What’s Down the Track? GLEN COLGAN October 2014

1. What’s Down the Track? GLEN COLGAN October 2014

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3. Argonaut’s Perspective • How did we go? • The Broader Market vs Resources • Australian Economic Performance • Resource Sector Performance • Commodity Prices • Funding Companies + Funding Projects • Corporate Activity + Asset Transactions • Resource Services • Summary and Implications 1 2 3 4 5 6 7 8 9 Where are we at and where might we go?

4. How did we go? Resources Mark 1 2 3 4 5 6 7 8 9 Resource Services 1 2 3 4 The score card – a self assessment

5. The Broader Market vs. Resources S&P/ASX 200 -4% S&P/ASX 200 Resources -11% S&P/ASX Small Resources -18% Although Resources as a whole have underperformed the broader market in CY2014, the Small Resources in particular have dramatically underperformed

6. As bad as it gets for Small Resources...yet to get better S&P/ASX Small Resources Index 10-Year Historical Performance S&P/ASX Small Resources 1789 points The S&P/ASX Small Resources Index is currently trading at 10 year lows

7. Australian Economic Performance • Interest rates remain at historically low levels • Having a benign effect on growth as the global economy continues its slow recovery • AUD is trending downwards as demand for commodities retreats • Key commodity prices have fallen in recent months – most prominently iron ore and gold • Softer AUD is providing somewhat of a cushioning effect for Australian producers • Australian economic growth has been slightly below trend Economic Update Australian Real GDP FY2009-14 Iron Ore Spot Price vs. AUD:USD Exchange Rate (YTD) Outlook • Australia’s economic outlook remains opaque as weak growth in key developed economies is expected to persist in the medium term • The RBA remains bound as it balances managing the exchange rate with preventing a housing bubble from inflating Australia has outperformed the majority of developed economies although question marks remain over commodity prices

8. Gold • Physical gold price decline has accelerated over the past two months although the coinciding AUD depreciation has provided some relief for Australian producers • The US economic recovery is beginning to take hold with interest rate expectations driving a firmer USD providing a headwind for gold: it is still premature for investors to turn to gold as a hedge against inflation • The geopolitical situation in the Ukraine and the Middle East may be providing the gold price with some support • Producers continue to concentrate on reduction of unit costs per ounce, reporting an “all-in” cost - the sub $1,000 AISC per ounce club is quite exclusive • Despite some operational failures and margin compression, gold equities look good value, although investors should stick to quality projects run by quality management Relative Performance of Gold Price in CY2014 1 2 3 4 5 Gold equities have demonstrated their leverage to the physical, having outperformed early in 2014 and more recently underperforming as the gold price experiences weakness

9. Other Metals • After a strong rise from February following the Indonesian ban on unprocessed mineral exports, nickel has declined; Philippines threatening with a similar ban • Ni producers making good returns following difficult conditions and a period of belt tightening • Commitment to brownfields exploration Nickel Relative Performance of Key Metal Commodities (YTD) +12.1% +8.3% -9.7% Copper -40.1% • Soft price assumes a large surplus • Supply response is invariably over-estimated • LME stocks are at the lowest levels in 6 years Zinc Relative Performance of Metals Equities (YTD) • Looming deficit pushing prices higher with up to 10% of supply slated for closure in the next 3-4 years • Lack of capital & exploration to limit supply +68.1% Iron Ore • A combination of lower demand and a surge of supply from the major mining houses has been the driving factors behind the commodity’s decline • Rollercoaster likely to continue with re/de-stocking cycle while macro themes and uncertainty to keep pressure on prices • Higher cost producers appear increasingly marginal, hard decisions to come -4.0% -61.7% Nickel and zinc look positive, copper expected to improve, iron ore remains challenging

10. Other Metals – Recent Performance Relative Performance of Key Metal Commodities (Financial Year to Date) Relative Performance of Metals Equities (Financial Year to Date) +3.1% +0.4% -5.0% -12.6% -13.8% -39.8% -17.9% Commodity prices and resources equities have struggled so far in FY15

11. Energy Oil & Gas • The uranium market remains in surplus despite the cessation of the Russian HEU program in 2013. This is largely due to Japanese reactors remaining idle • Restart of Japanese reactors has been much slower than anticipated with all 48 operable reactors still offline • The uranium spot price remains below many producers’ cost of production, leading to some operations being placed onto care and maintenance i.e. Paladin’s Kayelekera operation • Triggers for a price recovery remain on the horizon as utilities resuming contracting Uranium • Weaker Chinese and European growth in combination with growing supply of West African and North Sea crude has seen the price of Brent fall relatively rapidly • Potential for US self sufficiency threatening to remove a substantial volume of demand from the market although China has balanced out the impact so far with increased consumption • Widespread geopolitical risks have so far failed to have any material impacts on the supply side • Gas is restricted to localised markets; demand for energy overseas has led to the development of a burgeoning LNG industry in Australia 1 1 2 2 3 3 4 4 Brent Oil Price (USD/bbl) Monthly Uranium Prices: Long-term vs. Spot Price (US$ per barrel) Price (US$ per pound) Uranium Spot Price Energy markets have not remained immune to economic headwinds Source: Cameco

12. Raising Capital in a Challenging Equity Environment Equity Capital Markets Activity for WA-listed Resources Companies Value of ECM deals Number of Resources IPOs Resources sector players have taken advantage of buoyant market windows to raise capital Source: Business News WA

13. A cash crisis among small explorers • Small developers and exploration companies are experiencing a “cash crisis” as equity investors have become increasingly risk averse • 212 metals & mining companies listed on the ASX currently have less than $500k in cash • A further 101 companies currently have less than $1m in the bank • Lower commodity prices experienced over the past 12 months forced the industry into cost cutting and led to a 12 per cent decrease in exploration expenditure • Western Australia has endured the largest fall in exploration expenditure, dropping 17 per cent • Greenfields and brownfields exploration fell equally, suffering a 33 and 32 per cent decrease respectively 1 2 Exploration Expenditure, by State Mineral Exploration Expenditure, by deposit type Exploration activity has been subdued and a cash crisis has developed among small explorers

14. Funding Projects • A number of projects continue to attract significant interest from equity investors, financiers and corporates alike • Gold Road Resources (ASX: GOR) : $10m + $23m • Sirius Resources (ASX: SIR) : $189m • Northern Star (ASX: NST) : $100m • Orbis Gold (ASX: OBS) : $20m (currently subject to a $160m takeover proposal from SEMAFO) • Poseidon Nickel (ASX: POS) : $30m • Saracen Minerals (ASX: SAR) : $61m • Macphersons Resources (ASX: MRP) : $8.8m • Phoenix Gold (ASX: PXG) : $16.8m • Rox Resources (ASX: RXL) : $4.5m 1 Gold Road Resources (ASX: GOR) YTD Sirius Resources (ASX: SIR) YTD Good projects continue to attract equity capital

15. Corporate Activity • Australian public M+A deal numbers rebounded in FY2014, driven by a surge of activity in the oil & gas sector • Western Australia leads the way in the quantity of M+A deals in the resources space • Gold leads all commodities both in terms of quantity and value of deals, as consolidation continues to be a prominent theme in the sector Key Commentary FY2014 Resources M+A deals by location of target 1 2 3 13 1 3 3 4 Resources M+A deals market value by Commodity Recent Resources M+A Transactions The focus for M+A in recent times has largely been around opportunistic acquisitions of quality assets Source: Herbert Smith Freehills Public M&A Report 2014

16. Asset Transactions • The current metals and mining market has forced companies to rationalise asset portfolios • Driven by the majors divesting non-core and more expensive operations • Quitting idle or exploration assets as company austerity initiatives take effect • Recent examples include: • Northern Star’s purchase of Jundee from Newmont for $82.5m, 51% of EKJV and Kanowna Belle from Barrick for $75m, and Plutonic from Barrick for $25m • Saracen’s acquisition of Thunderbox and Bannockburn from Norilsk for $20m plus a royalty • Poseidon Nickel’s purchase of Black Swan and Lake Johnston from Norilsk • Metals X’s $7.7m purchase of the Meekatharra gold operations of Reed Resources and its $40m acquisition of Alacer Gold’s Higginsville and South Kalgoorlie operations • Cassini Resources’ acquisition of BHP’s West Musgrave Project for $250k upfront and $10m after the first year of production • Talisman’s acquisition of the Sinclair Nickel mine from Glencore for $8m upfront • Other potential sales: • BHP Billiton’s Nickel West business • Cliffs’ Koolyanobbing iron assets Asset Transaction Activity for WA-based Resources Companies 1 2 Source: Business News WA 3 Individual asset transactions have become more attractive as companies are showing a preference to pick and choose specific assets to acquire

17. Resource Services – FY14 Results and Commentary • The majority of resource services companies saw a decline in profit in FY14 • “As bad as it gets” view in the industry – remains to be seen • Conditions still very competitive • Focus on balance sheet and cash flow, weak earnings forgiven if balance sheet remains strong • Pursuit of diversification • Many investors have abandoned the sector and are taking a “wait and see” attitude to future investment in resource services • Upgrades to earnings needed to drive share prices higher Key Themes FY14 Profit compared to FY13 Outlook Commentary Resource Services Contracts Awarded The Resource Services sector experienced a difficult past 12 months as mining investment tailed off and the industry entered into the production phase

18. Resource Services – Historical P/E Multiples Historical Forward P/E Multiples Price and earnings downgrades have kept resource services stocks within their 3 year trading band

19. Summary/Implications • Resources • Global economic growth remains subdued, Europe increasingly precarious, US improvement continues, China rebalancing • Accommodative policy settings remain, however US QE measures winding down • Commodities: Bulks continue under pressure; Base metals to improve; Precious metals to remain volatile • Weaker AUD providing some relief • High quality assets will attract significant equity funding; debt funding available for robust projects; specialist funds active • Junior resources sector to remain cash deficient • Producers will be prudent with capital expenditure and concentrate on cost cutting, putting pressure on service providers • Key themes of cashflowmargins, earnings, capital discipline and shareholder returns will remain central to investor focus • Undervalued assets and companies remain vulnerable to opportunistic acquirers • The Resources sector represents the best value in decades, with opportunities across the spectrum from producers, developers and advanced explorers • Resource Services • Highly competitive environment • Margins tight and low utilisation of gear • Construction in decline with limited visibility of project pipeline • FY14 results a cyclical low, outlook commentary suggests “not getting worse”… remains to be seen • Investor sentiment towards the sector remains negative, focus on cashflow generation and balance sheet strength • Deep value but a continuing lack of positive catalysts 1 2 Deep value, patience required