EQUITIES BW RESEARCH

27 FEBRUARY 2015

Blackham Resources Ltd (BLK) | Initiation Coverage

Rating: Matilda Project , a re-emerging BUY mining district 1 Target Price : $0.40 Investment Summary

Projected Return: Blackham Resources has commenced drilling at the Matilda mine as 300% initiation of a 13 month plan to establish a free milling gold Reserve and 1 recommence production at the Wiluna Processing Facility. Underpinned by 12 month target a large tenement position and sizeable gold resources Blackham has the ability to emerge in 2016 as a producer of over 100,000 ozs of gold per year

with a mine life in excess of ten years. Company Statistics Investment Highlights Share Price (AUD$) 0.135 Market Cap (AUD$) 24.0 Enterprise Value (AUD$) 21.0  Purchase of the Wiluna Mine and processing facility allowed Issued Shares (mil) 177.9 consolidation of the region under single ownership Options (mil)  Tenements of 780km2 surrounding the Wiluna Processing Facility (unlisted) 20.3 with a total gold resource of 4.7million oz Cash 3.0  13 month time line to re-establish >100,000ozpa gold production Debt nil  All proposed mining operations within 20km of the Wiluna Processing Facility. Low capital requirement to re-start gold EV/Resource ounce $4.45 production  Drilling underway to confirm 5 year Reserve with Initial focus on

Earnings Summary free milling gold ore at the Matilda Mine FY Yr. End 2015e 2016e 2017e 2018e  High grade underground quartz reef deposits will provide Revenue ($AU) 0 0 132 167 additional low cost ounces EBITDA ($AU) N/A N/A 57 70  Potential to quickly expand gold Reserves for mine life of more Net Income than ten years N/A N/A 36.7 45.0 ($AU) EV/EBITDA 0.37 0.30 Investment Recommendation

Initiate with a BUY Rating and a $0.40 price target. Share Price Our price target reflects a 300% premium to the last traded price and is based on an NPV derived from our DCF model of the Matilda Gold Project and a comparison with similar projects and recent market acquisitions.

The price target reflects the risks associated with a project of this nature and does not include the considerable upside of a successful extension of mine life beyond 5 years.

As Blackham meets the target as set out in the 13 month plan to re-starting production at the Wiluna Processing Facility we would expect the share price to progressively appreciate towards the target price. Company Description Recent market action, including the overbid by Northern Star of Metals X’s Blackham Resources Ltd is a WA gold exploration proposal to purchase Tanami Gold’s Central Desert Project suggest that and development company undertaking feasibility corporate activity is increasing for assets that can be readily brought into studies at its Matilda Gold Project to supply ore to production. This could flow through to a rapid increase in the Blackham recommence operations at the Wiluna Processing share price. Facility.

Analyst Chris Bain, MAusIMM, MAICD 61 3 9602 4807 [email protected]

Disclosure: BW Equities advise that they and persons associated with them may have an interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages in connection with the making of a recommendation or a dealing by a client in these securities or by seeking to do business with companies covered in this report. Investors should consider investment risks and conflicts highlighted at the end of this report and not only consider this report in making an investment decision. Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

Wiluna District Mining History

Gold mining in the Wiluna district has a long history with three eras of production. Discovered in 1896 and worked until 1912, then reopened in 1931 and worked until 1945, producing a reported two million ounces, predominantly from the underground East and West Lodes.

Modern exploitation began in the 1980s with Barrack Mines reprocessing high grade tailings and mining oxide open pit resources. Asarco Gold, identified the Bulletin deposit together with underground refractory resources at Creek Shear and Happy Jack and constructed a BIOX® treatment facility to recover the gold.

To the south of the Wiluna mining centre, the Matilda Gold Mine (previously named Mt Wilkinson and Wiluna South) was operated by Chevron Exploration in the late 1980s and by Eon Metals in the early 1990s. During this period it produced 2.2Mt @ 2.6g/t Au for 181,000oz of gold. During that period the Matilda Mine had a processing facility, however, it was removed from site at the end of Eon’s tenure. Between 1992 and 1996 Asarco mined some 1.5mt of ore from Matilda, treating it at the Wiluna plant to produce 117,200 ounces of gold. There has been no production from the Matilda mine since 1996.

Wiluna historic production – 1897 to 2003

In November 2011, Blackham acquired the Matilda Mine and surrounding tenements together with the Williamson Mine in a package of 500km2 of tenements virtually surrounding the Apex Minerals owned and then operating Wiluna Mine. Then in 2014, Blackham purchased the Wiluna mine and processing plant from the liquidators of Apex Minerals bringing the broader Wiluna district back into single ownership.

The Wiluna Processing Facility (WPF) comprises a 1.3Mtpa processing plant with two milling circuits, one configured for oxide ore and one for harder underground ore together capable of at least 100kozpa gold production. The plant includes a Biox circuit for treating refractory ores. Also included is a gas power station with diesel backup, permitted borefields and infrastructure, a 350 person village, sealed airstrip and roads. Significant underground development and infrastructure is already in place as are operating approvals and licenses.

Page 1

Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

The ownership history of the Matilda and Wiluna gold projects over the last 30 years is summarised below.

Dates of Ownership Company May 1984 to January 1991 Barrack Mines January 1991 to January 1994 Asarco Gold January 1994 to December 1997 Wiluna Mines December 1997 to April 2000 April 2000 to February 2002 February 2002 to December 2003 New mont December 2003 to April 2007 Agincourt Resources Apr 2007 to July 2007 Wiluna, July 2011 Matilda (merged into Oz Minerals) July 2007 to March 2014 () Apex Minerals NL July 2011 to Nov 2011 (Matilda Mine) Kimba Resources Limited Nov 2011 to present (Matilda Mine) Blackham Resources Limited March 2014 to present (Wiluna Gold Mine) Blackham Resources Limited

Geology of the Wiluna district

The Matilda Gold Project, in the northern Goldfields region of , is located at the northern extremity of the Archean Norseman-Wiluna greenstone belt. Kalgoorlie some 500km to the south lies on the same greenstone belt.

At Wiluna, the gold deposits are within a series of very low grade metamorphosed mafic and ultra-mafic lava flows, Individually the gold lodes are controlled by the Wiluna strike slip fault system with mineralisation on dilational jogs, divergent bends and splays with ore shoots plunging moderately to steeply south. Fault hosted ore breccias, net veined breccias and brecciated veins are important for gold deposition.

The fault hosted mineralisation contains varying levels of sulphides including pyrite-arsenopyrite and stibnite, with gold occurring as minute inclusions within the arsenopyrite and stibnite, hence the refractory nature of the ore.

More broadly in the district there are a series of quartz reef trends: predominant northwest (stratigraphy parallel) reefs, and minor north- northwest and east-west reefs. The quartz reefs formed prior to the main refractory gold event and have been affected to varying degrees by that late-stage fault mineralising event.

Around the Matilda mine the major ore source is the gold reefs in which pyrite is the dominant sulphide with gold occurring on the sulphide crystal boundaries and consequently it is generally free milling. Despite Wiluna’s long production history, these quartz reef systems have had very little systematic exploration in modern times.

Page 2

Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

Blackham Exploration and Evaluation

Since acquiring the Matilda Gold Project in 2011, Blackham has completed 27,000m of drilling together with a re- evaluation of the significant geological database, resulting in a large increase in the resource base. Blackham has updated resource estimates for each of the main deposits, namely Matilda, Williamson, Regent and Galaxy.

Running in parallel to the resource work has been metallurgical test work at Matilda (to PFS standard) and at Galaxy. An initial mining scoping study was completed and combined with early process engineering for the design of a new free-milling plant at the proposed Matilda mine, Blackham did not proceed with this plan. Toll treating of the Matilda ore at the WPF was also considered when it was still operated by Apex Minerals NL (“Apex”) but no agreement was reached before Apex went into administration.

In March 2014 Blackham purchased the Wiluna Mine tenements, processing plant and infrastructure. This allowed consolidation with their Matilda Project and Blackham has now developed a plan to bring the WPF back into production with a primary focus on the free milling ores.

Blackham has assembled a strong development team with significant operational experience including at the WPF. The recent equity capital raising of $3m allows Blackham to move forward on its plan to restart production at the Matilda Gold Project. Studies are already well advanced and Blackham has announced a fast track 13 month timetable to production.

Matilda Gold Project Resources

Blackham’s Matilda Gold Project covers 780km2 of tenements surrounding the WPF and has a total Resource of 44mt @3.3g/t gold for 4.7million ounces of gold. In December 2014, Blackham outlined a mineral inventory of 5mt@ 2.8g/t for 454,000 ozs of free milling gold which is sufficient for the first four years of production. All the prospects being evaluated are within 20km of the WPF.

In January 2015 in conjunction with the recent capital raising the company outlined a series of exploration targets from which they expect to define a larger free milling Inferred gold resource which will then be upgraded to support a minimum five-year mine life to enable the re-start of operations at the WPF.

Research Comment: Blackham has a rich portfolio of projects ranging from fully developed mines to highly prospective exploration targets supported by an operational processing facility with flexibility to treat free milling oxide and fresh as well as refractory ores. With a total resource of 4.7 million ounces Blackham is in a unique position to prioritise the best ore sources to feed a restart of gold production at the WPF in line with their announced timetable. The chart below indicates the priority targets. Refer also to Blackham Resources ASX announcement 15th January 2015 – “Growing the Matilda Mine Life”

Page 3

Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

Matilda Mine

Drilling has now commenced on a 4,000m drill program at Matilda Mine designed to follow up on last year’s drilling that intersected down plunge extensions of mineralisation, none of which is included in the current Matilda Mine Resources. Drilling will evaluate the:  M4 northern and southern extensions;  M2 northern extensions;  M1 west and Central lode northern extensions; and  Further definition of lodes linking M1/M3/M4 and M2 sub pits.

Research Comment: results from the drilling program should push the proposed M4 open pit north by 300metres from the previously optimised pit shown above. Drilling from last year is yet to be included in the published resource which we expect can increase the M4 open pit resource by 75kozs and potentially more if mining can link the M4 and M2 pits. Additional resources are also anticipated at M1.The Matilda mine will underpin early operations for Blackham.

Page 4

Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

Williamson Mine

Located some 20km south of the WPF, was developed and mined by Agincourt in 2005-2006. Williamson is part of a system that includes the Carroll and Prior prospects on parallel and linking structures. It is a wide lower grade structure with an existing free milling Resource of 6.3 mt @1.7g/t for 350kozs of gold with potential to supply low cost open pit feed to the WPF. Mineralisation is known to extend along the structure for at least 1.5km south of the pit and includes some high grade intersections. Blackham has a resource target of 70kozs to 290kozs at Williamson. At the nearby Carroll and Prior, mineralisation has been identified over some 3km also comprising free milling multiple stacked gold lodes. Blackham has a target resource at Carroll and Prior of 230kozs to 640kozs.

Research comment: although there is much more work to be done at the Williamson Mine and related prospects the presence of high-grade shoots and wide zones of structurally controlled mineralisation over a considerable strike distance suggests that additional resources in the mid-range of Blackham’s target is readily achievable.

Galaxy

The northern most prospect in the Blackham tenements located 15km NNW from the WPF, Galaxy is interpreted to be the fault offset extension of the Golden Age/Republic/Brothers reef system. Current open pit resource is 550kt of 2.9g/t gold for 51kozs of free milling gold. Further work will likely expand this resource and there is significant potential for high-grade extensions into a future underground operation.

Underground Quartz Reefs

Priority areas for high-grade underground ore are the Golden Age, Republic and Brothers gold quartz reefs.

Golden Age was last mined systematically by Agincourt and has a fully developed resource of 490kt @ 7.4g/t for 120,000ozs. The Republic and Brothers quartz reefs lie respectively above and below the Golden Age Reef but are not yet fully delineated. Both offer significant upside with easy access from the existing Golden Age mine development. Blackham has an exploration target of 65kozs to 320kozs in the Republic Reef and has initial plans to drill the Republic reef from surface.

Research Comment: Blackham is planning drilling from surface in the current program. We anticipate that an additional 6-8 new drill holes from surface across the projected outline of the reef shown in the adjoining diagram could bring the Republic Reef to an Inferred Resource containing some 200kozs at close to 7g/t gold.

Page 5

Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

Valuation

We base our valuation of Blackham on both a Discounted Cash Flow (DCF) valuation and comparable values of recent market transactions to put the value into a market context.

Prior to completion by Blackham of a PFS a DCF valuation contains many undemonstrated assumptions, nevertheless because of the initial work done by Blackham on the Matilda mine and the operating history at Wiluna it provides a useful guide to current value and potential future value. We have applied the DCF approach for two scenarios. The first scenario is Blackham meeting its announced timetable and commencing production in H2 2016 with a 5 Year mine life. The second is to look at the improved valuation from an expansion of the mine life to 10 years. For the purpose of an initial target price only the first scenario is used, whilst the second scenario demonstrates the upside potential when Blackham meets its objective under the first scenario.

Scenario 1 - Blackham commences production with a 5 year mine life. We have used a USD gold price and exchange rate range around the current market values. On conversion this gives an average AUD gold price of $1550/oz that has been used in the DCF model. Key parameters are:

Gold Price US$1150 -1275/oz AUDUSD 0.75 – 0.82 Gold Price A$1550 Avg Annual Tonnes Ore mined 1.3mtpy and processed 80% OP/20% UG Avg Grade processed 2.8g/t gold Avg Recovery 91% 5 yr total production 527kozs gold Cash Cost C1 A$952/oz All in Sustaining Cost AISC A$1182/oz Capex (inc DFS drilling) $35m Project Debt $20m Project Equity* $15m Average annual EBITDA $58m Project 5 year NPV(8%) $105m Value per Share* $0.42 *Project Equity is assumed to be $15million as either direct equity or a convertible note priced at 20c per share. Value per share is on a fully diluted basis after conversion.

Head grade, strip ratio, costs and capital are based on public information from Blackham and comparison with similar operations in WA.

Discounted cash flow valuations prior to all production parameters being confirmed are by the nature of the assumptions somewhat subjective. However, the DCF valuation of Blackham based on an initial 5 year mine life as shown above is considered conservative and lower than comparable market values for similar projects.

Scenario 2 – Extension of the mine life out to 10 years. Production is assumed to maintain a steady state of ~110,000 ozs gold per year with any contribution of refractory ore and resultant higher costs and lower recovery offset by the typically higher-grade of refractory ore mined. This value is speculative as Blackham needs to undertake considerable work to convert Resources to Reserves to support a 10 year life, however, it does provide a measure of the upside. Work undertaken by Blackham to date suggests that once in production such a scenario is reasonable and any additional capital for development will be readily funded from cash flow. On this basis the NPV (8%) valuation for Blackham is $186m or $0.74 per share fully diluted.

Page 6

Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

Market Comparative Valuation

On 9th February 2015 Metals X announced that it had reached agreement to progressively purchase a 75% interest in Tanami Gold NL’s Central Tanami Project (CTP). The initial consideration for 25% was $11m and 4m Metals X shares valued on the day at $4.8m for a total $15.8m. The CTP has a total Resource of 25.5mt @ 3g/t gold for 2.625m ozs, almost half at the Groundrush mine. The CTP includes a 1.2mtpy processing facility currently on care and maintenance. Calculating the value per ounce of resource Metals X paid $24/Resource ounce of gold. Using a direct comparative value of Blackham’s resource inventory of 4.7 m ozs would value Blackham at $113 million. We note that Groundrush mine has a significant inventory of gold per vertical metre making it an attractive low cost mine and Metals X has the reputation and financial ability to refurbish and operate the mine with few of the perceived risks of a newcomer like Blackham, nevertheless, it does compare well with the DCF value of Blackham when the Company confirms a 5 year Life for the Matilda Gold Project.

Late News on 27 February 2015, Northern Star announced an overbid for the Central Tanami Project, valuing it at $30/resource ounce for the initial 25%. This values Blackham at $143m.

Excelsior Gold is a Kalgoorlie, WA, gold exploration and development company with a large tenement position in the Bardoc area. Excelsior has an agreement to contribute capital to the upgrade of Norton Gold’s Paddington mill for an allocation of 500,000 to 650,000 tpy of capacity to process its gold ore for up to 10 years. Excelsior has a total resource of 1.38m ozs across 22 areas although just over 1m ozs of this is in two locations in their Central Mining Area. Excelsior expects to be able to deliver early ore in addition to the above agreement by June 2015. The current arrangement limits production to about 35,000 ozs py, however, for the company it is a relatively low cost rapid path to production. Market Capitalisation of Excelsior is $42m, or $33/resource ounce, giving a comparative value to Blackham of $154 million.

Valuation Summary

Blackham achieves its short term objective and reduces project risk by confirming the Resource upgrade, completing the PFS, committing to a DFS and locking in development funding, then the equity market will recognise the achievement and move to value Blackham accordingly. As such we have a target share price of $0.40 by year-end 2015 with progressive uplift from the current price as the key objectives are met.

Page 7

Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015

Disclaimer This research was prepared for wholesale investors only as defined by section 708 of the Corporations Act. This report was prepared as a private communication to clients and was not intended for public circulation or publication or for the use of any third party, without the approval of BW Equities Pty Ltd (BW Equities). While this report is based on information from sources which BW Equities considers reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect BW Equities judgment at this date and are subject to change. BW Equities has no obligation to provide revised assessments in the event of changed circumstances.

BW Equities, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions. This report is made without consideration of any specific client’s investment objectives, financial situation or needs. Those acting upon such information do so entirely at their own risk. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

DISCLOSURE OF INTEREST

BW Equities and/or its affiliated companies may make markets in the securities discussed. Further, BW Equities and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included in this report and may, as principal or agent, sell such securities.

The Directors of BW Equities advise that they and persons associated with them may have an interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation, and that some or all of our Authorised Representatives may be remunerated wholly or partly by way of commission.

ANALYST DISCLOSURE

I, Chris Bain, certify that the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received compensation based on several factors including BW's total revenues, a portion of which are generated by investment banking activities.

BW Equities Pty Ltd ABN 66 146 642 462 AFS Licence No. 389353

Page 8