See key risks on Page 16. be suitable for retail clients ... · With this program ongoing the encouraging news flow should continue. At the flagship Klondyke project, we estimate

4th December 2017

Calidus Resources (CAI)

Shiny new gold project hotting up

Recommendation

Buy (Initiation) Price

$0.040 Valuation

$0.055 (unchanged)

Risk

Speculative

Analyst

Duncan Hughes 618 9326 7667

Authorisation

Peter Arden 613 9235 1833

Expected Return

Capital growth 37.5%

Dividend yield 0.0%

Total expected return 37.5%

Company Data & Ratios

Enterprise value $31.3m

Market cap $41.3m

Issued capital 1,031.7m

Free float 65%

Avg. daily val. (52wk) $170,000

12 month price range $0.019-$0.065

GICS sector

Materials Disclosure: Bell Potter Securities acted as co-manager to a $10m placement in September 2017 and received fees for that service.

Price Performance

BELL POTTER SECURITIES LIMITED ACN 25 006 390 7721 AFSL 243480

DISCLAIMER AND DISCLOSURES THIS REPORT MUST BE READ WITH THE DISCLAIMER AND DISCLOSURES ON PAGE 17 THAT FORM PART OF IT.

Page 1

(1m) (3m) (12m)

Price (A$) 0.04 0.03

Absolute (%) -2.44 21.21

Rel market (%) -3.61 16.27

Speculative See key risks on Page 16.

Speculative securities may not be suitable for retail clients

Consolidating an underexplored Pilbara gold project

CAI only listed on the ASX in June 2017 with its flagship Warrawoona project in the

Pilbara of Western Australia. CAI has hit the ground running with some encouraging

drilling results from the Klondyke Project, a very visual shear zone with a generous

distribution of historical workings. Recent results from drilling a 750m gap within a

historic ~400koz resource are encouraging. All are from potentially open-pitable depths

and show potential for resource growth. We have visited the project and believe this is

an exciting exploration story to follow. Management is capable and the project is only

65km from MOY’s Nullagine operation offering a fall back to the preferred standalone

operation. The current resource (and gap) covers just 2.6km of a 12.5km shear zone

that hosts a high proportion of historical workings that show, in many cases,

considerable size potential. This is the first time the entire strike length of the deposit

has been in the hands of just one owner and consequently represents a relatively

unique opportunity to potentially grow near surface resources.

Significant Resource upgrade expected this month

Drilling has intersected high grade gold at several prospects. CAI has embarked on a

15,000m drilling campaign of RC and diamond drilling. This has already resulted in

very encouraging results that include 6 metres @ 63.3g/t Au, 27 metres @ 5.9g/t Au,

25m @ 3.4g/t Au, 10m @ 9.7g/t Au, 12 metres @ 3.7g/t Au, 9 metres @ 4.6g/t Au,

33m @ 1.1g/t Au, 5m @ 4.8g/t Au and 24m @ 1.1g/t Au. All are from open-pitable

depths. With this program ongoing the encouraging news flow should continue. At the

flagship Klondyke project, we estimate that the existing resource of 374koz @ 2.1g/t

Au could grow to circa 700koz @ 1.75g/t Au based on infill and extensional drilling as

well as improved wireframe assumptions and density measurements.

Absolute Price

SOURCE: IRESS

$0.00

$0.01

$0.02

$0.03

$0.04

$0.05

$0.06

$0.07

Jun 17 Aug 17 Oct 17

CAI S&P 300 Rebased

Potential for a standalone project or toll treat

We see potential for a >1moz project at Warrawoona which we believe could support a

standalone operation. Metallurgy looks simple as does mining and access. However,

the project is only 65km from the Nullagine Gold Project so a fall back toll treat option

may also exist. In addition, the recent arrival of Novo Resources on the register as well

as the JV arrangement add to the potential value creation options at Warrawoona.

But beware the upcoming dilution

CAI has 525m performance rights on issue to the vendor Keras Resources (LSE:KRS)

that will be issued at achievable milestones (250m on a >500koz indicated resource

and 275m on a successful PFS) and dilute the register to 1.5bn shares on issue.

Investment thesis – Buy (Speculative), Valuation $0.055/sh

We believe CAI’s Warrawoona Gold Project is showing evidence of hosting a significant

gold discovery. Our sum of the parts valuation incorporates an insitu ounce valuation,

exploration tenure valuation and cash. We value, and dilute for options and 250m

performance rights in our valuation. We initiate with a Speculative Buy and see potential

for upside on the current market valuation as well as favourable near term news flow.

Page 2

Calidus Resources (CAI) 4th December 2017

Contents

Investment case ............................................................................. 3 Valuation Discussion ..................................................................... 5 Company overview ........................................................................ 7 Warrawoona Project, W.A (100%) ................................................. 9

Board and management .............................................................. 14 Calidus Resources (CAI) ............................................................. 15 Resource sector risks.................................................................. 16

Page 3


Investment case

Near term and significant resource growth expected

The project hosts a 410koz resource that is separated by a previously excised tenement. A

considerable amount of upside exists when this gap position between the current resource

is incorporated in the upcoming resource estimate (this month). In addition, the trend

remains open east and west over 12.5km, of which only 2.6km is currently adequately

tested with drilling. Drilling in the gap position has returned some impressive drilling results

that include 19m @ 3.4g/t Au, 14m @ 3.8g/t Au, 20m @ 1.45g/t Au and 9m @ 4.6g/t Au.

All are relatively shallow depth intersections within 150m of surface. We estimate that the

existing resource will grow to circa 700koz @ 1.75g/t Au based on infill and extensional

drilling as well as improved density measurements on the existing resource.

First time this project has been consolidated as one

This is the first time the project has been consolidated as one 363km2 project across a

significant holding over an underexplored and clearly prospective greenstone belt. CAI is

potentially opening up a new greenstone belt for focussed modern exploration for the first

time. This is the first time the 12.5km strike of the Klondyke shear has been tested

systematically by one owner and the first time any discoveries along the entire strike could

be managed as one potential mining project.

Potential for a standalone project or toll treat

We see potential for a >1moz resource at Warrawoona which we believe could support a

standalone operation. Metallurgy looks simple as does mining and access. However, the

project is only 65km from the Nullagine Gold Project (operated by Millennium Minerals

ASX:MOY) so a fall back toll treat option also exists. In addition, the recent arrival of Novo

Resources on the register as well as the JV arrangement add to the potential value

creation options at Warrawoona as Novo own the 558.000 oz Beatons Creek deposit

located only 55km away..

High grade and shallow intersections offer exploration upside

Drilling has intersected high grade gold at several prospects. CAI has embarked on a

15,000m drilling campaign of RC and diamond drilling. This has already resulted in very

encouraging results that include 6 metres @ 63g/t Au, 27 metres @ 5.85g/t Au, 25m @

3.4g/t Au, 10m @ 9.7g/t Au, 12 metres @ 3.73g/t Au, 9 metres @ 4.6g/t Au, 33m @ 1.1g/t

Au, 5m @ 4.8g/t Au and 24m @ 1.1g/t Au. All are from open-pitable depths. With this

program ongoing the encouraging news flow should continue.

Favourable metallurgy and simple mining on granted mining lease

Initial metallurgical testwork indicates favourable recoveries through a conventional gravity

CIL operation. Mineralisation is near surface and looks to have potential to be mined

through simple open pit mining. Higher grade plunging shoots also show potential for a

future underground operation. Klondyke is on a granted mining lease.

Simple mining and

processing likely

Consolidation open up the belt to focussed exploration

Shallow high-grade intersections across several prospects

Signs are this is standalone options for toll treating or consolidation exist

Considerable resource growth expected this month

Page 4


Capable management and healthy cash balance

We feel management has a track record of mining that is well suited to gold mining in

Australia. Managing Director David Reeves is a mining engineer and the recently

appointed Geology Manager Jane Allen a geologist, both have extensive experience to

advance the project. The company is undertaking an aggressive exploration program with

encouraging results. With an estimated cash balance of $10m (end qtr.) CAI is well placed

to continue this exploration news flow.

But dilution and liquidity issues

CAI has 525m performance rights on issue to the vendor Keras Resources (LSE:KRS) that

will be issued at achievable milestones (250m on a >500koz indicated resource and 275m

on a successful PFS) and dilute the register to 1.5bn shares on issue. In addition, 192.5m

in-the-money options are on issue that will likely dilute the register further. Dilution from the

options and 250m performance rights (for a 500koz indicated resource) is incorporated in

our valuation and we still see upside on the project despite the dilution. As a junior explorer

the company is relatively illiquid, this is even more the case with just 65% free-float. On

the plus side, the register hosts a number of likely supportive and in some cases

synergistic shareholders.

Considerable upside and favourable newsflow expected

Our valuation shows considerable upside to current market valuations. Given the quality of

the exploration tenure, management and continuing aggressive and well funded

exploration we see considerable favourable exploration news flow to support share price

appreciation.

Figure 1 - SWOT Analysis

SOURCE: BELL POTTER SECURITIES

Upcoming Catalysts

Resource upgrade – 4QCY17;

Drilling at the recently acquired Klondyke East prospect – Ongoing;

Follow-up drilling at Fieldings Gulley and Copenhagen – Ongoing; and

Pre-Feasibility Study on Klondyke – 2HCY18.

Strengths

Fully focussed on gold

First time project consolidated and undergone systematic modern exploration

Expect near term resource growth

Favourable metallurgy expected

Funded for/and undertaking aggressive exploration

Part covered with pre-native title mining licence

Capable management

Workings indicate significant untested strike

Weaknesses

Significant dilution expected from options and performance rights

Relatively illiquid junior stock

Resources currently only inferred

Threats

Gold price volatility

Ghost bats could inhibit some access

Exploration risk

Opportunities

Exploration upside and $10m budget

Grades could potentially support underground mining

Conglomerate gold

Toll treat and synergies with Novo and MOY

Performance rights and options will dilute SOI

Aggressive well managed exploration will continue

Page 5


Valuation Discussion

Warrawoona Gold Project, Pilbara Region WA (100%)

The project is at an early stage of exploration with a small resource at Klondyke and

Copenhagen expected to grow substantially from the current resource of 410koz which

was previously spread between separately owned tenements. A DCF valuation is not

appropriate at this time. The stage of the project does lend itself to an exploration potential

and resource ounce valuation though.

We are comfortable that the project hosts circa 700koz based on current resources and

anticipated additions from recent drilling. The median valuation for insitu resource ounces

for ASX listed exploration companies is A$52/oz. We believe the quality of the resources

would justify a premium to this, but at this stage we value these resources at the median

pricing, and an insitu valuation of $36.4m.

In terms of exploration upside, we see considerable potential along the 12.5km strike of the

Klondyke trend, the encouraging intersections at Fieldings Gulley and Copenhagen as well

as potential conglomerate gold. In addition, the large consolidated tenements and various

options for value generation with neighbours or as a standalone prospect have value.

Based on peer reviews of other gold exploration portfolio valuations, we value CAI’s

exploration portfolio at $30m.

Cash, performance rights and options

We assume cash at 31 December 2017 of $10m and value it at face value.

We assume the $4.4m value of in-the-money share options are exercised and dilute our

valuation by 192.5m shares accordingly.

We also assume the 250m Class A performance rights, attributable to the vendor Keras

Resources, on announcing a >500koz indicated resource are issued and dilute our

valuation accordingly.

A further 275m Class B performance rights will be issued on completion of a successful

PFS. Whilst we see this event as likely in the future we believe it is not appropriate to dilute

our valuation to reflect a potential PFS at this stage.

Total valuation

Our total sum-of-the-parts (SOTP) valuation for CAI is $81m or $0.055/share after dilution

for options and class A performance rights.

Valuation of $81m ($0.055/sh)

Page 6


Table 1 - CAI: sum-of-the parts valuation

SOURCE: BELL POTTER SECURITIES ESTIMATES.

Shares on issue (m) 1,031.7

ITM options (m) 192.5

Performance rights (m) 250.0

Diluted (m) 1,474.2

SOTP A$m A$/sh

Resources (estimated end Qtr) 36.4 0.035

Exploration 30.0 0.029

Cash (estimated end Qtr) 10.0 0.010

Total (undiluted) 76.4 0.074

ITM Options 4.4 0.003

Performance rights - -

Total (fully diluted) 80.8 0.055

Page 7


Company overview

Background

CAI listed on the ASX at 2c per share through a reverse takeover of Pharmanet Group Ltd

on 22nd June 2017. The company listed with the Warrawoona Gold project, a combination

of owned and farm in options on the Klondyke, Copenhagen and Coronation prospects.

In September 2017 CAI announced further consolidation of the project through a joint

venture with TSXv listed Novo Resources for the rights to primary (non-conglomerate gold)

on ground to the east along strike of Klondyke as well as other prospective tenements.

In September 2017, CAI also completed an oversubscribed institutional and retail

placement to raise $10m at 4.1c per share.

Corporate summary

CAI has 1,031.7m shares on issue, of which 704.1m are fully paid ordinary freely traded

shares and 327.6m are escrowed and not tradeable until 22 June 2019 (315m), 18th

August 2018 (12.5m) and 13 June 2018 (0.06m). The majority of these restricted shares

(225m) are held by AIM listed Keras Resources PLC, and the remainder by Pharmacet

proponents.

CAI has 192.5m options on issue at an average strike price of 2.3c for a total potential

exercise value of $4.42mm. The options may be exercised by various dates between June

2019 and April 2021 as outlined in the table below. 87.5m of these options are listed

options and trade under the code CAIO on the ASX. At the current share price all options

are in the money.

Table 2 - CAI options on Issue

SOURCE: CAI, BELL POTTER

Table 3 – CAI performance rights on Issue

SOURCE: CAI, BELL POTTER

As part of the purchase of the Warrawoona Gold Project the vendor, AIM listed Keras

Resources hold 525m performance rights. This is a large number of rights that vest on

some relatively near term and achievable events. We see some considerable dilution on

the near term horizon.

Major shareholders include Keras Resources PLC (21% - of which CAI management hold

18% interest), Novo Resources (5.5%) and Haoma Mining NL (3.5%). Management hold

7% of the company including the 18% indirect interest in Keras Resources PLC.

CAI holds cash last reported at $11m (30th September 2017) and no debt.

Expiring Options (m) Strike Price (A$) Value (A$m)

13/06/2019 87.5 $0.022 $1.93

13/06/2020 31 $0.025 $0.78

18/04/2021 50 $0.020 $1.00

13/06/2020 24 $0.030 $0.72

Total/Average 192.5 $0.023 $4.42

Class Rights (m)

Class A 250

Class B 275

Total 525

>500koz indicated JORC resource

Event

Complete positive PFS

Page 8


M&A and commercialisation options

It is still early days at the project and for the company. However, the Pilbara Region is alive

with interest and exploration activity, albeit predominately for conglomerate gold. The

recently consolidated gold project is likely to attract attention. The project is only 65km from

Millennium Minerals’ (MOY.ASX) Nullagine Gold project and consequently within trucking

distance of their plant. In addition, Haoma’s Bamboo Creek operation is located a similar

distance away and some consolidation in the region is possible. The recent interest from

North American gold producers and explorers, albeit predominately for conglomerate gold,

shows another potential source of interest.

The recent JV and appearance of Novo Resources (NVO.TSXV) on the CAI register opens

up a number of potential synergies should Novo be successful in its conglomerate gold

exploration and look to develop a project in the vicinity. In addition, as Novo owns the

589,000 oz Beatons Creek deposit located only 55km away. Novo has the market

capitalisation to support a new gold project in the region.

Page 9


Warrawoona Project, W.A (100%)

Background

The project has been mined at various times as small separate workings since 1897. The

project was previously owned by Jupiter Mining who completed a number of studies

including a metallurgical review and resource estimate. Jupiter became more focussed on

iron ore at a time of lower gold prices and these assets received little attention. Prior to this

the project was owned by Rio Tinto, Aztec Resources and Lynas Resources. An estimated

25kt @ 30g/t Au for 24,300oz has been mined historically. Most workings are small but

there a number of deep and likely sizeable workings centred at Klondyke Queen.

Previously multiple separate ownerships were not consolidated as one. The consolidation

of the entire greenstone belt under one owner makes the project much more viable. The

bulk of the project has been consolidated from three major sources as follows;

A purchase of the old Jupiter project and resource from Arcadia Resources

An option and purchase (now complete) at Klondyke and Copenhagen/Coronation

from ASX listed Haoma Mining (HAO.ASX)

A joint venture on the tenements surrounding Klondyke with TSX listed Novo

Resources (NVO.TSXV). Novo retains the rights to any conglomerate gold

discoveries on the JV tenements.

The Klondyke Project is the main project and consequently main focus of this report. The

other highly prospective prospects of Copenhagen and Fieldings Gulley are discussed in

the exploration section on page 13.

Location, Infrastructure and access

Access from Marble Bar is via an unsealed gazetted road linking Marble Bar and Nullagine

and a local exploration track. Topography is relatively flat, although quite rugged

immediately at the project. This will not present significant issues for mining and may assist

in lowering strip ratios.

Figure 2 - Warrawoona project location Figure 3 - Warrawoona Gold Project

SOURCE: CAI SOURCE: CAI

The Klondyke Resource is on Mining Leases that are pre-native title. One environmental

consideration is the presence of protected ghost bats within the Klondyke Queen Mine in

the far west of the resource. This will likely require a management plan but is not

considered a fatal flaw. Environmental and heritage surveys will need to be completed as

Page 10


part of a feasibility study here. Klondyke East is on an exploration licence and will require a

native title agreement.

Klondyke geology, resources and reserves

Geology

The mineralisation at Klondyke is hosted in narrow banded quartz veins and surrounding

altered selvedges of chert and schist. The mineralisation is hosted within a 12.5km E-W

trending shear zone sandwiched between a footwall ultramafic and hangingwall sediment.

Mineralisation is slightly remobilised and enriched when NE trending shears cross the main

shear zone.

Figure 4 – Klondyke long section

The mineralisation averages 20m width with individual high grade ore shoots from 2m –

15m wide, and dips steeply to the south. It has been defined over 2.5km, the trend has

been traced 7.5km and we feel there is prospectivity over 4km. The mineralisation holds

together in an inferred resource but is often poddy, nuggetty and discontinuous on a local

scale making grade control a likely priority should mining occur.

Klondyke Exploration

Exploration upside is considered very favourable at Klondyke. Drilling and old workings

show that much of 12.5km of the Klondyke shear is prospective, only 4km of strike has

received any sort of exploration with the remainder largely untested. However, outside this

4km the historical workings appear more isolated and smaller.

In and around the Klondyke resource, historical workings at Klondyke Queen on the

western edge of the resource and at Klondyke Boulder to the east of the resource show

sizeable operations that go quite deep. Indications on site suggest localized high grade

plunging shoots with greater down dip potential than strike potential. Delineation of these

shoots may indicate future underground potential. The over 200 known historical workings

produced at impressive average grades that include;

Klondyke Queen – 187g/t Au

Klondyke Boulder – 40g/t Au

Golden Gauntlet – 50g/t Au

St George – 167g/t Au

British Exploration of Australia – 184g/t Au

Page 11


Figure 5 - Klondyke Cross section A Figure 6 - Klondyke Cross section B

SOURCE: CAI SOURCE: CAI

Resources

The Klondyke project hosts a JORC compliant inferred resource of 5.6Mt @ 2.08g/t Au for

374,000oz at a lower cut of 0.5g/t Au. The resource remains open with drilling and

historical workings indicating considerably more upside along strike and down dip. When

the small high-grade Copenhagen Resource of 0.18Mt @ 6.1g/t for 36,000oz is added the

global JORC compliant resource currently stands at 410koz at a 0.5g/t Au lower cut-off

grade.

Table 4 – Warrawoona mineral resources (22 June 2017)

SOURCE: CAI, 100% OF PROJECT

We believe that much of the current drilling density could support an indicated resource.

The resource is currently classed inferred due to the historical nature of some of the drilling

data and the fact that it was often assayed through aqua regia rather than screen fire

assays. The former will likely under call the grade. A program of hole twinning and

resampling using fire assay could improve the classification and possibly the grade quickly

and easily. The SG estimate for this resource looks low at 2.4 and the lower cut used to

form the previous resource wireframe was 0.8g/t Au. We see scope to lower the lower cut

Category Tonnes (Mt) Grade (g/t Au) Contained Gold (Koz)

Inferred 5.8 2.21 410

Total 5.8 2.21 410

Page 12


on wireframing and improve density measurements which could improve the historical

resource.

A considerable amount of upside exists when the gap position between the current

resource (Figure 4) is incorporated in the upcoming resource estimate. In addition, the

trend remains open east and west over 12.5km, of which only 2.6km is currently

adequately tested with drilling. Drilling in the gap position has returned some impressive

drilling results that include 19m @ 3.4g/t Au, 14m @ 3.8g/t Au, 20m @ 1.45g/t Au and 9m

@ 4.6g/t Au. All are relatively shallow depth intersections within 150m of surface.

Potential mining discussion

It is still early days but potential future mining would likely take the form of a simple open

cut operation initially, with evidence that pods of higher grades could support future

underground mining at depth. But much more work is required. Water in the Klondyke

Queen shaft is estimated at >40m. Grade control will be important given the localized

nuggetty nature of mineralisation. Geotechnical and groundwater studies are yet to be

completed.

Potential processing discussion

Some preliminary test work indicates the ore would process well through a standard

gravity- CIL plant on site or through toll treating at Millennium Minerals Nullagine plant

(65km away) or Haoma’s Bamboo Creek Plant (70km away, currently closed). The recent

drilling results suggest the project has potential to support a standalone operation and we

believe management is more likely to focus on this option than a toll treat operation.

Preliminary metallurgical test work indicates metallurgical recoveries of >90%. Gravity

recovery is indicated as favourably high at >60% which will be favourable for costs.

Residence time for CIL processing looks favourable and grind size is a manageable

106microns with low reagent consumption expected. Processing water will need to be

sourced in this arid part of the country. Power would likely be diesel power on site. More

test work is required.

Regional Exploration

Outside the immediate vicinity of the Klondyke Resource, we see considerable exploration

potential. The main targets include Klondyke East, Klondyke West, Copenhagen and

Fieldings Gully. CAI is conducting systematic exploration which includes a 6 month

program of study by CSIRO that includes mapping, geophysics and geological

interpretation including detailed structural mapping. Drilling is ongoing. CAI has recently

employed a well credentialed geology manager and exploration manager.

Klondyke East

The Klondyke East exploration licence was recently acquired through a joint venture with

Novo Resources that doubled the size of the Warrawoona project for 20m shares and a

$2m expenditure commitment over 3 years. The highlight of this transaction is a 5km

extension of the Klondyke trend to the south east of the resource that is largely untested

but has already returned a number of encouraging intercepts including 2m @ 5.6g/t Au

from 31m and 4m @ 4.4g/t Au from 141m. CAI expects to commence drill testing this

target imminently.

In addition the tenement hosts a parallel 5km long soil‐rock Au anomaly (Horrigans) 800m

to the north of Klondyke East and located on the Novo Tenements that has never been drill

tested. This anomaly could represent mineralisation on a separate parallel shear.

Page 13


Klondyke West

The 5km of strike to the west of the Klondyke Resource hosts a number of substantial

historical workings but has received little drilling. This prospect is likely to receive drilling

attention after Klondyke East.

Copenhagen, Coronation and Fieldings Gully

These projects are located to the west of Klondyke on interpreted splays off the Klondyke

shear or on a faulted offset to the main shear to the west (Figure 4). Geologically they

show potential. A small open pit was completed at Copenhagen and a small, shallow

(<100m deep), high grade resource of 36koz at 6.1g/t has been delineated. Mineralisation

is hosted within a shear zone in highly deformed ultramafic rocks which are sandwiched

between two chert horizons. Some encouraging shallow high grade results have been

returned which include 6m @ 7.7g/t Au, 4m @ 7.5g/t Au and 18m @ 4.4 g/t Au.

Intersections to date host narrower (1mwide) zones at significantly higher grades.

Coronation is located to the west. This prospect hosts some encouraging intersections that

include 9m @ 5.2g/t Au, 12m @ 8.0g/t Au and 8m @ 7.6g/t Au.

Fieldings Gully is located to the south west of Coronation within sheared ultramafic. Initial

drilling results are very encouraging and include 10m @ 9.7g/t Au, 16m @ 3.5g/t Au, 21m

@ 1.9g/t Au and 8m @ 4g/t Au.

Conglomerates – Greenfields exploration

CAI is focussed on very exciting high grade conventional gold mineralisation. However the

Warrawoona Project is situated within the Pilbara Province and hosts several prospective

horizons. The Pilbara region has seen significant excitement recently as many companies

led by CAI’s JV partner Novo resources have discovered large accumulations of gold

nuggets hosted within an Archaean conglomerate. Analogies to the multi-billion ounce

Witwatersrand province in South Africa have been made, although this is very early days

and a long way from being proven or capable of supporting an economic outcome.

The JV with Novo does not give CAI the rights to any conglomerate sourced gold.

However, the tenements held outside this JV do. CAI is completing reconnaissance

mapping on its 41km of strike or 36km2 of identified Mt Roe Basalt. Mt Roe Basalt is the

unit that sits stratigraphically directly above the conglomerate horizon that is shown to host

gold elsewhere in the Pilbara.

Figure 7 - Klondyke Project Figure 8 - Copenhagen Pit

SOURCE: BELL POTTER SECURITIES SOURCE: BELL POTTER SECURITIES

Page 14


Board and management

We feel management has a track record of mining that is well suited to gold mining in

Australia. Managing Director David Reeves is a Mining Engineer and the recently

appointed Geology Manager, Jane Allen a geologist, both appear to have the experience

to advance the project.

Non-Executive Chairman – Keith Coughlan has almost 30 years’ experience in

stockbroking and funds management. He has been largely involved in the funding and

promoting of resource companies listed on ASX, AIM and TSX, has advised various

companies on the identification and acquisition of resource projects and was previously

employed by one of Australia’s then largest funds. Mr Coughlan is currently the managing

director of European Metals Holdings (AIM and ASX) and recently retired as chairman of

ASX listed Talga Resources Limited.

Managing Director – David Reeves is a mining engineer with 30 years of experience in

the mining industry, he is currently a director of Keras Resources Plc (AIM) and Non-

executive Chairman of European Metals Holdings (ASX and AIM). Mr Reeves has

extensive experience in international capital markets through his involvement with various

listed London and Australian companies. Mr Reeves has a first class WA Mine Managers

ticket and a Graduate Diploma in Finance and Investment. He was managing director of

Keras Resources Plc when Keras consolidated the Calidus project area and has over 20

years’ experience in gold and precious metal development.

Non-Executive Director – Adam Miethke a geologist with over 16 years’ experience in

the metals and mining industry, including funds management and more recently as a

corporate advisor. Mr Miethke initially worked for Rio Tinto’s iron ore division before joining

Snowden Mining Consultants where he worked across all commodities in Australia, Africa,

Eastern Europe and South America. After completing an MBA in 2008, he joined Regent

Pacific Group in Hong Kong as technical director, overseeing the group’s investment

portfolio. Between 2011 and 2016, Mr Miethke was a director of the corporate finance team

at Argonaut Capital Limited, and led Argonaut’s metals and mining division.

Non-Executive Director – Peter Hepburn-Brown a mining engineer with over 35 years’

international mining experience. Mr Hepburn-Brown is a non-executive director of Keras

Resources Plc (AIM) and Focus Minerals Ltd (ASX). He was most recently managing

director of Philippines based Medusa Mining Ltd (ASX).

Geology Manager – Jane Allen has over 30 years’ experience in managing greenfields,

brownfields and near mine exploration in gold and base metals. Jane has previously been

employed by Anglogold Ashanti, Resolute Mining Limited, Avion Gold Corporation and

Great Central Mines. She most recently headed up Brownfields Exploration for Anglogold

Ashanti for all Continental African Operations.

CFO & Company Secretary – James Carter is a CPA and Chartered Company Secretary

with 20 years’ international experience in the mining industry. Mr Carter is currently the

Chief Financial Officer (CFO) of Keras Resources Plc (AIM). Prior to this he was CFO of

Straits Resources Limited, an ASX200 diversified mining group, and CFO and company

secretary of SGX listed Straits Asia Resources where he was integral to its development

as a 10 million tonne per annum coal producer in Indonesia. Mr Carter has experience

working in debt and capital equity markets, tax strategy, mergers and acquisitions and in

corporate governance.

Page 15


Calidus Resources (CAI)

Company description

CAI is a Perth-based company focused on gold exploration at its 100% owned

Warrawoona project in the Pilbara region of Western Australia. CAI listed on the ASX in

June 2017.

The project hosts a 410koz Inferred Resource at open-pitable depths, recent drilling in the

gap between the eastern and western portions of this resource have returned encouraging

results. We expect the company to release a significant upgrade to this resource this

month. In addition, we see significant exploration upside at the Warrawoona project with

recent drilling intersections across several prospects including 6 metres @ 63g/t Au, 27

metres @ 5.9g/t Au, 25m @ 3.4g/t Au, 10m @ 9.7g/t Au, 12 metres @ 3.7g/t Au, 9 metres

@ 4.6g/t Au, 33m @ 1.1g/t Au, 5m @ 4.8g/t Au and 24m @ 1.1g/t Au showing real

promise.

Investment thesis – Buy (Speculative), Valuation $0.055/sh

We believe CAI’s Warrawoona gold project is showing evidence of hosting a significant

gold discovery. Our sum of the parts valuation incorporates an insitu ounce valuation,

exploration tenure valuation and cash. We value, and dilute for options and performance

rights in our valuation. We initiate with a Speculative Buy and see potential for upside on

the current market valuation as well as favourable near term news flow.

Valuation –SOTP based on exploration potential and resources

The project is at an early stage of exploration with a small resource at Klondyke and

Copenhagen expected to grow substantially from the initial resource of 400koz which was

previously spread over separately owned tenements. A DCF valuation is not appropriate at

this time. The stage of the project does lend itself to an exploration potential and resource

ounce valuation though.

We are comfortable that the project hosts circa 700koz based on current resources and

anticipated additions from recent drilling. The median valuation for insitu resource ounces

for ASX listed exploration companies is A$52/oz. We believe the quality of the resources

would justify a premium to this, but at this stage value these resources at the median value

per ounce, resulting in an insitu valuation of $36.4m.

In terms of exploration upside, we see huge potential along the 12.5km strike of the

Klondyke trend, the encouraging intersections at Fieldings Gulley and Copenhagen as well

as potential conglomerate gold. In addition, the large consolidated tenements and various

options for value generation with neighbours or as a standalone prospect have value.

Based on peer reviews of other gold exploration portfolio valuations we value CAI’s

exploration portfolio at $30m.

We assume cash at 31 December 2017 of $10m and value it at face value. We assume the

A$4.4m value of in-the-money share options are exercised and dilute our valuation by

192.5m shares accordingly.

We also assume the 250m Class A performance rights, attributable to the vendor Keras

Resources, on announcing a >500koz indicated resource are issued and dilute our

valuation accordingly.

Our total sum-of-the-parts (SOTP) valuation for CAI is $81m or $0.055/share after dilution

for options and class A performance rights. Valuation of $81m ($0.055/sh)

Page 16


Resource sector risks

Risks to CAI include, but are not limited to:

The key risks for resources investments include, but are not limited to:

Gold price volatility: The relatively liquid nature of gold makes it subject to wide

fluctuations in price, particularly during more difficult economic times or major world events.

Associated with gold price volatility are potentially different gold price and foreign exchange

rate outcomes to our forecasts.

Lack of exploration success: Geology generally and gold mineralisation in particular can

often have a locally complex nature. There may also be locally variable alteration and

weathering and there may be areas which contain greater than expected geological

complexities that may be difficult to resolve without extensive drilling programs and may

inhibit the definition of adequate resources and reserves.

Lack of funding: Exploration companies generally do not have a source of revenue and

so they require access to funding to enable them to carry out adequate exploration and

related development activities in order to continue to develop their operations. CAI is well

funded for its near term exploration needs.

Metallurgical issues: Based on the processing of material to date, generally high gold

recoveries were obtained, indicating the mineralised Klondyke material is free milling but

specific and extensive test work needs to be done on the gold mineralisation to establish

its metallurgical characteristics. Subsequent identification of adverse metallurgical

characteristics may arise from such test work that could lead to the need for more

complicated and expensive processing requirements.

Share capital dilution: CAI has 192.5m in-the-money options on issue as well as 525m

performance rights. The risk to dilution of the 1031.7m (of which 327.5m are escrowed and

not always apparent at first viewing of the company) is considered high.

Statutory and environmental approvals: Ghost bats are reported from the Klondyke

Queen workings immediately west of the Klondyke resource. These will need due

consideration should the company look to advance toward mining. Their presence is

believed to be manageable as part of any future mining venture, but does offer potential for

permitting complications and/or parts of the resource not being accessed. The Klondyke

permit is a granted mining licence, but Klondyke East is an exploration licence.

Inappropriate acquisitions or takeover: CAI is a junior explorer. All explorers are at risk

of making inappropriate acquisitions. CAI could potentially be the recipient of takeover

activity that undervalues the potential from longer term value.

Page 17


Bell Potter Securities Limited ACN 25 006 390 7721

Level 38, Aurora Place 88 Phillip Street, Sydney 2000

Telephone +61 2 9255 7200 www.bellpotter.com.au

Recommendation structure

Buy: Expect >15% total return on a

12 month view. For stocks regarded

as ‘Speculative’ a return of >30% is

expected.

Hold: Expect total return between -5%

and 15% on a 12 month view

Sell: Expect <-5% total return on a

12 month view

Speculative Investments are either start-up

enterprises with nil or only prospective

operations or recently commenced

operations with only forecast cash flows, or

companies that have commenced

operations or have been in operation for

some time but have only forecast cash

flows and/or a stressed balance sheet.

Such investments may carry an

exceptionally high level of capital risk and

volatility of returns.

Research Team

Staff Member

TS Lim

Industrials

Sam Haddad

Chris Savage

Jonathan Snape

Tim Piper

John Hester

Tanushree Jain

Financials

TS Lim

Lafitani Sotiriou

Resources

Peter Arden

David Coates

Duncan Hughes

Associates

James Filius

Alexander McLean

Title/Sector

Head of Research

Industrials

Industrials

Industrials

Industrials

Healthcare

Healthcare/Biotech

Banks/Regionals

Diversified

Resources

Resources

Resources

Analyst

Analyst

Phone

612 8224 2810

612 8224 2819

612 8224 2835

613 9235 1601

612 8224 2825

612 8224 2871

612 8224 2849

612 8224 2810

613 9235 1668

613 9235 1833

612 8224 2887

618 9326 7667

613 9235 1612

612 8224 2886

@bellpotter.com.au

tslim

shaddad

csavage

jsnape

tpiper

jhester

tnjain

tslim

lsotiriou

parden

dcoates

dhughes

jfilius

amclean

The following may affect your legal rights. Important Disclaimer:

This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities

Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified

countries. In Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission,

Hong Kong. This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of

any specific client’s financial situation, particular needs and investment objectives (‘relevant personal circumstances’), a Bell Potter Securities Limited investment adviser (or the

financial services licensee, or the representative of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be made

aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document.

While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained

in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the

information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views opinions, or

recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued.

Except insofar as liability under any statute cannot be excluded. Bell Potter Securities Limited and its directors, employees and consultants do not accept any liability (whether

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Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting

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Disclosure: Bell Potter Securities acted as co-manager to a $10m placement in September 2017 and received fees for that service.

Exploration Risk Warning:

The stocks of resource companies without revenue streams from product sales should always be regarded as speculative in character. Since most exploration companies fit

this description, the speculative designation applies to all exploration stocks. Stocks with ‘Speculative’ designation are prone to high volatility in share price movements.

Exploration and regulatory risks are inherent in exploration stocks. Exploration companies engage in exploration programs that usually have multiple phases to them where

positive results at some stages are not indicative of ultimate exploration success and even after exploration success, there is often insufficient economic justification to warrant

development of an extractive operation and there is still significant risk that even a development project with favourable economic parameters and forecast outcomes may fail to

achieve those outcomes. Investors are advised to be cognisant of these risks before buying such a stock as CAI.

ANALYST CERTIFICATION

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

Documents

See key risks on Page 16. be suitable for retail clients ... · With this program ongoing the encouraging news flow should continue. At the flagship Klondyke project, we estimate