Dacian Gold Ltd - ASX · Hartleys Limited Dacian Gold Limited (DCN) 16 September 2015 Page 2 of 25 SUMMARY MODEL Dacian Gold Ltd Share Price DCN $0.550 Speculative Buy

Page 1 of 25

Gold

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DCN.asxSpeculative Buy

Share Price

Valuation $0.79

Price Target (12 month) $1.08

Brief Business Description:

Hartleys Brief Investment Conclusion

Chairman & MD

Top Shareholders

Brian Rodan 17.6%

Directors 11.9%

Company Address

Issued Capital

- fully diluted

Market Cap

- fully diluted

Cash (30 Jun 15a)

Debt (30 Jun 15a)

EV

EV/Resource oz

EV/Reserve oz

Prelim. (A$m) FY17e FY18e FY19e

Prod (koz Au) 0.0 84.5 169.0

Op Cash Flw -2.7 37.5 67.3

Norm NPAT -1.9 37.1 74.6

CF/Share (cps) -7.6 18.6 32.5

EPS (cps) -10.6 25.0 42.6

P/E -7.2 3.0 1.7

Au

Resources (Moz) 3.00

Reserves (Moz) 0.08

Scott Williamson

Resources Analyst

Ph: +61 8 9268 3045

E: [email protected]

A$4.6m

16 Sep 2015

$0.55

14-16, 890 Canning Hwy

Applecross WA, 6153

WA gold explorer / developer focussed on the Mt

Morgans project near Laverton

Rohan Williams (Executive Chairman)

Gold explorer and developer

A$603/oz

96.1m

106.3m

A$52.9m

A$58.4m

A$48.3m

The analyst has a beneficial ownership in DCN

shares

A$16/oz

A$0.0m

DACIAN GOLD LIMITED (DCN)

Can the success of Avoca be replicated? After a successful conclusion to Avoca Resources in early 2011 the same

founding executive team lead by Rohan Williams listed Dacian Gold Ltd in

November 2012. Over the last three years since IPO the Company has

increased the resource base at its Mt Morgans project near Laverton (by

2.1Moz) from 842koz to 3.0Moz. Dacian is now in a position to release a

scoping study over the coming weeks which should highlight potential for a

technically robust, highly economic AUD gold development.

Our initial estimates suggest the Mt Morgans project has potential to produce

in the order of ~200kozpa @ AISC of ~A$1,000/oz combined from the Jupiter

and Westralia prospects. Jupiter has potential to produce in the order of 1.0-

1.5Mtpa (50-70kozpa) from open pit mining and Westralia could produce in

the order of 600-900ktpa (80-130kozpa) from underground mining. The

project is likely to require pre-production capex in the order of ~A$150m.

Westralia the jewel in the crown (+5g/t Au is hard to find) Dacian recently upgraded the Westralia resource to 9.3Mt @ 5.1g/t Au for

1.5Moz. DCN’s Westralia extension is one of the better brownfields gold

exploration stories of recent years and underpins the impressive economics

of a potential development scenario at Mt Morgans. The majority inferred

resource includes a recently discovered high grade footwall BIF unit (1.2Mt @

9.1g/t Au for 344koz). The Westralia underground mine has potential to feed

a +5g/t Au head grade from multiple fronts with a production profile of ~80-

130kozpa @ AISC of <A$1,000/oz. Our pre-scoping valuation for Westralia is

$94.9m ($0.45/share) at consensus and $146.5m ($0.72/share) at spot prices.

Wallaby was a Jupiter ‘look-a-like’, there must be more around? Previous owner Homestake was exploring regionally for Jupiter ‘look-a-like’

geology and discovered the >7Moz Wallaby deposit. Wallaby has since been

one of the best performing underground gold mines in Australia for Barrick and

now Goldfields. Since the IPO, DCN has been focussed on extending Jupiter

(adding ~1Moz) and Westralia (adding ~1Moz) through a systematic and

methodical geological process. We believe a similar approach to greenfields

exploration should see further success given a number of Jupiter / Wallaby

‘look-a-like’ syenite related prospects within the region.

As well as the syenite related prospects we also like the potential of the

extensive BIF hosted prospects throughout the tenement holding. With

approximately half of DCN’s tenement area covered by transported cover we

also see further exploration upside with improvements in geophysical

technology potentially uncovering opportunities not seen by previous owners.

Initiate coverage with a Speculative Buy recommendation In our opinion Dacian is one of the best AUD gold development stories in the

current market. Over the coming weeks the Mt Morgans scoping study

should confirm a highly economic and technically robust development

project. We particularly like the size (~200kozpa) and low cost profile

(~A$1,000/oz) potential. The Westralia prospect is currently one of the only

+5g/t Au orebodies still owned by a junior, hence we believe DCN is under

threat from takeover by Australia’s larger miners. We initiate coverage of

DCN with a Speculative Buy recommendation and a price target of $1.08.

Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000

Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the

firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single

factor in making their investment decision. Further information concerning Hartleys’ regulatory disclosures can be found on Hartleys

website www.hartleys.com.au

0.00

0.10

0.20

0.30

0.40

0.50

0.60

.

.2

.4

.6

.8

1.

1.2

1.4

Sep-15May-15Jan-15Sep-14

Volume - RHS

DCN Shareprice - LHS

Sector (S&P/ASX SMALL RESOURCES) - LHS

A$ M

Dacian Gold Ltd

Source: IRESS

http://www.hartleys.com.au/

Hartleys Limited Dacian Gold Limited (DCN) 16 September 2015

Page 2 of 25

SUMMARY MODEL

Dacian Gold Ltd Share Price

DCN $0.550 Speculative Buy

Key Market Information Directors Company InformationShare Price $0.550 Rohan Williams (Executive Chairman) 14-16, 890 Canning HwyMarket Capitalisation - ordinary A$53m Barry Patterson (Non-Exec Director) Applecross WA, 6153Net Debt (cash) -$4.6m Robert Reynolds (Non-Exec Director) +61 8 9226 4622Market Capitalisation - fully diluted A$58m +61 8 9226 4722EV A$54mIssued Capital 96.1m www.daciangold.com.auOptions 10.2Issued Capital (fully diluted inc. all options) 106.3mIssued Capital (fully diluted inc. all options and new capital) 211.8m

Valuation $0.79 Top Shareholders m shares %12month price target $1.08 Brian Rodan 16.91 17.60

Directors 11.40 11.86

P&L Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19Net Revenue A$m 0.0 0.0 0.0 129.6 254.9Total Costs A$m -1.6 -1.8 -2.7 -76.5 -148.3EBITDA A$m -1.6 -1.8 -2.7 53.1 106.6 Reserves & Resources Mt g/t Au Moz - margin - - - 41% 42% TOTAL RESOURCE (inclusive of Reserve)Depreciation/Amort A$m 0.0 0.0 0.0 0.0 0.0 Measured 4.1 1.2 0.2

EBIT A$m -1.6 -1.8 -2.7 53.1 106.6 Indicated 15.7 2.0 1.0 Net Interest A$m 0.0 0.0 0.0 0.0 0.0 Inferred 22.0 2.6 1.8

Norm. Pre-Tax Profit A$m -1.6 -1.8 -2.7 53.1 106.6 Total 41.7 2.2 3.0 Reported Tax Expense A$m 0.0 0.0 0.0 -4.9 -29.0 Reserve 0.28 9.2 0.1

Normalised NPAT A$m -1.2 -1.3 -1.9 37.1 74.6Abnormal Items A$m -0.5 -0.5 -10.8 1.0 -7.0 Production Summary Unit Jun 15 Jun 16 Jun 17 Jun 18 Jun 19Reported Profit A$m -1.6 -1.8 -12.7 38.1 67.6 Mill Throughput Mt 0.0 0.0 0.0 1.0 2.0Minority A$m 0.0 0.0 0.0 0.0 0.0 Strip Ratio x 0.0 0.0 0.0 6.0 6.0Profit Attrib A$m -1.6 -1.8 -12.7 38.1 67.6 Mined grade g/t 0.00 0.00 0.00 2.92 2.92

Combined Recovery & Payability % 0.0% 0.0% 0.0% 90.0% 90.0%

Balance Sheet Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19 Gold (koz) 0.0 0.0 0.0 84.5 169.0

Cash A$m 5.0 15.1 84.4 41.1 85.0 Gold Equiv (koz) 0.0 0.0 0.0 84.5 169.0

Other Current Assets A$m 0.1 0.1 0.2 16.9 33.1 M&I Resource Conversion % 60.6% 60.6% 60.6% 49.0% 45.9%

Total Current Assets A$m 5.1 15.3 84.7 58.0 118.1 Mine Life yr 7.75 7.75 7.75 7.75 6.75

Property, Plant & Equip. A$m 0.5 0.5 70.5 148.5 164.5Exploration A$m 12.1 20.1 18.1 16.1 14.1 Costs Unit Jun 15 Jun 16 Jun 17 Jun 18 Jun 19Investments/other A$m 0.0 0.0 0.0 0.0 0.0 Cost per milled tonne $A/t - - - 65.4 65.4

Tot Non-Curr. Assets A$m 12.7 20.7 88.7 164.7 178.7 EBITDA / tonne milled ore $A/t - - - 53.1 53.3

Total Assets A$m 17.8 36.0 173.3 222.7 296.8 C1: Operating Cash Cost = (a) $A/oz - - - 773 773 (a) + Royalty = (b) $A/oz - - - 851 849

Short Term Borrowings A$m 0.0 0.0 0.0 0.0 0.0 C2: (a) + depreciation & amortisation = (c) $A/oz - - - 773 773

Other A$m 0.1 0.1 0.2 6.3 12.2 (a) + actual cash for development = (d) $A/oz - - - 1,791 915

Total Curr. Liabilities A$m 0.2 0.2 0.3 6.3 12.2 C3: (c) + Royalty $A/oz - - - 851 849

Long Term Borrowings A$m 0.0 0.0 99.6 99.6 99.6 (d) + Royalty $A/oz - - - 1,868 991

Other A$m 1.2 1.2 1.2 1.2 1.2 Total Cash Cost $A/oz - - - 905 878

Total Non-Curr. Liabil. A$m 1.3 1.3 100.9 100.9 100.9 All In Sustaining Cost (AISC) $A/oz - - - 225 1,096

Total Liabilities A$m 1.4 1.4 101.1 107.2 113.1Net Assets A$m 16.4 34.6 72.2 115.5 183.7 Price Assumptions Unit Jun 15 Jun 16 Jun 17 Jun 18 Jun 19Net Debt A$m -4.9 -15.1 15.2 58.6 14.7 AUDUSD A$/US$ 0.81 0.72 0.72 0.75 0.76

Gold US$/oz 1187 1181 1200 1175 1150

Cashflow Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19 Gold A$/oz 1473 1634 1661 1577 1508

Operating Cashflow A$m -2.0 -1.8 -2.7 42.4 96.3 Hedging Jun 15 Jun 16 Jun 17 Jun 18 Jun 19Income Tax Paid A$m 0.0 0.0 0.0 -4.9 -29.0 Hedges maturing? No No No No NoInterest & Other A$m 0.0 0.0 0.0 0.0 0.0

Operating Activities A$m -2.0 -1.8 -2.7 37.5 67.3 Sensitivity AnalysisValuation

Property, Plant & Equip. A$m 0.0 0.0 -70.0 -78.0 -16.0 Base Case 0.79Exploration and Devel. A$m -4.0 -8.0 -8.0 -8.0 -8.0 Spot Prices 39.0 (2.3%)Other A$m 0.0 0.0 0.0 0.0 0.0 Spot USD/AUD 0.71, Gold $1105/oz.

Investment Activities A$m -4.0 -8.0 -78.0 -86.0 -24.0 AUDUSD +/--10% 30.3 / 47.7 (-20.5% / 25.1%)Gold +/--10% 46.7 / 29.5 (22.6% / -22.6%)

Borrowings A$m 0.0 0.0 99.6 0.0 0.0 Production +/--10% 43.5 / 32.7 (14.3% / -14.3%)Equity or "tbc capital" A$m 0.0 20.0 50.4 5.2 0.6 Operating Costs +/--10% 33.5 / 42.7 (-12.0% / 12.0%)Dividends Paid A$m 0.0 0.0 0.0 0.0 0.0

Financing Activities A$m 0.0 20.0 150.0 5.2 0.6 Unpaid CapitalYear Expires No. (m) $m Avg price % ord

Net Cashflow A$m -6.0 10.2 69.3 -43.4 43.9 30-Jun-16 0.0 0.0 0.00 0%30-Jun-17 0.0 0.0 0.00 0%

Shares Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19 30-Jun-18 6.2 5.2 0.84 6%Ordinary Shares - End m 96.1 131.1 201.6 207.8 208.8 30-Jun-19 1.0 0.6 0.57 1%Ordinary Shares - Weighted m 96.1 113.6 166.4 204.7 208.3 30-Jun-20 3.0 1.6 0.52 3%Diluted Shares - Weighted m 96.1 113.6 166.4 201.6 201.6 TOTAL 10.2 7.3 0.72 11%

Ratio Analysis Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19 Share Price Valuation (NAV) Risked Est. A$m Est. A$/shareCashflow Per Share A$ cps -2.1 -1.6 -1.6 18.3 32.3 100% Jupiter (pre-tax NAV at disc. rate of 14%) 36 0.34Cashflow Multiple x -26.6 -34.5 -33.7 3.0 1.7 100% Westralia (pre-tax NAV at disc. rate of 14%) 95 0.45Earnings Per Share A$ cps -1.7 -1.6 -7.6 18.6 32.5 Other Exploration 50 0.24Price to Earnings Ratio x -32.1 -34.5 -7.2 3.0 1.7 Forwards 0 0.00Dividends Per Share AUD 0.0 0.0 0.0 0.0 0.0 Corporate Overheads -20 -0.10Dividend Yield % 0.0% 0.0% 0.0% 0.0% 0.0% Net Cash (Debt) 5 0.02Net Debt / Net Debt + Equity % -43% -78% 17% 34% 7% Tax (NPV future liability) -38 -0.18Interest Cover X - - - - - Options & Other Equity 3 0.02Return on Equity % na na na 32% 41% Hedging 0 0.00

Total 131 0.79Analyst: Scott Williamson+61 8 9268 3045"tbc capital" could be equity or debt. Our valuation is risk-adjusted for how this may be obtained.Sources: IRESS, Company Information, Hartleys Research

Last Updated: 16/09/2015

FY18 NPAT38.1


Page 3 of 25

COMPANY OVERVIEW Dacian Gold Limited (“Dacian”, “DCN”, “Company”) is a gold explorer and developer

focussed on the Mt Morgans project located ~30km southwest of Laverton in Western

Australia. The Company acquired the Mt Morgans project in January 2012 and in

November 2012 listed on the ASX with an initial public offering (IPO) of 40m shares

at $0.50 to raise $20m. Since the IPO Dacian has increased the resource at Mt

Morgans (by 2.1Moz) from 842koz to 3.0Moz at a discovery cost of ~$7/oz without any

further capital raisings required.

The Company recently upgraded resource estimates for the two main prospects within

the Mt Morgans project. The Westralia prospect now has a current resource of 9.3Mt

at 5.1g/t Au for 1.5Moz and the Jupiter prospect has a current resource of 26.6Mt at

1.3g/t Au for 1.1Moz. The Company has focussed exploration on the Jupiter and

Westralia prospects as they initially showed the greatest potential to offer multi-million

ounce deposits. This focus has paid off with the Company having now discovered

over 1Moz at each of these prospects since the IPO in late 2012.

Fig. 1: Dacian Gold Project Location

Source: Dacian Gold Limited

Dacian is an ASX-

lis ted gold explorer

and developer

The Mt Morgans

project has a current

resource est imate of

3.0Moz

Westral ia has a

resource of 9.3Mt @

5.1g/ t Au for 1.5Moz

Jupi ter has a resource

of 26.6Mt @ 1.3g/t Au

for 1.1Moz


Page 4 of 25

MT MORGANS PROJECT

Fig. 2: Mt Morgans Project Snap Shot

Mt Morgans Project

Interest:

Location:

Project stage:

Ore Reserves:

Mineral Resources:

Prospects:

100%

Laverton, Western Australia

Exploration / Development

28kt @ 9.2g/t Au for 8koz

41.7Mt @ 2.2g/t Au for 3.0Moz

Westralia (1.5Moz), Jupiter (1.1Moz), Transvaal


Background Gold was first discovered in the Mt Morgans area in 1896 and up until 1973 ~370koz

of gold was produced from the area at an average grade of 13.8g/t Au. Modern

exploration commenced in the late 1980’s when Austwhim Resources Ltd focussed

on the major historic mining areas of Westralia and Transvaal and delineated sufficient

ore reserves to justify a processing facility. Open pit mining and conventional CIL

processing of the Westralia deposit commenced in 1988 and mining continued via

open pit and underground until early 1999 with total production from the area during

this period of 917koz at an average grade of 3.2g/t Au. Ownership of the tenements

passed to Barrick following the merger with Homestake Mining Company in December

2001. Barrick divested the Mt Morgans project without any recorded production.

Fig. 3: Mt Morgans Prospects Locations


Range River Gold Ltd (Range River) acquired Mt Morgans from Barrick in May 2009

and commenced open pit mining ~6 months later. Range River developed a number

of small open pits and toll treated through Barrick’s Granny Smith processing plant.

The Mt Morgans

project is located

~30km south west of

Laverton, WA

Product ion of 917koz

at 3.2g/t Au occurred

from 1988 to 1999

Range River acquired

Mt Morgans in May

2009 and went into

voluntary

administration in Apr i l

2011

Mt Morgans project

area is prospect ive for

further mult i -mil l ion

ounce discover ies


Page 5 of 25

Total open pit production by Range River was ~18koz and total underground mining

from the Craic and Transvaal deposits was ~14koz. Range River spent ~$30m on

exploration, evaluation and mining operations throughout the area. In April 2011

Range River went into voluntary administration after adverse weather conditions

caused production delays and impairments.

Location, Infrastructure and Geology (reference Coffey Mining) The Mt Morgans project is located ~30km southwest of Laverton and covers ~520km2

of tenements within the North Eastern goldfields province of the Archean Yilgarn

Craton. The tenement package encompasses structures associated with the Laverton

shear zone which hosts a number of Western Australia’s more recent gold discoveries

including Sunrise Dam (>10Moz), Wallaby (>7Moz), Granny Smith (>2Moz), Garden

Well (>2Moz) and Moolart Well (>1Moz). Recent gold discoveries within the Laverton

shear zone have totalled more than 23Moz. We see the Mt Morgans project area as

being prospective for further multi-million ounce discoveries.

The project is well located with respect to existing infrastructure including the sealed

Leonora to Laverton road which passes through the project area. There are currently

three active gold processing plants within the region including the 4Mtpa Granny Smith

mill (Goldfields), the 3.6Mtpa Sunrise mill (Anglogold Ashanti) and the 2.4Mtpa

Carosue Dam mill (Saracen, SAR).

Several styles of mineralisation occur within the Mt Morgans project area including

banded iron formation (BIF) hosted, shear hosted quartz lodes, splay shear hosted

veins and syenite related gold mineralisation. The BIF hosted deposits have yielded

the bulk of the historic production, for example over 800koz @ ~5g/t Au has been

mined historically from the Westralia deposit. The mineralisation in the BIF units can

best be described as sulphide replacements of magnetite which occur both sub

parallel to the BIF layering and within en echelon tensional veins oblique to layering.

Fig. 4: Mt Morgans Project Location


Mt Morgans covers

~520km2 of tenements

within the North

Eastern goldfields

Recent gold

discoveries with in the

Laverton shear zone

have tota l led more

than 23Moz

The BIF hosted

deposits have yie lded

the bulk of the histor ic

production at Mt

Morgans

Over 800koz @ ~5g/ t

Au has been mined

historical ly from

Westral ia


Page 6 of 25

Westralia

The Westralia pit is ~1.2km long and ~250m wide and the largest of the historic pits

within the project area. The gold mineralisation at Westralia is stratabound and

confined mainly by the BIF with a pronounced structural control on the lodes. The

steeply northeast dipping sequence includes jaspilitic BIF and rhyolitic porphyry dykes.

There are four or more main high grade shoots within the Westralia deposit, each

~80m long and ~50m wide, plunging ~45 degrees. Gold occurs as massive

replacement of magnetite in BIF by pyrite with minor pyrrhotite and chalcopyrite.

Previous mining at Westralia has demonstrated the gold is free milling with recoveries

averaging 90-93% from conventional CIL processing.

In late 2012 (time of the Dacian IPO) the Westralia prospect contained a resource

estimate of 3.3Mt @ 3.4g/t Au for 364koz. Within the first ~12 months of exploration

Dacian discovered the high grade millionaires shoot which added 326koz @ 7.6g/t Au

and increased the overall resource to 610koz @ 5.9g/t Au by late 2013. Throughout

2014-15 DCN drilled a number of broad spaced, deep reconnaissance holes that

proved the Westralia system to be much larger than previously thought. Drilling has

now indicated a continuous ~3km prospective strike extent for the Westralia deposit

and recently discovered a new footwall BIF unit which added 344koz @ 9.1g/t Au to

the current resource of 9.3Mt @ 5.1g/t Au for 1.5Moz. The current resource is now

four times larger than the original resource estimate at the time of DCN’s IPO.

The BIF-porphyry complex at Westralia is ~100m thick and all of the gold produced at

Westralia to date has been from BIF units located on the hangingwall of the sequence.

The new footwall BIF discovery confirms high grade gold also exists on the footwall of

the ~100m wide BIF-porphyry complex. Prior to DCN’s discovery no mineralisation

had been identified on the poorly tested footwall side of the sequence. DCN will now

look to extend a number of existing drillholes to test for further footwall BIF

mineralisation throughout the Westralia prospect.

Fig. 5: Westralia prospect long section


The histor ic Westra l ia

pit is ~1.2km long and

~250m wide

At the t ime of the DCN

IPO Westral ia

contained a resource

of 3.3Mt @ 3.4g/ t Au

for 364koz

DCN recent ly

discovered a new

footwal l BIF uni t which

has added 344koz @

9.1g/ t Au for 344koz

The current resource

at Westral ia (1.5Moz

@ 5.1g/t Au) is now

four t imes larger than

at the t ime of the IPO


Page 7 of 25

Open pit mining at Westralia was carried out to a maximum depth of 140m below

surface and underground mining then preceded to a depth of 240m in the northern

portion of the deposit. The Westralia deposit is continuously mineralised over a

distance of 2.8km and extends to a maximum depth of 720m below surface averaging

over 2koz per vertical metre (oz/vm). The vertical interval between 120m and 560m

exhibits an endowment of over ~3koz/vm. The Westralia prospect shows potential for

multiple mining fronts allowing a robust underground production profile. Our initial

estimates suggest an underground scenario at Westralia has potential to generate

production of 600-900ktpa @ ~5g/t Au for 80-130kozpa.

Fig. 6: Westralia prospects locations & geology


Jupiter

The Jupiter prospect is located ~25km southwest of Laverton and ~15km east of the

Westralia prospect. The Jupiter mineralisation is hosted by syenite intrusions and

includes the historic Joanne and Jenny deposits which make up the recently updated

Doublejay resource and the Heffernans deposit discovered by DCN in November

2013. The host rocks include basalts and dolerites intruded by feldspar porphyry and

hematite altered syenite. The mineralisation is associated with disseminated pyrite-

ankerite and quartz veining hosted mainly by the syenite. The highest grades are

associated with brittle fracture zones which cut the syenite intrusive. Extensive drilling,

Westral ia is

cont inuously

mineralised over a

str ike length of 2.8km

Westral ia exhibi ts an

endowment of

~3koz/vm

Our init ial estimates

suggest an

underground scenar io

at Westral ia could

generate 600-900ktpa

@ ~5g/t Au for 80-

130kozpa

Jupi ter is located

~25km southwest of

Laverton and ~15km

east of Westra l ia


Page 8 of 25

detailed geological mapping and interpretation led to DCN identifying the north-south

striking, shallow dipping Cornwall Shear Zone (CSZ) as the principal controlling

structure for high grade mineralisation throughout the prospect.

Fig. 7: Jupiter geology (LHS) vs Wallaby geology (RHS)


DCN is currently assessing the feasibility of the Jupiter prospect to host an open pit

mining complex that has potential to be blended with the Westralia underground

prospect. In excess of 150koz was produced from the Jupiter open pit in the mid-

1990’s. The northern portion of the pit was mined to the base of the CSZ to a depth

of 140m however the southern portion of the pit was only mined to a depth of 60m.

The CSZ and other lodes lie below the pit floor at the sourthern end of the pit, this area

requires infill drilling to justify a potential cutback. Our understanding is infill drilling

has potential to delineate a large open pit opportunity that could join the Doublejay

deposits in the north to the Heffernan and Ganeymede deposits in the south. The

current +1.1Moz resource extends over a strike distance of 1,600m within a

prospective corridor that extends beyond ~2km. All drilling to date has focussed on

open-pittable ounces with 866koz currently within 200m of surface.

In late 2012 (time of the Dacian IPO) the Jupiter prospect contained a resource

estimate of 811kt @ 2.8g/t Au for 73koz. DCN commenced drilling within the Jupiter

area in September 2013 and discovered Heffernans soon after which led to a maiden

resource of 709koz in May 2015. The Company recently updated the Jupiter resource

to include the Heffernans and Doublejay deposits. The Doublejay deposit lies below

and adjacent to the previously named Jenny and Joanne pits (which collectively were

called the Jupiter open pit). The current Jupiter resource sits at 26.6Mt @ 1.3g/t Au

for 1.1Moz (0.5g/t Au lower cut).

Improved grades at Jupiter are noticeable with a higher cutoff grade estimate of

15.1Mt @ 1.7g/t Au for 813koz (0.9g/t Au lower cut). Our understanding is this higher

cutoff grade estimate is likely to be more in line with potential mining scenarios at

Jupiter. Our initial estimates suggest an open pit scenario at Jupiter has potential to

generate production of 1-1.5Mtpa @ ~1.7g/t Au for 50-70kozpa.

The Company has completed preliminary metallurgical test work on the Jupiter

prospect with high gravity recoveries of up to ~63% from the initial gravity separation

work. The historic recoveries from the Jupiter open pit were similar to Westralia and

in the order of ~92% overall recovery. The initial metallurgical test work for Jupiter is

positive and shows potential for DCN to process the lower grade (<0.9g/t Au) through

a heap leach circuit.

In excess of 150koz

was produced from

the Jupi ter open pit in

the mid-1990’s

The current Jupiter

resource extends over

a str ike length of

1.6km

The higher cutoff

grade Jupiter resource

sits at 15.1Mt @



Page 9 of 25

Fig. 8: Jupiter prospect resource outline


Morgans North

The Morgans North open pit is located within the Westralia prospect and lies ~500m

north and along strike from the Westralia open pit. Previous drilling at Morgans north

has been limited to ~120m below surface and a number of high grade results require

follow up drilling. Results from previous owners include 3m @ 22.3g/t Au from 62m

and 4m @ 13.7g/t Au from 84m. The Phoenix prospect lies ~200m along strike to the

north of Morgans North and previous drilling also requires follow up. Better intercepts

at Phoenix include 5m @ 19.6g/t Au from 14m, 5m @ 20.8g/t Au from 51m, 3m @

75.8g/t Au from 87m. The deepest hole to the south of Phoenix intersected 2m @

39g/t Au from 109m ending in mineralisation.

The BIF which hosts the Westralia and Morgans North deposits extends for a further

3km north to Mt McKenzie where early drilling led to the estimation of a small resource.

Further drilling was carried out by previous owners and not used to update the initial

resource estimate. Mt McKenzie has potential for a small near surface resource with

some further work required. A number of topographic breaks along the BIF ridge

appear to be associated with cross cutting structures and often host historical shafts.

Jupi ter has potential

to produce 1-1.5Mtpa

@ ~1.7g/ t Au for 50-

70kozpa

Previous dr i l l ing at

Morgans nor th has

been l imited to ~120m

below surface

Morgans North pit l ies

~500m north and

along str ike from the

Westral ia pit

The BIF which hosts

Westral ia and

Morgans North

extends for a further

3km north to Mt

McKenzie


Page 10 of 25

Shallow drilling by previous owners along the strike of the BIF ridge was at fixed 200m

intervals and did not target structural controls which may have capacity to host further

mineralisation.

Transvaal

The Transvaal deposit comprises sub-parallel mineralised shear zones and lies at the

northern end of the biotie-pyrite alteration that also hosts the Ramornie and Ramornie

North deposits. Transvaal has a production history of ~170koz from open pit and

underground methods. Transvaal exhibits a ~1,000 oz/vm profile within a current

resource of 1.25Mt @ 5.2g/t Au for 210koz. The existing decline at Transvaal

indicates a large proportion of the development required to access the mineralisation

from underground is already in place.

Fig. 9: Transvaal prospect


Three historic mines exist along the Transvaal – Ramornie shear corridor including

the Ramornie open pit, the Ramornie North open pit and the Transvaal open pit and

underground mine. All three mines have potential for extensional high grade

mineralisation below the pit floors with a number of good intercepts requiring follow up

drilling. The Transvaal – Ramornie corridor has generally only been tested with

shallow RAB drilling and has potential for extensive high grade lodes at depth.

Fig. 10: Transvaal – Ramornie Corridor


Transvaal has a

production history of

~170koz from open pit

and underground

The current resource

for the Transvaal

deposit is 1.25Mt @


Three historic mines

exist a long the

Transvaal – Ramornie

shear corr idor


Page 11 of 25

Regional BIF hosted prospects

A number of early stage prospects exist throughout the Mt Morgans project area. The

regional prospects include both the potential syenite intrusive related (Jupiter type)

prospects and the BIF hosted (Westralia type) prospects. Some of the regional BIF

hosted (Westralia type) prospects include Mount Marven, Rainbow Bore and

Maxwells.

Mount Marven has an existing pit and lies on the north trending Mt Margaret shear

south of the Mount Margaret community. Dominion mined 20koz from Mount Marven

in 1996, a small resource remains within the Bonanza prospect which lies ~20m south

of the existing pits. Rainbow Bore lies within BIF extensions to the south east of

Westralia and is located within proximity to evident northeast cross cutting structures

in the magnetic data. Previous owners drilled 31 RC holes at Rainbow Bore with

significant intersections returned for all but two holes including 11m @ 9.1g/t Au within

a highly brecciated zone. Maxwells lies to the north of Jupiter within a BIF ridge and

dilational jogs along the Celia tectonic zone. Previous owners drilled 56 aircore holes

and five RAB holes with a best intercept of 7m @ 3g/t Au.

Regional Syenite related prospects

Two of the potential syenite intrusive related (Jupiter type) prospects within the Mt

Morgans project area include Cameron Well and Callisto. Coffey Mining has

conducted an independent review of the Mt Morgans project and concluded the

Cameron Well prospect as the most important specific regional opportunity within the

portfolio based on its geological analogy with the Wallaby deposit. Cameron Well,

Jupiter and Wallaby all exhibit vertically-stacked shallow dipping lode structures

hosted by syenite intrusions. At Wallaby the flat structures have been defined to a

depth of ~1.5km while Cameron Well has not been tested below ~80m.

The Cameron Well prospect exhibits a circular magnetic anomaly similar to Jupiter

and Wallaby with a coincident 2km x 1km +0.5g/t Au soil anomaly. Drilling by previous

owners was considered to show poor continuity but included intercepts of 7m @

15.4g/t Au from 15m, 2m @ 11.2g/t Au from 1m and 2m @ 15.3g/t Au from 7m. The

majority of the drilling at Cameron Well was vertical pattern aircore drilling on 200m

spacings to a depth of 40m. Given the limited deeper drilling and recognised depletion

in the top 10-20m of cover the Cameron Well area is considered to be inadequately

tested by previous owners. Callisto exhibits a similar bulls-eye aeromagnetic anomaly

to Jupiter and Wallaby and is also considered to be poorly tested by previous owners

with only three diamond and several aircore holes drilled to date. DCN will look to drill

two government co-funded diamond “scissor” drillholes at Callisto over the coming

months.

Exploration upside

The Mt Morgans project contains 520km2 of prospective tenements within a mineral

province that has a total endowment of over 70Moz and hosts 15 deposits with >1Moz.

The multiple orientations and intersections of mineralised structures with various

lithologies and mineralisation styles are considered typical characteristics of significant

gold camps. Within the Mt Morgans project area a concentration of previously mined

deposits have been discovered primarily by outcrop and subcrop mineralisation. With

approximately half of DCN’s tenement area covered by transported cover it is

reasonable to conclude that similar endowment to what has already been discovered

could exist under cover throughout the project area.

Regional BIF hosted

prospects include

Mount Marven,

Rainbow Bore and

Maxwel ls

Rainbow Bore

signif icant intercepts

include 11m @ 9.1g/t

Au

Regional Syenite

related prospects

include Cameron Well

and Cal l isto

The Laverton mineral

province hosts 15

deposits with >1Moz

for a tota l endowment

of over 70Moz


Page 12 of 25

DCN has successfully discovered ~2.1Moz at Mt Morgans taking the projects total

endowment to 3.0Moz and confirming it as a major gold camp. The significance of the

project is enhanced by the fact that Jupiter has only been drilled effectively to a depth

of ~250m and Westralia to a depth of ~500m. This drilling is relatively shallow when

compared to other comparable major gold camps throughout Western Australia.

The Jupiter prospect lies close to the Mt Margaret Anticline which is the dominant

regional geological feature in the Laverton district. Numerous large gold mines occur

on north-south oriented structures that pass through the Mt Margaret anticline. The

Sunrise Dam, Granny Smith and Lancefield deposits are located on north-south

structures associated with the Laverton Tectonic Zone. The Wallaby and Jupiter

deposits lie on similar north-south oriented structures to the west of the Laverton

Tectonic Zone. The major gold deposits associated with north-south oriented

structures that pass through the Mt Margaret Anticline have made the Laverton region

the highest growth gold district in Australia with over 20Moz discovered over the last

25 years. The DCN tenement package is highly prospective for the discovery of

additional multi-million ounce deposits and significant extensions to the current

Westralia and Jupiter deposits.

Fig. 11: DCN regional prospects (aeromagnetics)


DCN has successfully

discovered ~2.2Moz at

Mt Morgans

Mt Morgans has a

total endowment of

3.0Moz

Westral ia has only

been dri l led effect ively

to a depth of ~500m

and Jupi ter to a depth

of ~300m

The DCN tenement

package is highly

prospect ive for the

discovery of addit ional

mult i -mi l l ion ounce

deposits


Page 13 of 25

RESOURCES AND RESERVES The current resource estimates for Jupiter and Westralia were updated recently and

with drilling ongoing at both prospects further resource growth is anticipated. The

Company is looking to drill test a possible syenite dyke between Doublejay and

Heffernans which also shows potential to upgrade the Jupiter resource over the

coming months.

At Westralia the Company is looking to continue drilling the up-dip near surface

expression of the recently discovered footwall BIF unit which has potential to upgrade

the Westralia resource over the coming months. The majority of drilling going forward

will be aimed at converting inferred to indicated resources at Westralia for the purpose

of progressing feasibility studies for the Mt Morgans project. The Westralia and Jupiter

resources have been estimated to a JORC 2012 standard.

Fig. 12: Gold Resource Estimate

Tonnage (Mt) Grade (g/t)

Contained Metal (Moz)

Measured 4.1 1.2 0.2

Indicated 15.7 2.0 1.0

Inferred 22.0 2.6 1.8

Total 41.7 2.2 3.0


Fig. 13: Gold Reserve Estimate


Contained Metal (koz)

Probable 0.28 9.2 8

Total 0.28 9.2 8


Fig. 14: Gold Resource Estimate (by deposit )


Contained Metal (koz)

King Street 0.53 2.0 33

Jupiter 26.6 1.3 1,085

Jupiter LG stockpile 3.49 0.5 58

Westralia 9.27 5.1 1,520

Craic 0.19 7.5 46

Transvaal 1.25 5.2 210

Ramornie 0.44 4.0 57

Total 41.7 2.2 3,008


Total Gold Resource

estimate si ts at

41.7Mt at 2.2g/t Au for

3.0Moz

Westral ia’s current

resource est imate s its

at 9.27Mt at 5.1g/t Au

for 1.5Moz

Jupi ter is the largest

deposit wi th a total

resource of 26.6Mt @

1.3g/ t Au for 1.1Moz


Page 14 of 25

COMPARATIVES

PEER COMPARATIVES DCN is one of the better AUD gold developers currently trading on the ASX. We

believe Gold Road Resource’s (GOR) Gruyere development is a good comparison for

Dacian’s Mt Morgans project. Mt Morgans has potential for a similar production / cost

profile with a much lower pre-production capex requirement. On EV ratio metrics DCN

appears good value compared to the average of peers. We believe the quality of the

resources at Mt Morgans combined with the accessible infrastructure make the

Company a better proposition to peers. Being of a high quality we believe the Mt

Morgans project is one of the most likely gold projects to be developed over the coming

years and hence we see it feasible to also compare DCN with some of the ASX’s

smaller, single asset gold producers.

Fig. 15: AUD gold juniors market capitalisation comparison

Source: Hartleys Research

Fig. 16: AUD gold juniors EV comparison


0.0

50.0

100.0

150.0

200.0

250.0

300.0

GOR DRM ABU SLR RMS DCN TAM BLK EXG PNR UML MRP AYC GCY ERM MOY SAU PGO

Market Capitalisation

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

GOR DRM ABU TAM DCN SLR BLK MOY EXG RMS PNR MRP AYC GCY ERM SAU PGO UML

EV

DCN is one of the

better AUD gold

developers currently

trading on the ASX

DCN is within the mid-

range of AUD gold

juniors on the ASX

DCN has a low EV

relat ive to peers with

simi lar development

metr ics


Page 15 of 25

Fig. 17: AUD gold juniors EV / resource ounce comparison


Fig. 18: Mt Morgans (DCN) and Gruyere (GOR) comparison

Source: Hartleys Research, DCN, GOR

KEY SUPPLIERS & CUSTOMERS Dacian engaged international mining specialist RungePincockMinarco Ltd (RPM) to

complete the independent Mineral Resource estimate for the Westralia and Jupiter

prospects. At the time of the IPO the Company engaged Coffey Mining for an

independent technical review of the project. This review was incorporated into the

IPO prospectus and was used as the main reference for this initiation report.

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

SAU PNR DRM ERM MOY GOR ABU MRP EXG AYC DCN TAM RMS BLK GCY SLR PGO UML

EV / Resource Ounce

Avg. A$35/oz

Gruyere (GOR) Mt Morgans (DCN)

Market Cap - ($m) 264 46

Capex - Total ($m) 450 150

Life of mine average head grade 1.2g/t 2.9g/t

Life of mine mill feed (mt pa) 7.5mt pa 2.0mt pa

LOM Gold eq recovered grade g/t 1.1g/t 2.6g/t

LOM Au combined recovery & payability 89-93% 90-92%

Total Gold eq Sold 2.5-3.7Moz 1.35Moz

Total Gold eq Sold pa 250k oz pa 200k oz pa

Current Assumed Mine Life (yrs) 10-15yrs 8yrs

Commencement Date (qtr) Sep-18 Mar-18

LOM avg C1 cash costs (AUD/gold oz) A$ 838 /oz A$ 803 /oz

LOM avg all in site costs (AUD/gold oz) A$ 916 /oz A$ 955 /oz

Life of mine annual net cash flow (A$m pa) A$ 50m pa A$ 38m pa

DCN has a below

average EV / resource

ounce valuation for an

AUD gold junior

Mt Morgans (DCN)

compares well wi th

the Gruyere (GOR)

development

DCN engaged

RungePincockMinarco

for the current

resource est imates for

Jupi ter and Westra l ia


Page 16 of 25

MANAGEMENT AND DIRECTORS

Fig. 19: Economic exposure of board & management


Management resumes are taken from www.daciangold.com.au

Mr Rohan Williams was founding CEO and Managing Director of Avoca Resources

Ltd, and led that company from its $7 million exploration IPO in 2002 until its merger

with Anatolia Minerals in 2011 to form Alacer Gold Corp, which valued Avoca at $1

billion. At the time of the merger, Avoca Resources Ltd was the third largest ASX

listed Australian gold producer. Serving as the merged group’s Chief Strategic Officer

until the end of 2011, Mr Williams remained a Non-Executive Director of Alacer Gold

Corp up until September 2013. Prior to his time with Avoca Resources Ltd, Mr

Williams worked with WMC Resources Limited where he held Chief Geologist

positions at St Ives Gold Mines and the Norseman Gold Operation. He has 25 years

of experience, including over 19 years in the world class Kalgoorlie-Norseman gold

belt. Mr Williams also serves on the Board of the Telethon Kids Institute.

Mr Barry Patterson is a mining engineer with over 50 years of experience in the

mining industry and is a co-founder, and Non-Executive Director, of ASX listed GR

Engineering Limited. Mr Patterson was also a founding shareholder of leading

engineering services provider JR Engineering, which became Roche Mining after

being taken over by Downer EDI in 2002. He also co-founded contract mining

companies Eltin, Australian Mine Management and National Mine Management. Mr

Patterson has served as a director of a number of public companies across a range

of industries. He was formerly the non-executive chairman of Sonic Healthcare

Limited for 11 years, during which time the company’s market capitalisation increased

from $20 million to $4 billion, and Silex Systems Limited.

Mr Robert Reynolds Mr Reynolds was the Non-Executive Chairman of Avoca

Resources Ltd from 2002 until it merged with Anatolia Minerals to form Alacer Gold

Corp in 2011, and has extensive experience in mineral exploration, development and

mining operations. Mr Reynolds was Non-Executive Chairman of Alacer Gold Corp

until 23 August 2011. A Chartered Accountant with over 35 years commercial

experience in the mining sector, Mr Reynolds has worked on mining projects in a

number of locations including Australia, Africa and across the Oceania region. Mr

Reynolds was a long term Director of Delta Gold Limited and was a Director of Extorre

Gold Mines Limited when it was acquired by Yamana Gold for CAD$414 million on

22 August 2012. Mr Reynolds also currently holds Directorships with Canadian

companies Rugby Mining Limited and Exeter Resource Corporation and ASX listed

companies Convergent Minerals Limited and Global Geoscience Limited.

Economic Exposure of Board and key management Total

Total Options Shares Economic

# Exposure

Position millions rank

Directors

Rohan Williams Executive Chairman 3,000,000 5,200,000 8,200,000 1

Barry Patterson Non-Exec Director 300,000 4,100,000 4,400,000 2

Robert Reynolds Non-Exec Director 300,000 2,100,000 2,400,000 3

Rohan Wil l iams was

founding CEO and MD

of Avoca Resources

Ltd

Rohan Wil l iams is a

Geologist wi th 25

years of experience

Barry Patterson is a

Mining Engineer with

over 50 years of

exper ience

Robert Reynolds was

Non-Executive

Chairman of Avoca

Resources Ltd


Page 17 of 25

MAJOR SHAREHOLDERS

MAJOR SHAREHOLDERS DCN has major shareholders as outlined below.

Fig. 20: DCN Substantial Shareholders

Shareholder Number of Shares (m)

% Issued Capital

Brian Rodan 16.91 17.59

Directors 11.4 12.0

Source: IRESS

OPTIONS, CONVERTIBLES AND UNPAID CAPITAL There are ~10.1m options which have an average price of 72c.

Fig. 21: Options on issue or to-be-issued

Expiry Exercise Price number of shares $m unpaid capital

Oct-17 $0.84 6,150,000 5.17

Feb-19 $0.57 1,000,000 0.57

Sep-19 $0.65 1,000,000 0.65

Nov-19 $0.46 2,000,000 0.92

Total $0.72 10,150,000 7.31

Source: IRESS


Page 18 of 25

FINANCIALS

PRODUCTION

Company guidance The Company plans to announce a scoping study over the coming weeks with further

drilling in CY16 to finalise a feasibility study and ‘decision to mine’ in late CY16.

Assuming favourable market conditions the Company will look to finalise a funding

solution in late CY16 with construction to commence in early CY17.

Fig. 22: Project development timeline


Hartleys Forecasts We forecast an average annual production of ~170kozpa over an 8 year mine life at

Mt Morgans with average C1 cash costs of ~A$800/oz and AISC of ~A$1,000/oz. We

model 1.3Mtpa from Jupiter and 700ktpa from Westralia although see production and

minelife upside from both prospects. We forecast Mt Morgans to come into production

in FY18 and ramp up to ~170kozpa by FY19. We are confident Mt Morgans will have

a minelife of ~10 years or more at current spot prices although conservatively model

8 years.

PROFIT & LOSS

Fig. 23: Profit and Loss

Source: Hartleys Research Estimates

P&L Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19Net Revenue A$m 0.0 0.0 0.0 129.6 254.9Total Costs A$m -1.6 -1.8 -2.7 -76.5 -148.3EBITDA A$m -1.6 -1.8 -2.7 53.1 106.6 - margin - - - 41% 42%Depreciation/Amort A$m 0.0 0.0 0.0 0.0 0.0

EBIT A$m -1.6 -1.8 -2.7 53.1 106.6Net Interest A$m 0.0 0.0 0.0 0.0 0.0

Norm. Pre-Tax Profit A$m -1.6 -1.8 -2.7 53.1 106.6Reported Tax Expense A$m 0.0 0.0 0.0 -4.9 -29.0

Normalised NPAT A$m -1.2 -1.3 -1.9 37.1 74.6Abnormal Items A$m -0.5 -0.5 -10.8 1.0 -7.0Reported Profit A$m -1.6 -1.8 -12.7 38.1 67.6Minority A$m 0.0 0.0 0.0 0.0 0.0Profit Attrib A$m -1.6 -1.8 -12.7 38.1 67.6

The Company plans to

announce a scoping

study for Mt Morgans

over the coming

weeks

We forecast the

Company can produce

~170kozpa @ AISC of

~A$1,000/oz from Mt

Morgans in FY19

We see DCN with

potentia l to become a

~200kozpa producer

over the next 4 years


Page 19 of 25

BALANCE SHEET

Fig. 24: Balance Sheet


Debt We assume debt of ~$100m in FY17 to fund the development of Mt Morgans.

Equity Issuance We assume equity of ~$20m in FY16 and ~$50m in FY17 to fund the development of

Mt Morgans. Equity dilution is the highest risk to our valuation.

Hedging The Company currently has no hedging although will most likely execute some

hedging with the debt financing.

CASH FLOW

Fig. 25: Cash Flow Statement


Capex requirements We estimate a pre-production capex requirement of A$150m at Mt Morgans to build a

~2Mtpa processing plant.

Free cash flow We estimate DCN can produce significant free cashflow in the order of $45mpa from

the Mt Morgans project.

Balance Sheet Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19Cash A$m 5.0 15.1 84.4 41.1 85.0Other Current Assets A$m 0.1 0.1 0.2 16.9 33.1

Total Current Assets A$m 5.1 15.3 84.7 58.0 118.1Property, Plant & Equip. A$m 0.5 0.5 70.5 148.5 164.5Exploration A$m 12.1 20.1 18.1 16.1 14.1Investments/other A$m 0.0 0.0 0.0 0.0 0.0

Tot Non-Curr. Assets A$m 12.7 20.7 88.7 164.7 178.7Total Assets A$m 17.8 36.0 173.3 222.7 296.8

Short Term Borrowings A$m 0.0 0.0 0.0 0.0 0.0Other A$m 0.1 0.1 0.2 6.3 12.2

Total Curr. Liabilities A$m 0.2 0.2 0.3 6.3 12.2Long Term Borrowings A$m 0.0 0.0 99.8 99.8 99.8Other A$m 1.2 1.2 1.2 1.2 1.2

Total Non-Curr. Liabil. A$m 1.3 1.3 101.0 101.0 101.0Total Liabilities A$m 1.4 1.4 101.3 107.4 113.3Net Assets A$m 16.4 34.6 72.0 115.3 183.5Net Debt A$m -4.9 -15.1 15.4 58.8 14.9

Cashflow Unit 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18 30 Jun 19Operating Cashflow A$m -2.0 -1.8 -2.7 42.4 96.3Income Tax Paid A$m 0.0 0.0 0.0 -4.9 -29.0Interest & Other A$m 0.0 0.0 0.0 0.0 0.0

Operating Activities A$m -2.0 -1.8 -2.7 37.5 67.3

Property, Plant & Equip. A$m 0.0 0.0 -70.0 -78.0 -16.0Exploration and Devel. A$m -4.0 -8.0 -8.0 -8.0 -8.0Other A$m 0.0 0.0 0.0 0.0 0.0

Investment Activities A$m -4.0 -8.0 -78.0 -86.0 -24.0

Borrowings A$m 0.0 0.0 99.8 0.0 0.0Equity or "tbc capital" A$m 0.0 20.0 50.2 5.2 0.6Dividends Paid A$m 0.0 0.0 0.0 0.0 0.0

Financing Activities A$m 0.0 20.0 150.0 5.2 0.6

Net Cashflow A$m -6.0 10.2 69.3 -43.4 43.9

We expect DCN to

produce signif icant

free cashflow in

production

We est imate A$150m

of pre-production

capex required to

develop the Mt

Morgans project

We est imate steady

free cashflow from Mt

Morgans in production


Page 20 of 25

SENSITIVITIES

FX exposure DCN is exposed to FX changes affecting the AUD gold price.

Interest Rate exposure The Company has minimal exposure to interest rates.

Commodity price exposure DCN is exposed to the gold price.

Fig. 26: Gold Price Assumptions


GEOGRAPHIC EXPOSURE DCN is currently solely focused on operations within Australia.

Fig. 27: Dacian Project Locations


000

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000Hartleys Assumption for Valuations

GOLD (US$)

000

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Hartleys Assumption for Valuations

GOLD (A$)

A$/ozUS$/oz


Page 21 of 25

VALUATION Our sum of parts valuation for Dacian assumes a 2.0Mtpa project at Mt Morgans

producing for 8 years with a 1.3Mtpa feed from the Jupiter open pit and 700ktpa from

the Westralia underground. We assume a pre-production capex requirement of

A$150m in FY17 to build the 2.0Mtpa plant.

Fig. 28: Mt Morgans model assumptions

Source: Hartleys Estimates

We assume a LOM head grade of 1.8g/t Au from Jupiter and 5.0g/t Au from Westralia.

We model a nominal A$50m ($0.23/share) value for exploration upside potential which

is equal to ~1 year of free cashflow from Mt Morgans once in production. We believe

DCN is well positioned for brownfield exploration success at Mt Morgans and $A50m

is conservative given the potential to discover further multi-million ounce deposits

within the tenement package. We see upside potential within and around the

Westralia and Jupiter prospects and throughout the regional BIF hosted and syenite

related prospects.

Fig. 29: Hartleys Sum of Parts Valuation for DCN

A$m A$/share

100% Jupiter (pre-tax NAV @ 14%) 36.3 0.34

100% Westralia (pre-tax NAV @ 14%) 94.9 0.45

Other Exploration 50.0 0.23

Forwards 0.0 0.00

Corporate Overheads -20.1 -0.09

Net Cash (Debt) 4.6 0.02

Tax (NPV future liability) -37.6 -0.18

Options & Other Equity 3.3 0.02

Hedging 0.0 0.00

Total 131.4 0.79


Jupiter Westralia Mt Morgans

Capex - Total ($m) 150

Life of mine Strip Ratio (x) 6.0x na na

Life of mine average head grade 1.8g/t 5.0g/t 2.9g/t

Life of mine mill feed (mt pa) 1.3mt pa 0.7mt pa 2.0mt pa

LOM Gold eq recovered grade g/t 1.6g/t 4.5g/t 2.6g/t

LOM Au combined recovery & payability 90% 90% 90-92%

Total Gold eq Sold 0.54Moz 0.81Moz 1.35Moz

Total Gold eq Sold pa 68k oz pa 101k oz pa 169k oz pa

Current Assumed Mine Life (yrs) 8yrs 8yrs 8yrs

Commencement Date (qtr) Mar-18 Mar-18 Mar-18

LOM avg selling price (AUD/gold oz) A$ 1374 /oz A$ 1374 /oz A$ 1374 /oz

LOM avg C1 cash costs (AUD/gold oz) A$ 845 /oz A$ 726 /oz A$ 803 /oz

LOM avg all in site costs (AUD/gold oz) A$ 989 /oz A$ 893 /oz A$ 955 /oz

Life of mine annual net cash flow (A$m pa) A$ 14m pa A$ 26m pa A$ 40m pa

Spot pre-tax NPV (AUDm), unfunded A$ 36.3m A$ 68.0m A$ 104.3m

We assume a 2.0Mtpa

project producing

1.3Mtpa from Jupi ter

and 700ktpa from

Westral ia

We assume a nominal

A$50m value for

explorat ion upside

Hart leys sum of par ts

valuation for DCN is

A$0.79/share


Page 22 of 25

PRICE TARGET Our valuation is sensitive to equity dilution and at current spot prices we see potential

for project equity financing at a higher share price. We have included weighting for

the base case at consensus and spot pricing and a small weighting for the current net

cash backing. Our price target is based on a 2.0Mtpa project at Mt Morgans producing

for 8 years with 1.3Mtpa coming from Jupiter and 700ktpa from Westralia.

Fig. 30: DCN Price Target Methodology


DCN Price Target Methodology Weighting Spot 12 mth out

60% $0.79 $0.99

30% $1.33 $1.60

Net cash backing 10% $0.04 $0.04

Risk weighted composite $0.88

12 Months Price Target $1.08

Shareprice - Last $0.55

12 mth total return (% to 12mth target ) 96%

NPV base case

NPV at spot commodity and fx prices

Hart leys 12 month

price target is

$1.08/share


Page 23 of 25

EV/EBITDA BANDS

Fig. 31: Using Hartleys base case commodity forecasts

Source: Hartleys Estimates, IRESS

Fig. 32: Using spot commodity prices

Source: Hartleys Estimates, IRESS

.00

.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

DCN Actual

Hartleys Target

8x EV/EBITDA

6x EV/EBITDA

4x EV/EBITDA

2x EV/EBITDA

1x EV/EBITDA

Shareprice

.00

.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

DCN Actual

8x EV/EBITDA

6x EV/EBITDA

4x EV/EBITDA

2x EV/EBITDA

1x EV/EBITDA

Shareprice


Page 24 of 25

RECOMMENDATION & RISKS

INVESTMENT THESIS & RECOMMENDATION We are initiating coverage of DCN with a Speculative Buy recommendation. In our

opinion the Mt Morgans project is one of the best AUD gold development projects

currently on the ASX. Over the coming weeks the Mt Morgans scoping study should

highlight a highly economic and technically robust development project. We

particularly like the size (~200kozpa) and low cost profile (~A$1,000/oz) potential. The

Westralia prospect is currently one of the only +5g/t Au orebodies still owned by a

junior, hence we believe DCN is under threat from takeover by Australia’s larger

miners.

RISKS

Fig. 33: Key assumptions and risks for valuation Assumption Risk of not realising

assumption Risk to valuation if

assumption is incorrect

Comment

2Mtpa Mt Morgans Project Moderate Meaningful DCN is leveraged to the success of the Mt Morgans project. We model a 2Mtpa project for 8 years with 1.3Mtpa from Jupiter and 700ktpa

from Westralia. If the project varies largely from these metrics our valuation will be at risk

Model parameters Moderate Meaningful We have made a number of large assumptions in our valuation of DCN, changes in these

assumptions can change our valuation to both the upside and downside

Exploration upside potential Moderate Meaningful We assume exploration upside at Westralia and Jupiter and throughout the regional prospects. Some downside risk to our valuation exists if

DCN has no further exploration success Geological Risk Moderate High The current Westralia resource estimate is

majority inferred status and therefore requires further drilling, if the updated resources change considerably our valuation will be at high risk to

the downside Funding Risk Moderate High We assume a ~65:35 debt:equity funding

scenario to develop the Mt Morgans project, if this funding scenario is not achievable our

valuation will be at risk, equity dilution is the highest risk to our valuation

Conclusion At this early stage we have made significant assumptions but believe these are achievable.


SIMPLE S.W.O.T. TABLE Strengths Westralia 1.5Moz & Jupiter 1.1Moz

Mt Morgans development has potential for low operating costs (<A$1,000/oz) Exploration upside within and around Westralia, Jupiter and the regional prospects

Tight capital structure

Weaknesses Majority inferred resource at Westralia ~A$150m financing requirement in FY17 Pre-scoping & requires further study work (met, geotech, hydro etc)

Opportunities Regional prospects show potential for further multi-million ounce discoveries Potential for toll treating / splitting the assets

Threats Takeover target Commodity prices


Page 25 of 25

HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research +61 8 9268 3052

Mike Millikan Resources Analyst +61 8 9268 2805

Scott Williamson Resources Analyst +61 8 9268 3045

Simon Andrew Energy Analyst +61 8 9268 3020

Janine Bell Research Assistant +61 8 9268 2831

Corporate Finance Grey Egerton-

Warburton

Director & Head of

Corp Fin.

+61 8 9268 2851

Richard Simpson Director +61 8 9268 2824

Paul Fryer Director +61 8 9268 2819

Dale Bryan Director +61 8 9268 2829

Ben Wale Associate Director +61 8 9268 3055

Ben Crossing Associate Director +61 8 9268 3047

Stephen Kite Associate Director +61 8 9268 3050

Scott Weir Associate Director +61 8 9268 2821

Registered Office

Level 6, 141 St Georges TcePostal Address:

PerthWA 6000 GPO Box 2777

Australia Perth WA 6001

PH:+61 8 9268 2888 FX: +61 8 9268 2800

www.hartleys.com.au [email protected]

Note: personal email addresses of company employees are

structured in the following

manner:[email protected]

Hartleys Recommendation Categories

Buy Share price appreciation anticipated.

Accumulate Share price appreciation anticipated but the risk/reward is

not as attractive as a “Buy”. Alternatively, for the share

price to rise it may be contingent on the outcome of an

uncertain or distant event. Analyst will often indicate a

price level at which it may become a “Buy”.

Neutral Take no action. Upside & downside risk/reward is evenly

balanced.

Reduce /

Take profits

It is anticipated to be unlikely that there will be gains over

the investment time horizon but there is a possibility of

some price weakness over that period.

Sell Significant price depreciation anticipated.

No Rating No recommendation.

Speculative

Buy

Share price could be volatile. While it is anticipated that,

on a risk/reward basis, an investment is attractive, there

is at least one identifiable risk that has a meaningful

possibility of occurring, which, if it did occur, could lead to

significant share price reduction. Consequently, the

investment is considered high risk.

Institutional Sales Carrick Ryan +61 8 9268 2864

Justin Stewart +61 8 9268 3062

Simon van den Berg +61 8 9268 2867

Chris Chong +61 8 9268 2817

Digby Gilmour +61 8 9268 2814

Veronika Tkacova +61 8 9268 3053

Wealth Management Nicola Bond +61 8 9268 2840

Bradley Booth +61 8 9268 2873

Adrian Brant +61 8 9268 3065

Nathan Bray +61 8 9268 2874

Sven Burrell +61 8 9268 2847

Simon Casey +61 8 9268 2875

Tony Chien +61 8 9268 2850

Tim Cottee +61 8 9268 3064

David Cross +61 8 9268 2860

Nicholas Draper +61 8 9268 2883

John Featherby +61 8 9268 2811

Ben Fleay +61 8 9268 2844

James Gatti +61 8 9268 3025

John Goodlad +61 8 9268 2890

Andrew Gribble +61 8 9268 2842

David Hainsworth +61 8 9268 3040

Neil Inglis +61 8 9268 2894

Murray Jacob +61 8 9268 2892

Gavin Lehmann +61 8 9268 2895

Shane Lehmann +61 8 9268 2897

Steven Loxley +61 8 9268 2857

Andrew Macnaughtan +61 8 9268 2898

Scott Metcalf +61 8 9268 2807

David Michael +61 8 9268 2835

Jamie Moullin +61 8 9268 2856

Chris Munro +61 8 9268 2858

Michael Munro +61 8 9268 2820

Ian Parker +61 8 9268 2810

Charlie Ransom

(CEO)

+61 8 9268 2868

Brenton Reynolds +61 8 9268 2866

Conlie Salvemini +61 8 9268 2833

Mark Sandford +61 8 9268 3066

David Smyth +61 8 9268 2839

Greg Soudure +61 8 9268 2834

Sonya Soudure +61 8 9268 2865

Dirk Vanderstruyf +61 8 9268 2855

Samuel Williams +61 8 9268 3041

Jayme Walsh +61 8 9268 2828

Disclaimer/Disclosure

The author of this publication, Hartleys Limited ABN 33 104 195 057 (“Hartleys”), its Directors and their Associates from time to time may hold

shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities.

Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice

mentioned in publications to clients.

This report was prepared solely by Hartleys Ltd. ASX did not prepare any part of the report and has not contributed in any way to its content. The

role of ASX in relation to the preparation of the research reports is limited to funding their preparation, by Hartleys Ltd, in accordance with the ASX

Equity Research Scheme. ASX does not provide financial product advice. The views express in this research may not necessarily reflect the

views necessarily reflect the views of ASX. To the maximum extent permitted by law, no representation, warranty or undertaking, express or

implied, is made and no responsibility or liability is accepted by ASX as to the adequacy, accuracy, completeness or reasonableness of the

research reports.

Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting

your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs.

Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued.

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Documents

Dacian Gold Ltd - ASX · Hartleys Limited Dacian Gold Limited (DCN) 16 September 2015 Page 2 of 25 SUMMARY MODEL Dacian Gold Ltd Share Price DCN $0.550 Speculative Buy