Alcyone Resources Ltd (AYN)

Transcription

1 26 June 2012 RECOMMENDATION Speculative Buy 12mth Valuation $ month volume 1,822m 12 month share low $ month share high $0.125 Market Risk Liquidity Risk Infrastructure Risk Country Risk High High Medium Low IRESS & DJC Research ISSUED CAPITAL ASX AYN Share price $0.033 Mkt cap 1 $49m Ordinary shares on issue 1,422m Unlisted Options 114m 1 Undiluted Source: IRESS 2 Various dates and strike prices DIRECTORS Charles Morgan Andrew King Andrew Richards Ian McCubbing Non-Exec Chairman Managing Director Non-Exec Director Non-Exec Director Source: AYN MAJOR SHAREHOLDERS JP Morgan Nominees 17.10% HSBC Nominees 3.97% Lyandji Super Fund 2.57% Seaspin Pty Ltd 2.57% Source: AYN 12 MONTH PERFORMANCE Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Source: IRESS. Chris Whitehead Resources Analyst +61 (8) cwhitehead@djcarmichael.com.au Alcyone Resources Ltd (AYN) Initiation Highly leveraged to the silver price RESEARCH We are initiating coverage on Alcyone Resources (AYN) with a Speculative Buy recommendation and price target of $0.07/sh, representing ~113% upside from the current share price ($0.033). AYN is in the advanced ramp up stage of silver production following the redevelopment of the Texas silver project located in Texas, South East Queensland. The project comprises the Twin Hills silver mine plus an additional deposit at neighbouring Mt Gunyan. With unit operating costs forecast at approximately A$15/oz once in full production, AYN is capable of generating strong cash margins at the current spot silver price. AYN had its first silver pour in July 2011 and is moving towards steady state production in the December quarter 2012 at a rate of ~1.5Mozpa with the potential for a +10 year operation. It also has access to over 1100sqm of highly prospective tenements in the Texas region. Key Points: AYN is a reincarnation of Macmin Silver which was placed into administration as a result of funding difficulties during the GFC. AYN has assumed ownership of Macmin s operational assets including the entire Twin Hills Silver project portfolio, processing facilities, mobile plant and administration buildings. AYN moved from a standing start to first silver production at Texas in just 18 months. AYN has a current resource base of ~21Moz Ag. Exploration is targeting 30-50Moz Ag total resources with further upside potential in base metal targets. AYN is highly leveraged to the spot silver price. AYN is suited to an investor that is looking for pure silver exposure in the Australian market. A 10% increase (decrease) in the silver price translates to a 17% increase (decrease) in our AYN valuation. A 10% increase (decrease) in the AUD translates to a 9% decrease (increase) in our AYN valuation. Recent underperformance in the AYN share price appears to have highlighted a value gap between the AYN share price and the spot silver price. We note that AYN hit a record high of $0.145 as spot silver hit record highs of ~US$50 in April There appears to be greater leverage in the AYN share price than purchasing silver directly through an ETF based on past performance. We note AYN s share price of $0.033 is a 77% drop from record highs while silver is ~47% from its record high. We rate AYN a Speculative Buy with a Target Price of $0.07 using a DCF method (10% discount rate) and a long term silver price of US$26/oz (AUD/USD 0.90) using a mine life of 7 years. Exploration and extensions to the resource base provides upside risk to our valuation. Earnings Forecast Year end June 2012f 2013f 2014f 2015f Revenue EBITDA Reported net profit EPS (c) EPS growth (%) N/A P/E ratio (x) Price/CF (x) EV/EBITDA Dividend (cps) Source: DJC D J Carmichael Pty Limited ABN AFSL Telephone: Facsimile: info@djcarmichael.com.au Webpage:

2 Company Overview AYN s flagship asset is the Texas Silver project located near the town of Texas, approximately three hours south-west of Brisbane in South East Queensland. AYN is a reincarnation of Macmin Silver that was forced into administration in November 2008 as a result of financing issues and the onset of the global financial crisis. AYN commenced silver production from the Texas project in July 2011, and is ramping up to steady state production of Mozpa Ag by Q at targeted life of mine cash costs of ~$A15/oz. There is the potential for a +10 year operation. Investment Thesis One of the few ways to gain exposure to silver outside of silver exchange traded funds (ETF s) in the Australian market. AYN is a pure silver producer, which is uncommon in companies listed on the ASX. Ramping up production in the near term. AYN has had delays in the ramp up phase which, coupled with a selloff in small cap resources, have led to recent underperformance in the AYN share price. Steady state production of Mozpa is now 6 months away. We anticipate a rerating upon constant production. Highly leveraged to the price of silver. AYN is one for the silver bulls. AYN is currently near a 12 month low at $0.033, while spot silver is fetching ~US$27/oz. We note that AYN and spot silver hit record highs of $0.145 and $49.82 respectively in April This represents ~339% upside from current levels in AYN and ~85% in spot Ag. There appears to be much greater leverage to the silver price based on past performance in purchasing AYN rather than a silver ETF. A value gap has emerged. There has been a disconnect as of late between the price of silver and the AYN share price, with the AYN share price underperforming spot silver. This has occurred due to the selloff in small cap resources and a value gap appears to have emerged for those that are bullish silver. Exploration and extensions to the mine life provide upside risk. AYN has a $3m budget for exploration in 2H12 and has recently quadrupled its landholding in the Texas QLD area. AYN currently has 21Moz of silver resources at Texas with a recently established exploration target of a further 15Moz from near mine targets. The acquisition of these new tenements has the potential to enhance this exploration target further. AYN has also intersected significant base metals in attractive geological settings. Catalysts Resource and Reserve upgrades are expected by the company within the next quarter. This will provide more clarity around mine life and additional feed available for the Texas project. Silver price. This is the major driving factor for the AYN share price. AYN is highly leveraged to the silver price. A 10% increase (decrease) in the silver price translates to a 17% increase (decrease) in our AYN valuation. Results from silver and base metals exploration. AYN is conducting an exploration program aimed at increasing its existing inventory of heap leachable silver resources to support additional feed and assess the potential for a base metals project. AYN has a $5 to 6m, results driven exploration budget per annum. The currently undefined potential of the newly acquired tenements could be a key driver for future expansion. 26 June

3 Valuation RESEARCH DJC has valued the Texas silver project using silver pricing and currency assumptions as described in Figure 3. Our valuation of AYN is $0.07. We predict net profit of $A13m in FY13 allowing for ~1.3Moz of Ag production. $m $m Now $ps 12 mth $ps 24 mth $ps Texas Corporate Exploration Net Cash Extra Resource oz's Total Figure 1. AYN Valuation Source: DJC Production Silver production is on track to ramp up at the Texas silver project to a targeted rate of Mozpa by end CY12. We have modelled production rates as shown below. We assume 11Moz is converted from the current resource base of 21Moz s, Life of mine cash costs are estimated to be A$15/oz. To add in some contingency and conservativeness, we assume long term cash costs of A$17/oz. 2012f 2013f 2014f 2015f Throughput (kt) Silver Grade (g/t) Silver Recovery 62% 68% 68% 68% Silver (koz) Cash Costs (US$/oz) Cash Costs (A$/oz) Figure 2. Modelled production/cash costs Source: DJC Commodity Assumptions We use a long term silver price of US$26/oz and AUD/USD of This long term silver price is based on a 50:1 gold/silver ratio. DJC use a long term gold price of US$1300/oz. 2012f 2013f 2014f 2015f Silver Price (US$/oz) Exchange rate (AUS:US$) Silver Price (A$/oz) Figure 3. Modelled commodity prices Source: DJC Exploration We have given a nominal $18m for exploration upside. In parallel with AYN s silver production at Twin Hills, AYN is also conducting an exploration program aimed at unlocking the broader exploration potential of the Texas project for epithermal and sulphide base metal mineralisation, as well as increasing its existing inventory of heap leachable silver resources. AYN s exploration targets and prospects provide upside risk to our valuation and target price. We have given a value of $10m to the remaining resources not DCF modelled (10Moz) at a value of $1/oz (gold equivalent of US$50/oz). AYN has a target of increasing its resources by a further 15Moz. We have given this a value of $7.5m using $0.50/oz (gold equivalent of US$25/oz). No valuation has been given to the base metals potential on the tenements. 26 June

4 Sensitivity analysis Leverage to silver RESEARCH We perform a sensitivity analysis on the AYN NPV based on a range of spot silver prices for life of mine using a spot AUD/USD of Figure 4 shows the leverage of the AYN share price to the spot silver price. Spot Ag ($US/oz) AYN Valuation 20 $ $ $ $0.14 Figure 4. AYN sensitivity analysis Source: DJC With a 10% increase (decrease) in the silver price and our currency forecasts unchanged, the valuation of AYN increases (decreases) by 17%. Further, with a 10% decrease (increase) in the AUD and keeping our commodity pricing unchanged, the valuation of AYN increases (decreases) by 9%. At A$15/oz cash costs, using a 50:1 gold silver ratio, an equivalent gold producer would be operating at A$750/oz a mid-cost producer in the current environment. We note that companies with higher costs are more sensitive to the underlying commodity price. An increase (decrease) in the underlying commodity has a greater net increase (decrease) on the bottom line in percentage terms the higher cost a producer is. We provide historical data on the gold/silver ratio over a five year period below. This is simply the gold price divided by the silver price. Over the past twelve months the gold/silver ratio has ranged between 39 and 57. Over the past five years, the gold/silver ratio has ranged between 32 and 83. DJC use a 50:1 gold/silver ratio for our long term silver pricing May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Gold to Silver Ratio Figure 5. Gold/Silver ratio over 5 year period Source: IRESS 26 June

5 Silver Price Silver prices reached record highs in April 2011, nudging US$50/oz. The subsequent pullback was largely a result of increased margin requirements on futures contracts and an increased speculative driven market. However, spot silver is still strong, fetching around US$27 at time of print May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Silver Price Figure 6. Silver price 5 year chart ($US/oz) Source: IRESS 26 June

6 AYN versus spot silver We track the spot silver price versus the AYN share price for a 12 month period below. We note the high correlation between the silver price (USD) and AYN up until early March There appears to be a disconnect as of late due to the selloff in small resources and a significant value gap has appeared for those that are bullish silver assuming the divergence corrects to its long term historical trend. The below graph is based to 100 and represents one year performance in AYN versus spot silver Price Performance Based to Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 AYN Silver (USD) Figure 7. AYN v spot Ag 1 year graph Source: IRESS We track the spot silver price versus the AYN share price for a 24 month period below. We aim to demonstrate the potential leverage in purchasing AYN versus spot Ag. The below graph is based to 100, however we note that the record high in AYN is $0.145, achieved when spot silver hit a record high of ~US$50 in April Price Performance Based to Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 AYN Silver (USD) Figure 8. AYN v spot Ag 2 year graph Source: IRESS 26 June

7 Financial/Hedging AYN has current forward silver sales and pre-paid commitments of ~300k ounces at an average price of $33.83 per ounce. AYN will be fully unhedged at the beginning of CY13. AYN recently undertook a share placement comprising 72,916,667 shares at an issue price of 4.8 cents per share, plus one free attaching option for each two new shares issued, exercisable at 6 cents per share and expiring on 14 May 2015, to raise a total of $3.5 million. A number of international institutions and high net worth investors, including several existing long-standing shareholders participated in the share placement. AYN s Chairman, Mr Charles Morgan, also applied for $500,000 in the placement, reflecting his confidence in the future of the Company. Further, AYN ran a Share Purchase Plan (SPP) to provide existing shareholders with the opportunity to invest at the same price as the placement under the same conditions as the placement. A total of $1.6m was raised as a result of the SPP. The proceeds are to be used as follows: a). To bring forward the commissioning of Leach Pad 4 (LP4), enabling Alcyone to accelerate the ramp-up of production at the Twin Hills heap leach silver mine the first layer of ore has been placed on Leach Pad 3 and civils for Leach Pad 4 are already starting. b). To fund connection to the State electricity grid in South East Queensland to reduce operating costs. c). To expand and accelerate exploration activities at the Texas Project. d). Working capital. 26 June

8 AYN s Assets Texas silver project AYN s flagship asset is the Texas Silver project located near the town of Texas, approximately three hours south-west of Brisbane in South East Queensland. AYN commenced silver production from the Texas project in July 2011, and is ramping up to steady state production of 1.5Mozpa Ag by Q The Twin Hills and Mt Gunyan projects are epithermal/mesothermal deposits which are amenable to heap leach treatment. Macmin Silver operated the Twin Hills Mine between March 2007 and July 2009, producing approximately 500koz of silver when the silver price ranged between $9 and $20/oz. Macmin was adversely impacted by heap-leach processing issues, a result of not crushing the ore finely enough. This combined with an inability to raise further financing to fix these issues resulted in the project being placed on full care and maintenance. AYN successfully retained Macmin s operational assets through the reconstruction and recapitilsation by the current Board and Management team in late The asset acquired by AYN included the entire Twin Hills operation (infrastructure, plant, buildings, etc) and included 400kt of crushed ore on the leach heaps and a further 200kt of partially crushed ore on the ROM pads. The Company s current aim within the broader project area is to get to steady state production of 1.5Mozpa from the Twin Hills Mine as well as undertaking exploration work to establish additional feed. AYN currently has a JORC resource for the Twin Hills and Mt Gunyan deposits of 21Moz of contained silver, of which 90% is in the Measured and Indicated categories. The Texas Silver and Polymetallic Project was recently expanded from a 260 to a 1,100 sq km portfolio of tenements. In April 2012 AYN signed an agreement to acquire a large 900 sq km tenement package from Navaho Gold Limited that lies adjacent to the Texas Project. The agreement is subject to technical and commercial due diligence. The new tenements cover ground to the north and east of the Texas Project, in an area where AYN s regional geological model indicates strong potential for both silver and base metals mineralisation. The Company intends to commence exploration within these new tenements as soon as possible. Figure 9. Texas Project Resources Source: AYN 26 June

9 Twin Hills AYN commenced production from the Twin Hills heap leach mining operation in July Reirrigation of the existing silver rich heaps at the Twin Hills mine from when Macmin Silver was operating commenced in April 2011, resulting in AYN successfully pouring the first silver bullion from the Texas Silver Project in July. Following the acquisition of Twin Hills from Macmin, AYN completed a heap leach test program from the historical heap leach pads in order to further improve the understanding of past operational issues, which resulted in an overall silver extraction of 69%. It was revealed that the key to achieving this extraction rate was product size. The inability to achieve the smaller crushing size was the major contributing factor to a slower extraction rate which impacted negatively on the overall silver recovery and project economics of the mine when run by Macmin. Test work of the historical heap leach pads indicated that the previous product size was coarser than 100% passing 4mm and did not achieve 50% passing 1mm. AYN upgraded the existing 1Mtpa Twin Hills processing plant, including the installation of a new crushing circuit that will produce a product at 100% passing 4mm. AYN designed a crushing circuit that will produce a product at 100% passing 4mm. AYN test work showed that the ore needed to be at this size to leach effectively. A commercial-scale Merrill Crowe silver recovery circuit was also installed. Both have been successfully commissioned and the heap leach is now moving towards overall design processing capacity with full scale production anticipated in Q In March 2012, AYN reported a substantial increase in the Mineral Resource estimate for the Twin Hills deposit. The updated Mineral Resource comprises 9.5 million tonnes grading 53.8g/t Ag for 16.4 million ounces of contained silver at a cut-off of 26.5g/t Ag. This represents a 69% increase in contained silver over the previous Mineral Resource estimate (3.684Mt grading 82g/t Ag reported at a 40g/t Ag for 9.7 million ounces) reported to the same surface. Based on current heap leach silver resources at Twin Hills, the operation has a declared mine life of five years based on a forecast production rate of Mozpa. Figure 10. Twin Hills location Source: AYN 26 June

10 Mt Gunyan Mt Gunyan is located approximately 4.5km north-east of the Twin Hills Mine, and is a mesothermal disseminated silver deposit with elevated gold in some parts. The Mt Gunyan deposit is considered the next source of ore feed for the heap leach mining operation at Twin Hills. It has the potential to increase the life and throughput of the Twin Hills operation by 18 months to two years. AYN has defined a current heap leach silver resource for the Mount Gunyan deposit of 2.3 million tonnes grading 69g/t Ag for 5.19 million ounces of silver. Work is progressing on the preliminary Feasibility Study for development of the Mt Gunyan deposit. Samples from the existing core have been dispatched for metallurgical testwork on the extraction of silver mineralisation. Once the metallurgical parameters are more accurately defined, the next phase of mine planning and permitting commence. Exploration Silver and base metals targets In parallel with AYN recommencing silver production at Twin Hills, AYN is also conducting an exploration program aimed at unlocking the broader exploration potential of the Texas Project for epithermal and sulphide base metal mineralisation, as well as to increase its existing inventory of heap leach silver resources. A review of part of the Company's tenement package has revealed a considerable number of targets. The objective is to extend the mine life towards 7-10 years while also investigating the potential for delineating sufficient base metal resources to justify a future mining operation. Figure 10. Exploration targets are within close proximity Source: DJC 26 June

11 Exploration Heap leach silver style targets AYN is targeting total mineral resources of between 30 and 50 Moz Ag from across the Texas Project area, sufficient to extend the Twin Hills mine life beyond ten years. This is inclusive of the Mineral Resources reported for Twin Hills and Mt Gunyan. At this stage AYN has identified a potential Exploration Target* of 15Moz of in situ silver mineralisation in the locations summarised in the table below: Figure 11. Silver exploration target details Average Target Tonnes Location Silver Comments (Moz) Min. Max. Min. Max. Twin Hills Southern Near surface, strike extent defined by 1 250, , Extension some previous drilling Deeps 1 250, , Beneath current planned open pit Subtotal 1.9 Mount Gunyan Main Deposit , , Deeps ,000 1,000, South East , , South West , , Subtotal 2.9 Western Tectonic Corridor Tornado 1 250, , Hornet ,000 1,000, Falcon 1 250, , Unnamed , , Unnamed , , Subtotal 5.3 Additional mineral resource from reestimation Depth extension to current mineral resource Shallow, extent defined by some RAB drilling Shallow, extent defined by some RAB drilling Surface sampling Ag +/- Zn anomaly defines +600m strike depth Numerous occurrences, Ag +/-Cu/Zn, not part of main Cu prospect Ridge line to NE and parallel to Hornet, similar potential to Hornet Ag Additional as yet untested structures defined by Sub Audio Magnetic (SAM) survey and mapping Additional as yet untested structures defined by SAM survey and mapping Individual Targets Tom Cat ,000 1,500, Ag/Zn soil anomaly defines strike extent Silver Spur Near surface lodes, strike and width defined , , North in part by RAB drilling Hawker ,000 1,500, Silver soil anomaly, RC drilling returned up to 100g/t Ag, strike length of 100m TOTAL 15 Source: AYN The Moz figures are determined by averaging the tonnage and applying the minimum grade. (The Moz figures are rounded). The targets identified are conceptual in nature based on some or all of the following information/assumptions: Preliminary drilling defining some aspects of the target dimensions and grade Surface sampling defining some aspects of the target dimensions, the grade range is applied based on similar targets or existing prospects/deposits Geophysical interpretation; the tonnes and grade are applied based on comparison to better identified targets or existing prospects/deposits in the same or similar geological setting *These targets do not have sufficient information to quote mineral resources nor is there any guarantee that with additional exploration these targets will become mineral resources. 26 June

12 AYN s key near-term targets for heap leach silver exploration are: a). Western Tectonic Corridor (WTC) 5km long geological structure which hosts the Hornet, Falcon and Tornado targets in the western area of AYN s tenement holding. The WTC has been interpreted as a series of NNW-SSE trending shear zones intersected by north-south orientated structures, with the potential for precious and base metals mineralisation to exist along and at the intersections of these features. b). Twin Hills and Mt Gunyan Deposits have the potential to deliver extensions to their current mineral resource both at depth and along strike. c). The Silver Spur region, located 2km south-east of Twin Hills, is also emerging as an exciting target. AYN has recently identified a zone of near-surface silver mineralisation to the north of the historic mine. Exploration Base metal targets AYN is aiming to define sufficient base metals resources at the Texas Project to commence a viable base metals production operation. The Company is currently evaluating targets at: Hornet Cu 150m strike length of anomalous copper identified by diamond and RC drilling Hornet North Broad zones of anomalous zinc identified by RAB drilling Falcon Extremely anomalous results from surface sampling, including peaks of 184g/t silver, 2.7% copper, 3.4% lead and 13.7% zinc Vampire Copper anomaly in soils Hawker Copper mineralisation identified in RC drilling Silver Spur Inferred JORC resource of 3.56% zinc, 1.25% lead, 70g/t silver (above 2% ZnEq cut-off) Historical mining of ,000t at 25% Zn, 13% Pb and 800g/t Ag RC and diamond drilling has returned encouraging grades indicating significant remnant mineralisation Undercover conductivity targets (identified by surface EM) to the south and east of the old mine. 26 June

13 Risks Commodity and currency price. AYN s earnings are highly leveraged to the price of silver. A higher $A dollar is a downside risk to revenues. Operating. Mining is relatively straight forward from open pit(s). Metallurgical recoveries from a full scale operation are yet to be established. Mine life. Current reserves are sufficient for 4-5 years production. However with nearby Mt Gunyan and several other deposits the life of mine is likely to be extended. AYN is targeting a +10 year mine life at ~1.5Mozpa. DJC has modelled a 7 year mine life. Environmental. All approvals have been obtained for mining and environmental risk is low. Financial. Cash on balance sheet is currently ~$4m. Cash flow should become positive on full production 2H June

14 Directors and Management Mr Charles Morgan - Non Executive Chairman Mr Morgan has extensive experience in equity capital markets and has been involved with numerous projects over a 25 year period. Most of these were in the resources/oil & gas industries and the technology sector. Mr Morgan has successfully identified emerging international opportunities and acquired large, early stage and strategic positions in a wide range of ventures around the world. In addition to identifying and acquiring interests in early stage ventures, his strengths include partnering with regional experts, securing teams of appropriate executives, procuring development capital and adding value for the benefit of shareholders. He holds, or has previously held, the positions of Founder, Chairman, Director and/or Major Shareholder in the following companies: Alto Energy Ltd, Nido Petroleum NL, West Oil NL, Fusion Oil & Gas NL, Valdera Ltd, Nautronix Ltd, WildHorse Ltd, Matra plc, Grand Gulf Energy Limited, Latent Petroleum Pty Ltd and VectoGen Ltd. Mr Andrew King - Managing Director A mining engineer with over 34 years experience in the mineral resources industry, Mr King has a considerable depth of knowledge and expertise in technical disciplines as well as in the successful establishment of new companies including Victorian gold company Goldstar Resources NL. In addition to experience covering corporate, strategic and operational roles in gold, iron ore, coal and base metals, Mr King also holds qualifications in accounting and financial management. He is a member of the Australasian Institute of Mining and Metallurgy and the Australian Institute of Company Directors. He is currently Chairman of Base Resources Ltd and provides corporate and operating consulting services to the mining and financial industries. Previously, he held senior positions with Goldstar Resources NL, Tectonic Resources NL, Mt Edon Gold Mines (Aust) Pty Ltd and Griffin Coal Mining Company Mr Andrew Richards - Non Executive Director Andrew is a geologist with 30 years experience in the mining industry, seven years of which involved a senior role in Resource Project Finance within a banking environment. Prior to 1996 he worked in a wide variety of areas and in commodities, in both production and exploration geology, before becoming Chief Geologist at New Celebration and Telfer Gold Mines. Since 2004 Andrew has worked extensively in Australia, Asia and South America, providing consultancy and advisory services, mineral asset valuations, Independent Expert Reports and managed several listed and unlisted companies. Mr Ian McCubbing Non Executive Director Mr McCubbing, is a Chartered Accountant with extensive corporate experience, including senior finance roles with ASX 200 and other listed companies in both the mining and industrial sectors. Mr McCubbing was previously Chief Financial Officer of GRD Ltd and is presently a nonexecutive director of Kasbah Resources Ltd, Mirabela Nickel Ltd, Swick Mining Services Limited and Chairman of Eureka Energy Limited. 26 June

15 Alcyone (AYN) Market Cap: A$m diluted 49 Share price $0.033 PROFIT AND LOSS (A$) PRICE ASSUMPTIONS Y/e June f 2013f 2014f 2015F 2012f 2013f 2014f 2015f Revenue Silver Price (US$/oz) EBITDA Exchange rate (AUS:US$) Depreciation Silver Price (A$/oz) Amortisation EBIT AND RESERVES Other income (expenses) Deposit Classification Tonnes Grade Contained Ag Net Interest Expense Twin Hills g/t Moz Profit/Loss Before Tax Measured 2,278, Income Tax Expense Indicated 6,267, Net Profit Inferred 931, Adjustments TOTAL 9,476, DJC adj NPAT Mt Gunyan Measured 242, One-off items Indicated 1,777, Reported net profit Inferred 329, TOTAL 2,347, PROJECT TOTAL All categories 11,823, CASHFLOW (A$) 2012f 2013f 2014f 2015f PRODUCTION PROFILE Receipts from customers f 2013f 2014f 2015f Payments to suppliers Throughput (kt) Net interest Silver Grade (g/t) Tax paid Silver Recovery 62% 68% 68% 68% Other Silver (koz) Operating cashflow Cash Costs (US$/oz) Cash Costs (A$/oz) Capital Expenditure Investments VALUATION DATA Asset sales f 2013f 2014f 2015f Other Net profit adj ($m) Investing cashflow EPS (c) EPS growth (%) N/A Change in borrowings P/E ratio (x) Equity raised CFPS (c) Dividends paid Price/CF (x) Other DPS (c) Financing cashflow Yield (%) Franking (%) Net change in cash EV/EBITDA EBITDA margin (%) Cash at end of period PROFITABILITY RATIOS 2010a 2012f 2013f 2014f 2015f EBITDA/sales (%) BALANCE SHEET (A$) EBIT/sales (%) f 2013f 2014f 2015f Return on assets (%) Cash Return on equity (%) Receivables Return on funds empl d (%) Inventories Dividend cover (x) Investments Effective tax rate (%) Other Current assets LIQUIDITY AND LEVERAGE 2010a 2012f 2013f 2014f 2015f Plant & Equp % Dev Net debt/(cash) ($m) Investments Net debt/equity (%) Intangibles Net interest cover (x) Other Current ratio (x) Non-current assets Inventory turnover Total assets Inventory/sales Payables VALUATION - DCF (fully diluted) - 10% Debt $m $m Now $ps 12 mth $ps 24 mth $ps Provisions Texas Other Corporate Total liabilities Exploration Net Cash Shareholders equity Extra Resource oz's Minorities Total Total shareholders funds Recommendation: Spec Buy Total funds employed Valuation per share: Total Return (including yield) 111.0% W/A diluted shares on issue June

16 Disclosure Disclaimer This Research report, accurately expresses the personal view of the Author. stated on this report. RCAN1049 All the information utilised in this report is accurate and current at the date DJ Carmichael Pty Limited, members of the Research Team; including authors of this report, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report. DJ Carmichael Pty Ltd is a wholly owned subsidiary of DJ Carmichael Group Pty Ltd ACN In accordance with Section 949A of the Corporations Act 2001 D J Carmichael Pty Limited advise this contains general financial advice only. In preparing this document D J Carmichael Pty Limited did not take into account the investment objectives, financial situation and particular needs ( financial circumstances ) of any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your D J Carmichael Pty Limited adviser. D J Carmichael Pty Limited, its Directors employees and advisers may earn brokerage or commission from any transactions undertaken on your behalf as a result of acting upon this information. D J Carmichael Pty Limited, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly, from client transactions. D J Carmichael Pty Limited believe that the advice herein is accurate however no warranty of accuracy or reliability is given in relation to any advice or information contained in this publication and no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any persons by reason of negligence), is accepted by DJ Carmichael Pty Limited or any officer, agent or employee of D J Carmichael Pty Limited. This message is intended only for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential and exempt from disclosure under applicable law. If you are not the intended recipient or employee or agent responsible for delivering the message to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication and its attachments is strictly prohibited. The Author of this report made contact with Alcyone Resources Ltd for assistance with verification of facts, admittance to business sites, access to industry/company information. No inducements have been offered or accepted by the company. The recommendation made in this report is valid for four weeks from the stated date of issue. If in the event another report has been constructed and released on Alcyone Resources Ltd, the new recommendation supersedes this and therefore the recommendation in this report will become null and void. Recommendation Definitions SPECULATIVE BUY 10% out-performance, but high risk BUY - 10% out-performance ACCUMUATE 10% or more out-performance, buy on share price weakness HOLD 10% underperformance to 10% over performance SELL 10% or more underperformance Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months. Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes. To elect not to receive any further direct marketing communications from us, please reply to this and type 'opt out ' in the subject line. Please allow two weeks for request to be processed No part of this report may be reproduced or distributed in any manner without permission of DJ Carmichael Pty Limited. 26 June