at a ratio of 10 ordinaries per ADR .
Shares on Issue 31 Dec 2008
Tulo payments in 2009
Trinity share swaps in 2009
Share options exercised in 2009
Capital raises and other in 2009
Shares on Issue 25 Aug 2009
Options outstanding
Fully diluted shares on Issue 25 Aug 2009
Capital raise announced 24 Jun 2009
Shares issued post capital raise
Fully diluted shares post capital raise
Convertible Bonds 8.5%, US$3.93/adr
Total potential dilution (1, 2)
556,151,869
691,795
44,620,000
2,800,060
114,303,092
718,566,816
50,649,623
769,216,439
86,400,000
804,966,816
855,616,439
182,065,350
1,037,681,789
(1) under certain circumstances the bonds can convert at a lower rate for greater dilution
(2) the conversion does not affect enterprise value per share under normal circumstances
1
The company issued 600 5yr 8.5% convertible bonds in 2007 , each with a face value of ZAR 1,000,000, to fund
the development of Modder East. More recently (24 June 2009), the company announced a 120 million (ordinary)
share financing, which closed shortly after shareholder approval in a general meeting announced 26 August 2009.
1
About 12 million ADR’s issued as of the end of August
3
9/23/2009
Gold One technically emerged as a producer with the re-commissioning of the Sub Nigel Shaft No 1 in January
2009, which has produced and stockpiled nearly 15,000 tonnes of ore at the new Modder East plant.
The Modder East plant was completed in April, commissioned on 24 June 2009, and began producing Modder East
ore on 21 July 2009.
The Modder East mine is on track to produce 20,000 ounces of gold in 2009, 140,000 oz in 2010 and 180,000 oz
per year from 2011 to 2013 with production from the BPLZ reef tapering off after that out to 2016. Total cash costs
are forecast at an average US$303 per ounce over the life of the mine, falling below that between 2011 and 2013.
Management said in its most recent update that it has developed over 300 meters of reef at Modder, and has been
finding higher grades further west than originally thought "leading to a gain in mineable ground." Additionally, as
the reef is opened up, through mining, the company will have the opportunity to upgrade its reserves to “proven.”
We expect Modder East to generate US$60-80 million in free cash flow during 2010 and twice that in 2011, funding
the company’s development pipeline – especially Ventersburg, Tulo and Bothaville – ultimately targeting an output
of as much as 500,000 ounces per year by 2014 (these are all shallow prospects with low technical risk and costs).
Sub Nigel 1 is a relatively small mine producing at 85-90 percent of its phase 1 capacity, or about 500 ounces per
month. It will mine a couple thousand ounces in 2009, and 6,685 ounces in 2010 at total cash costs estimated at
US$510 per ounce. The company plans to expand output at Sub Nigel to 12,000 ounces by 2011 and to more than
20,000 ounces in 2012. The ore will be processed at the new Modder East plant until 2011 when it achieves steady
state – with a 20,000 tonne per month processing plant envisaged as a stand alone at Sub Nigel 1 constructed by
2012. The Sub Nigel project is a self funded development and (exclusive) training ground for Gold One employees.
The company began its second phase drilling program at Ventersburg on 17 July 2009 in order to expand the
resource (currently over 3Moz) and fast track it toward prefeasibility. Ventersburg is potentially a 5-10Moz deposit
grading >4 grams per tonne at depths of less than 850 meters located in the Free State region of the Wits Basin.
The company is also ready to build
an access road for the exploration
and development of the Tulo Gold
project in Mozambique where it will
mine a 32,000 oz alluvial prospect
to fund development of the primary
source targets that it has identified.
Gold One International, Mineral RESOURCE Estimate (1 )
Indicated
Tonnes (Mt) Grade (gpt) Contained (oz)
Modder East
28.83
2.84
2,632,41 3
Ventersb urg
8.73
5.12
1,437,06 1
Sub Nigel 1, 2, 3
3.04
3.25
317,64 9
Total Indicated
40.6
3.36
4,387,12 3
Gold One listed on the ASX in May
via reverse takeover of BMA group,
and has since sold BMA’s twin hills
project for A$1.75 million in cash.
Inferred
Modder East
Sub Nigel 1, 2, 3, 4 and Spaarwater
Sub Nigel 6
Turnbridge / New Kleinfontein
Ventersb urg
Total Inferred
Total Res ource
Its resources are NI 43-101, JROC
and SAMREC compliant, and it has
the fifth largest resource inventory
on the ASX. The company has
negotiated two BEE agreements –
on its East Rand Basin assets and
Ventersburg – which are subject to
the government granting new order
mining/prospecting rights on all the
assets and approving the structure
of the BEE partnerships and JV.
The company’s independent
consultant, SRK, notes that,
Tonnes (Mt) Grade (gpt) Contained (oz)
14.98
2.16
1,040,29 5
1.15
3.84
141,97 8
48.25
3.39
5,257,49 5
4.27
6.05
830,56 6
13.48
4.24
1,837,58 2
82.13
3.45
9,107,91 7
122.73
3.42
13,495,040
Gold One International, Mineral RESERVE Estimate (2)
Probable
Tonnes (Mt) Grade (gpt) Contained (oz)
Modder East
7.65
5.51
1,355,20 2
Total probable
7.65
5.51
1,355,202
(1) Twin Hills project so ld for $A1.75 million on 01 July 2009
(2) Reserves are a subset of (and incl uded in) the indicated resou rce above
"[it] has conducted a comprehensive review and assessment of all material issues likely to influence the future
operations and/or exploration of the gold assets. The LoM plans for Modder East and Sub Nigel, as provided to and
taken in good faith by SRK, have been reviewed in detail for appropriateness, reasonableness and viability… and
the resulting TEPs are based on sound reasoning, engineering judgement and technically achievable plans..."
1
Sold to 6 institutional investors, and listed in Frankfurt
4
9/23/2009
TABLE OF CONTENTS,
Valuation Methodology…………………………………………………………………………………………….……6
Investment & Valuation Summary……………………………………………………………………………………..7
Company description, history and overview of assets & resources………………………………………………10
Wits Rand geology……………………………………………………………………………………………………..15
South Africa……………………………………………………………………………………………………………..16
Management and share structure…………………………………………………………………………………….19
Capital Structure, Liquidity and Resources…………………………………………………………………………..22
Convertible Bonds………………………………………………………………………………………………………23
BEE Transactions………………………………………………………………………………………………………24
Modder East…………………………………………………………………………………………………………….26
Sub Nigel 1,2,3 & Spaarwater.………………………………………………………………………………………..38
Ventersburg…………………….……………………………………………………………………………………….46
Tulo………………………………….……………………………………………………………………………………49
New Kleinfontein & Turnbridge………………………………………………………………………………………..52
Exploration Assets……………………………………………………………………………………………………...53
Valuation…………………………………………………………………………………………………………………56
Prospecting Licenses…………………………………………………………………………………………………..57
Disclosures……………………………………………………………………………………………………………...58
5
9/23/2009
VALUATION METHODOLOGY
Our valuation methodology is sum of parts using the following,
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Discounted Cash Flow model for pre-production assets where there is reliable data to estimate inputs
Risk adjusted Cash Flow multiples based on industry averages for assets producing positive free cash flow
Risk adjusted Resource Multiples based on industry averages for definable assets in the exploration stages
Historical costs for Greenfields exploration assets absent any mode of resource estimation
Market value method for non core assets/investments on the balance sheet
In Gold One’s case, since Modder East is not yet producing cash flows, we have no call yet to ground our valuation
in a cash flow multiple, and moreover, this method works best for large to midcap producers; not as well with
juniors. However, we may note the potential upside in this kind of valuation for Gold One to realize in the future.
Discounted Cash Flow Model (DCF)
The discounted cash flow model is relatively straightforward. We calculate NPV based on free cash flows – after
tax, royalties and project capital – using a risk adjusted discount rate. As a result, we see no point in trying to apply
an industry norm NAV “multiple” (i.e., if the group persistently trades at 1.5 times NAV, your discount rate is wrong).
Cash Flow Multiples (CFx)
This kind of valuation requires identifying similar publicly traded assets in order to calculate what the market will pay
for a given cash flow. Since no two orebodies are alike, it is practical to derive an industry average and then make
reasoned adjustments for the estimated risk differential.
For large cap gold miners, we start with a multiple of 8-12x expected cash flow, though it has been historically
higher – especially in bull markets. For mid cap miners we start with cash flow multiples of around 5-10 times, and
adjust it for growth and mine life, as well as other factors unique to the given company relative to the average.
Sometimes, for emerging assets, we may apply a multiple of 3-5 times if positive cash flows are within a year away,
as they are in Gold One’s case. In the valuation of Gold One we make some reference to this idea.
Resource Multiples
Similarly, this valuation requires surveying the market landscape. Some prefer enterprise value per ounce (EV/oz)
as it gives a better depiction of the cost of acquiring the asset and accounts for debt holders and minority interests.
However, as it is not an absolute measure of value and disagreements about its method of calculation are common,
1
we are content with the simpler rudimentary calculation (market capitalization divided by total NI 43-101 ounces ).
Based on a broad survey of North American listings as of the end of July 2009, covering companies with assets all
over the world, the average multiples (based on total/global compliant resources) stood roughly as follows,
RESOURCE MULTIPLES FOR GOLD PRODUCERS
Segment
Production
Avge Market
Cap US$/oz
Sample
Size
Largecaps
Midcaps
Juniors
Emerging
Exploration
>1Mozpa
<1Mozpa
<300kozpa
<2yrs
>2yrs
155
145
80
40
30
8
20
25
20
25
Since Gold One claims to be a relatively shallow miner, we believe these are fair goal posts. The risk premium in
South Africa is related to the deep mines where operating costs and capital expenditures eat away profits. It would
be unfair to throw the baby out with the bath water. We argue that Gold One’s shallow ounces are as good as any
in the parts of the world represented in most of the above sample. Nevertheless, in Gold One’s case, we adjust its
factor for political risk (disputable as it may be) and overall size of the operation as it is today to come up with a 1520% discount to the “average” for Modder East and Ventersburg, and a 30% discount to the average for the others.
1
or their equivalent
6
9/23/2009
INVESTMENT & VALUATION SUMMARY

Management: professional, accomplished, capable and innovative niche players have demonstrated
commitment to shareholders by bringing two mines on line ahead of schedule and under budget

Story: South African junior scooped several low risk, high margin, medium size (targeting 3-5Moz) shallow
mining prospects in South Africa (overlooked by the industry in its quest to go deeper for size), two of which
have begun production and are expected to generate more than US$200 million in operating cash flow over
the next two years – helping to fund the development of its extensive project pipeline, and growth abroad

Structure: three institutions control 55% of the issued equity capital of the company and six institutions own
US$100 million worth of convertible bonds (balance sheet value) potentially representing 18% of the
outstanding equity on conversion… directors and executives control less than 1 million ordinary shares
(0.1%) and over 20 million options (40% of total options o/s) exercisable between A$0.14 and A$0.28 per
ordinary share (US$1.67 to US$3.46 per US ADR), representing about 2.8% of total fully diluted shares o/s

Capital: short term liquidity sufficient through 2009 with closing of A$37.5 million capital raise (announced
in June, just closed) and with most of the capital outlay for the flagship Modder East mine behind it now

Risk Assessment: technical (project) risk is seen to be low with substantial room for error in cost forecasts;
none of the risks typically associated with deep level mining projects in South Africa; country risk (inflation
and regulatory environments) is medium, better than most mining regions though not as good as NAFTA…
dilution risk is medium to high in the short term (until 31 March 2010)… liquidity risk is considered medium
but challenges remain if Modder East underperforms in 2010 and bond-holders exercise their early put

Valuation: company’s shares are trading significantly below NAV (US$557 million) and peer values (US$80
per ounce), and at only 2.74x 2010 expected cash flow with solid production assets poised for re-rating
The South African gold deposits are still
among the vastest and richest in the world.
Even after a persistent drop in production
dating back to the 1970s has taken output to
an 85-year low, the country is still the second
largest gold producer in the world. With gold
prices breaching record levels, investing in
South African miners ought to be a winning
formula. In our section on South Africa, we
show, however, that unlike the shares of the
average South African enterprise, the South
African gold shares receive a great discount.
Valuation (m illions)
Modder East
Sub Nigel 1
Ventersburg
New Kleinfontein & Turnbridge
Tulo
Sub Nigel 6
Etendeka
Bothaville
Total Project NAV
Net Debt
Additional Capital Dilution
NAV, millions
NAV, per ADR (or per share)
EV per ADR (or per share)
US$
ZAR
A$
$385
$20
$69
$5
$16
$51
$11
$27
$584
$48
$21
$557
$6 .51
$3 .55
R 3,119
R 162
R 559
R 41
R 130
R 413
R 89
R 219
R 4,730
R 389
R 170
R 4,512
R 5.27
R 2.50
$464
$24
$83
$6
$19
$61
$13
$33
$704
$58
$25
$671
$0.78
$0.40
The reasons are well known. Some political:
like changes to the mining charters, including
implementation of affirmative action policies
(BEE), changes to the royalty bill, creation of
large bureaucracies to manage land or labor
issues, rigid labor and race laws and change
of ANC leadership. Some economic: capital controls, taxes, unemployment & inflation. Some social: AIDS / crime.
To the extent that valuation is relative we argue that these factors, as bad as they may be, are no worse than they
are in many other mining regions in the world, especially when we take existing infrastructure into account. What is
troubling, however, is the constant news of fatalities and crime at mining operations, even though they’re in decline.
The following quote is one of hundreds like it and sufficiently captures the mood toward South African miners,
“Three of five of the most undervalued companies based on PE ratio are South African gold miners. This is
not surprising because of higher operational risk and political risk involved with mining in South Africa.
There continue to be miner deaths reported this year in South Africa and investors are still stinging from
power generation disruptions last year.”
7
9/23/2009
The graph below will illustrate the extent of the valuation gap between South African and non South African assets,
$400
Resource Multiple
$300
Unadjusted Market Cap US$/oz
$200
$100
$0
Agnico
Eagle
Goldcorp
Newmont
We argue, however, that the market is too
pessimistic on South African miners, and
that it is throwing the baby out with the
bathwater in Gold One’s case because,
as one of just two shallow miners in South
Africa, it is insulated from the primary
source of many of the problems afflicting
the other South African miners – depth.
In our opinion, it is unfair to impose South
African valuations on Gold One’s shares.
Moreover, the company ranks highly on
all the fundamental aspects of valuation,
as well as management, capital, assets,
its business model and growth plan.
Yet its shares trade at a discount to its
peers, many who operate mines in riskier
jurisdictions at deeper levels, because,
we believe, the market doesn’t recognize
these distinctions. The company’s stated
goal is to mine at depths of <1000m.
Kinross
Yamana
Barrick
Gold Fields Harmony
Market Cap per Oz (US$/oz)
Ordered According to Resource Size
IAMgold
$107
Eldorado Gold
Gold One
$214
$17
Centerra Gold
$104
Osisko
$190
Golden Star
Guyana Gold Fields
Aurizon
Jaguar Mining
Kirkland Lake
Semafo
$74
$31
$104
$132
$143
$232
$0
$100
$200
$300
Shallow mining means the company can
save on cooling, transportation, labor, pumping and so on. It uses a fraction of the power required for deep mining.
One of the primary causes of fatalities in South Africa’s deep level mines is the unpredictable nature of seismic
activity. At a shallow mine, therefore, it is expected to be easier to achieve international safety standards.
Additional problems at depth include dealing with rock pressure and heat – and the pumping of water becomes a
major task. Labor costs escalate and productivity rates are lower because hours are wasted transporting the crew;
complex and sometimes very old and deep shaft systems require intensive ongoing capital; general hoisting and
transportation costs, ventilation, and the difficulty of mechanizing narrow reefs at depth compound the problem.
It is for these reasons that we believe the market discounts South African miners. Although they boast some of the
strongest operating cash flows in the sector, the deep miners especially have intensive reinvestment requirements.
It is also for these reasons that overall South African gold output is in decline, and costs are escalating.
8
9/23/2009
The labor unions are tough, but overall increases in labor costs only account for a relatively small proportion of the
increase in total costs in South Africa – less for Gold One. The move to greater depths has thereby opened a door
for Gold One to establish itself as a niche player, specializing in the shallow mining opportunities overlooked.
Our risk adjusted NAV of US$557 million for
Gold One represents a 23% discount to our
gross NAV (US$725 million), reflecting the
limited scope of shallow mining on the East
Rand, as well as to account for some of the
unavoidable South African political risk.
We believe the shares will achieve a 1.0x NAV
approaching US$7 per ADR (or A$0.84) as the
Modder East mine ramps up to steady state
production (180kozpa) in the next 15 months.
At a market cap of just US$246 million and an
enterprise value of US$303 million, we believe
there is room for Gold One’s shares to realize
substantially higher value, as the market rerates its transformation from a development
junior to self-sufficient producer, generating
cash flows from solid, low cost, shallow and
low risk assets. Moreover, its potential cash
flows (totaling >US$200 million in the next two
years) will fund the exploration & development
of the company’s attractive pipeline, which will drive future growth. Additional NAV’s of up to US$200 million may
be realized as Ventersburg approaches production in 2014, as well as from defining a 3Moz resource at Bothaville,
and expansion of Sub Nigel. Higher gold prices and potential value-accretive acquisitions could add even further.
The blue sky potential at Tulo (Mozambique) and Etendeka (Namibia) – where a multi-million ounce discovery
could add noticeably to NAV – is the icing on the cake. Ultimately, the company has many opportunities to create
additional value in its current portfolio, and the shares hold worthwhile upside should the market recognize it.
Another aspect of its business model that challenges the South African discount is management’s plan to seek out
value accretive growth opportunities abroad, where turnaround man Neal Froneman can continue to ply his trade.
Among some of the examples of wealth creation we believe the market has ignored so far include,









CEO Neal Froneman has assembled a capable team of professional miners, engineers and executives
Transformed a 600koz target into a 3.65Moz resource and mine, recovering >1Moz at <US$350/oz cost
Refurbished and recommissioned a small mine (Sub Nigel) as a self funding training center
Developed an unreliable historical resource into a >3Moz NI-43101 (at Ventersburg)
Has met budgets and schedules in developing Modder East and Sub Nigel, and other targets
Ground breaking innovations in development, cost management and human resources (WHAM initiative)
Acquired international listings: NASDAQ (level 1) and the ASX… in addition to its JSE listing
Built an extensive portfolio of exploration prospects in South Africa, Mozambique and Namibia
Laid plans to acquire a North American listing and ultimately expand beyond South Africa
We believe the market does not yet appreciate these accomplishments, for the wrong reasons, but they are seeds
that have been laid for a potential rerating in the shares of Gold One as it demonstrates the cash flow potential of
its new mine at Modder East. We argue that its shares are getting the typical South African discount, but that the
stigma is undeserved as their ounces are shallower, and therefore better quality than their South African peers’ at
depths of over 3000-4000m. The Modder East mine is a high margin potential cash cow that is expected to fund
the development of an even larger shallow orebody (Ventersburg) in South Africa, as well as opportunities for
growth abroad. With Modder East and Ventersburg, Gold One has the potential to become a 300kozpa producer
by 2015, or more if the Tulo Gold project comes on line by then and opportunities to buy other assets materialize.
9
9/23/2009
GOLD ONE INTERNATIONAL
DESCRIPTION & OVERVIEW
Gold One International Ltd is an Australian domiciled African gold miner that has started up two medium grade, low
risk, and high margin gold mines in South Africa during 2009 – together expected to produce a life of mine average
of over 140,000 ounces of gold per year at unit operating costs of under $350 per ounce for at least 8 years – which
will help fund the repayment of debt obligations, as well as the development of its next flagship asset (Ventersburg).
Aflease Gold changed its name to Gold One following the reverse takeover of Australian listed BMA Gold Group in
May 2009. The company has since sold BMA’s Twin Hills Operations for A$1.75 million. The remaining assets lie
within the Aflease Gold structure, which continues to exist as a wholly owned subsidiary of Gold One, and holds,

100% of Etendeka Prospecting and Mining Company (= IOCG exploration target in Namibia)

100% of New Kleinfontein Mining Company (= South African gold assets + 2.5% interest in Noble Trade)

97% of Noble Trade (= Tulo Gold Project in Mozambique (shared with NKMC which holds 2.5%))
Gold One’s shares are listed on the Johannesburg and Australian Stock Exchanges under the symbol GDO, and its
American Depository Receipts trade on the NASDAQ under the symbol GLDZY at a ratio of 10 ordinaries per ADR.
The company recently emerged as a shallow producer in line with its ambition to focus on shallow, low risk, high
margin, and medium size prospects in South Africa. The word shallow cannot be emphasized enough as it is very
rare to find a shallow mine of any substance in the Wits Rand Basin today; it can mean all the difference in trying to
arrive at a fair valuation. The company seeks to develop assets in value accretive mining friendly jurisdictions, and
is targeting shallow assets in other parts of Africa, Australasia and the Americas to add to its existing operations on
the East Rand, and its portfolio of assets in other parts of the Witwatersrand region, Namibia and the Mozambique.
Gold One’s core asset is the Modder East Mine (1.35Moz reserves grading 5.5gpt + 2.3Moz additional resources),
where a new CIL plant was successfully commissioned in July. The operation will process approximately 20,000
ounces of gold this year and 140,000 ounces in 2010 with steady state of 180,000 per annum achieved thereafter.
Additionally, the smaller Sub Nigel 1 shaft, commissioned earlier in the year, will stockpile a few thousand ounces
of gold at Modder East this year, over 6,000 ounces in 2010, and potentially ramping up to 20,000 ounces by 2012,
if the board moves forward with the Sub Nigel expansion plan, which includes construction of a stand alone facility.
Both producing mines are located in the East Rand Basin less than 20km from each other.
Gold One holds a 100% interest, and has successfully negotiated agreements with BEE partners on all of its East
Rand projects, as well as Ventersburg. Other East Rand assets include the mature New Kleinfontein & Turnbridge
mines (4.27Mt at 6.1 gpt), one deep mining prospect with a 5Moz NI 43-101 (Sub Nigel 6), part of which is shallow,
as well as several exploration prospects (Holfontein, UC, Sub Nigel 2-5, 8). The Ventersburg deposit (3.27Moz at
depths of less than 1,000m) is located in the Free State region of South Africa in the south-southeast region of the
Witwatersrand Basin. The company is targeting over 5Moz and is fast tracking feasibility work for a potential start
up in 2014. The mine is potentially twice as large as Modder East. The company also holds a 100% interest in the
Bothaville Gap Project, a Ventersburg-style target in the south-southwest area of the Wits Basin, South Africa that
management believes hosts a three million ounce gold resource. In addition, it holds 100% interests in Greenfield
prospects in Namibia & Mozambique with multi-million ounce exploration potential, including open pit opportunities.
Organizational History
Gold One International came into existence through a series of reverse takeovers beginning with Neal Froneman’s
timely acquisition of the New Kleinfontein Mining Company (NKMC) in 2002, which held Modder East, Holfontein,
the UC prospect, as well as the Turnbridge & New Kleinfontein mines. The NKMC was subsequently acquired by
1
Afrikander Lease , and when an attempt to purchase Harmony’s Kalgold assets fell through in 2003, Mr. Froneman
replaced the CEO (Peter Skeat) at the helm, with long time Aflease executive and shareholder Jean Nortier taking
over as non executive chairman. In 2005, the company changed its name to Aflease Gold and Uranium Resources
and acquired a right to mine Harmony’s uranium assets followed by a reverse takeover of Canadian Uranium miner
1
Afrikander Lease Limited incorporated in 1921 to mine the Rietkuil goldfields near Klerksdorp, west of Johannesburg – and
listed on the JSE in 1957 with Anglo American its majority shareholder until divestment in 1998
10
9/23/2009
Southern Cross. The diversion into the uranium business continued with the acquisition of further uranium assets –
in US and Kazakhstan – and a name change to sxr Uranium One in 2006, with NKKMC as a subsidiary holding the
1
company’s gold assets. The NKMC was spun out in a reverse takeover of the Sub Nigel Gold Mining Company in
2006, thus acquiring the Sub Nigel Assets and Ventersburg. Sub Nigel Gold Mining Company issued 339,011,680
shares to Uranium One Africa, a wholly owned subsidiary of (what subsequently became) Uranium One, to acquire
100% of NKMC. The new company took over SNGM’s listing on the JSE, and renamed itself Aflease Gold; initially
2
owned 80% by Uranium One and 20% by Sub Nigel Gold Mining shareholders . Neal Froneman parted ways with
Uranium One in 2008 to take over the newly formed Aflease Gold, and to create a new international gold miner.
The company has since,








Increased the Modder East resource threefold by delineating a high grade depositional bed / beach, and
constructed the first new CIL plant on the East Rand in 30 years for US$40 million – 20% under budget –
by April 2009 – and commissioned it three months ahead of schedule with its first gold pour in July 2009
Recommissioned the Sub Nigel No 1 Shaft for US$3 million – 15% under budget – by 27 January 2009
Negotiated BEE partnerships on its South African assets
Completed an NI 43-101 at the Ventersburg demonstrating the potential for a 5Moz+ deposit
Built a strong operations and management team
Acquired two frontier exploration assets in Namibia and Mozambique
Through its reverse takeover of BMA group (May 2009), acquired listing on the ASX
Changed name to Gold One International (27 May 2009)
Resources & Reserves
Gold One International, Mineral RESOURCE Estimate (1)
Indicated
Tonnes (Mt) Grade (gpt) Contained (oz)
Modder East
28.83
2.84
2,632,413
Ventersburg
8.73
5.12
1,437,061
Sub Nigel 1, 2, 3
3.04
3.25
317,649
Total Indicated
40.6
3.36
4,387,123
Inferred
Modder East
Sub Nigel 1, 2, 3, 4 and Spaarwater
Sub Nigel 6
Turnbridge / New Kleinfontein
Ventersburg
Total Inferred
Total Resource
Tonnes (Mt) Grade (gpt) Contained (oz)
14.98
2.16
1,040,295
1.15
3.84
141,978
48.25
3.39
5,257,495
4.27
6.05
830,566
13.48
4.24
1,837,582
82.13
3.45
9,107,917
122.73
3.42
13,495,040
Gold One International, Mineral RESERVE Estimate (2)
Probable
Tonnes (Mt) Grade (gpt) Contained (oz)
Modder East
7.65
5.51
1,355,202
Total probable
7.65
5.51
1,355,202
(1) Twin Hills project sold for $A1.75 million on 01 July 2009
(2) Reserves are a subset of (and included in) the indicated resource above
The resources and reserves disclosed in this report are only those estimated in accordance with the SAMREC (the
South African code for Reporting Exploration Results, Mineral Resources and Mineral Reserves”) and JORC (Joint
1
2
Formed in 1984 with the purchase of the Sub Nigel mine from Gold Fields and subsequently refurbished the operation
Uranium One’s interest has since been eliminated as it has rationalized its uranium focus increasingly since 2006
11
9/23/2009
1
Ore Reserve Committee) codes of South Africa and Australia . We note that a Canadian National Instrument 43101 inferred resource has been calculated at Sub Nigel 6 (48.25Mt at 3.39gpt = 5.25Moz), as well as an indicated
resource at Ventersburg (8.73Mt at 5.12gpt = 1.437Moz). Moreover, the company argues that the inferred resource
at Ventersburg (30.39Mt at 4.76gpt = 4.64Moz) is compliant under all three codes. The independent consultant,
SRK, further argued in its 2006 technical report that “the terminology as stated in the SAMREC Code is materially
similar to the CIM Standards mandated by NI 43-101 and that the Mineral Resources & Mineral Reserves would be
identical if issued in accordance with CIM Standards”, and that its independent technical report on Modder East
was “prepared according to the reporting requirements of the National Instrument 43-101- Standards of Disclosure
for Mineral Projects (“NI43-101”) of the Canadian Securities Administrators and Form 43-101F1 (the “Form”).”
The differences can be explained through the choice of different methods of calculating cut off grades and making
tougher assumptions for gold losses in the recovery process (at Sub Nigel 6). Nevertheless, many geologists are
of the opinion that a Canadian Instrument NI 43-101 is unnecessarily costly for the definition of resources/reserves,
especially in South Africa where the behavior of the reef systems is well documented and known for their continuity.
“In the opinion of SRK, the mineral resource classifications defined in the SAMREC code are materially similar to
those defined in Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by Canadian
Institute of Mining, Metallurgy and Petroleum utilized by Canadian National Instrument 43-101” – October 2007
Asset Overview
Gold One International: Summary of Mining Assets Ranked in Order of Development Priority
Asset
Modder East
Sub Nigel 1
New Kleinfontein & Turnbridge
Ventersburg
Tulo
Bothaville
Sub Nigel 6
Etendeka
Other Exploration
Totals
Location
East Rand
East Rand
East Rand
Free State
Mozambique
Free State
East Rand
Namibia
East Rand
Stage
Production
Production
Mature
Feasibility
Development
Exploration
Exploration
Exploration
Exploration
Indicated
Resource
2.64Moz
0.14Moz
0
1.44Moz
0
0
0
0
0
4.22Moz
Inferred
Resource
1.04Moz
0.38Moz
0.83Moz
1.84Moz
0
0
5.14Moz
0
0
9.23Moz
Project
Area (ha)
4,000
3,020
1,315
12,600
21,760
8,514
3,861
65,000
11,365
131,435
Target
Depth
(meters)
500
650
250
850
0
850
1,600
0
500
578
Valuation
(millions
US$)
$385
$20
$5
$69
$16
$27
$51
$11
$0
$584
Core Assets
1) Two producing properties on the East Rand: Modder East and Sub Nigel 1
The company’s Modder East and Sub Nigel mines are located on the East Rand in the northeast quadrant of the
Witwatersrand Basin in Gauteng Province, South Africa. The two mines are less than 30km from each other, and
target different reef systems.
Sub Nigel 1 went into production with the hoisting of its first ore on 27 January 2009, and is expected to mine up to
6,000 tonnes of ore (approximately 500 ounces) monthly at total cash costs of around US$520 per ounce, dropping
to below that level following the three phased expansion to shaft capacity (20,000 tonnes per month) by 2012.
The first phase is complete, and the potential expansion will cost about US$21 million, which includes a stand alone
processing plant capable of processing at 20ktpm (no firm decision has yet been taken on this expansion however).
Until then, ore will be shipped to the Modder East plant, which will have spare capacity until 2012.
Sub Nigel 1 is exploiting pay shoots off the Nigel (main) reef of the Central Rand Group.
1
“The revised resource estimate was prepared by Charles Muller, B.Sc. (Hons), Pr.Sci.Nat., of Minxcom (Pty) Limited, an
independent geoscience consultant to Aflease. Charles Muller is a competent person for the purposes of the JORC Code and
the SAMREC Code. The resource (excluding sub-Nigel 6) was audited by Mark Wanless of SRK Consulting, who is a
competent person for the purposes of the SAMREC Code. Mineral Resources are not Ore Reserves and do not have
demonstrated economic viability.”
12
9/23/2009
The main value of this mine is that it is designed as a self-funding training ground – realizing training cost savings –
but there is also worthwhile exploration potential in the adjoining properties (areas 2, 3, 4, 5, 8 and Spaarwater).
Modder East is Gold One’s flagship asset, and includes the first new plant built on the East Rand in 30 years – built
on time and under budget. The plant was commissioned on 24 June 2009, and began producing Modder East ore
on 21 July 2009 (having processed about 600 ounces of Sub Nigel ore and 240 ounces of Modder East ore). The
Modder East plant is on track to produce 20,000 ounces of gold in 2009, 140,000 oz in 2010 and 180,000 oz per
year from 2011 to 2013 with production from the BPLZ tapering off after that out to 2016. Total cash costs are
forecast at an average US$303 per ounce over the life of the mine and well below this level between 2011 & 2013.
The company thinks that the Kimberley reefs at the top of the Central Rand Group underlying (and intersecting) the
Black Reef of the Transvaal Supergroup will ultimately supplant BPLZ production and could add several more years
of life to the mine. The operation is designed to exploit a depositional beach (fluvial) related to this intersection.
Modder East is a high margin shallow mining asset with low technical risk that can produce cash flows capable of
funding the development of a pipeline of strong projects that could transform the company into a mid tier producer.
2) Two non-producing mature mines on the East
Rand: New Kleinfontein and Turnbridge
Turnbridge and New Kleinfontein are two dormant
pillar mines located on the northern flank of the East
Rand gold field, about 10km west of Modder East and
10km north of Sub Nigel 1 in the magisterial district of
Benoni, Guateng Province, South Africa. The two
mines are adjacent to each other and have historically
(1897-1967) exploited the margins of the well defined
pay shoots on the main reef coincident with the same
N-S trending synclinal axis that runs south through the
East Rand basin to the Sub Nigel / Spaarwater mines.
The mines, acquired in the 2003 Aflease purchase of
New Kleinfontein Mining Co as part of a package that
included Modder East/UC, are thought to be mature
with limited scope for expansion. The company has
an audited SAMREC/JORC compliant inferred
resource of about 829,000 ounces (4.27Mt, 6gpt) at a
300 cmg/t cut off, and a small tax loss allowance to
carry forward (R6.8 million). Gold One says it plans to
upgrade the resource, but then may farm it out, or sell it.
3) Two attractive large scope development/feasibility stage projects: Ventersburg and Tulo
The Ventersburg deposit is touted as Gold One’s next flagship mine with a total NI 43-101 resource of 3.27 million
ounces of gold grading 4.6 grams per tonne at depths of less than 850m. A previous SAMREC compliant resource
inferring 4.65 million ounces demonstrates the potential of the graben hosted deposit, discovered by Gold Fields in
the eighties. But the company thinks it is even bigger, and plans to spend up to one third of its exploration budget
over the next three years in order to take the project through feasibility and establish the potential for a 1.8 million
tonne per annum mining operation by 2014. Gold One owns a 100% interest subject to a maximum 51% back in
right held by Gold Fields on Ventersburg 1. The project is located at the southeast end of the Witwatersrand Basin,
east of the main Free State about two hundred kilometers southwest of the East Rand basin, 25km southeast of
Welkom and 10km east of Virginia, South Africa, 35 kilometers from the Beatrix gold mine operated by Gold Fields.
The Tulo Gold Project, acquired last year, is located in the Niassa province in the northwest corner of Mozambique,
170 kilometers north of the provincial capital Lichinga – on the south side of the Tanzanian, and east of the Malawi,
borders. The project has an alluvial resource of 32,000 oz, and a historical resource of around 200,000 ounces that
is a likely source of the placer gold. The concession covers 21,760 hectares of prospective geology that, due to
war and strife, has not seen much exploration beyond the placer mining which has exposed many shear hosted
and primary source targets in Ubendian greenstones or volcanic rock related to a trend that runs through Tanzania.
13
9/23/2009
The prospect holds the potential for numerous open pit opportunities, hence Gold One has already purchased the
equipment necessary to mine the 32,000 ounce alluvial deposit, and expects to begin bulk mining in 2010, followed
by an extensive regional airborne magnetic survey and follow up drill program costing US$4 million through 2011,
with further development funded organically out of cash flow generated from bulk mining the placer (~$15 million).
We rate the potential for a multi-million ounce discovery at Tulo as above average.
4) One advanced deep mining development asset on the East Rand: Sub Nigel 6
The Sub Nigel 6 deposit forms the western extension of the old Vlakfontein gold mine located in Sub Nigel Area 6
in the district of Nigel, Gauteng Province, South Africa – a few kilometers northwest of Sub Nigel 1 shaft – on the
East Rand Basin. The company has a 100% interest in the project, which has an NI 43-101 compliant resource of
5.14 million ounces grading 3-4 gpt at depths ranging between 800 and 1600 meters – separated from the flooded
areas of the East Rand Basin (by a plug). Sub Nigel 6 is not a shallow prospect and does not fit Gold One’s model.
The company may choose to farm out the deep mining prospect, but it has also considered the possibility of a small
100,000 ounce per year operation (70ktpm) targeting the higher grade (4.73 gpt) big pebble reef above 1,000m.
However, this development is not a current priority.
Exploration Assets
1) Two advanced exploration projects: Etendeka and Bothaville
The Bothaville Gap project is a high priority Ventersburg style exploration target located in Bothaville, Free State
Province, South Africa – on the west-southwest side of the Witwatersrand Basin, about 120km NW of Ventersburg.
The company is tracking the A and Leader reef systems structurally contained within a horst block, where its chief
exploration geologist believes it can define the potential for a 3 million ounce deposit at depths of less than 800m.
Gold One expects to invest 10% of its exploration budget at Bothaville over the next three years.
Gold One holds a 100% interest in Etendeka Prospecting & Mining Company, a Namibian exploration company,
which in turn holds an exclusive prospecting right over a 65,000ha area in the Outjo district of northwest Namibia.
The company has budgeted about R6.9 million for exploration in 2009 and 2010 (<US$1 million).
Etendeka presents an attractive multi-million ounce IOCG (Iron Oxide Copper Gold) Greenfield exploration target
located in the Outjo district of northwest Namibia, which borders South Africa, Botswana, Angola and Zambia. The
prospecting right adjoins a Teck-Cominco drilling program to the east and another exploration program on the west.
2) East Rand Basin Exploration projects: Sub Nigel 2,3,4 & 5 & Holfontein
Gold One owns a 100% interest in the Holfontein and UC prospect areas, as well as the Sub Nigel Assets in the
East Rand Goldfield. These projects (excluding Sub Nigel 1 and 6) comprise its East Rand exploration prospects.
The 2,181ha Holfontein (71IR) prospect is due east-northeast of, and contiguous with, Modder East – covered by a
prospecting right (139) valid to the end of 2010. Exploration efforts will target the main and leader reefs above
water level in south and west in order to add to Modder East LOM.
The UC prospect area (Gedult 123IR), spanning 895 “unnumbered precious metal claims”, is part of the Modder
East project, and is covered by the same prospecting and mining rights; it hosts part of the extension of the black
reef that will be mined at Modder East. The UC prospect was mined under tribute by Petrex (Pty) Limited (“Petrex”)
at the Grootvlei Shaft #8 to the southwest of Modder until 2004 when their agreement with NKMC terminated.
Sub Nigel areas 2, 3, 4, 5 & 8 – adjacent and west and northwest of Sub Nigel Area 1 – comprise the remainder of
Gold One’s exploration assets in the East Rand, and include several old shafts and workings, and opportunities.
14
9/23/2009
WITS RAND BASIN GEOLOGY
Conventional thinking interprets the
Witwatersrand Basin as a sequence of
ancient / metamorphosed sedimentary
bands (or paleo placers) deposited by
rivers that flowed into the basin from
somewhere north over three billion
years ago (during the Archean Eon).
The resulting "reef" systems form as
several layers stacked on top of one
another, like a layer cake, which has
been twisted and tilted through eons.
It spans some 200km east-west from
about 150km west of Johannesburg to
50km east of the city then twists and
plunges south/southwest at up to 20
degrees into the Free State regions
approximately 150km south; intruded by
granite domes. The reef systems are
typically narrow, often less than 1m, but
very rich in grade. They are known for
their considerable lateral extent, and tend to outcrop along the north and northeast of the Wits Rand Basin.
No one knows how deep they run but some are currently being mined at depths of 4km or more. The main reefs
formed during the Archean Eon belong to either the Central or West Rand group (which underlies the central rand
group and outcrops in the north) of the Witwatersrand Supergroup that is the source of most of the mining in South
Africa, and oldest group. The overlying sequence of rift related lavas forms the younger Ventersdorp Supergroup.
The youngest group, the Transvaal Supergroup, which formed through the transgression of the Transvaal epeiric
sea around 2.5 billion years ago, is host to the Black Reef that Gold One intends to mine at the Modder East site.
Since gold was discovered there over 120 years ago, the Witwatersrand Basin has produced 90% of South Africa's
gold (almost 40% of the world's cumulative gold output), of which the East Rand Basin has produced over 25%.
15
9/23/2009
SOUTH AFRICA: OUTPERFORMS S&P 500
The South African Rand has seen three relatively
wide swings over the past 10 years, trading as low
as 12 Rand to the US dollar back in 2002, a level it
approached again last year, and as high as 5 or 6
Rand to the US dollar back in 2004-05. Over this
period, despite these gyrations, one could say the
currency hasn’t really gone anywhere, which makes
the uninterrupted outperformance of South African
shares over the S&P 500 all the more remarkable.
This is not to say that debasement is not a factor in
the appreciation of stocks in South Africa. It is just
not more so than anywhere else. Adjusting these
returns for inflation in the lay sense of the term (i.e.
changes in the CPI) will change this picture some,
since the Rand CPI grows at 3 times the US rate –
but not enough to change the gist of the fact that the
South African stock averages have not only bettered
the S&P, they’ve kept up with or outperformed gold
– while the S&P 500 is down 75-80 percent on gold
– in the same period. It is beyond the scope of our
point to explain the possible reasons for this, except
to argue that it’s more than the South African beta
(note the one way volatility in the statistic) and that it
contradicts most of what we read about the country.
One could argue, of course, that the South African
currency is overvalued - given the more inflationary
Reserve Bank (relative to the Fed for example).
Perhaps a combination of weakness in the dollar
and capital controls account for its strength, or
perhaps specific transactions. However, we also see evidence of favorable investment flows.
At a population size 1/6 of the United States, South Africa produces only 1/35 (3%) of the goods (GDP) and
services (on a per capita basis, Americans produce four to six times the amount, and an even greater variety).
Everyone knows the country is immersed in poverty, gross inequality, an AIDS epidemic, strife and xenophobia…
and that its labor force is largely illiterate and unskilled. Most people disagree about the solutions, but many folks
that ultimately determine the fate of capital flows also believe that the political situation is grave in the hands of a
socialist government throwing its weight around in a hopeless effort to level the playing field, led by a revolutionary
that has been criticized for taking the country as his prize and leading it down the same road travelled in Zimbabwe.
We couldn’t disagree with this conclusion more. We’ll concede the social and political landscape is unsatisfactory,
as well as too much bureaucracy, rigid labor and race laws, and other misguided policies – especially those that
pose the greatest burden on wealth generating activity in the primary industries. The most notable examples: the
high corporate/income tax rates, the expanded BEE (black economic empowerment) charter and latest royalty bill.
The Heritage Foundation, an international economic think tank, notes that the South African government “exerts
extensive influence over the economy through affirmative-action mandates that threaten private property rights” (i.e.
BEE), and also impede labor productivity. The government is oft criticized for its bureaucracy and “nontransparent
regulations,” which, along with rigid labor/race laws, and crime, further “discourages foreign investment.”
The ANC’s hold on government has been eroding, and hope springs eternal that generations old conflicts are being
resolved – and that South Africa will take the lead in uniting the rest of Africa. Worries over leadership continue to
linger. Still, a presentation given to us by South African economist, Dr. Roelof Botha, showed evidence that,
16
9/23/2009







Growth in Gross National Income per capita has outpaced the US, Brazil, Germany and Japan since 1992
Budget is balanced, gov’t capex spending as % of total is declining, and BOP accounts are stable
Disposable incomes and “real” GDP both grew at >5% per annum from 2004-07
Capital formation is strong (capex by private sector has grown from 8 to 12% last decade)
CPI annual % rate has fallen to the 6% range from over 15% in the early nineties
Public debt to GDP fallen from almost 50% in the mid nineties to under 25% today
Inflation adjusted per capita disposable incomes up 38% over past 10yrs
These data further contradict the many bearish presuppositions about investing in South African assets.
17
9/23/2009
Dr. Botha added that he saw these trends continuing, with an emphasis on the liberalization of the banking sector;
also cited was the beneficial relationship between South Africa and China, with South Africa benefitting from the
investment flows (in return for resource access). The Heritage Foundation ranks South Africa as the third freest out
of 46 countries in the sub-saharan Africa region, behind Mauritius and Botswana, and above the world average in
eight out of ten categories. Furthermore, it notes, “only eight enterprises remain state-owned… government
expenditure equals less than 30 percent of GDP,” and, “the financial system is one of the most developed in Africa.”
The South African Discount
So why is it that the South African gold miners get such a deep discount in the market for their assets?
This discount is apparent not only relative to the developed world, but even to many of the assets in parts of the
world where there is less infrastructure, greater political uncertainty and far less economic freedom in general.
Why do Gold Fields and Harmony’s resources get just one-eighth the value of the average non South African gold
miner, and half their cash flow multiples? Surely, given the burdensome tax, inflation and regulatory environment,
assets in South Africa deserve a discount relative to those in, say, North America, Australia, New Zealand, Chile,
and many other parts of the world. But, in the Heritage Foundation’s estimation, South Africa is a better place to do
business than two thirds of the world – including places like Romania, France, Colombia, Turkey, Kazakhstan, the
PNG, Greece, India and most of Africa. Yet miners in these places get many times the dollar value for their ounces
in the ground that the average South African miner gets… many of these are exotic, unexplored exploration territory
– and the politics and lack of infrastructure are often prohibitive – yet they still get better values than Harmony gets.
Although we concede the burdensome tax & royalty schemes, rigid unions and labor laws, regulatory bureaucracy,
and uncertainty related to the quality of BEE assets as well as the long term impact of BEE type charters, our view
is that the South African Discount has less to do with the political or economic outlook for South Africa than with
sector specific factors. Particularly, we mean the high costs associated with mining at great depths (>3000m).
Problems at depth include greater rock pressure and heat, sending cooling costs sky-rocketing in many cases;
labor costs rise also as special skills are required at depth (narrow reefs don't lend themselves to mechanization);
transportation costs increase substantially; and capital expenditures are more intense as they have been for Gold
Fields, Anglo and others. Even though these mines operate at higher margins than their peers in the Americas,
their capital requirements have been an excessive drain on cash reserves in recent years. Thus, many analysts
have concluded that the ounces at depth in South Africa are of lower quality than anywhere else in the world.
In our view, this is true and is the source of most of the discount attributable to South African assets.
Gold One, however, is a shallow miner in South Africa, with international assets, and an international listing.
18
9/23/2009
GOLD ONE MANAGEMENT IS A FIRST RATE TEAM OF DISTINGUISHED MINING PROFESSIONALS
BOARD OF DIRECTORS
Non-executive Directors,
Mark Wheatley, Chairman
Barry Davison
Ken Dicks
William Harris
Sandile Swana
Ken Winters
Executive Directors
Neal Froneman, CEO
Christopher Chadwick, CFO
Top Gold One
Shareholders
African Global Capital
ADR Program, US Investors
Trinity Holdings
Gold Fields
Insiders
Total Held Tightly
Fully Paid Issued Capital
KEY MANAGEMENT PERSONNEL,
Beneficial
Ownership (1)
2,713,500
450,000
890,171
450,000
940,171
1,356,353
Key Management Personnel,
Izak Marais, COO
Syd Caddy, Senior VP Projects
Jost Barenberg, VP Mining
Warwick Bullen, VP Mineral Resource Mgt
Ilja Graulich, VP Coporate Affairs
Pierre Kruger, VP Legal & Secretary
Amanda Markman, VP Corp Develop
Johann Mouton, VP Metallurgy
Adrian Reynolds, VP Projects
Richard Stewart, VP Geology
Piet van Straaten, VP Exploration
10,747,743
3,740,645
# Shares
(millions)
152
121
108
13
1
394
805
The evaluation of management is one of the most
%
19%
15%
13%
2%
0%
49%
100%
important pillars of analysis for any company, and in this
case it was a pleasure to get the opportunity to interview
some of the best mining talent in South Africa.
The company’s board includes former executives of Gold
Fields, Harmony as well as other distinguished miners,
such as from Anglo American – many of whom followed
Gold One’s CEO Neal Froneman to Aflease Gold (Gold
One’s predecessor). In our due diligence, which included
a site visit, we observed many examples of potential alpha
values in most of the vital areas of operation, and more
broadly, in the fundamental aspects of wealth creation.
Neal Froneman, the company’s CEO, assembled a team of professionals that have at one time or another worked
for the country’s largest mining companies, each with more than 20-30 years of experience, and each with a unique
talent suited to an important task within the overall vision. Neal Froneman, technically an engineer, worked at Gold
Fields and Harmony before founding Uranium One, originally a splinter operation from previous Afrikander Leases.
Gold One’s COO, Izak Marais, operated both deep and shallow mines for Gold Fields during the nineties;
Johann Mouton, VP metallurgy, is a renowned metallurgist, coming from high ranking positions within Harmony;
Project VP, Adrian Reynolds, has 30 years experience building plants, and was responsible for building the Modder
East plant on time and under budget; likewise, Jost Barenberg, the company’s mining VP, a mining engineer by
trade, has extensive experience in the field working with Gold Fields; and Piet van Straaten, exploration VP, has
spent much of his life gaining an understanding of the Witwatersrand basin as section head and consultant for
Harmony, and in particular, of the Kimberley Reefs – having participated in the Kimberley Working Group launced
in 1994 by the Geological Society of South Africa (GSSA). During our visit, Piet’s presentation of the prospects for
Ventersburg, Tulo, among other prospective deposits, were among the most exciting possibilities for Gold One’s
future as he revealed some very exciting assets both in the development and exploration stages in Africa.
One area where management has demonstrated excellence is in achieving targets – both budget and schedule
related – despite challenges along the way. The commissioning of the new Modder East plant (and mine) and Sub
Nigel mine came in under budget and ahead of schedule. The company demonstrated prudent cost management
via the installation of hydropower (which translates into 60% less in capex and up to 30% less in drilling costs). The
identification of a unique utility for Sub Nigel as a training center will save on training costs. Innovative engineering
feats and mining methods reduced costs in face advance, stope support, haulage, transportation and development.
Management has also demonstrated competence by leveraging pre-existing infrastructure, reducing costs further.
19
9/23/2009
1
Against a wall of skepticism, management transformed a <1Moz resource into a 3.65Moz potential cash cow by
defining a unique geological shoreline feature at Modder East (and elsewhere) where grades are more economic.
During 2008, over half way into the development of the primary access decline, face advance had to slow because
of unexpected challenges from the water bearing dolomites just above the reef horizon at Modder East. Through
an innovative technique called “full face cementation cover drilling,” the decline was able to advance steadily.
These few paragraphs alone are filled with examples of capability, entrepreneurship, focus, and motivation.
Substantial competence is observed in legislative and corporate dealings, including the status of most all relevant
filings and handling of contingencies, as well as communications and bureaucratic matters.
But growth requires more than merely bringing some old mine workings back into production and managing the
operations efficiently. Neal Froneman is a visionary who attracts premium and loyal executives, who plan to use
Modder East, its current flagship, to fund the development of the much larger Ventersburg deposit (5-10Moz, plus)
–its future flagship– and build Gold One into a mid tier international gold miner producing 1Mozpa within 10 years.
Select Bios,
Mark Wheatley (Chairman)



Former managing director of BMA Gold Ltd and Chairman/CEO of Southern Cross Resources
Served as nonexecutive director of St Barbara Ltd in past
Continues as nonexecutive director of Uranium One Inc.
Barry Davison (Non-Executive Director)


Considered to be one of the pre-eminent mining executives in South Africa with > 40 years experience
Former director/chairman of Anglo American plc and Nedbank group
Ken Dicks (Non-Executive Director)




Holds mining manager’s certificates in metalliferous and coal mining
Former non-executive director of Aflease Gold and Uranium Resources Ltd
Held several executive positions in the Anglo American group, including time at AngloGold Ashanti
Chairs Health, Safety and Environment Committee and sits on Audit & Remuneration Committees
William Harris (Non-Executive Director)





Holds BA and MBA
Partner in Solo Management Group LLC
Former CEO of Hoechst Fibers Worldwide
Former director of Energy Metals Corp (EMC)
Also serves as director of Golden Predator Mines
Sandile Swana (Non-Executive Director)




1
Holds B.Com from University of the Witwatersrand, MBA from the University of Pretoria
Chairman of Kabusha Mining and Finance
Former chairman of Sub-Nigel Gold Mine Limited
Graduate of Anglo American Corporation Cadet Scheme
Inferred + indicated
20
9/23/2009
Neal Froneman (Director, Chief Executive Officer), Pr Eng, B.Sc (Mech Eng), B.Compt



> 25 yrs of relevant industry experience
Holds both a manager and engineer’s government certificate of competency
Former Gold Fields and Harmony executive in charge of significant operations
Christopher Chadwick (Director, Chief Financial Officer)



Joined Aflease Gold as CFO in July 2008
Has held executive positions in a wide range of industries, in and out of South Africa
Became chartered accountant in 1991
Izak Marais (Chief Operating Officer)








Holds Mining Engineering degree from University of Pretoria and MBA from the University of Cape Town
> 15 years experience in the South African mining industry
Worked in various deep & shallow gold mines belonging to Gencor and GFI between 1993 and 1998
Spent 18 months on corporate development in GFI's head office
Operations manager for the hydropowered Ultra Deep No 4 shaft in GFI’s Kloof division (2001-03)
Managing director of operations at Sallies Ltd (2003-07), CEO after 2005
Holds Mine Overseer’s certificate (1994) and a Mine Manager’s certificate (1994)
Joined GDO in November 2007 as Chief Operating Officer
Syd Caddy (Senior VP Projects)


Professional engineer, 32yrs experience
Former executive of First Uranium, Simmer & Jack, Gold Fields and others
Johann Mouton (VP Metallurgy)


Qualified metallurgist with > 20 yrs experience
Former senior mgt positions at HMY and Uranium One
Pierre Kruger (VP Legal Counsel and Corporate Secretary since January 2007)



Former nonexecutive director at Aflease
Former nonexecutive chairman of New Kleinfontein Mining Co Ltd
Practiced as partner in law firm for 26 years
Piet van Straaten (VP Geology & Exploration Mgr)


> 25 yrs experience
Former head of geology, and later consultant, to Harmony
Ilja Graulich (VP Corporate Affairs)


Former journalist
Formerly worked for DRDGOLD
21
9/23/2009
CAPITAL STRUCTURE, LIQUIDITY & RESOURCES
Assets, Liabilities and Ratios
US$ Millions
Current Assets
Cash & equivalents
Short term investments
Inventories
Trade & other receivables
2009
$17.2
$15.0
$1.0
$0.0
$1.1
2010
$177.4
$152.0
$1.0
$10.0
$14.4
2011
$402.4
$348.0
$15.0
$20.0
$19.4
Noncurrent Assets
$130.4
Property, plant & equipment $128.0
Goodwill
$1.3
Held to maturity
$0.9
Other
$0.1
$139.3
$138.0
$1.3
$0.0
$0.0
$145.3
$144.0
$1.3
$0.0
$0.0
Total Assets
$147.6
$316.7
$547.7
Total Liabilities & Equity
2.6
$10.5
2.4
n/a
16.1
$166.4
13.9
14.0
16.1
$377.4
14.5
22.0
Debt to Equity
Debt to Assets
Invested Capital
Debt to Cash Flow
Current Ratio
Working Capital
Quick Ratio
Interest Cover
US$ Millions
Current Liabilities
Trade & other payables
2009
$6.7
$6.7
2010
$11.0
$11.0
2011
$25.0
$25.0
Noncurrent Liabilities
Convertibles
Asset Retirement
Deferred Tax
$97.4
$90.0
$2.1
$5.3
$78.8
$70.0
$3.5
$5.3
$55.3
$45.0
$5.0
$5.3
Shareholders Equity
Share Capital
Retained
$43.5
$112.0
-$68.5
$226.9
$162.0
$64.9
$467.4
$212.0
$255.4
147.6
316.7
547.7
2.4
0.7
$133.5
n/a
0.4
0.3
$296.9
1.0
0.2
0.1
$512.4
0.5
Assumptions
Our balance sheet and capital forecasts assume,

The current financing (US$31 million) has closed

The issuance of an additional 112 million ordinary shares (11.2 million ADR’s) between now and the end of
2011 to raise an additional US$100 million at higher share prices – it is prudent to assume some additional
dilution capital if the company plans to fast track Ventersburg through to production, though not necessary
as the Modder East mine is expected to generate US$300-500 million in free cash flow from now to 2013
(such capital undertakings may not occur, or they may occur in 2012 or 2013, beyond our forecast range)

The company has pledged to offer 50% of the proceeds of each new capital raise to the convertible bondholders for early redemption. We have assumed that the company will be successful in its campaign

See snapshot page (pp.2) for all other assumptions
US$, Millions
Net cash from operations
Cash Used by Investment Activities
Cash Raised by Financing Activities
Net Change in Cash
2006
$0.3
-$7.6
$16.9
$9.7
2007
-$5.5
-$15.5
$101.5
$80.5
2008
-$2.6
-$43.3
$0.0
-$45.9
2009
-$15.0
-$40.4
$43.3
-$12.2
2010
$100.0
-$13.1
$50.0
$136.9
2011
$156.7
-$11.0
$50.0
$195.7
Total
$233.9
-$130.8
$261.7
$364.8
Proceeds from share issues
Modder + Sub Nigel Capex
$16.4
$22.9
$19.8
$7.4
$0.0
$31.9
$41.7
$37.7
$50.0
$12.7
$50.0
$0.9
$177.9
$113.4
Gold One’s biggest short term challenge is to iron out the usual start up kinks and get Modder East producing both
continuously and at the forecasted operating costs. Its working capital position as of the end of the second quarter
had fallen to under A$10 million (cash & equivalents at US$11.5 million) from US$28 million at the end of 2008.
22
9/23/2009
First Half Results
The company reported a first half cash flow deficit in operations of about US$13.3 million (as it hasn’t sold the Sub
Nigel 1 stockpiles yet – currently at over 10,000 tonnes or over 1,000 oz – which are to be processed at the new
Modder East plant), and it invested about US$25 million in project capital in H1. This US$38.3 million expenditure
was offset by US$17.1 million in proceeds raised from asset sales and stock issues (including option exercising).
Gold One’s only significant debt is a 5yr 8.5% US dollar denominated convertible bond issued in 2007 maturing at
the end of 2012 – which converts at about US$0.39 per ordinary share into approximately 182 million shares. The
bond’s principal repayment value is US$71.6 million (see next section), but it is carried on its balance sheet at fair
value, which includes the company’s valuation of the value of the conversion right as well as the bond-holder’s put
option. Mainly due to the increase in Gold One’s share price during the first half, the company recorded a fair value
adjustment of about A$20 million on its profit and loss statement in the first half 2009, bringing the balance sheet
value of the bond up to approximately US$100 million (A$115.5 million) from about US$76 million (A$93.6 million).
[In this way dilution risk is somewhat accounted for.]
The Modder East mine started producing in July, three months ahead of schedule.
Sub Nigel 1 began producing in January 2009 at a cost of less than US$500,000 per month but the company did
not process or sell any gold during the first half. Gold One consequently reported a A$39.5 million loss during the
first half –as a result of the fair value adjustment (above), transaction costs associated with the BMA acquisition,
and the reduction in interest it receives on its cash balances as they declined to meet Modder’s startup schedule.
Up to the end of the second quarter, the company had invested roughly US$90 million (R700 million) in getting its
two mines into production – both ahead of schedule and under budget. Capital payback from here is < 2 years.
Since the end of the second quarter, Gold One has sold its Twin Hills prospect in Australia for US$1.5 million
(A$1.75 million) and issued 120 million ordinary shares to raise an additional US$31 million (A$37.5 million).
Half this amount will be set aside for the early retirement of about A$18 million in convertible notes.
Liquidity Outlook & Analysis
Our forecast for operating costs in the second half are at about US$20 million between Modder East and Sub Nigel
1, including administrative. The plant is expected to process more than 20,000 ounces in 2009. At current gold
prices this is about US$18 million in revenues, resulting in a US$2 million (operating) cash flow deficit in the second
half. Exploration & development expenditures for 2009, including remaining Modder East capex, are estimated at
an additional US$20 million (from there on, however, capital requirements are reduced to maintenance, exploration
and the Ventersburg feasibility project, until a production decision is made there sometime after 2010).
Thus, even with the financing, the company’s near term liquidity has thinned to a point where it will need to raise
more capital if Modder East does not produce positive cash flows over the next 4-6 months. On the other hand, our
revenue and capex projections for 2009 are very conservative. It is likely that revenues will come in higher if ramp
up at Modder East goes smoothly and gold prices keep rising; and that most of the capital required getting Modder
started up (as per forecast for 2009) has already been invested. The high margin Modder East operation should
begin generating more than US$5 million in free monthly cash by year end growing to US$10 million per month by
the end of 2010, substantially improving its less than average current ratios and thinning working capital position.
Longer term risk remains if the Modder East mine underperforms in 2010 and the convertible bond-holders choose
to exercise their early conversion right (at any time on or after 12 December 2010). Although we believe that Gold
One’s assets are poised to replenish the company’s working capital accounts and provide against any redemption
notice, in our opinion, Gold One could raise more capital in 2009 to ensure potential startup problems don't interfere
with its growth trajectory (by slowing down development elsewhere). We cannot rate the company's liquidity highly,
but in our view, its assets are strong enough to provide relief in dealing with its short and medium term obligations.
REPLACEMENT CONVERTIBLES
5yr 8.5% USD Convertible Bonds Due 13 December 2012
23
9/23/2009
Gold One issued six hundred 8.5% convertible (direct unsubordinated unconditional and unsecured) bonds to six
investors at a small premium to a nominal (face) value of ZAR 600 million (R1 million face value per bond) on 13
th
December 2007, with interest payable quarterly in arrear, in equal installments, on the 13 of March, June, Sept,
and December of each year, maturing 13 December 2012 at 109.58% of the principal amount of the bonds.
The bonds are denominated in US dollars and listed on the Frankfurt exchange. The conversion price is 266,058
1
shares per bond, or US$0.39327 (or ~A$0.50 / R3.30) per ordinary share –into 182,065,350 total shares .
The company can redeem “all but not some only of the” bonds prior to the final maturity date (13 December 2012)
at any time on or after 12 December 2009 if its ordinary shares can sustain a price of more than about A$0.75 for
20 days (within any consecutive 30 day period), or at any time in the event that at least 85% of the bonds have
already been converted, and/or under certain special conditions related to changes to South African tax law.
This early conversion trigger is calculated to result in a 10% gross ytm plus accrued interest, and holds several
benefits, the most obvious of which is the early relief of debt and interest payment obligations.
The bonds are redeemable at the bond holder’s option at any time on or after 12 December 2010 on the same
terms (accreted principal amount plus accrued interest calculated at a 10% gross ytm), or on a change of control
event. The bonds have debt covenants restricting the company from issuing more debt in relation to Modder, but
under “specific circumstances” it can issue debt or equity in relation to any other project. The indenture requires
further that the company not create any form of encumbrance on its assets that doesn’t comply with certain rules.
Additionally, certain dilutive events would result in a recalculation of the conversion price of the bonds, entitling the
bondholders to more shares on conversion, such as the requirement of “continuous production” – which states that
if Modder East is not producing gold on a continuous basis by 31 March 2010, the conversion price is recalculated
“based on the volume weighted average price of a share on each of the five dealing days ending on the day before
the proposed date of conversion.” The conversion price is also adjusted on consolidation of ordinary shares, stock
or cash dividends, rights issues, conversion modifications, etc., according to certain predetermined formulae.
The company carries the bonds on its balance sheet at a value of roughly US$100 million (A$116 million), and are
subject to fair value adjustments sensitive to share prices and US interest rates in order to account for the value of
bond-holder’s special rights. However, the principal repayment amount of the bond is fixed at US$71.6 million.
The company proposes to offer 50% of the proceeds of each future equity issue to the bond-holders for early
redemption. As the bonds are redeemable by the bond-holders starting in 16 months time (even though they
mature at the end of 2012), this is a sound way to reduce the potential future obligation should they be called.
The bonds are a burden on the company’s balance sheet and capital structure, particularly if Modder East runs into
difficulty. But, it is our view that they were the company’s best option to fund the development of the mine earlier,
and that it will ultimately retire the bonds at favorable terms to current shareholders.
BEE TRANSACTIONS
South Africa’s broad based black economic empowerment (BEE) program is an affirmative action based scheme
created in 2002 with the goal of leveling the playing field for Historically Disadvantaged South Africans (HDSA’s).
The BEE charter stipulates that companies must facilitate a 15% HDSA equity participation by 2009, and 26% by
2014. Mining companies must demonstrate compliance before government grants mining and prospecting rights.
Enterprises are supposed to be rated on an annual scorecard basis.
The program has critics within government but they are a minority voice.
Gold One has negotiated two BEE agreements (The “Micawber 2 Share”) on 23 August 2006 (signed 4 September
2
2006) – under its predecessor Aflease Gold structure – where it has agreed to sell a 26% undivided share in the
assets and liabilities (including rehabilitation) of its South African assets (both the mining and prospecting rights).
1
Equivalent to US$3.93 per US ADR for 18.21 million ADR’s
The BEE agreements will not be affected in any way by the acquisition of Aflease by BMA as Aflease will continue to exist
as a subsidiary of BMA – prelisting statement December 2008
2
24
9/23/2009
The agreements include contracts governing the contribution of the respective shares (74/26) to an unincorporated
1
joint venture between Gold One and its BEE partners – as well as the operation and funding of the joint venture .
The purchasers (“Micawber 400” Pty Ltd and “Micawber 472” Pty Ltd) are 100% HDSA-owned entities.
Micawber 400 has purchased a 26% undivided interest in the company’s East Rand Basin assets (Modder East,
Spaarwater, New Kleinfontein & Turnbridge, Holfontein & UC Prospect and the Sub Nigel Assets).
Micawber 472 has purchased a 26% undivided interest in Gold One’s Free State assets (Ventersburg).
Ownership Structure of BEE Partners
Micawber 400:
Community Trust
Employee Trust
Africa Vanguard Resources (Pty) Ltd
Zakothu Gold Mines (Pty) Ltd
Emseni Investments (Pty) Ltd
Bunengi Holdings (Pty) Ltd
Nkumane Mining (Pty) Ltd
Micawber 472:
30%
30%
20%
5%
5%
5%
5%
Community Trust
Employee Trust
Africa Vanguard Resources (Pty) Ltd
Zakothu Gold Mines (Pty) Ltd
Emseni Investments (Pty) Ltd
Bunengi Holdings (Pty) Ltd
South African Women in Mining association
30%
30%
20%
5%
5%
5%
5%
The assets remain unencumbered until the effective date of the transaction, which is triggered by the "fulfillment of
all suspensive conditions" – including the granting of all relevant new order mining & prospecting rights, the transfer
of 26% to BEE partners, and government approvals of the proposed joint ventures and their ownership structures.
From that date forward, funding for the projects is to be contributed to the joint venture proportionately, with Gold
One agreeing to loan Micawber the funds for its contribution to operating costs and capital outlays until Micawber
can repay them out of its share of profits. Although there is no real financial effect until the purchasers pay for their
share, the company is adopting IFRS international accounting standards where the transactions will probably be
treated as share based payments (from the effective date), with contributions to earnings following election to pay.
The purchase price for the Micawber 400 purchase of Gold One’s East Rand Basin assets will be determined as
the lower of 26% of the net present value of the assets and liabilities on notice of election and the 30-day weighted
trading average share price of GDO in the period immediately preceding the date of election.
The purchase price for Micawber 472’s purchase of Gold One’s Free State assets has been calculated at “26% of
R21.2 million, i.e. R5,512,000.00” (22 August 2006), but Micawber 472 will have to contribute 26% of the funding.
Election must occur within 3 years of the first dividend by the joint venture, and the purchaser must pay a minimum
of 5/26 (20%) of the purchase price, as well as in each subsequent 3-yr period until the price has been paid in full.
Following the election date, Gold One will carry the full purchase price on its balance sheet as a loan account “in
the records of Aflease” while payments will credit those accounts, and return earnings in the income statement.
Analysis
We have valued Gold One’s assets on a 100% basis as these transactions have not yet occurred; and when they
do, they will be regarded as genuine sales. In the case of Micawber 400 the price is not less than the value of the
company’s stock, though in the case of Ventersburg there may be some leakage in value; some leakage may also
occur in the lost time value of money between the dividend payment and loan repayment, as well as other areas.
The main risk is that the government’s approval of the joint venture and BEE structure has not yet occurred.
A secondary risk is that the sales of Gold One’s 26% interest occur at unfavorable prices.
We have taken these risks into account in our final risk-adjusted valuation of Gold One’s South African assets by
shaving 20-30 percent of our net present values (23% reduction in gross NAV), calculated at a 10% discount rate.
1
Control and operations of the joint ventures will be on a pro rata basis according to each party’s asset ownership
25
9/23/2009
MODDER EAST, FLAGSHIP – PRODUCTION BEGAN JULY 2009
East Rand Goldfield, Gauteng Province, South Africa
Interest
BEE Partner
Development Stage
System / Deposit Type
Resource Size
Resource Depth
Mine Employs
Production (LOM Avge)
Mine Life
Total Cash Costs US$/oz
Project Valuation
100%
Micawber 400
Producer
BPLZ & UK9a reefs (paleoplacers)
3.7 million ounces (inferred + indicated)
300-530m
1,377 people
125,000 ounces per annum
12yrs
US$334 per oz (LOM)
US$385 million
Investment Summary
Modder East is the company’s flagship project. The new 1.2Mtpa
CIL plant was commissioned 24 June 2009 and began production
of Modder East ore 21 July 2009. It is expected to process about
90,000 tonnes of ore in 2009, ramping up to 750,000 tonnes in
2010 and 1.2 million tonnes in 2011, to produce 20,000, 140,000
and 180,000 oz respectively. Total cash costs could be as high as
US$800 per oz at the outset, but should fall fast toward US$243 in
2010 as the plant approaches its design capacity (100ktpm). The
mine is expected to exploit the BPLZ and blanket facies at the
black reef over an eight year life, but a case could be made for an
extension to a 12 year mine life based on the inherent potential of
the Kimberley reefs, the channel facies underlying the BPLZ zone,
and from the exploration during on-reef development, including at
Holfontein – none of which is included in the published mine plan.
Our Gross DCF for Modder East is US$475 million at a $950 gold
price, or US$128 for each resource ounce (global), a little higher
than the market currently pays for a junior asset (US$80 average).
North American junior underground miners typically fetch between
US$100 and US$135 per ounce. Given the Modder East mine is
even shallower than many of these mines, and just as large if not
larger, we feel that value is realizable, though not necessarily right
away. However, it is more than junior miners get for their ounces
on average. The average is US$80/oz as of the end of July with
comparable assets in Brazil, Mongolia, and West Africa coming in
at about that level. We see no reason to award South Africa a risk
premium any greater than the market awards to these countries.
The Modder East mine is a solid high margin asset that will
recover shallow ounces in a prolific mining district with excellent
infrastructure. The mine is brand new and unlike larger operations at depths of up to 4km, capital outlays are not
expected to drain cash flows. Therefore, in our opinion, the asset deserves a better value than the average South
African resource, and at least as much as the average international junior producer with a resource <5Moz.
We are therefore confident the company will realize our risk adjusted valuation for Modder East (US$385 million or
US$105/oz) in the re-rating process, assuming a US$950 gold price and ramp up to 1.2Mtpa over the next year, as
the market crystallizes on Gold One’s transformation to a high margin producer generating organic cash flows.
26
9/23/2009
The project’s high margins imply a greater margin for error, and capital payback can be quick at less than 2years,
but also, as a result, the project NPV’s show relatively low sensitivities to changes in costs and exchange rates.
Overview of Modder East
The Modder East project spans an area nearly 4,000 hectares on the East Rand Gold Basin, a historic gold mining
district in the Gauteng Province of South Africa approximately 30 kilometers east of Johannesburg near Springs, at
a 1,620 (AMSL) elevation. The region is located in the northeastern quadrant of the Witwatersrand basin, and has
excellent infrastructure. Modder was granted an old order right in 2004 (ML 15/2004) covering “certain portions of
the Modder East 72 IR, Modderfontein 76 IR, Klipfontein 70 IR, Cloverfield 75 IR, Welgedacht 74 IR and Geduld
123 IR farms” (including UC prospect area and part of Modder B), which is being converted to a new order mining
right (good for 30 years) under the new mineral resource act (a rush of applications has slowed the process down).
The project includes a shallow underground mine designed to exploit two reef horizons at 300-530m – the Black
and Kimberley reefs – and the UC prospect area previously mined under tribute to the southwest.
The mine is shallow compared with the average South African operation, or even the average underground mine
elsewhere. Petrex (Pty) Ltd is currently developing the Kimberley reef at 700m to the south of Modder East.
The Modder East plant is the first new plant on the
East Rand in 30 years. It was complete in April, on
schedule and 25% (US$10 million) under budget.
The plant was commissioned in June with its first gold
poured from low grade test ore purchased from a third
party, and is now in the ramp up stage with its first
Modder East gold poured in July, three months early.
Gold One plans to achieve a processing rate of up to
100,000 tonnes of ore per month by 2010 (steady
state), recovering more than 1 million ounces (with
peak production at roughly 180kozpa for 3 years) over
an 8 year mine life (phase 1) at a total LOM cash
operating cost of about US$260 per ounce, or under
US$350 per ounce including replacement costs.
The current mine plan proposes mining only the black
reef, but management feels that once the development reaches the Kimberley reef, the marginal cost of resource
definition & extraction will lengthen the project mine life.
The company will mine the ore using traditional narrow reef breast stoping methods, “utilizing scraper winches for
stope cleaning operations.” The reefs will be accessed via trackless decline, serving as a roadway for haulage –
currently winding over 2,100m at a 9º dip from surface, and will ultimately be extended a further 400m to access the
stope chutes. The ore will be hauled from the chutes by 30 tonne trucks to a silo system from where it will be
loaded and transported to surface by the larger 50 tonne trucks. A second access point for personnel is provided
by a vertical ventilation shaft down to 345m (currently within 20m of target level with final blasting in June), where it
will connect with the decline. The ore is processed in a standard carbon in leach gold recovery plant (1.2Mtpa).
MODDER EAST PHASE 1
2009
2010
2011
2012
2013
2014
2015
2016
87,902
752,642
1,200,000
1,258,724
1,269,849
1,209,316
1,166,485
319,411
Average RoM head grade (gpt)
9.9
7.4
7.0
5.9
5.7
4.9
4.5
4.0
Average milling yield (gpt)
7.1
5.8
5.4
4.6
4.4
3.8
3.5
3.1
20,000
140,000
180,000
184,362
180,635
147,745
130,183
31,982
Milled Tonnes
Recoverable Gold (oz)
Modder East is a high margin operation with low sensitivity to gold prices, capex and operating costs. Gold One
estimates that the project could be cashflow positive in the first quarter of commercial production (or Q4 2009).
27
9/23/2009
Geology
The East Rand Basin is located in the Northeast quadrant of the Witwatersrand Basin, “separated from the Central
Rand by an anticline known as the boksburg gap.” The Witwatersrand Basin is over three billion years old, and
covers a large area of gold bearing “reefs”, stretching 90 miles west and southwest of Johannesburg to about 40
miles east, or “300km east-northeast and 150km south-southeast.” The region is also known as The Rand. The
East Rand has produced 25% of the gold at Wits Rand. The geology at Modder East consists in 3 “supergroups”,
or distinct sedimentary conglomerates, which have formed the stratigraphy of South Africa's Witwatersrand Basin.
The Black Reef Quartzite Formation lies at the base of the youngest of these – the Transvaal Supergroup.
It is overlain by dolomites, immediately above it, "with shales and sandstones in the upper elevations."
The underlying Ventersdorp Supergroup is a "sequence of rift-related lavas that were extruded in immediate postWitwatersrand times". The oldest, and most prolific, sequence -dating back 3.1 billion years- the Witwatersrand
Supergroup, “developed within the predominantly sedimentary fill that has accumulated within the Archaen basin."
The Kimberley Reefs, which the company hopes to mine eventually, consist of a number of discrete quartz-pebble
conglomerate units preserved within the upper parts of the Central Rand Group, which also hosts the Main Reef, or
the Nigel Reef (the source of most of the mineralization in the Rand), at the interface with the West Rand Group.
Most of the gold at Modder is concentrated within a depositional shoreline with grades falling to the south and east.
The technical report notes,
"The resource delimited on Modder East is
a direct extension of the Black Reef that is
currently being mined by Petrex (Pty)
Limited at the Grootvlei mine to the
southwest of the Project and which was
previously mined by Petrex within the
southern part of the UC Prospect."
The black reef hosts a zone made up of
three distinct facies (see picture on right)
starting with a band of gold mineralization
about ½ meter wide, called the buckshot
pyrite leader zone (BPLZ) – a palaeoplacer
“within a heavy mineral suite dominated by
pyrite and hosted within the conglomerate”
– which contains most of the gold and the
highest grades (>5gpt). This zone overlies
the "blanket facies" (BF), a low grade
quartzite and the “channel facies" (CF), an erosional feature that lies at the base of the black reef (~3 meters wide).
History of the Modder East Mines
Modder East includes the old Modder East mine, incorporated in 1917, and mined by Afrikander Lease until 1962,
as well as a portion of the old Modder “B” area, mined until 1956 – both operations mined primarily the main reef.
Total production was inferred at roughly 8 million ounces from 44 million tons of ore mined at depths deeper than
what the company plans to mine today. The operation reached a milling rate of 1 million tons per year. The Black
and Kimberley reefs in the region have been mined by Harmony and Petrex (sold to Petmin in the nineties then to
Bema in 2003) to the west and south, including the 117,000 tonnes by Grootvlei Pty Mines Ltd under the terms of a
“tribute agreement” with New Kleinfontein (NKGC) – the previous owner of the project – which ended in 2004.
Harmony, Petrex and Gold Fields (Gencor) owned the property in the eighties and nineties. The latter (Gencor
then) drilled 10 diamond core holes on the UC prospect in the early nineties to “investigate the Kimberley Reefs
and the Black Reef to the NE of the Grootvlei Gold Mine.” The drill program intersected the Black Reef in seven of
the holes but widths were skinny, and the exploration program was later abandoned. Harmony drilled three holes
at around the same time near the boundary between Modder East and the UC prospect but “apparently did not
28
9/23/2009
intersect the Black Reef at the interpreted stratigraphic level.” However, three holes drilled by New Kleinfontein
Mining Company (NKMC) in 2001 discovered potential for a high grade pay shoot along a “depositional shoreline.”
In 2003, a competent person’s report issued by Camden Geoserve outlined the potential for a 646,000 ounce gold
resource (non-compliant), and in the same year Aflease acquired 100% of NKMC – which held the Modder East,
UC Prospect, Turnbridge and the New Kleinfontein Gold Mine. Aflease, Gold One’s predecessor company, then
drilled 24 boreholes in 2004 to determine the lateral continuity of the mineralization and completed a prefeasibility,
which indicated 964,000 ounces (Au) at over 6 grams per tonne at the time. After drilling another 28 holes in 2005
to delineate the “BPLZ target zone,” and 9 holes into the Kimberley reef in 2006 to complete a bankable feasibility
1
study , the resource grew to 1.665 million oz (indicated) grading 3gpt plus 829,000 oz (inferred) grading 5.2gpt.
Gold One has since defined a total 1.36Moz probable reserve, indicated an additional 1 million ounces, and added
200,000 ounces in inferred resources. Independent consultants ultimately estimated a JORC/SAMREC compliant
resource at Modder East containing a total of about 3.68Moz of gold, including the 1.36Moz probable reserve.
Modder East Resource & Reserve Estimate
Modder East Mineral RESOURCE Estimate (SAMREC)
Indicated
Tonnes (Mt) Grade (gpt)
BPLZ + BF (black reef)
Channel + BF (black reef)
BPLZ Pillars (black reef)
UK9A (kimberley reef)
Total Indicated
Inferred
BPLZ + BF (black reef)
Channel + BF (black reef)
UK9A (kimberley reef)
UK5A (kimberley reef)
Total Inferred
Total Resource (Inferred + Indicated)
7.38
17.54
0.27
3.64
28.83
Tonnes (Mt)
5.82
1.25
8.33
4.10
2.84
Grade (gpt)
Contained (oz)
1,380,926
704,905
72,310
479,818
2,637,959
Contained (oz)
0.65
2.15
2.77
9.41
14.98
1.98
1.83
3.58
1.82
2.16
41,378
126,497
318,826
550,620
1,037,321
43.81
2.60
3,675,280
Modder East Mineral RESERVE Estimate (SAMREC), included in resource est *
Probable
Tonnes (Mt) Grade (gpt)
Contained (oz)
BPLZ (black reef)
UK9A (kimberley reef)
Total probable
5.39
2.26
7.65
6.09
4.13
5.51
1,055,351
300,089
1,355,440
* The indicated resource of 2.64Moz above is inclusive of the probable reserve of 1.36Moz
The current Modder East resource is based on approximately 77 drill holes (about 30,000 meters of drilling), some
238 underground channel samples “declustered (i.e. averaged) within 50m × 50m squares from 16,694 sample
points,” bulk sample data from the neighboring Grootvlei operation on the black reef, and ongoing development.
On reef development of the Kimberley reefs could be a source of additional pay shoots and resources.
1
Turgis Consulting (Pty) Ltd (“Turgis”) completed a definitive feasibility study for the Modder East project during May 2006
on behalf of Aflease. In this feasibility study, Turgis considered the primary access and mining methods for the Back Reef
formation and the UK9a Kimberley Reef. Turgis reviewed the life-of-mine (“LoM”) plan in June 2007 and SRK completed a
Technical Report in August 2008 – from the December 2008 prelisting statement attached to the April 2009 prospectus
29
9/23/2009
Modder East Development History
Modder East is located within an established mining district with
excellent infrastructure for access to water, power, and labor as
well as business and industrial centers – making development of
the project relatively simple. The company began clearing and
excavating the site on 18 May 2006, as it was preparing to issue
the results of its first bankable feasibility study and independent
technical report, supporting a shallow underground mine and
plant, milling at a rate of 70,000 tonnes of ore per month, double
1
the rate envisaged by a conceptual study in 2003 .
The mine design called for the development of two access
points. Primary access is provided by a single trackless decline
for haulage, cut approximately 5 meters in diameter (at a 9° dip)
from surface and currently winds over 2,100m into the footwall of
both horizons (330m vertical depth); it will be advanced to about
2,460m to access the chutes approximately 390m vertical.
The second access point is for the transportation of mining
personnel, and is a vertical ventilation shaft (6.5m diameter) that
has been developed to within 20m of its target depth (345m)
where it will ultimately connect with the decline.
The project also required the construction of a tailings-dam
2
facility “immediately northwest of the planned mining footprint”
(10yr LOM, 2.5mpa RoR, 100ktpm deposition rate, 20m
maximum height, 62ha footprint) – completed in April (2009) – as
well as a standard CIL recovery plant capable of processing
1.2Mtpa – commissioned as of July 2009 –and surface
infrastructure (roads, offices, water, power and other work).
As of 31 May 2009 the company had invested US$87 million (R653 million) in capital at Modder East, which it has
forecast to grow to US$108 million (R810 million) in total pre-production capital by mid 2010 (-remaining capital
requirements forecast at around US$10-15 million from August 2009 w/maintenance capital <US$1 million per yr).
Modder East Optimization
Date
Monthly
Throughput (t
milled)
Mine
Life
(yrs)
Avge LOM
Production
Capital
Payback
(years)
Global
Resource
(Moz)
NPV, 8%
($USD
millions)
IRR
Development Stage
2003
2004
2006
2007
2009
35,000
60,000
70,000
100,000
100,000
9.0
9.0
10.0
8.0
8.0
54,011
91,700
94,829
150,500
125,000
n/a
4.3
4.5
4.3
2.0
0.6
1.0
2.5
3.4
3.7
$42.9
$128.6
$139.3
$239.3
$300.0
n/a
n/a
31%
42%
55%
Conceptual Study
Prefeasibility
Bankable Feasibility
Optimized
Producer
* NPV's calculated at 8% discount, US$800 gold price and a 7:1 Rand/Dollar exchange
1
It has since grown to accommodate 100,000 tonnes per month (see mine plan optimization below).
2
In its 2008 CPR, SRK Consultants said, “The description of the conceptual engineering for the TDF for Modder East
corresponds to a typical arrangement for gold tailings disposal and meets the actual regulations on safety and stability in terms
of slope geometry, decanting, under-drainage and rate of raise.”
30
9/23/2009
Modder East Mine Plan Optimization
Since 2003, the Modder East mine plan has undergone
about five design changes starting with a small 35ktpm
operation contemplated in the original conceptual study
based on a 646,000oz historical resource to the 100ktpm
operation based on 1.4Moz probable (or 3.7Moz global).
In light of continuing increases in the resource resulting from
ongoing exploration and development work, the company
optimized its mine plan in 2007 for the best project NPV and
IRR’s. The optimum milling rate was 100,000 tonnes per
month (1.2Mtpa), which meant a shorter mine life but greater
total production (+27%), lower unit operating costs, and a
minimal increase in capex to increase throughput – despite a
20% increase in cost estimates for “water intersections,
inflation and refined recovery factors” made concurrently.
Ultimately, a shortening payback period and higher gold
prices would underpin the project NPV.
The selected cutoff grade for the mine plan and the resource was 2.3gpt. The optimum mine plan called for the
recovery of more than 1.2 million ounces of gold mostly from the black reef (BPLZ + BF). Mining of the Channel
Facies, BPLZ pillars in the Tribute area, and most of the inferred UK9a (Kimberley reef) resource is excluded.
Mining Method and Production Plan
Gold One has begun mining the shallow Black Reef at Modder East. The primary access decline for haulage has
advanced to both reef horizons (about 2,100m length from surface dipping at 9 degrees) and a footwall station was
complete in May (at a vertical depth of about 325m) to access the BPLZ. There has been over 300m of on reef
development around there since May. The trucks and equipment are on site, along with all relevant infrastructures.
The company is completing development
of the 345m vertical ventilation shaft to
transport people to and from the BPLZ
station, with the headgear and winder
house set to be complete by October.
The plant was commissioned with its first
gold pour in June from a stockpile of low
grade (1gpt) material purchased from a
third party in order to avoid “locking up”
the higher grade Modder East ore, thus
enabling it to avoid potential gold losses.
The first pour of the high grade Modder
East ore occurred on 21 July 2009. The
company is mining the concentration of
minerals deposited along a geological
shoreline (an underground beach formed
by fluvial deposits) to the north where the
BPLZ and the UK9a reefs intersect. The
orebody constitutes the bulk of reserves.
It is made up of three distinct facies: the Buckshot Pyrite Leader Zone (BPLZ); underlain by the Blanket facies; and
1
the Channel facies . The blanket facies will be mined along with the BPLZ where the BPLZ is less than 1 meter
1
Within the geological model, the thickness of the Channel Facies ranges from approximately 0,8m to a maximum of 5,4m and
the average thickness is 2,8m. Coupled with the overlying Blanket Facies material that has not been incorporated with the
BPLZ, the average mineralized width for the combined Channel Facies and Blanket Facies is approximately 3,8m
31
9/23/2009
wide. There is additional potential to mine the channel facies and the remaining blanket facies – where the
1
combined channels occur up to 4m wide . Both, this wide reef potential as well as the potential of the Kimberley
reefs, neither of which is reflected in the current mine plan, could add substantially to the life of the mine.
Gold One will employ the conventional narrow reef breast stoping method, supported by a pillar system (including 6
inch diameter posts at 2m spacings), panels and crosscuts. Ore is transported to surface via the trackless decline
in 50 tonne trucks where it will be processed at a standard mill and carbon in leach gold recovery circuit (1.2Mtpa).
The company expects to ramp up to 100ktpm by 2010 with peak production at 180,000 ounces per year between
2
2011 and 2013 with output tailing off after that – averaging 125kozpa over an 8yr mine life – in the base case.
3
Estimates for life of mine total cash operating costs fall under US$260 per oz .
Metallurgical recoveries are estimated at 82% for the BPLZ and 95% for the UK9A (Kimberley) reef.
Date
Chronological Milestones Achieved at Modder East
Apr 2004
Feb 2005
May 2006
Aug 2006
Sep 2006
Feb 2007
Jun 2007
Jul 2007
Oct 2007
Oct 2007
Apr 2008
Jun 2008
Sep 2008
Feb 2009
Apr 2009
Apr 2009
Apr 2009
May 2009
Jun 2009
Jun 2009
Jun 2009
Jun 2009
Jul 2009
??
Jul 2009
2010
Granted old order mining right (permits limited mining while waiting for new order right conversion)
Completed prefeasibility study supporting 60ktpm milling rate, 10yr mine life
Began excavating Modder East site, portal of the decline and started underground development
Completed bankable feasibility study (Turgis Consultants) supporting 70ktpm milling rate, 10yr mine life
Completed independent technical report and BFS audit by SRK
Increased probable reserve at Modder by 28%, to 1.37Moz... decline developed to 590m
Updated optimization saw best NPV at 100ktpm (1.2Mtpa) milling rate, 8yr mine life (BPLZ horizon)
Draft water use license approved by Department of Water Affairs and Forestry, final approval national
Amended EMP (environmental management program) approved, EIA effectively approved (Gold One)
Updated feasibility for 27% increase in total gold production over 8yr mine life to 1.2Moz
Mining permit for aggregate granted
Approval for design of tailings facility
Nuclear authorization approval
Decline successfully developed through dolomites, approaches first footwall drive at 2000m
First reef development commenced
Completed construction of a standard milling and carbon-in-leach recovery plant (1.2Mtpa)
Completed construction of tailings facility
Completed BPLZ footwall station at 325m
First gold pour using low grade ex-surface stockpile purchased from third party
Successful hot and cold commissioning of equipment and plant
Primary Access (Haulage) - trackless decline (5 x 5.3m) has advanced 2,100 to first mining horizon
Secondary Access (Personnel) - vertical ventilation shaft (6.5m) sunk to within 20m of bottom (345m)
Commencement of ledging and narrow breast stoping
First gold pour from Sub Nigel ore
First gold pour from Modder East ore
Modder East goes cashflow positive
1
Dubbed ‘wide reef’ mining, and is subject of a feasibility study currently being conducted by Minxcon
2
“The production plan provides for total of 7,56 Mt at an average grade of 5,51 g/t to be mined. The LoM tonnage based on the
production schedule is higher than the declared reserves… as some blocks of ore that is classified as Inferred Resources will
have to be extracted during normal mining operations. The split of ore produced from the two reef horizons is not constant
throughout the LoM, but BPLZ ore makes up 76% of the total reserve” – from 2008 CPR pp.334
3
US$350 per ounce including replacement and maintenance costs
32
9/23/2009
Modder East Project Valuation
Base Case DCF:
US$400 million
Gross/Expanded DCF: US$475 million
Risk Adjusted DCF:
US$385 million
The DCF (Discounted Cash Flow Model) for Modder East based on the basic proposal (see below for the financial
model and assumptions) returns a net present value of US$400 Million (ZAR 3,2 Billion) using a US$950 gold price.
Strong Case for Longer Mine Life
This valuation, however, discounts the potential additions to mine life resulting from the feasibility of wide reef and
Kimberley reef development. Both these resources have been excluded from the calculation of mineable reserves
in the current mine plan while their feasibility is being studied. Owing to the well documented behavior and lateral
continuity of the Kimberley reefs in the Witwatersrand Basin, and knowledge about this orebody in particular, the
company is confident that it will be able to prove their feasibility once on reef development begins – which it has.
We are confident in this plan too, and as a result, our final financial model includes these potentialities, increasing
mine life to 12 years (which may still be conservative based on our site visit and conversations with the company).
Thus, our gross NPV is US$475 Million (ZAR 3,8 Billion).
Expanded Discounted Cash Flow @ US$950/oz
Mine Life
Tonnes milled
Gold sold
Average Mill Yield
Total Cash Costs
Total Cash Costs
Total Cash Costs
LOM Project Capex
Discount Rate
Rand/USD LT Avge
USD POG LT Avge
Net Present Value
Capital Payback
12yrs
11,864,329 tonnes (averaging 1Mtpa)
1,500,002 ounces (averaging 125kozpa)
4.2gpt
ZAR 342 per tonne (LOM average)
US$42/tonne (LOM average)
US$334/oz (LOM average)
ZAR 387,000,000 (US$48 million) including maintenance, undiscounted
10%
R8,1
US$950
US$475 Million (ZAR 3,8 Billion)
<2yrs
Note that this expanded DCF adds just US$75 million in NPV. This is because most of the additional benefits from
mining the Kimberley reef do not occur for eight years in our model, as well as due to a relatively high discount rate.
Risk Adjusting the Gross NPV for: Size, Scope and BEE’s
Our GROSS NPV for the Modder East project translates into about US$129 per oz (indicated + inferred), which is
on the high side of the range of junior valuations (mid to large cap producers average about US$150 per oz).
On the other hand, if one prefers cashflow multiples, US$475 million implies a multiple of around 6.5x the expected
(LOM) average annual operating cash flow generated by Modder, which is more in line with the expectation for the
average international junior gold miner (the average mid to large cap producer trades at 10-12 times cash flows).
The Modder East mine is a shallow mining operation and should be immune from the South African discount to the
extent that this risk premium applies to the average quality of South African resources at depths of over 3000m.
As for the political situation, we feel the market’s view is unjustly pessimistic.
The technical risk of this project is low. Costs are low. Margins high, expected capital payback relatively quick (at
<2yrs), prolific region with excellent infrastructure (locally and regionally). The mine is brand new and the operation
is shallow, so unlike the capital intensive burdens facing miners at depth, expected capital outlays are limited to
33
9/23/2009
maintenance or expansion capital. On this basis, in our opinion, the asset deserves a better value than the
average South African resource, and at least as much as the average international junior producer with a resource
<5Moz. Nevertheless, we will concede some discount related to the relatively small size and limited scope of the
project, and some uncertainty related to the quality and liquidity of potential BEE assets on the balance sheet.
Our risk adjusted valuation for Modder East is calculated as an average between what juniors get for their ounces
and our gross NPV per ounce, or roughly US$105 per ounce, or US$385 million. We are confident that Gold One
will realize this valuation in the re-rating process, assuming a US$950 gold price and ramp up to 1.2Mtpa over the
next year, as the market crystallizes on Gold One’s transformation to a high margin producer generating its own
cash flow. On a fully diluted basis, Gold One’s shares are getting about half that value – and that’s before taking
into consideration the valuation of its other 10 million ounces (at Sub Nigel, Ventersburg, Tulo and elsewhere).
Modder East is currently Gold One’s flagship asset, but it is also a means to the development of another, larger
asset, which the company believes will become its future flagship asset – Ventersburg. Thus, it would be unfair to
evaluate the company based on the potential of Modder alone other than to infer any downside potential.
Base Case Financial Model (8yr LOM), Average Long Run Gold Prices = US$800-1,000
MODDER EAST PHASE 1
2015
2016
Average
752,642 1,200,000 1,258,724 1,269,849 1,209,316 1,166,485
319,411
908,041
6.1
2009
Milled Tonnes
2010
87,902
2011
2012
2013
2014
Average RoM head grade (gpt)
9.9
7.4
7.0
5.9
5.7
4.9
4.5
4.0
Average milling yield (gpt)
7.1
5.8
5.4
4.6
4.4
3.8
3.5
3.1
4.7
Recoverable Gold (oz)
20,000
140,000
180,000
184,362
180,635
147,745
130,183
31,982
126,863
Recoverable Gold (kg)
622
4,354
5,599
5,734
5,618
4,595
4,049
995
3,946
Average
Long Term Gold Price Averages US$800/oz
Gold Revenue (USD, 000)
$
18
$
119
$
150
$
149
$
142
$
113
$
96
$
23
$
Total Cash Costs (USD, 000)
$
20
$
44
$
47
$
43
$
45
$
45
$
44
$
19
$
38
Cashflow (USD, 000)
$
(2) $
75
$
104
$
106
$
97
$
69
$
52
$
4
$
63
Taxation (USD, 000)
$
$
7
Project Capital (USD, 000)
$
Free Cashflow (USD, 000)
$
-
$
$
2
$
16
$
15
$
12
$
10
$
$
16
$
1
$
1
$
1
$
1
$
1
$
2
$
5
(15) $
59
$
100
$
89
$
81
$
55
$
41
$
3
$
52
13
-
-
101
Average
Long Term Gold Price Averages US$1,000/oz
Gold Revenue (USD, 000)
$
18
$
140
$
198
$
203
$
190
$
148
$
124
$
29
$
Total Cash Costs (USD, 000)
$
20
$
44
$
47
$
43
$
45
$
45
$
44
$
19
$
38
Cashflow (USD, 000)
$
(2) $
96
$
151
$
159
$
145
$
103
$
80
$
10
$
93
Taxation (USD, 000)
$
$
7
Project Capital (USD, 000)
$
Free Cashflow (USD, 000)
$
-
$
2
$
16
$
15
$
12
$
10
$
$
16
$
1
$
1
$
1
$
1
$
1
$
2
$
5
(15) $
80
$
148
$
142
$
129
$
90
$
69
$
8
$
81
13
$
-
-
Unit Costs
Total Cash Cost R/tonne
131
Average
R 1,783
R 466
R 319
R 290
R 295
R 302
R 300
R 454
Total Cash Cost US$/tonne
$220
$58
$39
$36
$36
$37
$37
$56
R 343
$42
Total Cash Cost US$/oz
$967
$310
$263
$244
$256
$305
$332
$560
$303
Assumptions
Price, Exchange Factors
Gold Price Assumption, US$800 Avge
Gold Price Assumption, US$1000 Avge
Rand/USD exchange rate
2009
$900
$900
7.8
2010
$850
$1,000
8.0
2011
$835
$1,100
8.2
34
2012
$810
$1,100
8.4
2013
$785
$1,050
8.4
2014
$765
$1,000
8.2
2015
$735
$950
8.0
2016
$720
$900
7.8
Average
$800
$1,000
8.1
9/23/2009
Since we’ve assumed,



a relatively stable Rand/USD exchange rate
a South African 10yr government bond rate of around 9%
some room for a risk premium appropriate to startups
..a 10 percent discount rate is sufficient in our analysis, given the current and expected business environment.
Our primary method of valuation is the discounted cashflow model, which relies on forecasts for gold prices, costs,
exchange rate, interest rates and other variables (both real and macro) that cannot be forecast with any substantial
degree of accuracy. This can’t be made up in the complexity of the calculation.
Our approach is to determine a range of values by checking our DCF valuation against those already made by the
market for other similar assets in terms of their resource and cashflow multiples, adjusted for a rerating potential.
A stable exchange rate was assumed despite our forecast for a weaker Rand in the short to medium term.
In our costs, given our site visit and the extent of due diligence that has been done on this project by ourselves as
well as several independent consultancies, we have accepted the company’s estimates for mining and processing,
transportation, and related expenses. However, we assumed a little more cost inflation in our financial model, and
felt that maintenance capital and tax expense could be bumped up a bit in later years, as Kimberley comes on line.
Our model assumes that the company will be able to recover an additional 300-400koz from the Kimberley reefs
over and above the base case scenario that exploits mainly the black reef. There is roughly 480koz indicated in the
UK9A reef (of which 301koz is defined as probable) plus an extra 870koz (UK9A + UK5A) defined as inferred
resources. We believe management will be able to convert those resources and extend the mine life so we have
assumed a 12 year mine life (+ 4yrs) in our adjusted DCF. Out of conservatism, we assume a milling rate of about
1Mtpa, producing about 100kozpa in between 2016 and 2020 – to account for the lower grades on Kimberley.
Sensitivity Analysis (See Next Page)
The Modder East project shows relatively low sensitivity to changes in the discount rate and operating costs but is
relatively more (but not overly) sensitive to gold prices and exchange rates, respectively (see tables below).
For each 10% change in the discount rate, valuation changes by approximately 5%.
For each 10% change in unit operating costs, valuation changes by approximately 5%.
For each US$100 change in the gold price, valuation changes by 15-20%, with more leverage on the upside.
For each 10% change in the exchange rate, valuation changes by approximately 10-15%, with more leverage on
the downside (i.e., to a strong Rand).
35
9/23/2009
MODDER EAST SENSITIVITIES - BASED ON 10% CHANGE IN VARIABLES
NPV Sensitivity to Discount Rate
Discount
NPV Sensitivity
5.9%
$549
26%
6.6%
$528
21%
7.3%
$506
16%
8.1%
$483
11%
9.0%
$459
6%
10.0%
$434
0%
11.0%
$412
-5%
12.1%
$389
-11%
13.3%
$365
-16%
14.6%
$342
-21%
16.1%
$318
-27%
NPV Sensitivity to Gold Price
Gold Price
NPV Sensitivity
$531
$121
-72%
$590
$171
-61%
$656
$227
-48%
$729
$289
-34%
$810
$358
-18%
$900
$434
0%
$990
$511
18%
$1,089
$595
37%
$1,198
$688
58%
$1,318
$790
82%
$1,449
$902
108%
NPV Sensitivity to Operating Costs
TCC $/oz
NPV Sensitivity
$185
$561
24%
$205
$544
20%
$228
$524
16%
$254
$503
11%
$282
$479
6%
$313
$452
0%
$344
$426
-6%
$379
$396
-12%
$417
$364
-20%
$458
$328
-27%
$504
$289
-36%
Cost Sensitivity to Exchange Rate
Rand/USD
TCC Sensitivity
R 4.8
$530
69%
R 5.3
$477
52%
R 5.9
$429
37%
R 6.6
$386
23%
R 7.3
$348
11%
R 8.1
$313
0%
R 8.9
$285
-9%
R 9.8
$259
-17%
R 10.8
$235
-25%
R 11.9
$214
-32%
R 13.0
$194
-38%
36
9/23/2009
New Order Mining Rights, Water License & SLP
There are no outstanding environmental issues.
The Department of Minerals & Energy (DME) approved an amended Environmental Management Program (EMP)
1
for Modder East on 4 October 2007, on conditions the company has satisfied . The EMP was submitted along with
the Environmental Impact Assessment (EIA) and addresses the management of the “impacts” identified by the EIA,
such as: water management, acid rock drainage, mine closure, as well as flora and/or fauna.
Although they lie outside of the “proposed mining footprint,” the EMP outlined two sensitive areas on the property,
or bordering it, identified by the EIA involving certain bird sanctuaries and related primary vegetation.
In its approved EMP, Gold One outlined several reasonable ways that it plans to manage this impact.
The company has been extremely adroit at staying on top of the regulatory changes in South Africa and most of the
relevant documentation has been filed. However, there are some remaining loose ends that will be closed shortly.



Water Use License
New Order Mining Right Conversion
Social & Labor Plan
The status of these issues is as follows,
A draft version of a Water Use License was approved by the Department of Water Affairs and Forestry (DWAF) in
2007, subject to final approval by the higher national authority. SRK, the company’s independent consultant, noted
in its 2008 Competent Person’s Report (CPR) that, “Strictly speaking the lack of a license is a legal non-compliance
with the NWA, however, this is not currently seen as significant as many mines in South Africa have not yet applied
for a license or if an application has been made, the license has not been granted, and in this case it has been
identified that the delay is primarily as a result of departmental responsibilities. A brief review of the draft license by
SRK indicates that the conditions in the draft are routine and are within the mines capabilities of achieving.”
2
While it was granted a new order prospecting right for the Modder East project on 1 June 2006 , the company is
still waiting for the DME to approve its 2008 application to convert its old order mining license (ML15/2004) granted
in 2004. The previous license was valid until 29 April 2009 but bureaucratic bottlenecks created by amendments to
the Mineral and Petroleum Resources and Development Act in 2008 have slowed the process down for everyone.
Management assures us that “the evaluation of the application has been finalized by the Regional Office” and has
“now been forwarded to Head Office” without any further queries on either “the mine work plan, EMP or BEE.”
A social and labor plan (SLP) is not required until the conversion to a new order mining right occurs and the mine
is producing, but the company proactively submitted one that has been approved by the Department of Minerals &
3
Energy (DME), and is considered to be “appropriate for the operation.” However, suggests the 2008 CPR, “As the
mine is not yet operational, the SLP has not yet been implemented… once operational and turning a profit the SLP
appears to be appropriate. A risk however is if no profit is generated, there will be no benefits to the community.”
It should be reiterated that the water license and SLP have both already been approved in terms of the approval of
the amended 2007 EMP. However, the 2008 amendments to the MPRD Act, which more or less only dealt with the
division of administrative powers among the various acts, have produced some new bottlenecks in these areas.
1
(1) Tailings dam not to be constructed until geotechnical report and tailings dam design submitted to and approved by DME.
Tailings dam design was approved by the DME as an addendum to the EMP on 11 June 2008. (2) Underground risk assessment
report to be submitted and approved by the Principal Inspector before mining activities commence in the affected area(i.e. the
area within 100 metres of the tailings dam). Risk Assessment submitted to Principal Inspector on 14 March 2008, Approval
still pending. (3) Submission of radiation risk assessment and proposed remedial measures before 31 December 2007.
Radiation Safety Assessment prepared by Dr J C Botha submitted to DME on 11 December 2008. A Certificate of Registration
No. COR-225 subsequently issued to NKGM by the National Nuclear Regulator on 25 August 2008.
2
“The surface rights for the project have been secured for a period of 20 years terminating in 2026”
3
According to the 2008 competent person’s report (CPR)
37
9/23/2009
The Sub Nigel Assets
The company’s Sub Nigel assets are divided into about eight areas which we’ve lumped into three main categories:
production, development and exploration. Sub Nigel 1 refers to areas 1-5, including the old Spaarwater mine to
the west of the recommissioned No 1 Shaft in area 1, and was granted a new order mining license in February
2008 – also covering claims known as West Vlakfontein (including an old mine) and West Spaarwater. The current
section deals with Sub Nigel 1, where ore production (for stockpiling at Modder East) began in January 2009.
Areas 4-8 are valid under about three separate prospecting protocols, and are mostly exploration assets covered
separately further in this report, in the review of exploration assets. Sub Nigel 6 is a development asset with a
compliant NI 43-101 resource. Thus, it is treated separate from the Sub Nigel mine or related exploration assets.
38
9/23/2009
THE SUB NIGEL MINE – STARTED PRODUCTION JANUARY 2009
Sub Nigel 1 (Areas 1-3 and Spaarwater)
East Rand Goldfield, Gauteng Province, South Africa
Interest
BEE Partner
Development Stage
System / Deposit Type
Resource Size
Resource Depth
Mine Employs
Production (LOM Avge)
Mine Life
Total Cash Costs US$/oz
Project Valuation
100%
Micawber 400
Producer
Main reefs (paleoplacer)
0.5 million ounces
~600m
700 people at 20ktpm
15,000 ounces per annum
9yrs
US$519 per oz (LOM)
US$20 Million
Investment Summary
Sub Nigel 1 is an historic mine producing some 15
million ounces of gold from the main (Nigel) reef –
during its 62yr life – until it was closed down in 1971.
It was a robust operation, producing grades averaging
up to half an ounce, and milling approximately 500,000
tonnes per year up to depths of more than 900 meters.
Today, it is small by comparison, currently mining just
one-tenth of that amount of ore, and one-fifth the grade;
less than one-third of the 20ktpm shaft capacity.
As of July 2009, the company was mining 4,500-5,000
tonnes per month, still ramping up to its 6,000 tonne
per month phase 1 target. It is mining subsidiary pay
shoots off the main reef west of the mined out shoots,
at depths of less than 700m, recovering about 3gpt of
gold. The ore is being stockpiled and processed at the
new Modder East plant until about 2011 when Modder
runs out of capacity and Gold One constructs a stand
alone processing facility at Sub Nigel. Expansion plans
have been made that will add another US$5 million in
NPV, but are not yet confirmed… though lead items,
like the mill, have been ordered for an expansion to
shaft capacity (20ktpm). The mine is worth US$10-15
million in NPV before imputing any value from the potential expansion, or from savings related to training costs.
Additional benefits from expansion could come from higher gold prices as the project NPV is sensitive to gold price
changes (see sensitivity analysis below). However, at gold prices below US$700, the values erode considerably.
Our US$20 million valuation translates into a multiple of about US$30 for each resource ounce or US$114 per oz in
the “reserves,” which is at the low end of the range for junior miners, and well below that for senior miners.
Sub Nigel 1 is presently a relatively small asset – about 5% of the worth of Modder East – but this value
understates its significance to the company as a training ground for Modder East, and ultimately for Ventersburg.
39
9/23/2009
Project Overview
1
This section deals with the Sub Nigel 1 mine/area covered by a mining license .
See our review of Exploration Assets for an analysis of the other Sub Nigel assets.
The Sub Nigel No 1 Shaft (and mine) is located in Sub Nigel Area 1, one kilometer northwest of the town of Nigel
and 50km east of Johannesburg. It is situated on the East Rand basin, Gauteng Province, South Africa.
The 3,020ha project was granted a mining license in 2008, and the preexisting 900 meter (20ktpm) No 1 Shaft was
recommissioned in January 2009 following a minimal (US$3 million) capital outlay to refurbish the old infrastructure.
The mine has produced nearly 15,000 tonnes of ore since, which has been transported and stockpiled at Modder.
The Shaft capacity is 20,000 tonnes per month. The mine will produce 3,000 to 5,000 ounces of gold this year, and
up to 7,000 ounces in 2010 at operating costs of around US$3.4 million each year. It is currently extracting ore at a
rate approaching 5,000 tonnes per month (about 500 ounces of gold per month) with ramp up to its 6,000 tonne per
month phase 1 target rate continuing. A second phase expansion involves an additional capital investment of just
US$3 million to double the mining rate to 12,000 tonnes per month in 2011. The final expansion (phase 3) to shaft
capacity (20ktpm) is planned for 2012, along with the construction of a 20ktpm stand alone processing plant on site.
Phase 3 is estimated to cost ~US$18 million, extend the mine life by 2 years, and boost production to over 20,000
ounces in 2012. While the chief value of the mine lay in its potential as a self funding training center for Modder
East, its value is enhanced by the quality of the existing infrastructure (contributing to low capital & operating costs)
as well as the use of the Modder East plant (contributing to the low capital requirement at the outset – phase 1 & 2).
Mineral RESOURCE Estimate for Sub Nigel 1, 2, 3, 4 and Spaarwater
Indicated 1, 2, 3
Tonnes (Mt) Grade (gpt) Contained (oz)
Sub Nigel (Nigel Reef)
3.04
3.25
317,649
Total Indicated
3.04
3.25
317,649
Inferred 1, 2, 3, 4, Spaarwater
Sub Nigel (Nigel Reef)
Sub Nigel (Erosion Channel) *
Spaarwater (Main Reef)
Spaarwater (Erosion Channel) *
Total Inferred
Inferred + Indicated
Tonnes (Mt) Grade (gpt) Contained (oz)
0.36
2.36
27,315
0.83
5.72
152,639
0.73
4.66
109,370
0.47
5.70
86,132
2.39
4.89
375,456
5.43
3.97
693,106
* Erosion channels excluded from company totals
Geology
The Nigel Reef in the East Rand Basin is the easterly extension of the South Reef that is mined in the Central Rand
gold field. It sits at the base of the Central Rand Subgroup on an unconformity separating it from the underlying
West Rand Group (these reef systems form saucer like layers in the Wits basin and outcrop in the north, and east).
As the South Reef moved east, folklore has it, its footwall increasingly dominated (transgressed or eliminated) the
Main Reef units, becoming the “only developed mineralized unit that extends eastward into the East Rand Basin.”
Hence, the Nigel, South and Main reefs are technically synonymous in the East Rand, and belong to the Central
Rand subgroup of the Witwatersrand stratigraphy – as opposed to the younger Transvaal Supergroup overlying it,
1
2
host to the Black Reef at Modder East . Nigel’s outcrops define the borders of the East Rand to the south & east .
1
Includes the Spaarwater mine which operated from 1947 to 1969, mining 2.56 Mt of ore yielding 0,85 Moz at 10.4 g/t.
40
9/23/2009
Mineralization at Sub Nigel is related to a 3000m wide pay shoot coincident with a north-northwest to southeasterly
trending synclinal axis running through the East Rand Basin from the New Kleinfontein Gold Mine at the north end
of the basin into Sub Nigel to the south. Payability declines west of Sub Nigel, past Spaarwater, and to the east the
3
main reef has been mined out . The Sub Nigel and Spaarwater deposits mainly comprise the extensions of those
eastern workings… as small subsidiary pay shoots on the main reef existing as narrow tabular bodies dipping at
16º, comprised of pebble conglomerates (15-65cm thickness) underlain by banded shale and overlain by quartzites.
4
Exploration potential exists in a channel erosion feature below the Nigel reef around the footwall and other areas.
History
The Sub Nigel assets were acquired in a reverse takeover of the Sub Nigel Gold Mining Company early in 2006,
resulting in the formation of Aflease Gold – Gold One’s predecessor before the reverse takeover of BMA in 2009.
The Sub Nigel mine hosts some of the oldest workings on the East Rand. According to the available data, the mine
produced 15 million ounces of gold from several shafts on the Nigel reef –at grades averaging up to half an ounce–
between 1909 and 1971, when Gold Fields shut it down (the mine was discovered and established in 1895).
Sub Nigel Gold Mining Company acquired the mine from Gold Fields in 1984 and went public with it on the JSE in
1986. The mine was refurbished and SNGM mined a total 691,900 tonnes of ore (averaging 138ktpa) from 1987 to
5
1991, producing a total of about 76,000 oz (15kozpa) grading 3.4gpt, but put it on care and maintenance in 1992 .
In 2005 SRK reviewed a scoping study prepared by MDM Ferroman Ltd the previous year for SNGM and provided
a competent person’s report inferring a small mineable resource. A subsequent prefeasibility study conducted by
Aflease Gold in 2007 added tonnage and increased the total indicated resource by 103,000 ounces, or 50%.
The prefeasibility estimated total project capital for a 20ktpm operation, including the construction of a small CIL
6
7
plant, at R145 million (US$18 million) . The company received a new order mining right (lasting 30yrs) from the
Minister of Minerals and Energy shortly thereafter, on 27 February 2008, and its mining license on 15 July 2008.
The Aflease Board approved an initial capital outlay of R29 million (or about US$4 million) in 2008 for an operation
about 1/3 the size contemplated in the study – producing just 6,000 ounces of gold per year – which included
refurbishing the shaft but not a processing plant. The Sub Nigel #1 Shaft was recommissioned on 27 January 2009
with the hoisting of its first ore on schedule and about R5 million under budget. The ore is being stockpiled for
processing at the new Modder East plant, which is expected to have spare capacity until 2011. –this plan has
numerous benefits. It provides Modder East with a lower grade ore for commissioning, and allows management to
give Sub Nigel a test run with a minimal capital commitment. Furthermore, the small startup would proxy as a
training ground for Modder East. Training began in May. The company is now ramping up to the planned 6ktpm
steady state. As of July, the mine was operating at 80-90 percent capacity, up from 75% in June, and 40% in April.
With phase 1 nearly complete, the company has begun to focus on expansion at Sub Nigel 1.
1
The Kimberley reefs also belong to the Central Rand group (the black reef lay at the base of the Transvaal Super Group)
"The southern and eastern limits of the East Rand Basin are defined by the outcrop and sub-outcrop trace of the Nigel Reef,
which is the main mineralized unit of the Central Rand Subgroup of the Witwatersrand."
3
“East of the New Kleinfontein-Sub Nigel pay shoot, an extensive area of the Main Reef has been mined, including the Van
Ryn Deep, Modder Deep, Modder B, Geduld, East Gadoid, Grootvlei, East Daggafontein, Daggafontein and Vogelstruisbult”
4
“Locally, erosion-channel features are encountered within the footwall of the Main Reef. These features are incised into the
Jeppestown footwall beneath the Main Reef. They are filled with pyritic quartzites, quartzites and conglomerates;
mineralization is frequently restricted to the pyritic quartzite fill within these transgressive, laterally restricted bodies”
5
The dormant Spaarwater mine, located immediately west of Sub Nigel 1, produced 850,000 ounces between 1947 and 1969 at
grades averaging up to 1/3 of an ounce per tonne of ore.
6
Including a 10% contingency and ongoing capital
7
Over 3000ha, covering Sub Nigel 1, 2, 3… the area that sits on: Spaarwater 171IR, Droogebult 170IR (9), Deelkraal 203IR,
Noycedale 191IR, Varkensfontein 169IR, Grootfontein 165IR
2
41
9/23/2009
Sub Nigel 1 Development & Expansion Plan
Sub Nigel, Phased Expansion
Phase 1 Mine startup, shaft recommissioned
Phase 2 Open 19 level, mine more panels
Phase 3 CIL plant, mine more panels
CAPEX
US
millions
$3
$3
$18
$24
CAPEX
ZAR millions
R 25
R 25
R 145
R 195
Target
Date
Jan-09
2010
2011
Phase 1 development complete when Sub Nigel 1 achieves >5,000 tonnes per month mining rate,
Since the existing infrastructure was in good condition, the Phase 1 investment merely involved,





Refurbishing Sub Nigel No 1 Shaft (which has a 20ktpm hoisting capacity)
Installing surface infrastructure (including offices and classrooms)
Upgrading reef and stope access
Refurbishing haulage ways on at least one level, and
Installing hydropower pumps
Phase 2 & 3 Expansion
Gold One has already ordered a mill for the plant for “phase 3” of the Sub Nigel 1 expansion. With just a small
additional outlay required to double the mine’s targeted output to 12,000 ounces of gold per annum in phase 2, we
are assuming that this development will continue to move toward the shaft’s hoisting capacity (20ktpm). We have
thus assumed this in our valuation, and see the expansion as having favorable sensitivity at higher gold prices.
Phase 2 targets a doubling in the mining rate to 12,000 tonnes of ore per month, which works out to 12,000 ounces
of gold per year. Development costs are budgeted at about R25 million (US$4 million), or slightly less than phase
1, and development is set to begin any month with successful completion of the ramp up to 6,000 ounces per year.
Assuming Modder East achieves steady state production in the next year, as expected, Sub Nigel will need its own
plant by 2011, which we assume will enable the third phase of the expansion to a rate of 20,000 tonnes per month.
1
Phase 3 (20ktpm) involves the construction of a stand alone CIL plant , refurbishing the existing tailings facilities,
infrastructure, and increasing mining capacity. Independent consultants SRK provided a rudimentary estimate of
about R130 million (US$16 million) in 2008, including ongoing capital and a 10% contingency, but the company
refers to a slightly higher number of around R145 million (US$18 million) in more recent communications.
Sub Nigel 1 Mine Plan
The mine has been producing since the successful re-commissioning of the shaft, and other infrastructure, in
January 2009. As of July, Gold One said it was mining at 80-90% of its 6,000 tonne per month phase 1 target rate
– or the equivalent of 5,400 tonnes per month – it is currently mining narrow sections in the reef.
Over 10,000 tonnes of ore has been stockpiled at Modder. The Modder East plant has not yet processed any of
the ore and it’s unclear when it will begin, but we suspect the company is trying to optimize the feed to the plant,
and thus would hold to its original forecast gold output of around 5,000 ounces in 2009 (despite our 3,500 ounce
estimate), and 6,685 ounces in 2010. A recoverable reserve of about 175,560 oz of gold (1.54Mt at 3.55gpt) was
defined in a 2008 competent person’s report (within the indicated resource of 317,649). In the base case, which
assumes no expansion beyond phase 1, Sub Nigel would produce a total 52,000 oz of gold over an 8 yr life at LOM
average total cash costs of US$528/oz, or US$49 per tonne (R397/t), with minimal maintenance capital projected.
1
Scoping study assumed CIL plant, with single ball mill, e-w and smelting running at a 20tpm capacity
42
9/23/2009
SUB NIGEL 1 Base Case
Milled Tonnes
Average RoM head grade (gpt)
Average milling yield (gpt)
Gold Sales (oz)
Gold Sales (kg)
2009
2010
2011
2012
2013
2014
2015
2016
54,000 72,000 72,000 72,000 72,000 72,000 72,000 72,000
3.2
3.2
3.2
3.2
3.2
3.2
3.2
3.2
2.9
2.9
2.9
2.9
2.9
2.9
2.9
2.9
5,014
6,685
6,685
6,685
6,685
6,685
6,685
6,685
156
208
208
208
208
208
208
208
TOTAL
558,000
3.2
2.9
51,809
1,611
AVGE
69,750
3.2
2.9
6,476
201
Expansion essentially requires mining more panels simultaneously, opening at least one more level and building a
stand alone plant to process the ore. Assuming the expansion goes as planned, the company expects Sub Nigel to
produce 154,000 oz of gold in total (averaging 15,370 oz per yr) over a 10 yr life at an LOM average total cash cost
of US$519/oz, or US$48/t (or R389/t), with an additional capital outlay of less than US$20 million (R160 million) in
current dollars. As stated above our valuation assumes the expansion moves forward and goes roughly as follows,
SUB NIGEL 1 Expansion
2009
2010
54,000 72,000
Milled Tonnes
3.2
Average RoM head grade (gpt) 3.2
2.9
2.9
Average milling yield (gpt)
5,014
6,685
Gold Sales (oz)
156
208
Gold Sales (kg)
2011
125,000
3.2
3.0
12,000
373
2012
240,000
3.2
2.9
22,000
684
2013
240,000
3.2
2.9
22,000
684
2014
240,000
3.2
2.9
22,000
684
2015
240,000
3.2
2.9
22,000
684
2016
240,000
3.2
2.9
22,000
684
2017
2018
160,000 50,000
3.2
3.2
2.9
3.1
15,000
5,000
467
156
TOTAL
1,661,000
3.2
2.9
153,699
4,781
The mining method at Sub Nigel 1 will be primarily breast stoping, but where the pay shoots are less than 50m wide
the company will apply dip mining methods (panels and crosscuts) to mine the ore. Drilling is run on hydropower.
At full capacity (20ktpm), 23 panels
(30m) will be mined simultaneously,
and stoping will be advanced at a
rate of 13m per month, or 390m², for
each panel. Stope supports are 6
inch diameter wooden posts, and
additional pay may come from stope
and gully cleaning. Access is
through a 900m deep shaft (No 1
Shaft) – for ventilation and people –
down to about a 500-600 meter
depth (water level in the basin is
about 150 meters lower, at 737
meters). Diesel operated
locomotives and hoppers will
transport the ore to the shaft.
During phase 1 and 2, 50t trucks will
transport the ore to Modder East for
processing. During phase 3, the ore
will be “fed into a standard gold plant located 1 kilometer from the shaft,” with the tailings facilities right next to it.
43
9/23/2009
Valuation
Our valuation of Sub Nigel 1 approaches US$20 million with the expansion, and approximately US$14 million if the
company does not move beyond phase 1 (above). Sub Nigel 1 is a relatively small asset. We are uncertain that it
makes sense to invest the additional US$20 million just to add a few million dollars in net present value. The main
value of the mine is that it is a training ground for Modder, and potentially Ventersburg also. We made an attempt
1
at evaluating the present value of those cost savings, but the data was insufficient to make a confident valuation .
After accounting for lower wage and other costs in South Africa, and assuming a total of 2,000 employees working
for Gold One between Sub Nigel and Modder East alone (at steady state output), it was difficult to justify more than
half a million (US$) in annual savings related to training costs, adding less than US$5 million in additional NPV.
It significantly improves the project IRR but adds just marginal value for Gold One shareholders.
Adjusted DCF, Assuming Expansion to 20ktpm, and US$950/oz Avge LT Gold Price
Mine Life
Tonnes milled
Gold sold
Average Mill Yield
Total Cash Costs
Total Cash Costs
Total Cash Costs
LOM Project Capex
Discount Rate
Rand/USD LT Avge
USD POG LT Avge
Net Present Value
10yrs
1,661,000 tonnes (averaging 166,100tpa)
153,699 ounces (averaging 15,370kozpa or about 22,000 oz at steady state)
2.9gpt
R389/tonne LOM average
US$48/tonne LOM average
US$519/oz LOM average
ZAR 170,000,000 (US$21 million) including maintenance, undiscounted
10%
R8,1
US$950
ZAR 160 million (US$20 million)
Additional benefits from expansion could come from higher gold prices as the project NPV is sensitive to gold price
changes (see sensitivity analysis below). However, at gold prices below US$700, the values erode considerably.
Our US$20 million valuation translates into a multiple of about US$30 for each resource ounce or US$114 per oz in
the reserve category, which is at the low end of the range for junior miners, and well below that for senior miners.
The average multiple (market cap per ounce) for North American listed juniors (which includes African miners) is at
about US$80 today (the average reserve multiple is about US$155) while for the majors it is more like US$150 and
US$250 per ounce respectively. Given the nature of Sub Nigel 1, we are comfortable with a $20 million valuation.
Assumptions
Since we’ve assumed a relatively stable Rand/USD exchange rate, the South African 10yr government bond rate of
around 9% to account for currency risk, plus some room for a risk premium appropriate to startups, a 10 percent
discount rate is sufficient in our DCF analysis, given the current and expected business environment.
Our primary method of valuation is the discounted cashflow basis, which relies on forecasts for gold prices, costs,
exchange rate, interest rates and other variables (both real and macro) that cannot be forecast with any substantial
degree of accuracy.
Our approach is to determine a range of values by checking our DCF valuation against those already made by the
market for other, similar, assets in terms of their resource and cashflow multiples, adjusted for rerating potential.
1
According to a 2005 survey of the mining industry for expenditures between 2001 and 2003, “employers spent $121.4 million
on training, equating to 2.3% of gross wages and salaries. The average amount spent on training per employee ($1643) is the
largest amount spent by any industry and is more than three times the all-industry average of $458 per employee (ABS 2003)”
44
9/23/2009
In our costs, given our site visit and the extent of due diligence that has been done on this project by ourselves as
well as other independent consultancies we are comfortable with the company’s estimates for mining/processing,
transportation, and related expenses. However, we bumped up our royalty and tax assumptions to better account
1
for the changes to the royalty scheme and leave a buffer for the 28% corporate tax rate in the fatter years .
Sensitivities
The sensitivity of the project’s NPV’s to,



the discount factor,
gold prices and
operating costs
…increases substantially for the expanded operation – by a factor of 2-3 times – and is significantly more sensitive
than Modder East, by a similar factor – more relative to gold prices. In the expanded project, results follow,
For each 10% change in the discount rate, valuation changes by approximately 10-11%.
For each 10% change in unit operating costs, valuation changes by approximately 28-33%.
For each US$100 change in the gold price, valuation changes by 50-60%, with more leverage on the upside.
NPV SENSITIVITY
Discount NPV Sensitivity
TCC
NPV Sensitivity
5.9%
$22
51%
Gold Price
$531 ($20)
NPV Sensitivity
-211%
$306
$34
140%
6.6%
$20
42%
$590 ($14)
-177%
$341
$31
117%
7.3%
$19
32%
$656
($7)
-140%
$378
$28
92%
8.1%
$18
22%
$729
$0
-98%
$420
$24
65%
9.0%
$16
11%
$810
$9
-52%
$467
$19
34%
10.0%
$14
0%
$900
$18
0%
$519
$14
0%
11.0%
$13
-10%
$990
$28
52%
$571
$9
-34%
12.1%
$11
-21%
$1,089
$38
108%
$628
$4
-72%
13.3%
$10
-32%
$1,198
$49
171%
$691
($2)
-113%
14.6%
$8
-43%
$1,318
$62
239%
$760
($8)
-158%
16.1%
$7
-54%
$1,449
$76
315%
$836 ($16)
-208%
*NPV's are in millions of US dollars
1
SRK estimated operating costs at R372/t LOM in the 2008 CPR
45
9/23/2009
VENTERSBURG – GOLD ONE’S NEXT FLAGSHIP MINE, TARGETING PRODUCTION IN 2014
South Wits Rand Basin, Free State, South Africa
Interest
BEE Partner
Development Stage
System / Deposit Type
Resource Size
Resource Depth
Project Valuation
100%
Micawber 472
Feasibility
A, Leader reef systems
3.3 million ounces (plus)
500-850m
US$69 Million
The Ventersburg deposit is a NI 43-101 compliant resource indicating 1.44Moz (8.73Mt at 5.12gpt) and inferring an
additional 1.84Moz (13.5Mt at 4.24gpt). The resource is defined by some 54 holes drilled into the westerly dipping
1
“A” reef originally discovered by Gold Fields in the eighties at relatively shallow depths of 500-850m .
The project encompasses a total area of about 15x4 kilometers, with the current orebody occupying about 15% (or
9 square km) in the northern portion of the prospecting right (V1). More drilling is required to establish continuity,
increase confidence and to expand the resource, but Neal Froneman and his Exploration Chief, Piet van Straaten,
believe the resource will ultimately be at least twice its current size when they complete a feasibility study in 2011…
and potentially more should they discover the extension to the A reef that appears to have shifted, due to faulting.
The company plans to spend 1/3 of its exploration budget on Ventersburg over the next three years, funded partly
by the cash flows generated from Modder East, in order to realize its potential as Gold One’s next flagship mine.
The next phase of exploration and development began mid July with three drill rigs targeting 7,500m of drilling.
Our DCF for Ventersburg comes in at around US$300 million, before accounting for Gold Fields 51% back in right
on V1 (see assumptions in section on valuation below). However, even though we tried to be conservative on the
inputs in our model, they must be considered overly speculative at such an early stage of development. Therefore,
we weighted our valuation between market multiples and exploration costs, producing a US$69 million valuation.
Mineral RESOURCE Estimate, Ventersburg 1
NI 43-101 Indicated Resource Tonnes (Mt) Grade (gpt) Contained (oz)
A Reef
8.73
5.12
1,437,061
Total Indicated
8.73
5.12
1,437,061
NI 43-101 Inferred Resource
Tonnes (Mt) Grade (gpt) Contained (oz)
A Reef
Total Inferred
13.48
4.24
1,837,582
13.48
4.24
1,837,582
Total NI 43-101 Resource
22.21
4.59
3,274,643
Overview
Gold One owns a 100% interest in the Ventersburg Gold project, subject to a maximum 51% back in right held by
Gold Fields on Ventersburg 1. The project is located at the southeast end of the Witwatersrand Basin, east of the
main Free State. It is some 250 kilometers southwest of the East Rand basin, 25km southeast of Welkom and
10km east of Virginia, in “the Magisterial Districts of Virginia, Ventersburg and Hennenman” – South Africa – 35
kilometers from the Beatrix gold mine operated by Gold Fields. The project is subdivided into three regions: V1, V2
and V3; with most of the exploration and development work done on V1 to date. Prospects V1 and V2 (covering
1
A total of 99 drill holes had been drilled “in and around the prospect area” since 1948 – but half of them occurred outside the
current orebody (Gold Fields drilled 32 holes into the V1 resource, SNGM drilled one and Aflease drilled 21 in 2007-08)
46
9/23/2009
1
12,600 ha) both already have separate new order exploration rights each good for five years… granted on 15 Nov
2006 and 16 Apr 2008, respectively. An application for V3 has been lodged but a right has not yet been granted.
The project was acquired in the 2006 reverse takeover of the Sub Nigel Gold Mining Company and had a 6Moz
historical resource delineated by Gold Fields in 1994 that was neither SAMREC nor NI 43-101 compliant, but some
further modeling by SNGM in 2003 and a 21-hole drill program in 2007-08 by Aflease Gold (Gold One) produced a
NI 43-101 compliant resource indicating 1.44Moz (8.73Mt at 5.12gpt) and 1.84Moz (13.5Mt at 4.24gpt) inferred.
The orebody lies within a graben between two major North-South oriented faults at relatively shallow depths of 500850m. It straddles the Virginia fault to the west, and is bound to the east by the Ventersburg fault. The reef system
strikes North-South and consists of the A and Leader (B) reefs; the latter reef, which is not included in the resource
calculation, underlies the A reef by about 10-100m and holds the potential for additional resources in the future.
Geology
Like many in South Africa, the Ventersburg orebody
(at depths ranging between 465-850m) is tabular,
2
and is believed to be “extensive” . The project lies
at the southern end of the Witwatersrand basin in a
prolific area relatively close to Gold Fields’ Beatrix
3
mine , which is 20-50km to the west-southwest.
The chief structural controls comprise a graben (an
elongated valley-like structure created by faulting)
trending North-South, bound by faults trending N-S
on both sides and some smaller faults trending eastwest. The Ventersburg targets are two auriferous
palaeoplacer (reef) units: the well packed (fine)
buckshot pyrites on the A Reef grading >6 grams
per tonne, and the Leader (B) Reef that lies some
10-100 meters below it. The reefs form part of the
Turffontein and Johannesburg Subgroups of the
Central Rand Group, and dip shallowly to the west,
toward the Virginia fault. Gold One thinks it can find an extension to the A reef that might have faulted off.
History
The Ventersburg project came with the reverse takeover of Sub Nigel Gold Mining Company in 2006, along with the
Sub Nigel (1-6) and Spaarwater mines. Gold Fields – and others – drilled some 17 holes in the area between 1948
and 1952 in the midst of a gold rush fueled by the discovery of the St. Helena mine, but did not find an orebody.
During the eighties, Gold Fields, Harmony and Union Corp drilled a total of 60 holes in the project area with more
than 30 intersecting the A Reef (1-30gpt over 2m widths at 530-860m) on the northernmost portion of the property –
delineating the potential for a few million ounces. Sub Nigel Gold Mining Company confirmed the A reef at a depth
of about 970m in 2004 with a twin deep hole while conducting a scoping study, bringing the total number of holes
drilled on the property to 78. However, in 2007, independent consultant SRK felt that a resource could not be
4
defined given the quality of the historic data, and insufficient understanding of continuity and gold distribution .
Aflease Gold (Gold One) began an exploration program in May 2007 in order to establish continuity and – and to
define an economic resource compliant with the times. After drilling 24,100 meters in 21 drill holes from 2007-08,
1
“FS 30/5/1/1/2(24) PR granted in respect of certain portions of farms situated in the magisterial districts of Ventersburg,
Virginia and Hennenman (the “First Ventersburg Prospecting Licence”);and (viii) FS 30/5/1/1/2(477) PR granted pending
approval of the Environmental Management Plan by the Regional Manager on a date to be advised by DME on certain portions
of farms situated in the magisterial district of Hennenman (the “Second Ventersburg Prospecting Licence”).”
2
"Most of the intersections occur at depths ranging from 529 m to 856 m, although the western edge is shallower (300-400m)
and the south-western corner deeper (below 1000m)" - PDF.424, 2008 CPR
3
16Moz resource grading 5-7gpt
4
“…the drill-hole spacing varied from 500m to more than 1,000m” – pp.292 2008 CPR
47
9/23/2009
the company could publish a SAMREC compliant resource (30.52Mt at 4.74gpt for 4.65Moz), and by January 2009
an NI 43-101 compliant resource (22.21Mt at 4.59gpt for 3.27Moz), thereby establishing the potential for a mine.
1
Development: Prefeasibility
VENTERSBURG
Exploration Expenditures (R millions)
Exploration Expenditures (USD millions)
Indicated Oz (millions)
Exploration Cost US$ per Indicated Oz
Rand/USD Exchange
2006
R 0.0
$0.0
0.0
$0
R 6.9
2007
R 7.4
$1.0
0.0
$0
R 7.1
2008
R 10.0
$1.2
0.0
$0
R 8.3
2009
R 16.3
$2.0
1.4
$3
R 8.2
2010
R 16.9
$2.1
2.0
$3
R 8.0
2011
R 19.5
$2.4
3.0
$3
R 8.0
Total
R 70.1
$8.8
3.0
$3
R 8.0
The company has already begun the second phase of exploration and development at Ventersburg with a 7,500m
drilling program using three drills (following on 24,100m of drilling in 2007-08 in 21 holes) – two diamond drills and
one percussion rig. The drilling will focus on an area to the west and northwest of the A reef (a.k.a. down dip).
The company is targeting a prefeasibility study for 2010 and a full feasibility in 2011, expecting to double the NI 43101 indicated resource and to establish sufficient size and continuity for a production decision. Over one third of its
total exploration expenditures target Ventersburg between now and 2011. Development of the project to production
(shaft sinking, construction and other infrastructure) is expected to take two years, and cost in the neighborhood of
an additional R3 billion (US$375 million) in total preproduction capital (for a 1.8 million tonne per year operation).
However, note that this cost estimate is preliminary and speculative.
Based on discussions with management we feel the exploration potential at Ventersburg is somewhere around 510 million ounces with economic grades, and the opportunity exists to fast track production to as early as 2013-14.
Valuation
Cost Method:
Market Multiple:
DCF Value:
US$7 million
US$75 million
US$147 million
2
There are three ways to estimate a valuation for Ventersburg, in order of confidence ,
The first method is the cost method, and it is merely the cumulative exploration cost – which ranges from US$3-4
million (historical costs). The present value of future exploration expenditure is worth another US$4 million at 10%.
It is expedient to value a property this way, but it is not adequate to value a potential orebody.
The second method, which helps investors get a quick fix on the “potential” value of a deposit, is ground in what the
market pays for a similar resource, dollar for ounce. For this method one has to have some means of calculating a
resource size. The dimensions and specific gravity of the ore is sufficient, if enough is known to infer a structure or
broad extent of economic mineralization. Confidence is another question. Ventersburg has a NI 43-101 compliant
resource of 1.44Moz indicated and 1.84Moz inferred ounces (grading 4.6 g/t) making it rather simple. Confidence is
thus high, at least for the 3.3Moz covered by the NI 43-101, but it says nothing of the additional potential ounces on
the prospect. Unfortunately, the market is not a good indicator of such assets in South Africa, because most South
African miners are mining at depths surpassing 3,000 meters. One possible similarity lies in British Guyana, where
Guyana Goldfields is developing a 6 million ounce resource in more complex greenstones at lower grades (3.9gpt),
and at depths of up to 1,000 meters. The market is attributing US$31 per ounce, including exploration potential, to
this resource, which is about average for advanced exploration companies in our sample. On this basis, therefore,
Ventersburg should be worth about US$100 million. We could discount this value by 25% to account for the risks
of doing business in South Africa (which has better infrastructure than Guyana) to arrive at a US$75 million value.
1
The 2008 expenditure in the below table is an estimate inferred from the companny's statement “~US$4.4m exploration
undertaken by Gold One since 2007”, made in the second quarter of 2009
2
In its 2008 CPR, SRK valued the project at R171 million (US$21 million at US$5.5/oz using previous SAMREC resource)
48
9/23/2009
The third method is a rudimentary early stage cash flow model (DCF) based on more speculative inputs (since no
feasibility work has been done to confirm or deny our assumptions). Our DCF was calculated at around US$300
million, assuming: US$380 million in total project capex, production startup in 2014 for a mine milling at a rate of
1.8Mtpa, grades of 5gpt, 90% recoveries, Rand/USD exchange rate of about 8.1, US$900 gold price, LOM cash
costs of approximately US$275/oz, 9 year mine life, and a 10% discount rate. This method may be premature, but
it indicates the potential value of that deposit (using conservative inputs, esp., on mine life, gold prices and grades).
However, it needs to be adjusted for Gold Fields’ right to back in for a 51% interest. Our inclination for now is to
average these amounts to arrive at a valuation approaching US$69 million (R562 million).
THE TULO GOLD PROJECT, SELF FUNDING FRONTIER PROSPECT
NIASSA PROVINCE, NW MOZAMBIQUE
Interest
100% *
Development Stage
Prefeasibility
System / Deposit Type
Alluvials, Greenstones, etc.
Resource Size
Open >32,000 oz
Resource Potential
Multi-million oz, under-explored geologically favorable frontier
Project Valuation
US$16 Million
* subject to sale of 26% to BEE partner
Tulo is a pet project for Piet van Straaten, the company’s exploration
head, calling it a “geologist’s dream.” Recently returned from the Congo
on other work, Mr. van Straaten believes the Tulo Gold Project is a home
run in the making based on historical drilling yielding “significant” results,
and indications from trenching and other work. He has spent time at the
project hands on and has helped identify an alluvial resource of 32,000
oz grading 1gpt at the foothills of the primary source… discovered in the
nineties by Canadian miner Kenmare Resources – who delineated a pre
NI 43-101 historical resource of about 200,000 oz of gold (near surface
~5gpt) from 13 diamond drill holes. However, Tulo is no science project.
The company believes the alluvials could be profitably extracted to fund
exploration and development of their primary source, and other targets,
and has already purchased the equipment to mine the alluvial deposits.
Piet van Straaten was at Tulo as of this writing and is optimistic that the
construction of road and access ways into Tulo is about to begin. Tulo is
a development project but also one of our favorite exploration assets.
What makes this project particularly appealing is that very combination of
factors that make Tulo a “geologist’s dream.” The geology is fertile and
has not been subjected to systematic exploration by modern geological
methods –as the result of civil war and unrest between 1975 and 1992.
Meanwhile, artisanal miners have mined the alluvial deposits for many
years, leaving evidence of the source behind as they lacked sufficient
capital, technology and the required knowledge for its development.
The Tulo gold project lies on trend with major geological features in Tanzania and Malawi, and we believe it holds
exceptional blue sky potential for the discovery of relatively shallow open pittable multi-million ounce deposits, as
well as ongoing alluvial opportunities. The region is relatively remote with poor access and infrastructure, which is
the downside of exploring new frontiers. However, Piet van Straaten has mapped a potentially feasible direct route.
49
9/23/2009
Overview
The Tulo Gold Greenfields Project is 100% owned by a Mozambique company, Noble Trade, which was acquired
1
by Aflease Gold (Gold One) in 2008 in exchange for R6 million in shares plus NSR’s . Noble Trade was granted a
mining concession over 21,760ha from the Mozambique government on 28 March 2006 (reference #: MC 557C) –
good for 25 years. The Tulo concession is located in the Niassa province in the northwest corner of Mozambique,
170 kilometers north of the provincial capital Lichinga – on the south side of the Tanzanian and east of the Malawi
2
borders, which converge with the Mozambique border in the middle of Lake Malawi , the third largest lake in Africa
3
and the eighth largest in the world . It is also the most southerly lake of the East African Rift. The Tulo property is
within 20km from the lake, which plays a significant role in accessing the project site at present and likely future.
Mozambique shares borders with Zambia, Zimbabwe and South Africa to the South and Southwest also.
Kenmare Resources drilled approx 13 diamond drill holes in the late-1990s and delineated some 200,000 ounces
at grades of up to 5 grams per tonne, but chose to drop the property due to remoteness and rationalization.
The most relevant geological feature relates to the Malawian Basement
Complex that sits at the junction between the Ubendian, Irumide and
Mozambique orogenic belts, and specifically the southeast extension of
the Ubendian and Misuku Greenstone Belts (>1.8 billion yrs old) that
separate the Congo Craton from the Archaean Tanzanian.
The geological setting is extremely favorable with artisanal workings found
all along the east coast of Lake Malawi (in Mozambique).
The primary source mineralization is associated with steeply dipping
shears trending Northeast-Southwest (probably perpendicular to the
direction of the greenstone belt) – some of which may be exposed at
surface where small scale miners have mined out the alluvial deposits.
The gold is contained within quartz veins in “metasedimentary volcanic
rocks”, or “Ubendian greenstones.” It can be cheaply extracted and
processed, and the region has not seen much systematic exploration.
Management has figured how to access the project almost year around:
from the capital of Lichinga 170km south of Tulo, they drive up a tar road
110km NW to Metangulu, then by boat about 100km North to another Bay,
and finally, by dirt road some 20-30km inland (east) to the Tulo property.
Eventually, the company will want to cross the lake from Malawi to bring
equipment and supplies for larger scale construction. Nevertheless, due to poor general infrastructure or access,
preproduction capital will likely be on the high side, though no one can make a reliable estimate today.
4
Gold One has already purchased the equipment necessary to mine the 32,000 ounces in the alluvial deposit that
has been defined, and is ready to build the “access road from Savannah Bay across the mountains into Tulo.”
Mining is expected to begin in 2010, followed by an extensive regional airborne magnetic survey, and follow up drill
program. The company has set aside US$4 million between now and 2011 to get to this stage, but drilling and
further development will be funded organically out of cash flow generated from bulk mining the placer (~US$3
million per year over five years assuming 6,000 oz per year at an operating cash cost of US$425 per oz).
Note on Mozambique
Mozambique is still a relatively poor country with corruption cited in the judicial process by the heritage foundation,
1
3% net smelter royalty on first 32,150 oz in production each calendar year, and 0.5% NSR on remaining annual production
Also known as Lake Nyassa (Niassa), and Lago Niassa in Mozambique
3
580km long, NE-SW, 75km wide, and over 700m deep
4
The boat and earth moving equipment are to be delivered in September
2
50
9/23/2009
"Challenges include weak property rights, widespread corruption, and a poor business climate. Judicial
enforcement is subject to corruption and the political whims of the executive. The inefficient regulatory
environment is a burden on business formation, and many aspects of the labor market remain rigid."”
However, there has been a lot of improvement toward liberalization, even if by some counts it has stalled in recent
years (where has it not?),
"Private-sector involvement in the economy is substantial, although privatization of state-owned enterprises
has slowed. Foreign capital and domestic capital are treated similarly in most cases, and overall trade
liberalization has progressed despite lingering non-tariff barriers"… “"More than 1,200 state-owned
enterprises (mostly small) have been privatised. Preparations for privatisation and/or sector liberalisation
are underway for the remaining parastatal enterprises, including telecommunications, energy, ports, and
1
railways. The government frequently selects a strategic foreign investor when privatising a parastatal"”
The 1990 constitution aimed at a multi-party political system of democracy and a market based economy.
The government tightened its reins on money growth as part of the program and has brought price inflation down
from about “70% in 1994 to less than 5% in 1998–99” (Wikipedia), though it has crept back up since.
Tulo’s Valuation
The historical resource (200,000 oz) is not compliant with today’s codes and cannot be relied on, while the 32,000
ounce alluvial deposit is small. At US$80/oz, it implies a value of just US$2.6 million, which is less than both, the
US$4 million in planned exploration expenditures from now to 2011 as well as its US$12 million NPV (based on the
expected cash flow from extracting gold from the alluvial deposits – assuming a 10% discount, a US$950 gold price
and US$425 per ounce in costs). We believe these values understate the inherent multi-million ounce potential of
this exciting project, and region. However, as it is early, we have chosen a conservative route in our valuation.
+ R 31,970,000
(US$4 million)
present value of exploration costs to 2011, plus acquisition cost
+ R 101,676,000
(US$12 million)
present value of cash flow from alluvials
= R 133,646,000
(US$16 million)
total present valuation of Tulo gold project
1
Wikipedia and Heritage foundation
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9/23/2009
TURNBRIDGE & NEW KLEINFONTEIN
EAST RAND BASIN, GAUTENG PROVINCE, SOUTH AFRICA
Interest
BEE Partner
Development Stage
System / Deposit Type
Resource Size
Resource Depth
Project Valuation
100%
Micawber 400
Mature
Main reef, paleoplacer
829,000 ounces
250m
US$5 Million
Turnbridge and New Kleinfontein are two dormant pillar mines located on the northern flank of the East Rand gold
field, about 10km west of Modder East / Halfontein, near the towns of Boksburg in the magisterial district of Benoni,
Guateng Province, South Africa. The mines are adjacent to each other and have historically exploited the margins
of the well defined pay shoots on the main reef coincident with the same N-S trending synclinal axis that runs south
through the East Rand basin to the Sub Nigel & Spaarwater mines. Turnbridge is considered to be an extension of
the orebody mined at New Kleinfontein. The Department of Minerals & Energy issued a 5yr prospecting right on 01
June 2006, covering both properties – specifically, “portions of the Rietfontein 115 IR, Benoni 77 IR, Kleinfontein 67
1
IR farms” – extending over 1,315ha . The mines are considered to be mature, with limited scope, acquired in the
2003 Aflease purchase of New Kleinfontein Mining Company as part of a package that included Modder East/UC.
New Kleinfontein was discovered in 1894, and is thought to have mined some 9.5 million ounces from 45.7 million
tonnes of ore on the main reef between 1897 and 1967, when it was closed down. Gold Fields studied the projects
in the 1980’s, but ERPM (East Rand Proprietary Mines) was the last to consider them before NKMC rehabilitated
and started up New Kleinfontein in 1999. Low gold prices and operational difficulties resulted in closure and NKMC
put the mines on care and maintenance in 2003. The assets have an audited SAMREC/JORC compliant inferred
2
3
resource of about 829,000 ounces (4.27Mt, 6gpt) at a 300 cmg/t cut off, and a small tax loss allowance to carry
forward (R6.8 million). In 2008, independent consultants SRK valued the project at R29.8 million (US$3.7 million),
which implies a value of US$5 per contained ounce. We feel that is about right, but could be bumped up to about
US$5 million (US$6 per contained ounce) if the company succeeds in upgrading the resource estimate confidence.
The company also states that, a “mining right application has been prepared to convert the existing prospecting
right into a mining right, and will be submitted once the resource had been upgraded to the indicated category.”
1
DME reference: GP30/5/1/1/2 (31) PR, mining title #361/2006 PR
New Klenfontein has 2.5Mt at 6.9gpt containing 549koz, Turnbridge has 1.8Mt at 4.8gpt containing 280koz – “based on
production figures from 1897 till 1998, fifteen prospect drill holes, location of the claims relative to the Main and 60 m Leader
Reef pay shoots and results of check samples taken underground” – from the company’s 2008 competent person’s report
3
cmg/t is a relative indication of mining economics in narrow veins
2
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9/23/2009
REVIEW OF EXPLORATION ASSETS
Name
Sub Nigel 6
Bothaville
Etendeka
Holfontein
Totals
Interest
Location
100%
100%
100%
100%
100%
East Rand Goldfield
South Wits Rand Basin
Namibia
East Rand Goldfield
Exploration
Budget (3yrs, Valuation (US
US millions)
millions)
$1.28
$1.59
$0.84
na
$3.72
$51.28
$26.59
$10.84
$0.00
$88.71
The Bothaville Gap Project
Witwatersrand Basin (W-SW), Bothaville, South Africa
Potential Resource
NI 43-101 Compliant Resource
Target Depth
Valuation
3Moz
nil
250-1200m
$26.59 million
Gold One International holds a 100% interest in the Bothaville Gap Project, a Ventersburg style target located
between the Klerksdorp and Free State gold fields in the Magisterial District of Bothaville, Free State Province,
South Africa – on the west-southwest side of the Witwatersrand Basin, approximately 120km NW of Ventersburg.
The project spans 8,957ha, with a 5yr new order prospecting right granted 16 April 2008 covering 8,514ha.
Bothaville is an advanced exploration stage prospect hosting the
“A” and Leader reefs that the company believes it can upgrade to a
2-3 million ounce resource over the next few years. The company
has budgeted US$1.6 million (R12.9 million) for mapping, magnetic
surveys and drilling the prospect through 2011 – about 9 percent of
its total exploration budget (as forecast at the end of 2008). A total
38 holes have been drilled in the area in the past, mostly by Rand
Mines in the early eighties who drilled a 56 square km area within a
shallow horst block bound by the Taljaard’s Dam fault to the North
and the Concord Fault on the South (the reefs have an east-west
orientation and have been disturbed by faulting and/or folding).
The grades were low, except for one drill hole intersecting the “A Reef” 250m below surface – returning something
like 7.5gpt over 68 cm). At the time, however, management explains, exploration was geared towards finding the
Basal & Leader reefs, as “the “A” reef had not been mined in the Freestate yet, and was considered sub economic
due to its channelized nature.” Since then, however, mines operated by Harmony and Anglo have exploited the A
and Kimberley reefs in the region. As a result of participation in the GSSA’s Kimberley Working Group during the
nineties, Gold One’s chief exploration geologist notes that much new knowledge had been gained of the Kimberley
succession and the A reef in the area subsequent to Rand Mines’ exploration program, suggesting a considerable
pay shoot on the A reef ignored by Rand (due to its inadequate understanding of the “A reef” during the eighties).
The Bothaville Gap project is an attractive target, but as a resource is not yet defined, it is premature to impute an
average market multiple (US$30 /oz for exploration assets outside of South Africa). Gold One believes Bothaville
has the potential for a 2-3Moz orebody, which translates into a potential value of US$90 million for those ounces –
if the market agrees with us that the shallow deposits of the Witwatersrand Basin deserve no greater risk premium
than exploration stage ounces in, say, Ghana, Mali, Brazil or Guyana – once those ounces are properly defined.
This value, we believe, is wholly realizable given a more intense exploration program.
For our valuation we reasoned that since the value in this project is greater than implied in the “cost method”, it is
plausible to attribute the US$10/oz that other South African miners get for their low quality ounces at great depths,
and add the $$ Gold One has budgeted for exploration and development, yielding a valuation of US$26.6 million.
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9/23/2009
Sub Nigel 6, Deep Mine w/NI 43-101
East Rand Basin, Gauteng Province, South Africa
NI 43-101 Compliant Resource
Target Depth
Valuation
5.2 million oz
800-1600m
US$51.28 Million
A 100% interest in the Sub Nigel Area 6 prospect (3,860.5ha) forms the western extension of the Vlakfontein gold
mine in the Magisterial District of Nigel, Gauteng Province, South Africa – a few kilometers northwest of Sub Nigel
No 1 Shaft. Sub Nigel 6 was acquired in the reverse takeover of Sub Nigel Gold Mining Company, and is covered
by a prospecting right granted 01 June 2006 – good for 5 years. The bulk of the NI 43-101 compliant resource lies
at depths of from 800-1600m, divorced from the flooded areas of the East Rand by way of a plug inserted between
the decline and the old Vlakfontein mine. The resource is based on data from existing development (over 2,000m
of decline plus 600m of incline) near Vlakfontein No 4 Shaft… and is hosted by the Big Pebble (Kimberley) and
Nigel reefs, which have been traced to between 800 and 1,500m from surface, respectively, and as close to each
other as 300m in some places according to a 2007 report. Management feels the resource could be upgraded via
the existing shaft, and that it can utilize some of the infrastructure for production. However, the project does not fit
the shallow mining model, and estimates for capital outlays for a small 70ktpm operation run over US$125 million.
Such a relatively small operation could conceivably target simply the shallower and higher grade (4.73 grams per
tonne) big pebble reef above 1,000m. A rudimentary NPV calculation produced US$50 million (10% discount, 10yr
mine life producing 95kozpa at $600 cash costs and $900 average long term gold price, assuming 85% recovery).
Other advanced exploration / development assets at depth in SA can get as little as US$5-10 per oz in the market
these days. A US$50 million NAV approaches US$10/oz, or 25-30 percent of the industry average outside SA.
Mineral RESOURCE Estimate, Sub Nigel 6
SAMREC Inferred Resource
Tonnes (Mt) Grade (gpt) Contained (oz)
Big Pebble Marker
15.10
5.72
2,774,497
Nigel Reef
68.27
3.34
7,331,070
Total Inferred
83.37
3.77
10,105,567
NI 43-101 Inferred Resource
Big Pebble Marker
Nigel Reef
Total Inferred
Tonnes (Mt) Grade (gpt) Contained (oz)
11.86
4.89
1,864,595
36.39
2.90
3,392,900
48.25
3.39
5,257,495
Etendeka, IOCG Target
Outjo, Northwest Namibia
Potential Resource
Target Depth
Valuation
Multi-million oz
Shallow
US$10.84 Million
Gold One holds a 100% interest in Etendeka Prospecting & Mining Company, a Namibian exploration company,
which in turn holds an exclusive prospecting right over a 65,000ha area in the Outjo district of northwest Namibia.
The company has budgeted about R6.9 million for exploration in 2009 and 2010 (<US$1 million).
Etendeka is a Greenfield Iron Oxide Copper Gold (“IOCG”) prospect with sniffs of copper-gold mineralization found
in metamorphosed sediments near contact with a large IOCG system evident in the intruding porphyritic granites of
54
9/23/2009
the Kaross Granite Suite. This structure is coincident with the Kamanjab Inlier basement complex (ultramafiic and
meta-sedimentary in composition) that extends east to west (250km) and is as wide as 110km in Northern Namibia.
Teck Cominco is exploring the adjoining prospect to the
east, while Helio Resources adjoins to the west where
numerous gold and copper occurrences have been
discovered over the past 15 years.
Etendeka is an early stage exploration target with a lot of
blue sky but insufficient data for proper valuation.
IOCG deposits, like BHP’s Olympic Dam mine in South
Australia, Freeport’s La Candelaria Copper-Gold mine in
Chile, or the 986Mt (0.82% Cu, 0.49 g/t Au) Salobo CopperGold mine in Brazil, are characteristically very large (some
as small as 15Mt but most are larger than 150Mt) tonnage
assets with relatively simple metallurgy, which host many
additional minerals, including silver, uranium, or rare earth
minerals – usually of relatively lesser economic value than
the copper and gold. This prospect could be worth nothing
but it would probably take a long time to prove it, given the
favorable yet relatively under-explored geological backdrop.
Thus, our valuation (US$10 million) is a near arbitrary value
based on what we believe the company could get in terms
1
of a farm out contract covering this potentially vast target .
Gold One’s East Rand Basin Exploration Assets:
Holfontein and Other Sub Nigel Prospects
Gold One owns a 100% interest in the Holfontein and UC prospect areas, as well as the Sub Nigel Assets in the
East Rand Goldfield. These projects are all also subject to the 2006 agreement to sell 26% of the related assets
and liabilities to a BEE partner (“Micawber Share 2”, which includes the prospecting as well as mining rights). The
assets (excluding Sub Nigel 1 and Sub Nigel 6) comprise the company’s East Rand Basin exploration prospects.
The 2,181ha Holfontein (71IR) prospect is due east-northeast of, and contiguous with, Modder East – covered by a
prospecting right (139) valid to the end of 2010. The project, named after the company who mined there in the
1930’s, includes an old shaft sunk in the southeast and other small scale mining infrastructure. Exploration efforts
will target the main and leader reefs above water level in south and west in order to add to Modder East LOM.
The UC prospect area (Gedult 123IR), spanning 895 “unnumbered precious metal claims”, is part of the Modder
East project, and is covered by the same prospecting and mining rights; it hosts the depth extension of the black
reef that will be mined at Modder East. The UC prospect was mined under tribute by Petrex (Pty) Limited (“Petrex”)
at the Grootvlei Shaft #8 to the southwest of Modder until 2004 when their agreement with NKMC terminated.
Sub Nigel areas 2, 3, 4, 5 & 8 – adjacent and west and northwest of Sub Nigel Area 1 – comprise the remainder of
Gold One’s exploration assets in the East Rand, and include several old shafts and workings, and opportunities.
1
This may seem a little generous but we decided to attribute no value to the remaining exploration prospects below
55
9/23/2009
GOLD ONE INTERNATIONAL COMPANY VALUATION
31 August 2009 Valuation (millions)
Modder East
Sub Nigel 1
Ventersburg
New Kleinfontein & Turnbridge
Tulo
Sub Nigel 6
Etendeka
Bothaville
Total Project NAV
Net Debt
Additional Capital Dilution
NAV, millions
NAV, per ADR (or per share)
Enterprise Value per ADR (or per share)
US$
$385
$20
$69
$5
$16
$51
$11
$27
$584
$48
$21
$557
$6.51
$3.55
ZAR
R 3,119
R 162
R 559
R 41
R 130
R 413
R 89
R 219
R 4,730
R 389
R 170
R 4,512
R 5.27
R 2.50
A$
$464
$24
$83
$6
$19
$61
$13
$33
$704
$58
$25
$671
$0.78
$0.40
Our final valuation for Gold One is US$557 million, representing a discount of roughly 23% to our gross valuation of
US$725 million (gross NAV) as the sum of our risk adjustments in accounting for the South African risk premium.
In our DCF’s, we used a 10% discount rate and conservative cost assumptions.
At a market capitalization of US$246 million and an enterprise value of US$303 million, we believe there is room for
Gold One’s shares to realize substantially higher prices as the market re-rates its transformation from development
junior to a self sufficient producer, generating cash flows from a solid, low cost, low risk mine with a quick payback.
Moreover, its cash flows (potentially >US$200 million in the next two years) will fund the exploration & development
of the company’s attractive pipeline of other assets, which will drive its growth in the future. Additional NAV’s of up
to US$200 million could be realized by fasttracking Ventersburg toward production by 2013-14 and defining a 3Moz
resource at Bothaville over the next two years, as well as from the expansion of Sub Nigel. Higher gold prices and
potential value-accretive acquisitions could add even further. At a US$1,200 gold price in our financial model, for
example, the gross DCF on Modder increases by over 50%... while its NAV increases by US$139 million (after the
aforementioned risk adjustments). The icing on the cake here is the blue sky potential of Tulo (Mozambique) and
Etendeka (Namibia) – where a multi-million ounce discovery could add significantly to NAV (net asset value).
Gold One is getting just US$21 in market cap for every ounce in the ground, which is roughly in line with what most
South African producers get these days. Yet, Gold One’s business model is immune from most if not all the factors
that worry the market about South African producers mining at depths of more than 3 kilometers. The company is
developing and mining low risk “shallow” prospects (<1000m), and is targeting Australian safety standards by 2012.
Therefore, we feel that Gold One is not likely to face the same burden on operating and capital costs.
Our risk adjustment (23% discount to NAV) accounts for,

the somewhat limited scope of the company’s core assets (with known structural controls)

uncertainty related to a bureaucratic regulatory environment (esp. future changes)

overly rigid unions and labor laws
We believe that the market’s outlook for the South African economy, and its political institutions, is too pessimistic,
and contend that it is unfair to group Gold One in with competitors mining at depths yielding an intolerable amount
of fatalities, and requiring massive capital outlays as well as specialized labor, shaft repairs and so on. We think
that the company has avoided many of the pitfalls that currently stigmatize the other South African gold producers.
Moreover, beyond Ventersburg, the company’s future lies increasingly outside of South Africa. The company has
acquired a listing on the Australian Stock Exchange and is seeking listings overseas in order to highlight this point.
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9/23/2009
CONCLUSION
In light of the fact that analysts typically attribute a multiple of between 1.5 and 2.0 times NAV, at discount rates as
low as 5%, to gold assets in North America, we feel that a 23% discount to NAV at a 10% discount is justifiable.
A US$557 million NAV translates into a resource multiple of just US$41 per ounce, which is just half the “average”
for junior producers, many of which operate in countries where the political risk is higher and infrastructure bare.
Our one year target price for the American Depository Receipts (NASDAQ Level 1) is US$7 (equivalent to A$0.84
or R5,70 per ordinary share) over the next two quarters assuming the ramp up at Modder East goes as planned,
and gold prices remain more or less above US$900 per ounce. There is room for a higher target price in
subsequent years as the company moves its pipeline forward, or earlier if gold prices advance sharply.
Gold One’s shares are speculative (as production has just begun) but the shares are backed by high quality assets
– with low technical risks, low to medium financial risk, average political risk and above average capital payback.
Prospecting Licenses Granted
GP 30/5/1/1/2(45)PR granted in respect of certain portions of the Vlakfontein 161 IR, Zonnestraal 163 IR and
Spaarwater 171 IR farms, situated in the magisterial district of Nigel (the “First Sub Nigel Prospecting Licence”);
GP 30/5/1/1/2(142) PR granted in respect of certain portions of the Vlakfontein 161 IR, Withok 131 IR, Tsakane 260
IR, Zonnestraal 163 IR and Spaarwater 171 IR farms, situated in the magisterial district of Nigel (the “Second Sub
Nigel Prospecting Licence”);
GP 30/5/1/1/2(260) granted in respect of certain portions of the Vlakfontein 130 IR, Withok 131 IR, and Grootfontein
165 IR farms situated in the magisterial districts of Nigel and Springs (the “Third Sub Nigel Prospecting Licence”);
GP 30/5/1/1/2(139) PR granted in respect of certain portions of the Holfontein 71 IR farm situated in the magisterial
district of Springs (the “Holfontein Prospecting Licence”);
GP 30/5/1/1/2(31) PR granted in respect of certain portions of the Rietfontein 115 IR, Benoni 77 IR, Kleinfontein 67
IR farms, situated in the magisterial district of Benoni (the “Turnbridge Prospecting Licence”);
FS 30/5/1/1/2(24) PR granted in respect of certain portions of farms situated in the magisterial districts of
Ventersburg, Virginia and Hennenman (the “First Ventersburg Prospecting Licence”);
FS 30/5/1/1/2(477) PR granted pending approval of the Environmental Management Plan by the Regional Manager
on a date to be advised by the Department of Minerals and Energy on certain portions of farms situated in the
magisterial district of Hennenman (the “Second Ventersburg Prospecting Licence”);
FS 30/5/1/1/2(482) PR granted pending approval of the Environmental Management Plan by the Regional Manager
on or before 24 January 2008 on certain portions of farms situated in the magisterial district of Bothaville (the
“Bothaville Prospecting Licence”.)
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9/23/2009
Reg AC
The research analyst(s) who is primarily responsible for this research and whose name is listed on the front
cover certifies that: (1) all of the views expressed in this research accurately reflect his or her personal
views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's
compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst in this research.
The research analysts responsible for the preparation of this report receive compensation based upon
various factors, including the quality and accuracy of research, client feedback, competitive factors, and
overall firm revenues. While Strategic Energy Research and Capital LLC, an affiliate of FCG Advisors does
not have a dedicated investment banking division, Strategic Energy is occasionally called upon to provide
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revenues are a part of the overall pool from which compensation is determined and paid.
Important Disclosures
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banking services to the companies mentioned in this report. From time-to-time, Strategic Energy Research
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Energy Research and Capital LLC, an affiliate of FCG Advisors does not warrant its completeness or
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58