110121 Venturex VXR final · 2018-08-21 · Argonaut Securities Research 1 Venturex Resources 21 January 2011 Nothing ventured, nothing gained Acquisition of Panorama Cu-Zn Project:

Argonaut Securities Research 1 Venturex Resources

21 January 2011

Nothing ventured, nothing gained

Acquisition of Panorama Cu-Zn Project:

Copper-zinc developer Venturex Resources (VXR) is acquiring the Panorama Cu-Zn

project, located 160km south east of Port Hedland, from Toho Zinc Co (Toho) for

$26.2m. The resource base is 19.3Mt @ 1.2% Cu, 3.2% Zn, and 16g/t Ag.

VXR is seeking to raise $36.8m via a 15% placement of ~98.3m shares at $0.09 to raise

~$8.8m, and a fully underwritten, non-renounceable 2:5 accelerated entitlements issue

to existing shareholders (Entitlements Issue) to raise ~$28m.

Proceeds from the capital raising will be used to fund the acquisition of Panorama, fast

track feasibility studies combining the existing Pilbara asset suite, regional exploration

and ongoing working capital requirements.

Impact: Positive

The Panorama acquisition provides VXR with ‘critical mass,’ by more than tripling the

resource base to 27Mt @ 2.2% Cu Eq (>580kt Cu Eq). A centralised 1Mtpa processing

hub at Whim Creek could deliver average production of 27ktpa Cu Eq over 9 years.

View: Positive

The addition of Panorama is a logical step towards creating a meaningful base metals

producer. Output will be underpinned by an equal blend of open pit ore from Mons Cupri

and underground ore from Panorama over the first six years. Cash costs (<US$0.50/lb

Cu) compare favourably among the emerging 20 – 40ktpa copper production peer group,

given the value of by-product credits.

Exploration upside within VXR’s consolidated VMS package is excellent. The Pilbara

Project contains 7.6Mt in four known deposits (Salt Creek, Whim Creek, Mons Cupri and

Liberty-Indee) compared to the global experience of up to 25 pods in a field.

Recommendation: Spec Buy

Argonaut values the enlarged VXR at $0.25ps. It is the cheapest stock in its peer group

of developers on the Funded EV / production metric.

Venturex

SPECULATIVE BUY

Research

Analysts: Tim Serjeant Troy Irvin

Important Disclosures Argonaut is acting for VXR as the Sole Lead Manager, Sole Underwriter and Sole Book Runner (entitlement issue only) to the institutional placement and accelerated entitlements issue and has entered into an underwriting agreement with VXR to underwrite approximately $28.0m of the raising in January 2010. Argonaut acted as Corporate Advisor to VXR throughout the transaction to acquire the Panorama Copper Zinc Project. Argonaut will earn fees commensurate with its role in this transaction. Argonaut has previously acted for Venturex and has earned fees commensurate with those services. Argonaut holds or controls a material shareholding in Venturex, including 38,796,504 million shares and 10,526,316 options exercisable at $.095. Argonaut intends to take up its Entitlements under the Entitlements Issue. Mr. Michael Mulroney is also a director of a company within the Argonaut Group of Companies as well as holding a non-executive directorship of Venturex. Argonaut and the Directors of Argonaut advise that they and persons associated with them may have an interest in VXR securities and that they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation, and that some or all of our Representatives may be remunerated wholly or partly by commission.

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Current Price:Valuation: $0.25

Ticker: VXR

Sector: Materials

Shares on Issue (m)*:

Market Cap (A$m)*: 152.2

Net Cash (A$m)*: 13.7

Enterprise Value (A$m)*: 138.5

*Post Capital Raising

52 wk High/Low: $0.15 $0.06

12m Av Daily Vol (m):

Board and Management

Tony Kiernan Chairman

Tim Sugden Managing Director

Anthony Reilly Executive Director

Allan Trench Non-Executive Director

Michael Mulroney Non-Executive Director

Substantial shareholders^:

Regent Pacific 19.2%

Straits Resources 15.7%

Argonaut 5.4%

^Pre Capital Raising, undiluted

Share Price Graph

0.45

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VXR to acquire the Panorama Cu-Zn Project for $26.2m

Proceeds from a $36.8m capital

raising…

…will be used to fund the acquisition of Panorama…

…and fast track feasibility studies combining the existing Pilbara asset suite

Acqusition of the Panorama Cu-Zn Project

Background

Venturex Resources (VXR) is acquiring the Panorama Cu-Zn Project from CBH Resources Ltd (a wholly owned subsidiary of Toho Zinc Co Ltd) for $26.2m, located 160km by road south east of Port Hedland. The project includes the Sulphur Springs copper-zinc VMS orebody, with a resource of 19.3Mt @ 3.2% Zn, 1.2% Cu, and 16g/t Ag. Toho will retain off-take rights for the first 230kt of zinc concentrate from Panorama at international benchmark terms

A number of feasibility studies have been completed during the history of Panorama (Sulphur Springs was discovered in 1984). In 2008 CBH Resources (CBH) planned to extract the ore via open-pit mining, however this was placed on hold due to the overall cost structure of the project, decreasing metal prices and less favourable market conditions. Toho acquired the asset as part of the takover for CBH, which was completed in September 2010. A new plan to extract the high grade central zone (2.2% Cu, 6.2% Zn) of the ore body using underground methods has since been developed as the preferred option, and this approach will be adopted by VXR.

Proposed Capital Raising

VXR is seeking to raise $36.8m via a:

• 15% placement (Placement) of ~98.3m shares at $0.09 to raise ~$8.8m and;

• Fully underwritten, accelerated 2:5 non-renounceable entitlements issue to existing shareholders (Entitlements Issue) to raise ~$28m

Key shareholder, Regent Pacific, will sub-underwrite a major portion (74.2%) of the Entitlements Issue. Regent’s shareholding is likely to range between 23.6% - 27.9% post the Capital Raising, depending on the shortfall.

Proceeds from the Placement and Entitlements Issue will be used to fund the acquisition of Panorama, fast track feasibility studies combining the Pilbara asset suite as well as regional exploration and ongoing working capital requirements.

Table 1: Transaction snapshot

Transaction snapshot

15% Placement

New shares issued m 98.3

Sub total m 776.6

2:5 Entitlements Issue

New shares issued m 310.6

Total shares outstanding m 1087.2

Funds Raised (before costs)

- Placement $m 8.8

- Entitlements Issue $m 28.0

SUM 36.8

Source: Argoanut (unless stated otherwise)


The addition of Panorama is a logical step towards creating a meaningful base metals miner…

…with 27 Mt @ 2.2% Cu Eq

(>580kt Cu Eq) in resources…

…and annual production of 38kt Zn and 16kt Cu over 9 years

Creating a meaningful base metals producer

Logical step

The addition of Panorama to VXR’s existing Pilbara asset suite is a logical step, which could ultimately transform the Company into a meaningful Cu-Zn producer.

Figure 1: Project Location

Source: VXR

Panorama provides VXR with ‘critical mass’ in a known VMS field, with the Resource base more than tripling to 27Mt @ 2.2% Cu Eq (>580kt Cu Eq).

Table 2: Combined Reserve and Resource Base

Combined Reserve & Resource Position

Reserves Mt Cu % Zn % Pb % Ag g/t Au g/t Cu Eq %

Pilbara VMS 4.5 1.4% 2.8% 0.9% 33.9 0.3 2.8%

Panorama 3.9 2.2% 6.2% 0.0% 25.3 0.0 4.1%

TOTAL 8.4 1.8% 4.4% 0.5% 29.9 0.1 3.4%

Resources Mt Cu % Zn % Pb % Ag g/t Au g/t Cu Eq

Pilbara VMS 7.6 1.2% 2.2% 0.7% 26.1 0.2 2.2%

Panorama 19.3 1.2% 3.2% 0.2% 16.1 0.0 2.2%

TOTAL 26.9 1.2% 2.9% 0.3% 18.9 0.1 2.2%

The addition of Panorama provides significant economies of scale, allowing VXR to leverage off established infrastructure at Whim Creek.

The creation a centralised 1Mpta processing hub at Whim Creek could deliver annual production of 38kt Zn and 16kt Cu over 9 years, underpinned by an equal blend of open pit ore (Mons Cupri) and underground feed from Panorama (transported via road haulage) over the first six years.

Table 3 illustrates the enhanced economics via the combination of the two projects as opposed to development on a ‘standalone’ basis.


VXR’s annual production doubles from 13kt to ~27kt (Cu Eq basis)

Among the emerging 20 – 40ktpa copper producers

…VXR’s cash costs (US$/lb Cu) compare favourably

Table 3: VXR + Panorama

Combined v Standalone basis

VXR* CBH / Toho Combined

Project Pilbara VMS Panorama VXR + Panorama

Mining Inventory Mt 4.5 3.9 8.3

Grade % Cu Eq ^ 2.8% 3.9% 3.4%

Throughput ktpa 600 600 1,000

Metal in Conc

- Zinc ktpa 14 34 38

- Copper ktpa 8 12 16

- Lead ktpa 4 - 3

Cu Eqv 13 20 27

Mine Life yrs 9 7 9

First Production yr FY13 - FY13

Capex 96 163 135-145

* From November 2010 Scoping Study

^Based on current spot metal prices

^^Net of Ag and Au by product credits

VXR’s average annual production production (on a Cu Eq basis) doubles from 13kt to ~27kt (on a Cu Eq basis), results in dramatic capital cost savings and transforms the Company into a meaningful base metals producer.

Peer Comparison

Figure 2 benchmarks the enlarged entity against a number of ASX listed copper developers.

Among the emerging 20 – 40ktpa copper production peer group, VXR’s cash costs (US$/lb Cu) compare favourably, given the value of precious metal by-product credits associated with the concentrates.

Figure 2: ASX listed Copper developers

SFR RXM

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VXR

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CDU

DML

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Note: Bubble Size - Fully Funded Enterprise Value (FFEV) = EV + Capex


On the Funded EV / production metric…

…VXR is the cheapest stock in its peer group

With VXR exhibiting similar characteristics to established producer JML…

…the opportunity is to mimic its trajectory …

…and attract the market re-rating attached to producers

Figure 3 plots VXR against its peer group on a Funded Enterprise Value (EV + Capex) to annualised copper (Eq) production basis.

On this metric, VXR is the cheapest stock amongst the copper developer peer group.

Figure 3: Fully Funded EV/ Annualised Copper Eq production (forecast)

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Jabiru Mark II

VXR exhibits similar characteristics to established producer Jabiru Metals (JML).

JML has a market capitalisation of ~$350m and currently produces ~10kt Cu and 30kt Zn per annum (c.f VXR – 16kt Cu and 38kt Zn) from its Jaguar operations. JML also benefits from significant by-product credits (gold and silver) and controls a dominant strike position (~50km) in a proven VMS belt (c.f VXR ~36km).

The opportunity for VXR is to mimic the trajectory of JML and attract the market re-rating attached to producers.

Figure 4: Re-rating potential

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Argonaut values VXR at $272m or $0.25 per share

The valuation is most sensitive to movements in fx and copper pricing assumptions

At current spot prices, the valuation rises ~35% to $0.34 per share

Valuation

Argonaut’s commodity and exchange rate pricing assumptions are presented in Table 4.

Table 4: Commodity and FX Assumptions

Pricing Assumptions

FY11F FY12F FY13F FY14F LT

Copper US$/lb 3.75 4.00 3.75 3.50 2.25

Zinc US$/lb 1.00 1.10 1.20 1.20 0.85

Lead US$/lb 1.00 1.00 1.00 1.00 0.85

Silver US$/oz 20 20 20 20 20

Gold US$/oz 1,311 1,250 1,200 1,150 900

AUD A$:US$ 0.96 0.95 0.95 0.95 0.80

We derive a valuation of $272m or $0.25 per share for the enlarged VXR.

Table 5: Summary Valuation

Valuation

Sum of the parts $m $/sh

Pilbara VMS + Panorama 235 0.22

CMG Gold (Brazil) 10 0.01

Exploration 10 0.01

Investments 0 0.00

Tax Losses 15 0.01

Unpaid Capital 0 0.00

Corporate -12 -0.01

Cash (post acquisition) 14 0.01

Debt (estimate) 0 0.00

Total @ 11% Discount Rate 272 0.25

Key financial outputs over the first five years are presented in Table 6.

Table 6: Financial Summary

Financial Summary

FY11 FY12 FY13 FY14 FY15 FY16 FY17

Revenue $m 0 0 225 225 208 200 207

Opex $m 3 6 121 122 124 125 126

EBITDA $m -6 -10 100 99 79 71 78

NPAT $m -4 -7 59 58 45 39 44

Net Op CF $m -7 -8 82 81 62 53 58

Capex $m 26 138 11 7 7 7 7

FCF $m -36 -151 66 69 50 41 46

Sensitivities

The valuation is most sensitive to movements in fx and pricing assumptions, specifically copper prices given Cu production equates to ~56% of total revenues.

Table 7: Sensitivities

Sensitivity Analysis

-20% -10% 0% +10% +20%

Discount Rate 13% 7% 0% -6% -11%

FX 68% 30% 0% -24% -12%

Price Deck -38% -19% 0% 19% 38%

Capex 8% 4% 0% -4% -12%

Opex 25% 13% 0% -12% -25%

At current spot prices, the valuation rises ~35% to $0.34 per share.


VXR’s business plan is to feed a centrally located 1.0Mtpa plant…

…with ore from five currently known VMS deposits

Potential production is 38kt Zn and 16kt Cu at C1 cash costs of <US$0.50/lb

Open pit mining methods will be employed initially at Mons Cupri and Whim Creek…

…with significant potential for underground extensions at a later date

Pilbara VMS project + Panorama

Hub Strategy

VXR’s business plan is to feed a centrally located 1.0Mtpa polymetallic treatment facility at Whim Creek with a combination of open pit and underground ore from five currently known VMS deposits. Total reserves are 8.3Mt @ 3.4% Cu eq.

Table 8: Reserves & Resources - by deposit

Reserves & Resources - By Deposit

Reserves Mt Cu % Zn % Pb % Ag g/t Au g/t

Mons Cupri 2.8 1.1 1.8 0.8 32.1 0.2

Whim Creek 0.7 1.7 1.1 0.2 8.9 0.1

Salt Creek 0.6 1.7 8.2 2.6 67.3 0.3

Liberty-Indee 0.4 2.2 4.5 0.4 40.7 0.9

Panorama 3.9 2.2 6.2 0.0 25.3 0.0

TOTAL 8.3 1.8% 4.4% 0.5% 29.9 0.1

Resources Mt Cu % Zn % Pb % Ag g/t Au g/t

Mons Cupri 4.9 0.9 1.2 0.5 23.1 0.1

Whim Creek 1.0 1.4 1.2 0.2 8.8 0.1

Salt Creek 1.0 2.0 7.0 2.2 52.0 0.3

Liberty-Indee 0.7 1.8 3.7 0.3 35.9 0.8

Panorama 19.3 1.2 3.2 0.2 16.1 0

TOTAL 26.9 1.2% 2.9% 0.3% 18.9 0.1

Potential production is 38kt Zn and 16kt Cu (+ lead, silver & gold) at C1 cash operating cost of <US$0.50/lb over a mine life of 9 years.

Mining

Conventional open pit mining methods at Mons Cupri and Whim Creek pits will produce 3.5Mt at a 5.3:1 strip ratio. Both pits have been pre-stripped for oxide copper and primary ore is immediately accessible.

Figure 5: Mons Cupri pit

There is significant potential for additional resources to the north and northwest of Mons Cupri which may be extracted via decline access from the proposed pit at a later stage.


Liberty-Indee and Salt Creek will initially be open pits…

…while Panorama will be mined using underground stoping techniques…

…with competent ground conditions anticipated

Figure 6: Cross section of Mons Cupri pit shell

Source: VXR

Mons Cupri and Whim Creek are located 2.5km from the proposed plant location.

Liberty-Indee and Salt Creek will be developed initially with small open pits which will then provide decline access to deeper high grade ore positions. Liberty-Indee and Salt Creek are located 35km and 17km, respectively, from the proposed plant location.

Panorama will be mined using bottom-up bench stoping in the narrow sections (>20m wide) of the deposit and long hole open stoping in the wider central section. The orebody comprises several lenses and is split into two zones by the Main Fault, a significant north/south structure.

Figure 7: Panorama – Underground mine schematic

Source: CBH

The ground conditions around this fault are expected to be competent apart from where it is intersected by further structures. Backfill will be an ongoing requirement during the bench stoping operations and an intermittent requirement in the open stopes.

Panorama is located ~260km from the proposed plant location.


Test work suggests an industry standard flow sheet is suitable

The existing crushing circuit is likely to be used…

…with separate copper, and zinc and lead flotation circuits anticipated

Gold and silver are at payable levels and penalty elements are generally below threshold

Installed infrastructure at Whim Creek offers a big advantage

Processing

Test work to date suggests an industry standard flow sheet is suitable.

Preliminary comminution test work has demonstrated medium ore hardness with a Ball Mill Work Index of 16kWh/t for Panorama and 17kWh/t for other ores. A SAG mill, ball mill grinding combination is likely to provide the most operating flexibility. The existing crushing circuit is likely to be used without additional equipment.

Figure 8: The Whim Creek crushing circuit

Separate copper, and zinc and lead flotation circuits are anticipated:

• Copper ores - Recovery 92-93% Cu to a concentrate grading 22-27% Cu

• Zinc-lead ores - Recovery 79-82% Zn to a concentrate grading 48-55% Zn

Gold and silver are at payable levels in the copper concentrate and penalty elements are generally below threshold levels. Further flotation test work will be conducted to optimise metal recoveries and concentrate quality. The installation of a lead flotation circuit is under investigation.

Infrastructure

Installed infrastructure at Whim Creek is a big advantage for VXR.

Table 9: Infrastructure Checklist

Item Check Comment

Power � Total site power demand is expected to be 8MW. A 5km connection to the regional HV line is under consideration. A gas spur to site is also available. The indicative cost range is 15-20c/kWh.

Road � The Northwest Coastal Highway connects the Whim Creek site to Karratha (120km) and Port Hedland (115km). Construction of a 65km access road is required for ore haulage from Panorama to Whim Creek.

Water � Existing aquifers will be used for process water supply.

Port � The copper and zinc concentrates are expected to be shipped from Port Hedland (115km by road) to international markets.

Accommodation � VXR owns the existing Whim Creek accommodation village which can house ~ 120 people. Only minor upgrades would be likely.


The consolidated VMS

tenements present ‘company changing’ opportunities…

…with the Pilbara Project containing >7Mt in four known deposits (Salt Creek, Whim Creek, Mons Cupri and Liberty-Indee)…

…compared to the global experience of up to 25 pods in a field

Exploration upside

VXR’s consolidated Pilbara VMS tenement package presents ‘company changing’ opportunities, similar to those successfully capitalised on by JML at the Jaguar Project.

Figure 9: VXR Project tenement map

Source: VXR

Despite many geological similarities with the Abitibi greenstone belt of Canada, Western Australia is underexplored for VMS deposits. The Abitibi originally contained over 675Mt of polymetallic massive sulphides.

The Abitibi deposits occur in cluster or camps. The average camp size is 9 (range 4-25), and usually include a small proportion of very large deposits (the majority of deposits are small, with ~80% of known deposits in the range 0.1-10 Mt). For example, the Noranda district is 40km long with 110Mt of polymetallic massive sulphides in 25 known deposits.

VXR’s current Pilbara project contains 7.6Mt from 4 deposits (Salt Creek, Whim Creek, Mons Cupri and Liberty-Indee). The Company is highly likely to find more along its ~36km strike (with limited drilling below 150m).

Most local VMS deposits have been expressed at surface as outcropping gossans. However the experience of most Canadian camps features the discovery of buried deposits proximal to known deposits. With deeper deposits likely to be the future of Western Australia’s VMS mining, serious exploration will require increased budgets and the smart application of modern geophysics.


Stock-specific risks include plant commissioning…

…exposure to diesel prices and wet weather events in northern Western Australia…

…structural complexity at Panorama…

…labour shortages in the Pilbara…

… access to a shipping berth at Port Hedland…

… and funding future capex requirements

Risks

Key stock-specific risks include:

Plant commissioning

Copper/zinc differential flotation plants are complicated and have an industry wide track record of taking longer than expected to commission e.g. JML needed ~2 years at Jaguar to ramp-up recoveries to sustainable levels of mid 80%’s for Cu and high 70%’s for Zn.

Figure 10: Jaguar differential flotation plant – recoveries

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Long distance trucking

VXR’s plan requires ore to be trucked 260km from Panorama to Whim Creek, and concentrate to be trucked ~115km to Port Hedland. The business is therefore exposed to rising diesel prices, and wet weather events in northern Western Australia.

Structural complexity at Panorama

At Panorama at least three key sets of faults that significantly offset mineralisation have been recognised.

However Argonaut notes that the stope geometries, extraction sequence, and ground support (including pillars) have been designed to minimise the impact of faulting.

Labour shortages

Labour shortages in the mining sector are again placing pressure on costs, with workforce quality (experience and skill) also suffering.

VXR will be competing for labour in the “hottest” of all labour markets, Western Australia’s north west, where demand from the oil and gas industry and the large iron ore miners has accentuated the shortage.

Port access

Access to a shipping berth at Port Hedland will need to be secured.

Future funding requirements

VXR will need additional capital in the future to fund the estimated $135m capex required to bring the Pilbara and Panorama projects into production.


VXR’s wholly owned subsidiary CMG is evaluating five

advanced projects in Brazil

The board and management offer a wide range of appropriate skills and

experience

Appendix A: Brazil Gold Assets

VXR’s wholly owned subsidiary CMG Mineração Ltda has established an exploration team in Cuiabá and is evaluating five advanced projects in Mato Grosso and Para covering 92,500 ha.

Figure 11: Brazilian gold explroation projects

Source: VXR

The recently acquired Serra Verde Project in the Tapajós gold district has been operated for more than thirty years as a small-scale alluvial artisanal mining operation, and has the potential to host multiple high-grade gold deposits. The project is located 120km from the Tocantinzinho deposit, which contains a Resource of 2.1Moz Au, and was recently acquired by Eldorado Gold for US$124m.

The primary goal of CMG is to discover a large >1Moz gold deposit.

Appendix B: Board and Management

Tony Kiernan (Chairman)

• Solicitor, currently Chairman of BC Iron (BCI) and Uranium Equities (UEQ), also a Director of Chalice Gold Mines (CHN) and Liontown Resources (LTR)

Tim Sugden (Managing Director)

• Geologist, former founding Director of Agincourt Resources and Nova Energy, currently Chairman of Newland Resources (NRL)

Anthony Reilly (Executive Director)

• Former Director of CMG Gold which was acquired by VXR in July 2009

Allan Trench (Non-Executive Director)

• Geophysicist, former Chairman of VXR, currently Chairman of Navigator Resources and Director of Pioneer Resources (PIO) and Hot Chili (HCH)

Michael Mulroney (Non-Executive Director)

• Geologist, former Managing Director of Breakaway Resources (BRW), Executive Director of Argonaut Capital


Contact Details

Research:

Ian Christie Director Research +61 8 9224 6872

Troy Irvin Director Research +61 8 9224 6871

Tim Serjeant Associate Director +61 8 9224 6806

Gianluca Paglia Analyst +61 8 9224 6824

Institutional Sales:

Paul Carter Executive Director +61 8 9224 6864

Chris Wippl Head of Research & Sales +61 8 9224 6875

John Santul Consultant, Sales & Research +61 8 9224 6859

Damian Rooney Senior Institutional Dealer +61 8 9224 6862

Ben Willoughby Institutional Dealer +61 8 9224 6876

Bryan Johnson Institutional Dealer +61 8 9224 6834

Corporate and Retail Sales:

Kevin Johnson Executive Director +61 8 9224 6880

Glen Colgan Executive Director +61 8 9224 6874

James McGlew Director +61 8 9224 6866

Geoff Barnesby-Johnson Senior Dealer +61 8 9224 6854

Andrew Venn Senior Dealer +61 8 9224 6865

Robbie Hamilton Dealer +61 8 9224 6830

Melaney Brans Dealer +61 8 9224 6873

Cameron Fraser Dealer +61 8 9224 6851

Important Disclosures

Argonaut is acting for VXR as the Sole Lead Manager, Sole Underwriter and Sole Book Runner (entitlement issue only) to the institutional placement and accelerated entitlements issue and has entered into an underwriting agreement with VXR to underwrite approximately $28.0m of the raising in January 2010. Argonaut acted as Corporate Advisor to VXR throughout the transaction to acquire the Panorama Copper Zinc Project. Argonaut will earn fees commensurate with its role in this transaction. Argonaut has previously acted for Venturex and has earned fees commensurate with those services. Argonaut holds or controls a material shareholding in Venturex, including 38,796,504 million shares and 10,526,316 options exercisable at $.095. Argonaut intends to take up its Entitlements under the Entitlements Issue. Mr. Michael Mulroney is also a director of a company within the Argonaut Group of Companies as well as holding a non-executive directorship of Venturex. Argonaut and the Directors of Argonaut advise that they and persons associated with them may have an interest in VXR securities and that they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation, and that some or all of our Representatives may be remunerated wholly or partly by commission.

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