Bluestone Resources Inc. Initiating Coverage 2 May 2019
Cerro Blanco - a golden opportunity
Bluestone Resources Inc. (‘Bluestone Resources’) is a TSX-V listed,
mine development company, developing the Cerro Blanco underground gold deposit in Guatemala. Cerro Blanco will be a high- Target price (CAD) 2.4 Share price (CAD) 1.1 grade, low cost, gold mine that could produce 113koz/yr for an initial eight years, at the low AISC of USD 579/oz, commencing in Q4 2021. Previous owners, Goldcorp, spent over USD 170m on the project, reducing the initial capital requirement while largely de- Ticker BSR.V, BSR.CN Sector Metals & Mining risking underground mine development and de-watering. We Shares fully diluted (m) 103.7 initiate coverage of Bluestone Resources with a BUY Market cap (USDm) 63.5 recommendation and a target price of CAD 2.40/sh. Net debt Q1'19 (USDm) (20)
Minority interests (USDm) - Enterprise value (USDm) 44 Free float (%) 33 High grade – high margin – near term production The Cerro Blanco gold deposit is one of the highest-grade gold Performance deposits in the world, containing reserves of 0.94Moz at 8.5g/t gold CAD and 32.2g/t silver. The fully permitted mine will produce 113koz/yr at 1.50 the low AISC of USD 579/oz for its 8-year mine life, commencing in Q4 2021. 1.40
1.30 Resource upgrade to increase valuation by 10-12% 1.20 2019 drilling is targeting conversion of 0.20-0.25Moz of inferred resources, 60% of which could be converted to reserves for inclusion 1.10 within the mine plan. Successful conversion would increase our 1.00 valuation by 10-12% to CAD 2.62-2.68/sh. May-18 Jul-18 Sep-18 Nov-18 Feb-19 Apr-19 BSR S&P/TSX Gblobal Mining (Rebased)
Financing the USD 195.7m initial capital to commence Q1’20 Source: Factset To date, over USD 75m in equity has been raised, aided by a supportive register, which includes the Lundin Group (34% holders). Historic transactions and the strong register support our modelled debt-equity financing package of USD 206.5m consisting of 58% debt and 42% equity. Financing should commence in Q1 2020.
USDm 2017 2018 2019e 2020e 2021e Revenues - - - - 6 EBITDA (8) (25) (17) (10) (3)
EBIT (8) (25) (17) (10) (5)
EPS (0.07) (0.40) (0.19) (0.08) (0.06) EPS adj (0.22) (0.39) (0.21) (0.06) (0.06) DPS - - - - -
EV/EBITDA - - - - - EV/EBIT - - - - - P/E adj - - - - -
P/B 1.02 1.83 1.82 1.17 1.27
ROE (%) - - - - Analysts Div yield (%) - - - - - Jack Garman +44 207 786 4383, [email protected] Net debt (30) (7) (8) (43) 115 Source: Pareto
Bluestone Resources Inc. Initiating Coverage
Please refer to important disclosures on the last 5 pages of this document Bluestone Resources Inc. Initiating Coverage
Investment highlights
• We value Bluestone Resources at 0.6x NAV(5%) of CAD 2.39/sh and we initiate coverage with a target price of CAD 2.40/sh. • Bluestone Resources is trading at P/NAV(5%)~0.5x, below our peer group average of 0.7x, we expect Bluestone Resources to trade at 0.6x NAV(5%) close to our target price of CAD 2.40/sh within the next 12 months. • At a 10% discount rate, our 0.6x NAV(10%) valuation is CAD 1.72/sh, which indicates over 60% upside to the current share price. • Cerro Blanco is one of the highest-grade undeveloped gold deposits in the world with contained reserves of 0.94Moz grading 8.50g/t gold. The fully permitted mine will produce 113koz/yr at the low AISC of USD 579/oz for its 8-year mine life from Q4 2021. • The Lundin Group own 34% of Bluestone Resources, and two Lundin Group executives are on the board. We expect Bluestone Resources to trade in line with Lundin Group mining and mine development companies, in addition we expect the Lundin Group to continue to provide strong support as the company advances.
Valuation increase opportunities • Current drilling is targeting the conversion 0.20-0.25Moz of inferred resources to the measured and indicated category for inclusion in the mine plan. We estimate a 10-12% valuation increase. • The addition of optical ore sorting could improve recoveries and lower processing costs. Deferring the construction of a paste backfill plant for three years could decrease initial capital by 7% and increase our valuation by 3%. We expect an updated study (optimized mine plan) in Q1 2020. • We have attributed no value to the Mita geothermal project, which to date has received USD 60m in capital expenditure (from previous owners, Goldcorp). The geothermal project could generate up to 20MW of power, sufficient to supply the mine and store or sell additional power. A decision on the project will be taken after Cerro Blanco enters production.
Re-rate opportunities
• Cerro Blanco has an NPV(5%)/Capex ratio of 1.2x and an initial capital requirement of USD 195.7m, benefitting from over 3,200m of underground development that was completed by the previous owners, Goldcorp. We expect financing to commence in Q1 2020 and highlight successful financing as a catalyst for a re-rate. • Guatemalan presidential elections will commence in June 2019 and should be finalised in August 2019; if elections proceed without controversy, and one of the three frontrunners gains power, we expect our country risk rating to be reduced and the cost of capital to be reduced accordingly. Pareto’s catalyst timeline
Catalysts Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Increased mineral resources Q1’20: Updated economics Feasibility study incorporating value-add opportunities and additional reserves. Upsized CAD 22m financing Q4’19-Q1’20: Re-rate to 0.6x Guatemalan elections NAV(5%) after financing. Q1’21: Re-rate to 0.6-0.8x
Inferred resource conversion (5%) NAV in production.
Optimized mine plan
Financing plan and capital raising Q3’19: Inferred resources Construction 0.20-0.25Moz upgrade, could
Production increase valuation by 10-12 %. Source: Pareto
2 May 2019 Pareto Securities Research 2(35) Bluestone Resources Inc. Initiating Coverage
Valuation Our valuation Our valuation is based on a sum of the parts discounted cash flow valuation of the Cerro Blanco deposit, discounted at 5%. We have adjusted our valuation for Q1’19e balance sheet items, after tax PV(5%) of G&A, working capital and ITM instruments. Our basecase valuation applies a 0.6x NAV valuation multiple using a long-term gold price of USD 1,326/oz and a silver price of USD 17/oz.
Pareto valuation
Mining assets Discount Rate Pareto Valuation USDm Multiple CAD/sh Cerro-Blanco 5% 223.22 0.6x 2.12 Exploration 27.80 " 0.25 Total/Average 260.02 " 2.37
Financial adjustments (Q1’19e) Cash & Equivalents 19.82 0.6x 0.18 After-tax PV G&A & Interest 5% (40.56) " (0.37) Working Capital (2.25) " (0.02) Total Debt - " - ITM Instruments 24.22 " 0.22 Net asset value 261.26 " 2.39 Source: Pareto
We value Bluestone Resources using a 0.6x NAV(5%) valuation multiple based on comparable data for similar projects in similar jurisdictions, we believe Bluestone We expect Bluestone Resources will be trading at 0.6x NAV(5%) within the next twelve months. This Resources to trade at 0.6x projection is in-line with the trading multiples of Lundin Group mining and mine NAV(5%) within 12 months development companies. Lundin Gold for example, is less than eight months away from first production and trading at 0.6x NAV(5%) (1.0x NAV(10%)). Bluestone Resources is expected to trade at a similar multiple when it reaches the same development stage.
Valuation
CAD/share 3.98 4.00 3.18
3.00 2.39
2.00 1.53
1.00 1.09 - 52-Week High & Low 0.6x NAV(5%) 0.8x NAV(5%) 1.0x NAV(5%) Share Price Basecase Scenario 1 Scenario 2 Source: Pareto
We value Bluestone Resources at a 0.6x NAV(5%) of CAD 2.39/sh, as Cerro Blanco enters production we would expect Bluestone Resources to achieve a higher valuation multiple. At 0.8x NAV(5%) we value Bluestone Resources at CAD 3.18/sh, a 33% increase in our valuation.
2 May 2019 Pareto Securities Research 3(35) Bluestone Resources Inc. Initiating Coverage
Valuation sensitivities Bluestone Resources will generate 96% of its net smelter revenue (NSR) from gold and 4% from silver, as a result our valuation is highly sensitive to the gold price. Our basecase valuation uses our long-term gold price of USD 1,326.0/oz, a 15% increase in gold price to USD 1,437.5 increases our 0.6x NAV(5%) by 47% to CAD 3.51/sh.
Pareto valuation sensitivities to gold price and discount rate
Source: Pareto
In addition, our valuation is highly sensitive to discount rate, we have used a discount rate of 5% in our basecase valuation, in-line with our Canadian peers. At a discount rate of 10%, our valuation decreases by 28% to CAD 1.72/sh, which still represents over 60% upside to the current share price.
Pareto valuation operational sensitivities
Source: Pareto
Capital and operating costs have a limited effect on our valuation, largely because the project has very high margins, based on our basecase cost and gold price assumptions.
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Valuation comps Our comparable peer group contains six high-grade gold mine development projects as well as projects at similar development stages, located in similar risk rated jurisdictions.
Market capitalisation of peer group(1)
(1) April 2019 market capitalisation Source: Factset, Pareto, April 2019
Bluestone Resources has a P/NAV(10%) of 0.4x, which is the lowest of its peer group, the peer group average is 0.7x and Lundin Gold, a Lundin Group company currently trades at 1.0x NAV(10%) or 0.6x NAV(5%). We expect Bluestone Resources to trade above the peer group average. When Cerro Blanco enters commercial production Bluestone Resources could trade up to 1.0x NAV(10%) or 0.6x NAV(5%). We expect the stock to re-rate over the next twelve months.
P/NAV(10%) of peer group(2)
Average~0.74x
(2) April 2019 valuation and share price, using a 10% discount rate Source: Pareto, April 2019
On an EV/Reserves and resources basis Bluestone Resources is undervalued, the company has a valuation of USD 35/oz, below the average of USD 51/oz, we expect Bluestone Resources to trade closer to USD 51/oz as it approaches production. Lundin Gold is valued at USD 107/oz.
EV/Reserves and resources(3)
Average~51x
(3) April 2019 EV and reserves and resources Source: Pareto, April 2019
2 May 2019 Pareto Securities Research 5(35) Bluestone Resources Inc. Initiating Coverage
Financing – selective and effective capital raisings to date To date, Bluestone Resources has raised over USD 75m through equity placements for the Cerro Blanco and Mita Geothermal assets. In April 2017 Bluestone Resources raised CAD 80m through a private placement of subscription receipts, with support from the Lundin Group and existing shareholders, in order to acquire the Cerro Blanco asset for USD 18m in cash, 3.10m shares equivalent to 4.9% of Bluestone Resources, a 1% NSR and 0.26m common share purchase warrants. The remainder of the CAD 80m was used to purchase some mine equipment, and to fund exploration and study works to advance the Cerro Blanco project. Historic financings
Date Type of finance Gross Proceeds Number of shares Issue price Premium to 1-month VWAP Use of proceeds Jul-15 Private placement (5:1 reverse split) CAD 0.94m 18.73 CAD 0.05 N/A General working capital Apr-17 Private placement (subscription receipts) CAD 80.00m 53.33 CAD 1.50 N/A Acquisition of Cerro Blanco Jun-17 Private placement CAD 0.75m 0.50 CAD 1.50 N/A General working capital Mar-19 Bought deal CAD 22.43m 17.94 CAD 1.25 (0.4%) Cerro Blanco development Source: Factset
The initial capital cost for the construction of Cerro Blanco is USD 195.7m, which we believe can be raised through a conventional debt-equity split financing. While other, higher cost of capital financing options are potentially available, we believe these are unlikely to be required for the Cerro Blanco project, due to its strong near-term return profile, supportive shareholder register and successful financing track-record. The life of mine gold production is less than 1Moz and silver production is 3Moz, which leaves limited production available for stream or offtake agreements, which could potentially act as an alternative source of funding.
We have modelled a combined debt-equity financing package of USD 206.5m consisting of 58% debt, or USD 120.0m at 8% interest rate with a five-year term and 42% equity, or USD 86.5m corresponding to the issue of 90m shares at CAD 1.25/sh. We expect a project financing plan and the first capital raising to commence in Q1 2020.
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Investment thesis Low cost production drives margins Bluestone Resource’s Cerro Blanco mine will produce 113koz/yr at the AISC of USD 579/oz for its initial 8-year mine life. Peak production of 149koz of gold or 157koz of gold equivalent will be achieved in 2022, the first full year of commercial production. Production will then remain steady at around 150koz/yr gold equivalent for the first three full years of commercial production.
Low cost production
Source: Pareto
From 2022, Bluestone Resources should generate positive net cash flows from operations totalling USD 646m for the 8-year life of mine. Free cash flows peak in 2022, the first full-year of commercial production, at USD 127m, in line with an FCF margin of over 60%. As the head grade of gold decreases by 26% from 10.20g/t in 2024 to 7.50g/t in 2025 the FCF margin narrows to 40% and FCF decreases.
8 years of positive unlevered mine free cash flows
Source: Pareto
EBITDA and cash flow highlight the same pattern of strong earnings largely driven by the high head grades early in the mine life. We have projected a bullet repayment of the principal USD 120m debt facility in 2025, which corresponds with a negative net cash flow of USD 45m.
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Net free cash flow
Source: Pareto
Over 3,200m of lateral development already completed Goldcorp spent USD 170m on The Cerro Blanco deposit has an initial capital cost of USD 195.7m, of which 17% the project, completing over or USD 32.4m is for mine and mine development. Previous exploration campaigns 3,200m of lateral at Cerro Blanco have resulted in over 3,200m of lateral underground underground development, development, which includes two underground declines that are 4.5m wide by which de-risks underground 5.0m high and fully serviced with power, ventilation and air and water piping. development and dewatering Four ventilation raises exist, therefore only two additional ventilation raises will of the underground. be required during full production. Based on projected lateral development costs of USD 3,080/m (5.0m by 5.0m decline) and capital raise bore rates of USD 2,150/m) we estimate the previous development has reduced the initial capital estimate by a minimum of USD 9.85m. In addition, underground development largely de-risks any underground mining and dewatering concerns around the project.
High grade gold deposits are more likely to get built Cerro Blanco is one of the highest-grade gold deposits in the world. Of the 18 high grade gold deposits below, nine are currently in production, two are in construction and four are in the pre-construction phase either awaiting permitting or financing.
High grade gold deposits by grade and resource
Source: Company publications, April 2019.
2 May 2019 Pareto Securities Research 8(35) Bluestone Resources Inc. Initiating Coverage
0.20-0.25Moz of inferred gold Cerro Blanco contains proven and probable reserves of 0.94Moz of gold, or resources could be converted 0.99Moz of contained metal at the high-grade of 8.50g/t gold. All of this has been to measured and indicated incorporated into the mine plan, with current life of mine production estimated resources in 2019. at 0.90Moz, assuming a 96% gold recovery. Additional (exclusive of reserves) measured and indicated resources of approximately 0.27Moz of gold have been defined and further inferred resources of 0.36Moz at 8.10g/t have also been defined.
Cerro Blanco reserves and resources(1)
Tonnage Gold grade Silver grade Contained gold Contained gold equivalent (Mt) (g/t) (g/t) (Moz) (Moz) Proven 0.31 8.30 31.40 0.08 0.09 Probable 3.13 8.50 32.30 0.86 0.90 Total reserves 3.44 8.50 32.20 0.94 0.99
Measured 0.29 10.30 39.10 0.10 0.10 Indicated 3.43 10.00 37.80 1.11 1.15 Inferred 1.37 8.10 23.60 0.36 0.37 Total resources 5.09 9.56 34.04 1.56 1.64 (1) Resources are inclusive of reserves Source: Bluestone Resources reserves and resources statements 29th Jan ‘19, 10th Sep ‘18.
Bluestone Resources are targeting the conversion of between 0.20-0.25Moz of the 0.36Moz inferred resources to measured and indicated resources, facilitating their inclusion in the reserves statement and an updated mine plan. Inferred resources are shown in blue, overleaf on the schematic cross-section. The location and distribution of inferred resources are both similar to those of the measured and indicated resources. Inferred resources appear to be comprised of material that lacks the drill data resolution to be classified in the measured and indicated categories, rather than material that cannot be economically mined. We expect further drilling, as part of the planned 14,000m drill program to increase the confidence in these areas, allowing the upgrading and incorporation of the current inferred material into the measured and indicated categories.
Resource conversion could improve post-2023 production profile
Source: Pareto
Inferred ounces reflect areas Since publishing resources in February 2017, total contained equivalent of limited drilling rather than resources increased by 19% in July 2018. Of the 1.64Moz of contained gold areas where the ore body equivalent metal within resources in July 2018, 60% was converted to reserves in differs. Limited underground the January 2019 update, indicating a relatively high reserves conversion ratio. development has restricted We expect between 0.20-0.25Moz of inferred resources to be converted to access to these areas measured and indicated resources. Of those converted resources, we expect previously. 60%, or 0.12-0.15Moz of gold to be added to the reserves.
2 May 2019 Pareto Securities Research 9(35) Bluestone Resources Inc. Initiating Coverage
Inferred resources that can potentially be upgrade
Source: Bluestone Resources, Feasibility Study Presentation, January 2019
Reserves increases by 0.12- The addition of 0.12Moz to the reserves and mine plan, would increase our 0.6x 0.15Moz could increase our NAV(5%) by 10% to CAD 2.62/sh. An increase of 0.15Moz, at the top end of valuation by 10-12%. Bluestone Resources’ guided range would increase our 0.6x NAV(5%) by 12% to CAD 2.68/sh. Additional reserves will be included in an optimised mine plan which we expect to be published in Q1 2020.
Reserves addition NAV(5%)
3.00 CAD/share 2.62 2.68 2.39
2.00 1.53
1.00 1.09
- 52-Week High & Low 0.6x NAV(5%) 120koz reserve addition 150koz reserve addition Share Price Basecase Scenario 3 Scenario 4 Source: Pareto
2 May 2019 Pareto Securities Research 10(35) Bluestone Resources Inc. Initiating Coverage
Long-term exploration upside The Cerro Blanco deposit is located within a broad zone of hydrothermal alteration associated with low sulphidation mineralisation. Cerro Blanco is located under a sinter zone in a structurally complex area made up of east-west trending faults. Approximately 800m north west of Cerro Blanco there is a similar structural complex, adjacent to a similar zone of sinter at an identical stratigraphic level to Cerro Blanco. Stratigraphic level and structure are very important when exploring for low-sulphidation deposits as structure is required to act as a conduit for hydrothermal fluids, which are allowed to disperse when they intersect a porous host rock in the stratigraphy, such as a volcaniclastic rock or a breccia.
When the fluids disperse, and the pressure drops, the hydrothermal fluid boils (1st boiling), releasing metals in, and adjacent to the conduit. Further mixing of Satellite target 800m to the the dispersed fluids with cold, meteoric water induces further precipitation of northwest has a similar metals. Sinter zones can be formed when these hydrothermal fluids reach the geological setting to Cerro surface, leaching the host rocks leaving residual silica, and adding additional Blanco and should become a hydrothermal silica. The geological setting of the largely unexplored zone 800m priority exploration target. northwest of Cerro Blanco shows several similarities to that of Cerro Blanco, we believe this is a promising exploration target.
Project geology map highlighting long-term exploration prospect
Source: Bluestone February 2017 PEA, source from Goldcorp Feasibility Study 2014.
A discovery of similar grade to Regional exploration will be prioritised once inferred resources have been Cerro Blanco would be a upgraded to the measured and indicated categories. Satellite targets present a gamechanger. late mine life opportunity to increase the asset value by adding significant ounces to the life of mine plan.
2 May 2019 Pareto Securities Research 11(35) Bluestone Resources Inc. Initiating Coverage
Feasibility Study (FS) vs Preliminary Economic Assessment (PEA) The Cerro Blanco project study valuation decreased slightly in the January 2019 FS, compared to the February 2017 PEA, largely due to increased capital and mining costs in the FS. Initial capital increased by 15% from USD 171m to USD 196m and LOM sustaining capital increased by 25% from USD 112m to USD 140m. Mining costs increased by 37% from USD 49.06/t to USD 67.01/t largely due to the increased proportion of the more expensive cut and fill mining. Additional operating costs (site services) of USD 19.21/t were also included in the FS, which are related to additional dewatering (USD 7.21/t processed) requirements identified in the hydrological modelling, and water treatment costs (USD 5.21/t processed). The same dewatering requirements have led to increases in the initial capital costs, as additional infrastructure required to facilitate the de-watering has been included in the initial capital estimate in the FS.
PEA vs FS
Reserves and resources PEA (Feb 2017) FS (Jan 2019) Deviation (%) M&I Resources Tonnage (Mt) 3.73 3.72 (0.4%) Gold grade (g/t) 10.22 10.05 (1.7%) Silver grade " 36.50 37.90 3.8% Contained gold (koz) 1,242 1,201 (3.3%) Inferred Resources Tonnage (Mt) 0.24 1.37 465.0% Gold grade (g/t) 6.02 8.09 34.4% Silver grade " 4.20 23.58 461.4% Contained gold (koz) 47 357 659.6% Total reserves and resources RR contained gold (koz) 1,289 1,558 20.9% RR contained gold equivalent " 1,329 1,640 23.4% Operating assumptions PEA (Feb 2017) FS (Jan 2019) Deviation (%) Mine life years 9 8 (11.1%) Throughput capacity Mt/year 0.46 0.46 -- Plant availability (%) 92% 92% -- Head grade gold (g/t) 8.14 8.49 4.3% Head grade silver " 27.95 32.24 15.3% Gold recovery (%) 91.30 96.00 5.1% Silver recovery " 87.80 85.00 (3.2%) Average gold production (koz) 105 112 6.7% Average silver production " 344 375 9.0% Payable gold production (%) 99.80% 99.75% (0.1%) Payable silver production " 99.00% 99.00% -- LOM payable gold production " 950 899 (5.4%) LOM payable silver production " 3,109 3,000 (3.5%) Operating costs PEA (Feb 2017) FS (Jan 2019) Deviation (%) Mining (USD/t milled) 49.06 67.01 36.6% Processing " 29.26 19.79 (32.4%) Site services " 19.21 -- G&A " 17.26 11.76 (31.9%) Power cost (USD/kWh) 0.10 0.06 (40.0%) Diesel cost (USD/l) 2.50 0.79 (68.4%) Cash costs (net of by-product) (USD/oz) 477 -- -- AISC (net of silver) " 490 579 18.2% AISC " -- 639 -- Capital costs PEA (Feb 2017) FS (Jan 2019) Deviation (%) Initial capital cost (USDm) 171 196 14.6% Sustaining capital (USDm/yr) 112 140 25.0% Study economics PEA (Feb 2017) FS (Jan 2019) Deviation (%) Gold price (USD/oz) 1,250 1,250 -- Silver price " 16 18 12.5% Discount rate (%) 5% 5% -- After-tax NPV (5%) (USDm) 317 241 (23.4%) IRR (%) 44% 34% (22.7%) Payback (years) 1.8 2.1 16.7% Source: Bluestone Resources PEA Feb 2017 and PFS Jan 2019
The projects NPV(5%) decreased by 23% from USD 317m to USD 241m, IRR decreased from 44% to 34% and the payback time increased from 1.8 years to 2.1 years. While the project economics decreased in the feasibility study, we believe the economics are still favourable, and we highlight potential improvements from optical ore sorting, deferring the paste plant construction for up to three years, as well as potential valuation increases from resource upgrades and the inclusion of the Mita geothermal project in our valuation if further economic studies for the project prove fruitful.
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Optical ore sorting could lower operating costs Optical ore sorting uses laser scatter patterns to categorise rock properties, and ideally, ore grade. The laser scatter pattern from preliminary tests completed by Outotec, indicated that the Cerro Blanco ore was amenable to optical ore sorting.
Optical ore sorting - testing
Source: Bluestone Resources feasibility study, Jan 2019
Bulk sample tests were subsequently completed to follow up on preliminary results. Three tonnes of bulk samples were tested, and the results indicated a high level of success in the 15-60mm size fraction. Further sampling is required to confirm the applicability of optical ore sorting. Implementing optical ore sorting technology into the processing circuit could lower operating costs and improve recoveries, most effectively in the early years of production when mining high-grade ore. Optical ore sorting will be considered in optimisation and trade off studies expected in Q1 2020. Deferring paste backfill plant could lower initial capital by 7% The paste plant has an initial capital cost of USD 14.3m. The requirement for a paste plant can be deferred by three years through the use of cemented rock fill for rib pillars in place of paste. The deferral would decrease Bluestone Resources initial capital cost by 7.34% from USD 195.7m to USD 181.4m. The initial capital cost decrease could increase our NPV(5%) by 2.7% to USD 238.5m.
Mita Geothermal Project is a free option Goldcorp spent USD 60m on Despite USD 60m having been spent to date on the development of the Mita the Mita Geothermal project, geothermal project, adjacent to the Cerro Blanco mine, we have attributed no we have not attributed any value to this project in our valuation. To date, 19 geothermal wells, ten standard value to it as it will not be a diameter and nine slim wells, have been drilled at the Mita project down to a focus area until Cerro Blanco maximum depth of 1,500m. Wells helped model a water resource, which enters production. Goldcorp used to compile a pre-feasibility study in 2011 and a feasibility study in 2013, both of which remained internal. In 2015, Goldcorp were awarded a license to build and operate a 50MW geothermal power plant. Bluestone Resources believe the MIta geothermal project could currently generate 5-10MW of power, and with upgrades it could generate between 15-20MW, which would be sufficient to supply the 15MW demand from the mine, additional power generated could be sold to the grid.
A multi-well flow test program was completed in January 2019 to collect resource data to facilitate future resource modelling and to predict resource performance. This will contribute to project design in any further studies. The four week long,
2 May 2019 Pareto Securities Research 13(35) Bluestone Resources Inc. Initiating Coverage
multi-well flow test program was the first of its kind at Mita, previous tests were shorter and focussed on single wells. We believe that the Mita Geothermal project is unlikely to advance until after the Cerro Blanco deposit enters commercial production.
The Guatemalan power grid is located approximately 8km away from the mine and geothermal site, and prior to mine start up, an 8.2km, 69kV power line will be installed. While the EIA and underground mine have been fully permitted, design changes will require an update to the Environmental Management Plan (EMP). Notifications to the EIA are required for the access road and powerline.
Limited community within projects’ area of influence We do not expect any Cerro Blanco is located in the southeast of Guatemala within the Asunción Mita community issues, as a very municipality, 5km away from the town itself. Asunción Mita contains small population is present in approximately 17,500 people and is the most significant town within the projects the project area – those external area of influence. Cerro Blanco has a very limited population within the communities present are license area, which is approximately 15.25km2 in area. Local communities within supportive of the project’s and around the project have been very supportive of the project. development. Project license area and surrounding communities
Source: Bluestone Resources feasibility study, January 2019
2 May 2019 Pareto Securities Research 14(35) Bluestone Resources Inc. Initiating Coverage
Invaluable support from the Lundin Group – although Bluestone Resources is not a Lundin Group Company Combined Zebra Holdings and Investments Sarl and Lorito Holdings Ltd; Lundin Group investment vehicles, own 33.6% of Bluestone Resources, ensuring the Lundin Family is the largest shareholder by a margin. The second largest shareholder is CD Capital, who own 14.7%. In addition, William Lamb and Paul McRae, both of whom have worked with and held directorships of Lundin Group companies, are directors of Bluestone Resources. William Lamb is the lead director, he has been involved with the Lundin Group operations since 2008 when he joined and led Lucara Diamonds (LUC). Paul McRae is an independent director of Lundin Gold (LUG) and Filo Mining (FIL) and until December 2018 he was the Senior Vice President of Projects at Lundin Mining (LUMI).
Lundin Group mining company’s indexed returns Aug ‘16 – April ‘19(1)
(1) Volume weighted return on equity (excluding dividends) for LUMI, LUG, LUC, FIL and NGE Source: Pareto
Lundin Group mine The Lundin Group of mining companies have consistently outperformed the S&P development companies Mining index in both bull and bear market scenarios. The Lundin Group of outperformed the S&P Small companies have returned 17.7% since August 2016 while the S&P 500 Mining has Cap 600 index, returning 62% returned only 6.7%. Similarly, the Lundin Group pre-production mining vs the index which returned companies, Filo Mining and NGEx Resources have consistently outperformed the 11% S&P Small Cap 600 index returning 61.9% compared to the S&P Small Cap 600 index which has returned 10.9%.
Lundin Group pre-production mining company’s indexed returns Aug ‘16 – April ‘19(2)
(2) Volume weighted returns for FIL and NGE Source: Pareto
The Lundin Group companies typically trade at a slight premium to their peers. Below we highlight current trading multiples for the Lundin Group mining and mine development companies, calculated at a 10% discount rate using a 1.0x NAV valuation multiple. The PFS stage developers, NGEx Resources and Filo Mining who published PFS studies in Q4 2018 and Q1 2019 respectively trade at 0.1x and 0.2x NAV(10%) respectively. Lucara Diamonds, currently producing and looking to expand is trading at 0.9x NAV(10%) and Lundin Gold, which will be producing in Dec 2019, is trading at 1.0x NAV(10%).
2 May 2019 Pareto Securities Research 15(35) Bluestone Resources Inc. Initiating Coverage
Lundin Group mining development company’s(1)
PFS stage developer FS stage developer 2019 producer
Average~0.4x
(1) 1.0x NAV valuations at 10% discount rate Source Pareto
Bluestone Resources is currently trading at a P/NAV(10%) of 0.4x, we expect the company to trade closer to 0.6x at this stage of development and as the company approaches production, it could trade at higher levels in line with its producing Lundin Group peers by first production.
2 May 2019 Pareto Securities Research 16(35) Bluestone Resources Inc. Initiating Coverage
Investment risks Hot water ingress The Cerro Blanco deposit is an active low-sulphidation (hot-spring) deposit. Hot springs are hot pressurised water channels that travel towards the surface through structural conduits. Within the Cerro Blanco underground development, the water from hot springs is approximately 65ᵒC and pH neutral. As a result, intersecting hot water can affect both exploration and production drilling rates. When water is intersected production must be halted until the pressure wanes, as a result mine development rates can be affected by intersecting hot springs. Dewatering the mine by conventional methods does not reduce the likelihood of intersecting hot springs, as was detailed in the hydrological model, the hot springs near surface are being fed from a much larger reservoir at depth, however it does improve the management of any water generated from hot springs.
Cerro Blanco ore reserves and water table
Source: JDS, Bluestone Feasibility Study, Jan 2019
To date, USD 170m has been spent developing the Cerro Blanco project. 3,200m of underground decline development, seventeen dewatering wells have been drilled. Dewatering at 300gpm (gallons per minute) from dewatering wells lowered the water table to 440m above sea level, which is approximately the mid-point of the planned development. An additional 8 dewatering wells will be drilled to facilitate increased dewatering from greater depths, which should continue to bring the water table down to below the 185m level, and below the base of the proposed development. Water is currently pumped out at 300gpm, water is then treated (reducing As content) and either re-injected or discharged into the environment at a rate of 150gpm.
2 May 2019 Pareto Securities Research 17(35) Bluestone Resources Inc. Initiating Coverage
Declining production profile – grade matters Cerro Blanco’s gold production peaks in the first full year of commercial production with 157koz of gold equivalent production. Mined ore volumes remain constant for the majority of the mine life, however the mined head grade declines from 11.50g/t to 5.40g/t gold during the mine life, resulting in lower gold production as the mine advances.
Gold equivalent production and grade
Source: Bluestone Resources Feasibility Study, Jan 2019
As a result of the declining grade the production margin becomes a little tighter later in the mine life. Clever mine scheduling has attempted to mitigate some of this margin pressure by increasing the proportion of lower cost, long-hole stoping later in the mine life to reduce mining costs, also the majority of the backfilling is completed earlier in the mine life. Despite this we note the net free cash flow margin narrows from 63% in 2022 to 43% in 2028.
Mined production and grade
Source: Bluestone Resources Feasibility Study, Jan 2019
Guatemala elections commencing June 2019 The first round of presidential, vice-presidential, congressional and mayoral elections commence on 16th June 2019, with the second round on 11th August 2019 if no one candidate receives over 50% of the vote in the first round.
Historically Guatemalan presidents have been involved in alleged corruption and as a result we believe political risk is the single highest-level country risk to operations. The current president, Jimmy Morales, ejected the United Nations CICIG, anti-corruption investigators, from Guatemala on January 7th 2019. Mr Morales’ predecessor, Otto Fernando Pérez Molina, president from January 2012 to September 2015, was convicted of heading a corruption scheme which also involved several other government officials, as a result he was forced to resign as president and was subsequently arrested. The centre-left president Alvaro Colóm Caballeros, in power from January 2008 to January 2012 was also jailed for corruption.
In the current presidential race, 24 out of the 29 Guatemalan political parties declared candidates, however there is no sign that a fair presidential race will be
2 May 2019 Pareto Securities Research 18(35) Bluestone Resources Inc. Initiating Coverage
allowed to take place as presidential contenders are being disqualified, arrested and even murdered. There are three candidates who are expected to lead the race:
Former attorney general, Thelma Aldana, who has attempted to register as a presidential candidate, however the electoral tribunal has repeatedly blocked her application. In addition, a warrant for her arrest has been issued, she is accused of embezzlement and falsification of public documents.
Zury Rios, is a right-wing Valor party candidate, she is the daughter of Efrain Rios Montt who was a former military ruler, convicted of genocide in 2013 – he died before his trial was concluded. Efrain Rios Montt took office in 1982 in a coup; and Guatemalan constitution prevents relatives up to four degrees of separation away from someone guilty of treason running for president. The Supreme Court and the Constitutional Court disagree on Zury Rios’ eligibility as a presidential candidate.
Sandra Torres, the National Unity of Hope candidate is the former wife of ex- president Alvaro Colom. To retain her eligibility, she divorced Alvaro Colom and ran as a presidential candidate in 2015. Charges have now been filed alleging she was involved in the corruption scandal associated with election financing in the 2015 elections.
Regardless of the election result we believe the risk to operations and production is limited, albeit the perceived financing risk remains high.
Tightly held company, with a low free float Bluestone Resources has a free float of 34% as the top fourteen insiders and institutions hold 62.8% of the outstanding shares. Of those holders, the Lundin Family (Zebra Holdings and Investments Sarl and Lorito Holdings Ltd) owns 33.6% and CD Capital own 14.7%, giving two holders 48.3% control of the company.
Bluestone Resources shareholder register
Insider/Institution Shares held (Mshares) Position (%) Lundin Family 27.48 33.60% CD Capital Ltd. 11.99 14.66% Robins, John E 3.99 4.88% Ruffer LLP 1.83 2.24% Franklin Advisers Inc. 1.73 2.12% AGF Management 1.33 1.63% Paterson, James R 0.64 0.78% Sprott Inc 0.62 0.76% CQS LLP 0.50 0.61% Hemstead, Peter T 0.33 0.40% Klinck, Darren 0.31 0.38% Fuchs & Associates Finance SA 0.27 0.33% CQS LLP 0.50 0.61% Hathaway, Peter L 0.17 0.21% LOGIQ Asset Management 0.11 0.13% Source: Factset and Pareto, April 2019
Lundin Group mining and mine development companies including Filo Mining, Lucara Diamonds, Lundin Gold, Lundin Mining and NGEx Resources are all dual listed in Toronto, on either the TSX or the TSX-V and in Stockholm, on the NASDAQ. While Bluestone Resources has indicated a reluctance to list in Stockholm in the immediate near-term, largely due to the cost associated with a secondary listing. We believe that a secondary listing could be reconsidered in the future, to boost liquidity and improve the effectiveness of equity financing.
2 May 2019 Pareto Securities Research 19(35) Bluestone Resources Inc. Initiating Coverage
Guatemala
Guatemala is located in Central America, bordering Mexico to the north west, Belize to the east and El Salvador and Honduras to the southeast. The country was plagued by civil war throughout much of the last century due to the US meddling in local politics. Since 1996, when the UN were successful at negotiating a peace-accord, the country has experienced relative stability. And, democratic elections have been held approximately every four years since. The relative stability has driven economic growth, the GDP growth rate has been positive every year since 1985 and the GDP (current USD) has increased by 3.8x from USD 1.57bn in 1996 to USD 7.56bn 2017. Despite the improved situation there are still significant problems with corruption, crime, poverty and the drug trade.
Guatemala GDP and current account balance
10.0% (%) GDP Growth Rate (%) Current account balance (% of GDP) 6.3% 5.0% 5.4% 4.8% 4.9% 4.4% 3.7% 3.9% 4.0% 3.8% 3.6% 3.9% 4.2% 3.7% 4.2% 4.1% 5.0% 3.1% 3.0% 3.2% 3.3% 3.3% 3.0% 3.1% 2.3% 2.5% 2.9% 2.8% 0.5%
- 1.5% 1.6% 0.7% (0.2%) (1.4%) (2.0%) (2.1%) (5.0%) (2.8%) (2.9%) (2.6%) (2.5%) (3.9%) (3.6%) (3.6%) (3.4%) (4.8%) (4.7%) (4.9%) (4.6%) (5.4%) (5.4%) (5.0%) (5.2%) (6.2%) (5.6%) (5.9%) (6.8%) (6.7%) (10.0%) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: The World Bank
As a result, Guatemala has a comparatively high overall risk rating compared to other Central American countries. We rate Guatemala at a risk rating of 8, the joint highest risk Central American country with Honduras, and above the average Central American risk rating of 5.6. This is largely driven by the political instability that we have eluded to in our ‘investment risk’ section above.
Guatemala risk rating
Country Political Operational Security Terrorism Risk rating Belize Low Low Low N/R 3 Costa Rica Low Low Low Insignificant 3 Guatemala High Medium Medium Low 8 Honduras Medium Medium High Low 8 Mexico Low Medium Medium Low 6 Nicaragua Medium Medium Low Low 6 Panama Low Medium Low Low 5 Source: S&P Country Risk ratings, H1 2018
Despite the high-risk rating and elevated political tensions in recent times, the country’s strong monetary policy has supported a stable macroeconomic environment. The leading interest rate remains at 2.75% and growth goals of 4.0%+/-1.0% inflation are expected to be met in 2019 and 2020. Since 2015 the current account balance has been positive, and in 2017 the current account balance was 1.6% of GDP. Guatemala is the 82nd largest economy in the world with a 2017 GDP per capita of USD 4,470.99. Guatemala is a net importer, importing USD 13.5bn worth of goods, over 20% of which is fuel for energy generation. 40% or USD 5.44bn worth of imports come from the United States. Guatemala exports USD 10.0bn worth of largely vegetable products and textiles, 42% or USD 4.19bn worth of Guatemala’s exports end up in the United States. Currently precious metal ores represent 0.44% of the exports.
2 May 2019 Pareto Securities Research 20(35) Bluestone Resources Inc. Initiating Coverage
Guatemala key figures
Currency Guatemalan Quetzal at GTQ:USD ~0.13 GDP (2017e nominal) USD 75.6bn/ USD 4,470.99 per capita Exports value USD 10bn, 5.3% metals and 5.6% mineral products Key export partners USA (42%), El Salvador (10%), Honduras (7%), Mexico (5%) and Nicaragua (5%) Imports value USD 13.5bn Key import partners USA (40%), China (14%), México (12%), El Salvador (6%) Land area 108,888 km² Population (2017) ̴16.91m Capital Guatemala City (population 2.45m) President Jimmy Morales (since January 2016) Administrative provinces 22 departments containing 340 municipalities Corporate tax rate 25% Royalties 1.00% Government Royalty Source: The World Bank, OEC
There are currently two operating mines in Guatemala, Solway’s Fenix nickel mine and Cunico’s Guaxilan nickel mine. Tahoe’s Escobal silver mine is currently suspended pending the ILO 169 consultation process, court approval and community engagement to regain its social license to operate. In addition, Goldcorp’s Marlin mine was closed in 2017 after depleting its resources.
2 May 2019 Pareto Securities Research 21(35) Bluestone Resources Inc. Initiating Coverage
Company summary
Bluestone Resources, formerly Indicator Minerals Inc. is a gold mine development company listed on the TSX Venture exchange in Toronto, Canada and on the OTCQB Venture Market in the US. Executive Chairman, John Robins acquired Bluestone Resources’ Cerro Blanco asset from Goldcorp in June 2017 for USD 18m in cash, 3.10m shares equivalent to 4.9% of Bluestone Resources, a 1% NSR and 0.26m common share purchase warrants. The acquisition was financed through a CAD 80m private placement of 53.3m subscription receipts at CAD 1.50 each, of which the Lundin Family acquired 19.87m giving the Lundin Family aggregate ownership of 31.4%.
Bluestone Resources company history
2.00 Price (CAD/share) Volume (000's shrs) 900
Oct 17: Darren Klinck, Zara Jan 18: Jeff Reinson Sep 18: Metallurgical optimisation Mar 19: Step-out drilling Boldt, Wiliam Lamb and Paul appointed as VP - Project test work increases gold recoveries intercepts 1m at 201.4g/t gold 800 1.75 McRae all appointed to the Development. to 96%, from 91% in the PEA. and 2,139g/t silver. board.
700 1.50
600 1.25
500
1.00
400
June 17: Darren Dec 17: David Cass appointed as Feb 18: Technical advisory Sep 18: Cerro Blanco MI Feb 19: Positive FS for Cerro Mar 19: Upsized CAD 0.75 Klinck appointed as VP - Exploration and Stephen committee established to resources increased to 1.2Moz Blanco announced with 22m bought deal President and CEO Williams appointed as VP advise on FS. at 10.1g/t gold and 37.9g/t NPV(5%) of USD 241m and financing closed. 300 of Bluestone, Corporate Development and silver. Inferred resources of IRR of 34%. effective 1st August. Investor Relations. 0.4Moz at 8.1g/t gold and 0.50 23.6g/t silver. 200
0.25 100
- - Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Source: Pareto
Subsequent to the acquisition, acting CEO, John Robbins, began to appoint a team that could execute further successful exploration and development of the Cerro Blanco development project. In June 2017 Darren Klinck, formerly of OceanaGold was appointed as CEO. Shortly afterwards, in October 2017, William Lamb and Paul McRae, both Lundin Group appointees, joined the board. Since the acquisition Bluestone Resources has drilled over 12,000m to convert resources into reserves, which were incorporated into the feasibility study published in January 2019. Drilling and study work were financed from the initial CAD 80m private placement that was partially used for the acquisition of Cerro Blanco. Further drilling is currently underway, the aim of which is to convert inferred resources into measured and indicated resources so that they can be converted to reserves and included in the mine plan. 2019 drilling was financed through an upsized bought deal financing of CAD 22m in March 2019, the outstanding balance raised will be used to commence pre-construction activities.
2 May 2019 Pareto Securities Research 22(35) Bluestone Resources Inc. Initiating Coverage
Asset summary Regional geology During the Upper Cretaceous the North American, Caribbean and Cocos tectonic plates collided, Guatemala lies on a boundary between two tectonic crustal blocks called the Maya Block to the North and the Chortis Block to the south. The result is vastly different geological settings in the north and south of Guatemala. The southern region is an active volcanic arc that parallels the Pacific Coast. The suture between the two blocks is defined by the Cuilca-Chixoy-Polochic east-west trending left-lateral transform fault and the collision between the three plates resulted in additional regional scale faulting in the same orientation. Regional geology of Guatemala
Source: Bluestone Resources PFS, Jan 2019
Gold deposits in Guatemala, that we know of, are located in the Chortis Block, in a metallogenic belt that parallels the volcanic arc, in a zone of extensional tectonics and associated basalt-rhyolite volcanism which is believed to be between 4-8Ma. Bi-modal volcanic terrane such as this one adjacent to volcanic arcs are a typical setting for low-sulphidation epithermal deposits.
2 May 2019 Pareto Securities Research 23(35) Bluestone Resources Inc. Initiating Coverage
Cerro Blanco deposit Cerro Blanco is a low-sulphidation hot spring deposit with typical quartz- chalcedony-adularia-calcite vein mineralogy surrounded by a zone of hydrothermal alteration that is 5x1km and exhibits low-sulphidation style alteration. Cerro Blanco deposit geology
Source: Bluestone Resources PFS, Jan 2019
Mineralisation at Cerro Blanco is hosted in two zones, the North and South zones which, combined, strike 800m in length and mineralization persists for a 360m depth extent down to 180m above sea level. Approximately 92% of Cerro Blanco’s mineralisation is hosted in 28 veins. High-grade mineralisation is hosted in laterally stacked, sub-parallel, narrow veins striking northeast at between 025- 050ᵒ and dipping between 40-60ᵒ, with some lower grade veins exhibiting more variable orientations.
Mining and processing methodology Underground mining will be completed by a combination of sub-level longitudinal and transverse long-hole stoping and mechanized cut and fill mining depending on ground quality and local ore body orientation. 54% of total production will be by long-hole stoping methods and 46% will be by mechanized cut and fill, this proportion may be subject to change as exploration advances and additional inferred resources are upgraded and converted to be added into the mine plan. Ore and waste will be hauled from the mine to the plant or to backfill. Ore will be a mined at a maximum rate of 1,250tpd or 0.46Mt per year, the maximum total material moved in a year will approximate 0.91Mt.
Processing will ramp up to full capacity of 1,250tpd or 0.42Mt/yr assuming a 92% availability by the end of 2022. Ore will be crushed by three-stage crushing down to a size where 80% passes 8.3mm. Primary crushing will be by a jaw crusher and secondary and tertiary crushing will be both by cone crushers.
Primary and secondary milling will follow, reducing material down to 50µm through a two-stage milling circuit made up of two ball mills. The secondary ball
2 May 2019 Pareto Securities Research 24(35) Bluestone Resources Inc. Initiating Coverage
mill will be fitted with a gravity concentrator to recover gravity recoverable free gold, which will be subsequently leached by an intensive leach process.
The remaining slurry will be oxidised in an agitated oxidation tank before cyanide leaching through five cyanide leach tanks with a total retention time of 48 hours. Gold and silver cyanide solution is then transferred to eight CIP leaching tanks and the gold and silver cyanide complexes are leached by activated carbon and adsorbed onto the pores of activated carbon. Loaded carbon will be washed with hydrochloric acid and stripped under pressure using hot sodium hydroxide to produce a pregnant gold and silver solution. Electrowinning of this pregnant solution will produce a precious metal sludge which will be refined in an induction furnace to produce gold and silver doré.
Tailings will be treated with the sulphur dioxide - air cyanide destruction process, then pressure filtered to a moisture content of 18.6% and transferred to a dry stack tailings facility, or mixed with cement to produce paste to be re-deposited underground.
2 May 2019 Pareto Securities Research 25(35) Bluestone Resources Inc. Initiating Coverage
Management Darren Klinck – President, CEO and Director Mr Klinck was formerly Executive Vice President and Head of Corporate Development for OceanaGold Corp, where he was responsible for capital markets and M&A strategy. During his ten-year tenure at OceanaGold, Mr Klinck had a diverse range of responsibilities including management of project and exploration teams, CSR programs and government relations. Mr Klinck graduated from the University of Calgary and the Haskayne School of Business.
Peter Hemstead – CFO Mr Hemstead has over 20 years of experience in finance. Prior to joining Bluestone Resources, he spent 10 years with Capstone Mining Corp as a senior financial executive, leading the finance team through development, to production and expansion. Mr Hemstead is a Chartered Professional Accountant who graduated from the University of Western Ontario with an honours degree in Economics. He has broad experience in financial management, corporate finance, project finance, treasury, commercial banking, marketing, sales and financial risk.
David Cass – VP Exploration Mr Cass has 25 years of international experience as a geologist in precious and base metals exploration and mining. He has been largely focussed in Latin America, most recently managing junior exploration companies with projects in Peru, Nicaragua, Guatemala, Mexico and Colombia. Mr Cass spent 15 years with Anglo American plc where he worked in South and Central America, Mexico, Turkey, Canada, Iran and Eastern Europe. In Peru he spent four years as a Senior Geologist and in North America he was exploration manager for six years, leading exploration programs across North America. Mr Cass holds a Master’s degree in Mineral Exploration and Mining Geology from the University of Leicester and a Bachelor of Science degree in Geology from London Metropolitan University. He is a member of the Association of Professional Engineers and Geoscientists of British Columbia and a Fellow of the Society of Economic Geologists.
David Gunning – VP Operations Mr Gunning has over 35 years of operational experience in underground mining, processing and exploration in North America, Mongolia and Mexico. Prior to joining Bluestone Resources, he was COO and Director of Starcore International Mines during which time he was responsible for the San Martin gold mine in Mexico. Mr Gunning has a Mining Engineering degree from the University of British Columbia.
Jeff Reinson – VP Project Development Mr Reinson has over 25 years of experience in civil engineering, he has led heavy civil infrastructure projects through to execution. Prior to joining Bluestone Resources, he was Project Director for Goldcorp, where he led the construction of Penasquito’s USD 750m TSF expansion, heap leach facility expansion FS and groundwater remediation project. Mr Reinson spent 15 years in senior project management roles with Goldcorp, AngloGold Ashanti, Newmont Mining and Rio Tinto working on projects in Mexico, Colombia, Chile, Peru and Canada. He holds Master’s and Bachelor’s degrees in civil engineering from the University of Saskatchewan.
2 May 2019 Pareto Securities Research 26(35) Bluestone Resources Inc. Initiating Coverage
Stephen Williams – VP Corporate Development and Investor Relations Mr Williams has investment banking and engineering operational experience. Prior to joining Bluestone Resources, he was a Director at Canaccord Genuity in metals and mining investment banking, providing strategic advice on acquisitions, mergers and equity financings. Prior to Canaccord he worked for Freeport-McMoRan on operational and process development. Mr Williams holds a Bachelor’s degree in Metallurgical Engineering from the University of British Columbia and an MBA from the W.P Carey School of Business at Arizona State University.
Penny Johnson – Corporate Secretary Ms Johnson has over 15 years of experience as a corporate secretary in the mining industry, having worked for Canadian mining companies trading on the TSX, TSXV and NYSE. She is experienced at Corporate Governance and compliance. Ms Johnson is a graduate of Brigham Young University.
Directors John Robins – Executive Chairman Mr Robins is a professional geologist with over 30 years of experience. Mr Robbins founded several exploration companies including Kaminak Gold, which was subsequently sold for USD 520m, the Hunter Exploration Group, a successful private exploration company, and the Discovery Group of Companies, which he co-founded. Mr Robbins sits on the Board of several publicly traded exploration companies and was awarded the H.H ‘Spud’ Huestos Award by the British Columbia Association for Mineral Exploration in 2008 for his achievements in mineral exploration. He graduated from the University of British Columbia with a Bachelor of Science degree in geology.
Zara Boldt – Director Ms Boldt has held multiple senior financial roles within public mining companies through her career. She is currently the CFO and Corporate Secretary of Lucara Diamonds, prior to joining Lucara she held the same role at Strongbow Exploration and Kaminak Gold, where she oversaw a CAD 520m acquisition transaction. Before Kaminak, Ms Boldt was VP – Finance and CFO of Stornoway Diamond Corp where she was part of the team that arranged more than USD 900m in financing for the development of the Renard Diamond Mine. In addition to her roles at Lucara Diamond, Ms Boldt is a director and Chair of the Audit Committee for Gold Standard Ventures Corp. Ms Boldt is a professional accountant with CPA and CGA qualifications.
Leo Hathaway – Director Mr Hathaway is a geologist with over 15 years of experience in the mining sector. He currently serves as Senior VP for Luminex Resources and EVP of Exploration at Libero Copper and has held VP Exploration roles with Northern Peru Copper, Regalito Copper, Global Copper and Lumina Resources. Prior to 2004 he worked for Inmet Mining in a global role. Mr Hathaway holds a Bachelor’s degree in Applied Geology from the University of Plymouth and a Master’s degree in Mineral Exploration from the University of London.
William Lamb – Lead Director Mr Lamb has over 23 years of experience in the mining industry, having worked in Canada and much of Southern Africa. He joined Lucara Diamonds in 2008 overseeing the acquisition of the Karowe Mine, which is now in production.
2 May 2019 Pareto Securities Research 27(35) Bluestone Resources Inc. Initiating Coverage
Before joining Lucara he worked for De Beers for 13 years focusing on heavy mineral concentration, project development and operational readiness.
Paul McRae – Director Mr McRae has over 40 years of experience in project and construction management in the mining industry, focused both on open-pit and underground operations in Australia, Canada, Portugal and South America. He was recently responsible for the successful development of the Lundin Mining's Eagle Mine in Northern Michigan. Mr. McRae is Senior VP - Projects for Lundin Mining and a member of the Board of Directors for Lundin Gold and Filo Mining.
Jim Paterson – Director Mr Paterson has 20 years of experience in corporate finance, M&A, RTO, IPO, JV’s and spin-outs. He is currently CEO of Kivalliq Energy and has overseen USD 60m in equity financings, in addition to facilitating a 200% increase in mineral resources at the Lac 50 deposit. Mr Paterson currently serves as a director of Northern Empire and Kivalliq Energy Corp in addition to Bluestone Resources.
2 May 2019 Pareto Securities Research 28(35) Bluestone Resources Inc. Initiating Coverage
PROFIT & LOSS (fiscal year) (USDm) 2017 2018 2019e 2020e 2021e Revenues - - - - 6 EBITDA (8) (25) (17) (10) (3) Depreciation & amortisation - - - - (2) EBIT (8) (25) (17) (10) (5) Net interest 0 0 1 2 (5) Other financial items 3 (0) - - - Profit before taxes (5) (25) (16) (7) (10) Taxes (0) (2) - - (0) Minority interest - - - - - Net profit (5) (27) (16) (7) (10) EPS reported (0.07) (0.40) (0.19) (0.08) (0.06) EPS adjusted (0.22) (0.39) (0.21) (0.06) (0.06) DPS - - - - -
BALANCE SHEET (USDm) 2017 2018 2019e 2020e 2021e Tangible non current assets 34 35 38 84 233 Other non-current assets 2 2 2 2 2 Other current assets 1 0 0 0 0 Cash & equivalents 30 7 8 163 5 Total assets 66 44 48 249 240 Total equity 58 32 37 117 108 Interest-bearing non-current debt - - - 120 120 Interest-bearing current debt - - - - - Other Debt 8 12 12 12 12 Total liabilites & equity 66 44 48 249 240
CASH FLOW (USDm) 2017 2018 2019e 2020e 2021e Cash earnings (6) (24) (16) (9) (3) Change in working capital 1 1 - - - Cash flow from investments (23) (2) 0 (43) (155) Cash flow from financing 58 0 17 207 - Net cash flow 30 (25) 1 155 (158)
CAPITALIZATION & VALUATION (USDm) 2017 2018 2019e 2020e 2021e Share price (USD end) 0.88 0.88 0.78 0.78 0.78 Number of shares end period 67 67 85 175 175 Net interest bearing debt (30) (7) (8) (43) 115 Enterprise value 29 53 59 95 253 EV/Sales - - - - 45.4 EV/EBITDA - - - - - EV/EBIT - - - - - P/E reported - - - - - P/E adjusted - - - - - P/B 1.0 1.8 1.8 1.2 1.3
FINANCIAL ANALYSIS & CREDIT METRICS 2017 2018 2019e 2020e 2021e ROE adjusted (%) - - - - Dividend yield (%) - - - - - EBITDA margin (%) - - - - - EBIT margin (%) - - - - - NIBD/EBITDA 3.60 0.27 0.47 4.49 (33.98) EBITDA/Net interest 27.68 67.23 20.87 4.17 -
2 May 2019 Pareto Securities Research 29(35) Bluestone Resources Inc. Initiating Coverage
PROFIT & LOSS (fiscal year) (USDm) 1Q'19e 2Q'19e 3Q'19e 4Q'19e 1Q'20e 2Q'20e 3Q'20e 4Q'20e Revenues ------EBITDA (4) (4) (4) (4) (2) (2) (2) (3) Depreciation & amortisation ------EBIT (4) (4) (4) (4) (2) (2) (2) (3) Net interest 0 0 0 0 1 1 1 1 Other financial items ------Profit before taxes (4) (4) (4) (4) (1) (1) (1) (2) Taxes ------Minority interest ------Net profit (4) (4) (4) (4) (1) (1) (1) (2) EPS reported (0.05) (0.05) (0.05) (0.05) (0.04) (0.01) (0.01) (0.02) EPS adjusted (0.05) (0.05) (0.05) (0.05) (0.01) (0.01) (0.01) (0.02) DPS ------
BALANCE SHEET (USDm) 1Q'19e 2Q'19e 3Q'19e 4Q'19e 1Q'20e 2Q'20e 3Q'20e 4Q'20e Tangible non current assets 38 38 38 38 61 61 72 84 Other non-current assets ------Other current assets 0 0 0 0 0 0 0 0 Cash & equivalents 20 16 12 8 188 188 176 163 Total assets 58 54 51 47 250 250 249 247 Total equity 48 44 40 37 120 120 119 117 Interest-bearing non-current debt - - - - 120 120 120 120 Interest-bearing current debt ------Other Debt 12 12 12 12 12 12 12 12 Total liabilites & equity 60 56 52 48 251 251 250 249
CASH FLOW (USDm) 1Q'19e 2Q'19e 3Q'19e 4Q'19e 1Q'20e 2Q'20e 3Q'20e 4Q'20e Cash earnings (4) (4) (4) (4) (2) (2) (2) (3) Change in working capital ------Cash flow from investments (0) (0) (0) (0) (11) (11) (11) (11) Cash flow from financing 17 ------Net cash flow 13 (4) (4) (4) (13) (13) (13) (14)
CAPITALIZATION & VALUATION (USDm) 1Q'19e 2Q'19e 3Q'19e 4Q'19e 1Q'20e 2Q'20e 3Q'20e 4Q'20e Share price (USD end) 0.91 0.78 0.78 0.78 0.78 0.78 0.78 0.78 Number of shares end period 85 85 85 85 86 86 86 86 Net interest bearing debt (20) (16) (12) (8) (68) (68) (56) (43) P/E reported ------P/E adjusted ------P/B 1.6 1.5 1.7 1.8 0.6 0.6 0.6 0.6
FINANCIAL ANALYSIS & CREDIT METRICS 1Q'19e 2Q'19e 3Q'19e 4Q'19e 1Q'20e 2Q'20e 3Q'20e 4Q'20e Dividend yield (%) ------EBITDA margin (%) ------EBIT margin (%) ------NIBD/EBITDA 0.56 0.60 0.72 0.82 1.73 3.00 4.54 6.17 EBITDA/Net interest 65.30 37.56 26.79 20.87 7.82 4.61 3.05 2.23
2 May 2019 Pareto Securities Research 30(35) Bluestone Resources Inc. Initiating Coverage
Disclaimer and legal disclosures
Origin of the publication or report This publication or report originates from Pareto Securities AS (“Pareto Securities”), reg. no. 956 632 374 (Norway), Pareto Securities AB, reg. no. 556206-8956 (Sweden) or Pareto Securities Limited, reg. no. 3994976, (United Kingdom) (together the Group Companies or the “Pareto Securities Group”) acting through their common un it Pareto Securities Research. The Group Companies are supervised by the Financial Supervisory Authority of their respective home countries.
Content of the publication or report This publication or report has been prepared solely by Pareto Securities Research.
Opinions or suggestions from Pareto Securities Research may deviate from recommendations or opinions presented by other departments or companies in the Pareto Securities Group. The reason may typically be the result of differing time horizons, methodologies, contexts or other factors.
Sponsored research Please note that if this report is labelled as “sponsored research” on the front page, Pareto Securities has entered into an agreement with the company about the preparation of research reports and receives compensation from the company for this service. Sponsored research is prepared by the Research Department of Pareto Securities without any instruction rights by the company. Sponsored research is however commissioned for and paid by the company and such material is considered by Pareto Securities to qualify as an acceptable minor non-monetary benefit according to the EU MiFID II Directive.
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Pareto Securities Research may provide credit research with more specific price targets based on different valuation methods, including the analysis of key credit ratios and other factors describing the securities creditworthiness, peer group analysis of securities with similar creditworthiness and different DCF-valuations. All descriptions of loan agreement structures and loan agreement features are obtained from sources which Pareto Securities Research believes to be reliable, but Pareto Securities Research does not represent or warrant their accuracy. Be aware that investors should go through the specific complete loan agreement before investing in any bonds and not base an investment decision based solely on information contained in this publication or report.
Pareto Securities Research has no fixed schedule for updating publications or reports.
Unless otherwise stated on the first page, the publication or report has not been reviewed by the issuer before dissemination. In instances where all or part of a report is presented to the issuer prior to publication, the purpose is to ensure that facts are correct.
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No individual investment or tax advice The publication or report is intended only to provide general and preliminary information to investors and shall not be construed as the basis for any investment decision. This publication or report has been prepared by Pareto Securities Research as general information for private use of investors to whom the publication or report has been distributed, but it is not intended as a personal recommendation of particular financial instruments or strategies and thus it does not provide individually tailored investmen t advice, and does not take into account the individual investor’s particular financial situation, existing holdings or liabilities, investment knowledge and experience, investment objective and horizon or risk profile and preferences. The investor must particularly ensure the suitability of an investment as regards his/her financial and fiscal situation and investment objectives. The investor bears the risk of losses in connection with an investment.
Before acting on any information in this publication or report, we recommend consulting your financial advisor.
The information contained in this publication or report does not constitute advice on the tax consequences of making any particular investment decision. Each investor shall make his/her own appraisal of the tax and other financial merits of his/her investment.
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To the extent this publication or report is based on or contains information emanating from other sources (“Other Sources”) than Pareto Securities Research (“External Information”), Pareto Securities Research has deemed the Other Sources to be reliable but neither the companies in the Pareto Securities Group, others associated or affiliated with said companies nor any other person, guarantee the accuracy, adequacy or completeness of the External Information.
Ratings Equity ratings: “Buy” Pareto Securities Research expects this financial instrument’s total return to exceed 10% over the next 1 2 months “Hold” Pareto Securities Research expects this financial instrument’s total return to be between -10% and 10% over the next 12 months “Sell” Pareto Securities Research expects this financial instrument’s total return to be negative by more than 10% over the next 12 months
Analysts Certification The research analyst(s) whose name(s) appear on research reports prepared by Pareto Securities Research certify that: (i) all of the views expressed in the research report accurately reflect their personal views about the subject security or issuer, and (ii) no part of the research analysts’ compensation was, is, or will be direc tly or indirectly related to the specific recommendations or views expressed by the research analysts in research reports that are prepared by Pareto Securities Research.
The research analysts whose names appears on research reports prepared by Pareto Securities Research received compensation that is based upon various factors including Pareto Securities’ total revenues, a portion of which are generated by Pareto Securities’ investment banking activities.
Limitation of liability Pareto Securities Group or other associated and affiliated companies assume no liability as regards to any investment, divestment or retention decision taken by the investor on the basis of this publication or report. In no event will entities of the Pareto Securities Group or other associated and affiliated companies be liable for direct, indirect or incidental, special or consequential damages resulting from the information in this publication or report.
Neither the information nor any opinion which may be expressed herein constitutes a solicitation by Pareto Securities Researc h of purchase or sale of any securities nor does it constitute a solicitation to any person in any jurisdiction where solicitation would be unlawful. All information contained in this research report has been compiled from sources believed to be reliable. However, no representation or warranty, express or implied, is made with respect to the completeness or accuracy of its contents, and it is not to be relied upon as authoritative.
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Risk information The risk of investing in certain financial instruments, including those mentioned in this document, is generally high, as their market value is exposed to a lot of different factors such as the operational and financial conditions of the relevant company, growth prospects, change in interest rates, the economic and political environment, foreign exchange rates, shifts in market sentiments etc. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. Past performance is not a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. When investing in individual shares, the investor may lose all or part of the investments.
Conflicts of interest Companies in the Pareto Securities Group, affiliates or staff of companies in the Pareto Securities Group, may perform services for, solicit business from, make a market in, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in the publication or report. In addition Pareto Securities Group, or affiliates, may from time to time have a broking, advisory or other relationship with a company which is the subject of or referred to in the relevant Research, including acting as that company’s official or sponsoring broker and providing investment banking or other financial services. It is the policy of Pareto to seek to act as corporate adviser or broker to some of the companies which are covered by Pareto Securities Research. Accordingly companies covered in any Research may be the subject o f marketing initiatives by the Investment Banking Department.
To limit possible conflicts of interest and counter the abuse of inside knowledge, the analysts of Pareto Securities Research are subject to internal rules on sound ethical conduct, the management of inside information, handling of unpublished research material, contact with other units of the Group Companies and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. The object of the internal rules is for example to ensure that no analyst will abuse or cause others to abuse confidential information. It is the policy of Pareto Securities Research that no link exists between revenues from capital markets activities and individual analyst remuneration. The Group Companies are members of national stockbrokers’ associations in each of the countries in which the Group Companies have their head offices. Internal rules have been developed in accordance with recommendations issued by the stockbrokers associations. This material has been prepared following the Pareto Securities Conflict of Interest Policy.
The guidelines in the policy include rules and measures aimed at achieving a sufficient degree of independence between variou s departments, business areas and sub-business areas within the Pareto Securities Group in order to, as far as possible, avoid conflicts of interest from arising between such departments, business areas and sub-business areas as well as their customers. One purpose of such measures is to restrict the flow of information between certain business areas and sub-business areas within the Pareto Securities Group, where conflicts of interest may arise and to safeguard the impartialness of the employees. For example, the Investment Banking departments and certain other departments included in the Pareto Securities Group are surrounded by arrangements, so-called Chinese Walls, to restrict the flows of sensitive information from such departments. The internal guidelines also include, without limitation, rules aimed at securing the impartialness of, e.g., analysts working in the Pareto Securities Research departments, restrictions with regard to the remuneration paid to such analysts, requirements with respect to the independence of analysts from other departments within the Pareto Securities Group rules concerning contacts with covered companies and rules concerning personal account trading carried out by analysts.
Distribution restriction The securities referred to in this publication or report may not be eligible for sale in some jurisdictions and persons into whose possession this document comes should inform themselves about and observe any such restrictions. This publication or report is not intended for and must not be distributed to private customers in the US, or retail clients in the United Kingdom, as defined by the Financial Conduct Authority (FCA).
This research is only intended for and may only be distributed to institutional investors in the United States and U.S entities seeking more information about any of the issuers or securities discussed in this report should contact Pareto Securities Inc. at 150 East 52nd Street, New York, NY 10022, Tel. 212 829 4200.
Pareto Securities Inc. is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of FINRA &SIPC. U.S. To the extent required by applicable U.S. laws and regulations, Pareto Securities Inc. accepts responsibility for the contents of this publication. Investment products provided by or through Pareto Securities Inc. or Pareto Securities Research are not FDIC insured, may lose value and are not guaranteed by Pareto Securities Inc. or Pareto Securities Research. Investing in non-U.S. securities may entail certain risks. This document does not constitute or form part of any offer for sale or subscription, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Market rules, conventions and practices may differ from U.S. markets, adding to transaction costs or causing delays in the purchase or sale of securities. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Fluctuations in the values of national currencies, as well as the potential for governmental restrictions on currency movements, can significantly erode principal and investment returns.
Pareto Securities Research may have material conflicts of interest related to the production or distribution of this research report which, with regard to Pareto Securities Research, are disclosed herein.
Distribution in Singapore Pareto Securities Pte Ltd holds a Capital Markets Services License is an exempt financial advisor under Financial Advisers Ac t, Chapter 110 (“FAA”) of Singapore and a subsidiary of Pareto Securities AS.
This report is directed solely to persons who qualify as "accredited investors", "expert investors" and "institutional investors" as defined in section 4A(1) Securities and Futures Act, Chapter 289 (“SFA”) of Singapore. This report is intended for general circulation amongst such investors and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in this report, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. Please contact Pareto Securities Pte Ltd, 16 Collyer Quay, # 2 7-02 Income at Raffles, Singapore 049318, at +65 6408 9800 in matters arising from, or in connection with this report.
Additional provisions on Recommendations distributed in the Canada Canadian recipients of this research report are advised that this research report is not, and under no circumstances is it to be construed as an offer to sell or a solicitation of or an offer to buy any securities that may be described herein. This research report is not, and under no circumstances is it to be construed as, a prospectus, offering memorandum, advertisement or a public offering in Canada of such securities. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon this research report or the merits of any securities described or discussed herein and any representation to the contrary is an offence. Any securities described or discussed within this research report may only be distributed in Canada in accordance with applicable provincial and territorial securities laws. Any offer or sale in Canada of the securities described or discussed herein will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. Under no circumstances is the information contained herein to be con strued as investment advice in any province or territory of Canada nor should it be construed as being tailored to the needs of the recipient. Canadian recipients are advised that Pareto Securities AS, its affiliates and its authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the information contained herein.
Distribution in United Kingdom This publication is produced in accordance with COBS 12.3 as Non-Independent Research and approved under part IV article 19 of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”) by Pareto Securities Limited for communication in the United Kingdom only to investment professionals as that term is defined in article 19(5) of the FPO. This publication is issued for the benefit of persons who qualify as eligible counterparties or professional clients and should be made available only to such persons and is exempt from the restriction on financial promotion in s21 of the Financial Services and Markets Act 2000 in reliance on provision in the FPO.
Copyright This publication or report may not be mechanically duplicated, photocopied or otherwise reproduced, in full or in part, under applicable copyright laws. Any infringement of Pareto Securities Research´s copyright can be pursued legally whereby the infringer will be held liable for any and all losses and expenses incurred by the infringement.
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Appendix A
Disclosure requirements pursuant to the Norwegian Securities Trading Regulations section 3-10 (2) and section 3-11 (1), letters a-b
The below list shows companies where Pareto Securities AS - together with affiliated companies and/or persons – own a portion of the shares exceeding 5 % of the total share capital in any company where a recommendation has been produced or distributed by Pareto Securities AS.
C o mpanies No. of shares Holdings in % C o mpanies No. of shares Holdings in % Helgeland Sparebank 2,010,785 9.63% SpareBank 1 Østfold Akershus 1,140,010 9.20% Pareto Bank ASA 10,846,900 18.50% Sparebanken Vest 4,507,960 7.64%
Pareto Securities AS or its affiliates own as determined in accordance with Section 13(d) of the US Exchange Act, 1 % or moreof the equity securities of :
C o mpanies No. of shares Holdings in % C o mpanies No. of shares Holdings in % Helgeland Sparebank 2,010,785 9.63% SpareBank 1 SM N 1,879,292 1.45% NHST M edia Group AS 21,475 1.85% SpareBank 1 Østfold Akershus 1,140,010 9.20% Pareto Bank ASA 10,846,900 18.50% Sparebanken M øre 311,739 3.15% Selvaag Bolig ASA 2,174,147 2.32% Sparebanken Sør 460,589 2.94% SpareBank 1 BV 1,557,140 2.48% Sparebanken Vest 4,507,960 7.64% SpareBank 1 Nord-Norge 1,040,659 1.04%
Pareto Securities AS may hold financial instruments in companies where a recommendation has been produced or distributed by Pareto Securities AS in connection with rendering investment services, including Market Making.
Please find below an overview of material interests in shares held by employees in Pareto Securities AS, in companies where arecommendation has been produced or distributed by Pareto Securities AS. "By material interest" means holdings exceeding a value of NOK 50 000.
A nalyst T o tal A nalyst T o tal A nalyst T o tal C o mpany ho ldings* ho ldings C o mpany ho ldings* ho ldings C o mpany ho ldings* ho ldings AF Gruppen 0 1,675 Jæren Sparebank 0 500 REC Silicon 0 157,742 Aker 0 682 Komplett Bank 0 104,934 SalM ar 0 280 Aker BP 0 5,080 Kongsberg Gruppen 0 5,901 Sandnes Sparebank 0 19,782 Aker Solutions 0 1,825 KWS Saat 15 15 Scatec Solar 0 35,635 AKVA Group 0 1,500 Lerøy Seafood 0 34,795 Seadrill 0 8,661 Archer 0 72,770 M agseis Fairfield 0 12,379 Selvaag Bolig 0 5,000 Atea 0 450 M onobank 0 1,371,000 SpareBank 1 BV 0 17,700 Austevoll Seafood 0 5,780 M owi 0 2,639 SpareBank 1 Nord-Norge 0 25,000 Avance Gas 0 6,645 NEXT Biometrics 0 10,976 SpareBank 1 Ringerike Hadeland 0 500 Axactor 0 19,724 Nordic Semiconductor 0 6,000 SpareBank 1 SM N 0 16,590 B2Holding 0 5,500 Norsk Hydro 0 126,295 SpareBank 1 SR-Bank 0 29,391 Bonheur 0 55,209 Northern Drilling 0 6,060 Sparebank 1 Østfold Akershus 0 450 Borr Drilling 0 4,685 Norwegian Air Shuttle 0 26,402 SpareBank 1 Østlandet 0 4,042 BW LPG 0 5,569 Norwegian Energy Company 0 400 Sparebanken M øre 0 6,550 DNB 0 35,132 Norwegian Property 0 150,000 Sparebanken Sør 0 43,280 DNO 0 29,377 Ocean Yield 0 32,967 Sparebanken Vest 0 1,900 Entra 0 14,362 Odfjell Drilling 0 8,649 Sparebanken Øst 0 1,500 Equinor 0 10,201 Okeanis Eco Tankers 0 1,886 Stolt-Nielsen 0 900 Europris 0 10,850 Orkla 0 24,176 Storebrand 0 5,005 Flex LNG 0 1,182 Panoro Energy 0 5,670 Subsea 7 0 6,684 Frontline 0 13,003 Pareto Bank 0 971,027 Telenor 0 2,311 Gjensidige Forsikring 0 8,623 Petroleum Geo-Services 0 57,884 TGS-NOPEC 0 2,050 Golden Ocean Group 0 1,824 Pioneer Property 0 2,050 XXL 0 11,115 Grieg Seafood 0 970 Prosafe 0 3,484 Yara International 0 19,516 Helgeland Sparebank 0 4,282 Protector Forsikring 0 15,385 Zenterio 0 78,865 Höegh LNG 0 6,085
This overview is updated monthly (last updated 16.04.2019).
*Analyst holdings ref ers to posit ions held by the Paret o Securit ies AS analyst covering the company.
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Appendix B
Disclosure requirements pursuant to the Norwegian Securities Trading Regulation § 3-11, letters e-f, ref the Securities Trading Act Section 3-10
Overview over issuers of financial instruments where Pareto Securities AS have prepared or distributed investment recommendation, where Pareto Securities AS have been lead manager/co-lead manager or have rendered publicly known not immaterial investment banking services over the previous 12 months:
Africa Energy Fort um Odfjell Drilling
African Petroleum Corporation Gfinity Plc Okea AS Akva Group Gulf Keystone Petroleum Okeanis Eco Tankers
American Tanker Hert ha BSC GmbH Panoro Energy Andfjord Salmon HKN Energy Lt d Pareto Bank
APC Forsikringsmæglere A/ S Hunter Group Petro Matad Limited Arnarlax Ice Group Petroleum Geo-Services
Atlantic Sapphire AS Inst abank Pioneer Public Propert ies Finland Oy Avida Holding AB Jact el AS Point Resources AS
Bank Norwegian Klaveness Ship Holding Quant AB Bluewater Holding Lundin Petroleum Rødovre Port Holding A/ S
DNO ASA Magseis SAS DOF ASA McDermott International Scatec Solar
Dof Subsea AS Monobank ASA Scorpio Tankers Echo Energy Nemaska Lit hium Shamaran Petroleum
Eco At lant ic Oil and Gas NGEx Resources Sparebank 1 Øst landet Eland Oil & Gas Northern Drilling SpareBank1 Buskerud-Vest f old
FFS Bidco Northmill Group AB Sparebanken Vest Flex LNG Norwegian Air Shuttle Union Martime Limited
Float el Odf jell Vantage Drilling
-
This overview is updated monthly (this overview is for the period 31.03.2018 – 31.03.2019).
Appendix C Disclosure requirements pursuant to the Norwegian Securities Trading Regulation § 3-11 (4)
Distribution of recommendations Recommendation % distribution
Buy 65% Hold 31%
Sell 4%
Distribution of recommendations (transactions*) Recommendation % distribution
Buy 93% Hold 7%
Sell 0%
* Companies under coverage with which Pareto Securities Group has on-going or completed public investment banking services in the previous 12 months
This overview is updated monthly (last updated 16.04.2019).
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Appendix D
This section applies to research reports prepared by Pareto Securities AB.
Disclosure of positions in financial instruments The beneficial holding of the Pareto Group is 1 % or more of the total share capital of the following companies included in P areto Securities AB’s research coverage universe: None
The Pareto Group has material holdings of other financial instruments than shares issued by the following companies included in Pareto Securities AB’s research coverage universe: None
Disclosure of assignments and mandates Overview over issuers of financial instruments where Pareto Securities AB has prepared or distributed investment recommendation, where Pareto Securities AB has been lead manager or co-lead manager or has rendered publicly known not immaterial investment banking services over the previous twelve months:
Azelio Green Landscaping Holding M agnolia Bostad ShaM aran Petroleum Climeon Jetpak Top Holding AB Sedana M edical Vostok New Ventures
Members of the Pareto Group provide market making or other liquidity providing services to the following companies included in Pareto Securities AB’s research coverage universe:
Cavotec Saltängen Property Invest Sedana M edical Tethys Oil Cibus Nordic Real Estate SciBase Holding ShaM aran Petroleum Vostok Emerging Finance
Isofol M edical
Members of the Pareto Group have entered into agreements concerning the inclusion of the company in question in Pareto Securities AB’s research coverage universe with the following companies: None This overview is updated monthly (last updated 15.04.2019).
Appendix E
Disclosure requirements pursuant to the Norwegian Securities Trading Regulation § 3-11, letter d, ref the Securities Trading Act Section 3-10
Designated Sponsor Pareto Securities acts as a designated sponsor for the following companies, including the provision of bid and ask offers. Th erefore, we regularly possess shares of the company in our proprietary trading books. Pareto Securities receives a commission from the company for the provision of the designated sponsor services.
2G Energy * Gesco * M erkur Bank SCOUT24
Aixtron * GFT Technologies * M LP * Siemens Healthineers AG Baywa Gigaset * M OBOTIX AG SM T Scharf AG *
Biotest * Heidelberg Pharma * OVB Holding AG Surteco Group * Brenntag Hypoport AG Procredit Holding * Syzygy AG *
CORESTATE Capital Holding S.A. init* PSI SOFTWARE AG * TAKKT AG Demire Intershop Communications AG PWO * Vapiano
Epigenomics AG* Leifheit * RIB Software * va-Q-tec * Euromicron AG * Logwin * S&T AG * Viscom *
Eyemaxx Real Estate M anz AG * Schaltbau Holding AG windeln.de Freenet M AX Automation SE *
* The designated sponsor services include a contractually agreed provision of research services.
Appendix F
Disclosure requirements pursuant to the Norwegian Securities Trading Regulation § 3-11, letter g, ref the Securities Trading Act Section 3-10
Sponsored Research Pareto Securities has entered into an agreement with these companies about the preparation of research reports and – in return - receives compensation.
Adler M odemaerkte Daldrup & Söhne Intershop Communications AG OVB Holding AG
Baywa Eyemaxx Real Estate M erkur Bank Schaltbau Holding AG BB Biotech First Sensor M OBOTIX AG Siegfried Holding AG
comdirect Hypoport AG OHB SE Vapiano
This overview is updated monthly (last updated 24.04.2019).
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