11 July 2011
Manager Announcements Company Announcements Office ASX Limited Level 4 20 Bridge Street SYDNEY NSW 2000
Dear Sir/Madam
Territory Resources Limited (ASX: TTY) – takeover bid by Jonesville Limited First Supplementary Target’s Statement
We enclose, by way of service pursuant to paragraph 647(3)(b) of the Corporations Act 2001 (Cth), Territory Resources Limited’s first supplementary target’s statement dated 11 July 2011 in relation to the on-market takeover bid by Jonesville Limited for all the ordinary shares in Territory.
Yours sincerely
Patrick McCole Company Secretary
For personal use only use personal For
Territory Resources Limited ABN 53 100 552 118
First Supplementary Target’s Statement
1 Introduction
This document is a supplementary target’s statement under section 644 of the Corporations Act 2001 (Cth). It is the first supplementary target’s statement (First Supplementary Target’s Statement) issued by Territory Resources Limited ABN 53 100 552 118 (Territory) in relation to the on-market takeover bid for all the ordinary shares in Territory by Jonesville Limited (BVI company number 327076) (Jonesville), a wholly- owned subsidiary of Noble Group Limited. This First Supplementary Target’s Statement supplements, and should be read together with, Territory’s target’s statement dated 21 June 2011 (Original Target’s Statement). Unless the context otherwise requires, terms defined in the Original Target’s Statement have the same meaning as in this First Supplementary Target’s Statement.
2 Updated Mineral Resource at Frances Creek
As part of its year-end program, Territory has re-estimated the Mineral Resource for its deposits at the Frances Creek Project to reflect the results of recent drilling at Helene 3/4 and Helene 5/6/7, plus a lowering of the cut-off grade at Helene 3/4, Helene 5/6/7, Helene 11 and Jasmine to reflect current practices under which lower grade material is stockpiled to be processed through the beneficiation plant. Based on these revised metrics, the total Indicated and Inferred Mineral Resource estimate for the Frances Creek Project has increased from 9.28 million tonnes grading 58.0% Fe as at 31 March 2011 to 12.12 million tonnes grading 56.8% Fe. Both of these figures exclude the existing manganiferous Mineral Resource of 1.28 million tonnes at 53.2% at Millers. For full details, see the Mineral Resources table in Attachment A to this First Supplementary Target’s Statement. Consistent with its year-end processes, Territory has commenced the process for updating its JORC compliant Ore Reserves but this is currently incomplete and Territory is not in a position to comment on Ore Reserves at this stage.
3 Supplementary Independent Expert’s Report, but Independent Expert’s conclusion unchanged
Territory engaged BDO Corporate Finance (WA) Pty Ltd to prepare the Independent Expert’s Report on the Jonesville Offer that was included in the Original Target’s
For personal use only use personal For Statement as Attachment 1. In order to produce the Independent Expert’s Report, the Independent Expert engaged Xstract Mining Consultants Pty Ltd to produce the Technical Expert’s Report. The Technical Expert’s Report was attached as Appendix 5 of the Independent Expert’s Report that was included in the Original Target’s Statement.
9623639 Supplementary target's statement page 1
Since the release of the Original Target’s Statement:
• ASIC has requested certain clarifications be made to the Technical Expert’s Report and the Independent Expert’s Report; and
• Territory has delineated an increase in its Mineral Resource as described in section 2 of this First Supplementary Target’s Statement. The Technical Expert has updated its report and the Independent Expert has produced a Supplementary Independent Expert’s Report in relation to the above matters. The Independent Expert’s conclusion remains that the Jonesville Offer is fair and reasonable to Territory Shareholders that are not associated with Noble. A copy of the Supplementary Independent Expert’s Report to which the updated Technical Expert’s Report is attached as an appendix, is attached to this First Supplementary Target’s Statement as Attachment B.
4 No change to Directors’ recommendation
The Territory Directors note that while the Independent Expert’s valuation has increased, the Jonesville Offer remains greater than the upper end of the Independent Expert’s valuation range. The Board continues to recommend that you accept the Jonesville Offer in the absence of a superior proposal. Details of how to accept the Jonesville Offer are set out in section 9.3 of the Jonesville Bidder’s Statement.
5 Timetable
The Jonesville Offer is scheduled to close at 2:00pm (Perth time) on 21 July 2011 (unless extended). If you have any queries in relation to the Jonesville Offer, you can call the Territory Shareholder information line on 1300 880 732 (for calls made from inside Australia) or +61 2 8280 7496 (for calls made from outside Australia).
6 Other notices
This First Supplementary Target’s Statement prevails to the extent of any inconsistency with the Original Target’s Statement. A copy of this First Supplementary Target’s Statement has been lodged with ASIC. Neither ASIC nor any of its officers take any responsibility for its contents.
JORC Code reporting of Mineral Resources The information in this First Supplementary Target’s Statement that relates to Mineral Resources is based on information compiled by Mr Mark Nelson, who is a Member of the Australasian Institute of Mining and Metallurgy and is a full-time employee of Territory. Mr
For personal use only use personal For Nelson has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources, and Ore Reserves’. Mr Nelson consents to the inclusion in this First Supplementary Target’s Statement of the matters based on his information in the form and context in which it appears.
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Consents BDO Corporate Finance (WA) Pty Ltd has given and has not withdrawn before the date of this First Supplementary Target’s Statement its written consent to be named as Independent Expert and to the inclusion of the updated version of the Independent Expert’s Report in this First Supplementary Target’s Statement and statements said to be based on its Independent Expert’s Report in the form and context in which they are included. Xstract Mining Consultants Pty Ltd has given and has not withdrawn before the date of this First Supplementary Target’s Statement its written consent to be named as Technical Expert and to the inclusion of the updated version of the Technical Expert’s Report in this First Supplementary Target’s Statement and statements said to be based on its Technical Expert’s Report in the form and context in which they are included.
Signed for and on behalf of Territory following a resolution of the Territory Directors.
Dated: 11 July 2011
Andrew Haslam Managing Director
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Attachment A – Updated Frances Creek Mineral Resource table
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Table 1 - INDICATED & INFERRED MINERAL RESOURCES for FRANCES CREEK as at 30 June 2011
Indicated Resources Inferred Resources Total Resources Reported at 50% Fe cut-off* Million Tonnes Tonnes % Fe %P Million Tonnes Tonnes % Fe % P Million Tonnes Tonnes % Fe % P
Helene 34 (1) 0.53 531,834 57.9 0.10 0.19 185,210 56.4 0.15 0.72 717,044 57.5 0.11 Helene 5/6/7 4.91 4,907,432 57.7 0.11 1.97 1,969,196 54.4 0.14 6.88 6,876,628 56.8 0.12 Helene 11 0.21 212,224 56.4 0.18 0.02 17,895 50.0 0.27 0.23 230,119 55.9 0.19 Jasmine 1.78 1,782,766 57.2 0.08 0.15 146,382 56.4 0.08 1.93 1,929,148 57.1 0.08 Ochre Hill 0.10 103,838 58.2 0.43 0.01 10,531 56.7 0.55 0.11 114,369 58.1 0.45 Saddle East - - - - 0.10 101,131 58.7 0.08 0.10 101,131 58.7 0.08 Thelma 01 0.53 532,944 60.8 0.12 0.05 52,529 57.7 0.09 0.59 585,473 60.5 0.12 Thelma-Rosemary 0.48 479,899 58.7 0.12 0.26 264,693 58.1 0.28 0.74 744,592 58.5 0.18
Scalps Stockpiles 0.63 632,754 51.5 0.10 - - - - 0.63 632,754 51.5 0.10 Low Grade Stockpiles 0.19 191,179 52.7 0.09 - - - - 0.19 191,179 52.7 0.09 Total 9.37 9,374,870 57.32 0.11 2.75 2,747,567 55.2 0.15 12.12 12,122,437 56.8 0.12
(1) - amalgamates Helene 3 and Helene 4 Deposits * Resources are JORC compliant; cut-off grades used are 45% Fe for Helene 5/6/7, 48% Fe for Jasmine, Helene 3/4 and Helene 11, and 50% Fe for the remainder.
Manganiferous Iron Indicated Resources Inferred Resources Total Resources Resource Million Tonnes Tonnes % Fe %P Million Tonnes Tonnes % Fe % P Million Tonnes Tonnes % Fe % P Millers (1) 1.27 1,269,944 53.2 0.11 0.01 10,301 52.02 0.18 1.28 1,280,245 53.2 0.11 Total 1.27 1,269,944 53.16 0.11 0.01 10,301 52.0 0.18 1.28 1,280,245 53.2 0.11
(1) - cut-off grade used is 50% (Fe + Mn) * Resources are JORC compliant; cut-off used is 50% (Fe + Mn)
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Attachment B – Supplementary Independent Expert’s Report (attaching updated Technical Expert’s Report)
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Tel: +61 8 6382 4600 38 Station Street Fax: +61 8 6382 4601 Subiaco, WA 6008 www.bdo.com.au PO Box 700 West Perth WA 6872 Australia
The Directors Territory Resources Limited PO Box 7232 Cloisters Square PERTH WA 6850
11 July 2011
Dear Sirs
SUPPLEMENTARY INDEPENDENT EXPERT'S REPORT
Background On 9 June 2011, Territory Resources Limited (“Territory” or “the Company”) announced that it received an offer by Jonesville Limited (“Jonesville”), a wholly owned subsidiary of Noble Group Limited (“Noble Group”), to acquire on market at a price of A$0.50 per share (“Jonesville Offer Price”), all the fully paid ordinary shares in the capital of Territory which Jonesville does not already own. As a result of the Jonesville Offer, if it proceeds, Noble Group will hold 100% of Territory.
On 21 June 2011, Territory issued a target’s statement in response to the on-market takeover bid by Jonesville. Included in the target’s statement was an Independent Expert’s Report (“the IER”) prepared by BDO Corporate Finance (WA) Pty Ltd in which we expressed our opinion that, in the absence of a superior offer, the Jonesville Offer was fair and reasonable to the non-associated shareholders of Territory (“Shareholders”). In this Supplementary Independent Expert’s Report (“this Supplementary Report”), we provide clarification on the estimated iron ore reserve of 4.71 Mt assumed in the Adjusted Frances Creek Model as at 1 July 2011 and a reconciliation with the estimated iron ore reserve of 5.22 Mt reported in Territory’s Quarterly Activities and Cash flow Statement for the quarter ended 31 March 2011.
This Supplementary Report also provides an update on the equity value of Territory based on subsequent events following the issue of the Target’s Statement on 21 June 2011. This Supplementary Report should be read in conjunction with the statements made in the IER. Unless otherwise stated, all terms and definitions defined in the IER have the same meaning as in this Supplementary Report. We have not attempted to update our analysis for changes in market or
economic conditions after the date of the IER. For personal use only use personal For
BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.
Subsequent Events Following the issue of the target’s statement, Territory has advised that the Company is upgrading its Frances Creek Project’s mineral resource estimate inclusive of probable ore reserve and manganiferous material from 10.55 Mt grading 57.4% Fe to 13.40 Mt grading 56.5% Fe. The mineral resource estimate upgrade does not affect Territory’s probable ore reserve estimate of 5.22 Mt grading 57.9%. However, the upgrade in the mineral resource estimate has the impact of increasing the value of Frances Creek Project’s remnant resources.
Update on Frances Creek Project’s Remnant Resources Value
As set out in Section 11.1.5.1 of the IER, the Frances Creek Project’s remnant resources were valued by independent consultant, Xstract Mining Consultants Pty Ltd (“Xstract”). In deriving the remnant resource figures, Xstract deducted the probable ore reserve of 5.22 Mt grading 57.9% Fe from the Mineral Resource inclusive of manganiferous material of 13.40 Mt grading 56.5% Fe which resulted in 8.18 Mt grading 56% Fe. The primary valuation approach used by Xstract was the comparable transaction approach in valuing iron ore deposits. Comparable Transactions Method Following the upgrade of the remnant resources estimate, Xstract has provided an updated valuation of the Frances Creek Project’s remnant resources to be in the range of A$9.1 million to A$22.7 million with a preferred value of A$18.2 million. This is summarised in the table below.
Value Tonnage Grade In-situ Metal Item (Mt) (%Fe) (Mt Fe) Low Preferred High Frances Creek Project 8.18 56% 4.55 2.00 /t Fe 4.00 /t Fe 5.00 /t Fe Market Value A$9.1 mil A$18.2 mil A$22.7 mil
Source: Xstract report dated 11 July 2011 EV Method Xstract adopted the EV method as a method of verifying the valuation under the comparable transaction approach. The EV method incorporates a conceptual incorporation of the Frances Creek Project’s remnant resources into a future mining operation. Following the upgrade of the remnant resources estimate, Xstract has provided an updated valuation outcome under the EV method in the range of A$18.3 million to A$24.8 million with a preferred value of A$21.6 million. This is summarised in the table below. Low Preferred High Valuation Method (A$ mil) (A$ mil) (A$ mil)
Expected value method 18.3 21.6 24.8 For personal use only use personal For Source: Xstract report dated 11 July 2011
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Replacement Value Method Under the replacement value method, Xstract determined the value for the remnant resources to be in the range of A$3.2 million and A$5.3 million with a preferred value of A$4.3 million. This value has not changed with the upgrade of the remnant resources. Summary of value under various valuation methodologies adopted
The table below represents the updated value of the Frances Creek Project’s remnant resource under the various valuation methodologies adopted: Low Preferred High Valuation Method (A$ mil) (A$ mil) (A$ mil) Comparable + joint venture terms 9.1 18.2 22.7 Expected value 18.3 21.6 24.8 Replacement value 3.2 4.3 5.3 Selected 9.1 19.9 24.8
Source: Xstract report date 11 July 2011 Following the upgrade of the remnant resources estimate, Xstract has selected a value range of A$9.1 million to A$24.8 million with a preferred value of A$19.9 million for the Frances Creek Project’s remnant resource value. A copy of Xstract’s updated report is attached as an appendix to this Supplementary Report.
Update on the value of Territory shares
We have used the sum of parts methodology in assessing a value for each Territory share. Under this method, the value of Territory’s Frances Creek Project under the DCF valuation model is added to the value of the Frances Creek Project’s remnant resource, exploration target, exploration potential value and other exploration assets before adjusting for other key assets and liabilities of the Company to arrive at the overall value of the Company. The upgrade of the remnant resources estimate has only changed the value of the Frances Creek Project’s remnant resource component of the value of Territory. All other component values have not
changed. For personal use only use personal For
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The updated summary of assessment table in Section 11.1.5.11 of the IER is as follows:
Low Value Preferred Value High Value (A$ mil) (A$ mil) (A$ mil) DCF Value of Frances Creek Project 101.0 106.0 111.0 Frances Creek Project Remnant Resource Value 9.1 19.9 24.8 Frances Creek Project Exploration Target Value 2.0 5.0 8.2 Frances Creek Project Exploration Potential Value 1.3 2.3 3.8 Other Exploration Assets 0.1 0.3 0.6 Other Investments 6.4 6.4 6.4 Property, plant and equipment 6.0 6.0 6.0 Proceeds from Swan Gold 6.7 6.7 6.7 Interest Bearing Liabilities (38.9) (38.9) (38.9) Other Assets 17.0 17.0 17.0 Other Liabilities (16.7) (16.7) (16.7) Value of Territory 94.0 114.0 128.9 Number of Territory shares on issue prior to the Jonesville Offer 265,121,141 265,121,141 265,121,141 Value of Territory per share $ 0.355 $ 0.430 $ 0.486
The table above indicates a value of between A$0.355 to A$0.486 per Territory share with a preferred value of A$0.430 per Territory share.
Update on the assessment of Territory Share Value Section 11.4 of the IER provided an assessment of Territory’s share value based on the Sum of Parts basis in Section 11.1 of the IER, the QMP basis in Section 11.2 of the IER and the Alternative Offer Price in Section 11.3 of the IER. The upgrade in the remnant resources estimate has resulted in a change in the Sum of Parts Value. The updated results of the valuations performed in Sections 11.1, 11.2 and 11.3 are summarised in the table below. Section Low (A$) Preferred (A$) High (A$) Sum of Parts Value 11.1 0.355 0.430 0.486 Quoted Market Price Value 11.2 0.405 0.435 0.464 Alternative Offer 11.3 0.460 0.460 0.460 Preferred Value 0.460 0.473 0.486
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The above valuation ranges are graphically presented below:
Valuation Summary
Preferred Value Alternative Offer Quoted Market Price Value Sum of Parts Value
0.250 0.300 0.350 0.400 0.450 0.500 Valuation ($ )
We have determined that there is no change in our conclusion in considering the Alternative Offer as the most appropriate valuation methodology to value a Territory Share as set out in Section 11.4 of the IER as this provides the highest value to Shareholders.
Conclusion on Fairness In Section 12 of the IER, we performed an analysis to determine how the value of a Territory share compares to the Jonesville Offer Price for all the shares in Territory that it does not already own. We have considered the contents of the First Supplementary Target’s Statement and its impact on our assessment of the value of Territory.
Based on our revised assessment of the value of Territory’s share, our fairness assessment remains unchanged as the Jonesville Offer Price for all of Territory’s ordinary shares currently not owned by Jonesville is still higher than the value of a Territory share prior to the Jonesville Offer.
On this basis, and in the absence of a superior offer, we consider the Jonesville Offer to be fair.
Opinion In our opinion, the Jonesville Offer is fair and reasonable.
In accordance with RG 111, the Jonesville Offer is considered reasonable if it is fair to shareholders of Territory.
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Other matters At the request of ASIC, the following matters were also addressed in this Supplementary Report.
Revision of Statements within the Xstract Report appended to the target’s statement In the Xstract report dated 15 June 2011 which was appended with the target’s statement, Xstract made the following statement in Section 3.7:
“Given the time constraints of this review, Xstract has not verified the Mineral Resources and Ore Reserves published by Territory and has taken these at face value in formulating its opinions in this report.”
The statement above was amended in the revised Xstract report dated 11 July 2011 (“the Revised Xstract Report”) in light of changes in circumstances and conditions that have allowed Xstract to review Territory’s revised Mineral Resources Statement in July 2011. The revised statement now reads:
“The Ore Reserves and Mineral Resources supplied by Territory have not been subject to detailed independent verification by Xstract. However, through the course of its high level review of the underlying assumptions, Xstract has not identified any reason to doubt the validity of these estimates.” The Revised Xstract Report has also been amended to reflect the cautionary language of Clause 18 of the Australian Joint Ore Reserves Committee (“JORC”) which covers the reporting of exploration targets. As such, the first paragraph of Section 5.7 of the Revised Xstract Report now includes the following statement:
“Xstract cautions that the potential quantity and quality of the Exploration Target is conceptual in nature and there has been insufficient information to define a Mineral Resource. Furthermore it is uncertain if further exploration will result in the determination of a Mineral Resource.”
Reconciliation of Territory’s March 2011 Reserves Statement to the Reserve Estimate included in the Adjusted Frances Creek Model In this Supplementary Report, we also provide clarification on the estimated iron ore reserve of 4.71 Mt assumed in the Adjusted Frances Creek Model as at 1 July 2011 and a reconciliation with the estimated iron ore reserve of 5.22 Mt reported in Territory’s Quarterly Activities and Cash flow Statement for the quarter ended 31 March 2011. A reconciliation of the total estimated iron ore reserves as at 1 July 2011 is outlined in the table below:
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Probable Ore Reserves Probable Ore Reserves 31 March 2011 1 July 2011 Mt Mt Total Iron Ore Reserves including stockpiles 5.22 ¹ 4.71 Less: Stockpiles 0.85 ¹ 0.54 Total Iron Ore Reserves excluding stockpiles 4.38 4.17 Movement 0.21² Note: (1) Territory Quarterly Activities and Cash Flow Statement for the quarter ended 31 March 2011. (2) Approximately 0.21 Mt of iron ore reserve would have been mined over the quarter ended 30 June 2011.
Our opinion is made as at the date of this Supplementary Report. The financial services guide attached to the IER continues to apply.
Yours faithfully
BDO Corporate Finance (WA) Pty Ltd
Sherif Andrawes Director
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Territory Resources
Independent Valuation
Prepared for: BDO Corporate Finance (WA) Pty Ltd July 2011
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XstractGroup.com Xstract - Excellence from the outset
ENVIRONMENT GEOLOGY MINING PROCESSING VALUATION RISRISK TECHNOLOGIES
Primary authors: Manish Garg BEng (Hons) (Minerals Engineering), Master of Applied Finance Divisional Manager - Evaluations Xstract Mining Consultants Pty Limited - Brisbane
Jonathan Bell B.Sc. (Applied Geology ), M.Sc. (Min eral Economics) MAIG, GAICD Principal Consultant – Corporate Services Xstract Mining Consultants Pty Limited - Perth
Contributing authors: John Millbank Shaun Barry BEng (Mining) MBA B.Sc. (Hons), M.Sc. (Min eral Economics) MAusIMM MAusIMM Principal Mining Consultant Senior Consultant – Corporate Proactive Mining Solutions Xstract Mining Consultants Pty Limited
Peer review: Jeames McKibben B.Sc. (Hons), MBA MAusIMM, MAIG GM, Principal Consultant – Corporate Services Xstract Mining Consultants Pty Limited – Brisbane
Xstract Mining Consultants Pty Ltd has prepared this report on behalf of BDO Corporate Finance (WA) Pty Ltd . Public disclosure, publication , or presentation of any information contained in this document must be accompanied by written consent from Xstract Mining Consultants Pty Ltd. © Xstract Mining Consultants Pty Ltd
Document information: Project reference: [P1460] Reporting standard/s JORC Code 2004 , VALMIN Code 2005 Report date: July 2011 Status: Published For personal use only use personal For File: Territory_IER_110709
Xstract Mining Consultants Pty Ltd ABN: 62 129 791 279
Brisbane Perth Internet Level 20, 333 Ann Street Level 1, 1110 Hay Street, West Perth www .XstractGroup.com P: +61 (7) 3221 2366 F: +61 (7) 3221 2235 P: +61 (8) 9327 9500 F: +61 (8) 9481 8700 [email protected] M: PO Box 10312 Adelaide Street, Brisbane M: PO Box 847, West Perth QLD 4000 Australia WA 6872 Australia
Territory Resources | Independent Valuation
Executive summary
At the request of BDO, Xstract has prepared an Independent Valuation Report relating to the mineral assets of Territory Resources Limited (Territory). Territory holds the following mineral assets in the Northern Territory of Australia: • a 100% interest in the iron rights to the Frances Creek project located approximately 200 km southeast of Darwin • a 100% interest in the Reynolds Range project located approximately 250 km northwest of Alice Springs. • rights to iron from the Yarram haematite project located near Batchelor township some 80 km south of Darwin. The main area of activity is at Frances Creek, where mining is currently taking place. While exploration is mostly concentrated around the mining operation, exploration is also taking place on the surrounding exploration tenements to extend the life of mine beyond 2016. Territory reported a Mineral Resources as at 8 July 2011 outlined in the table below.
Mineral Mineral Tonnes Tonnes Type Resource Fe% P% Type Resource Fe% P% (Mt) (Mt) Category Category
Haematite Indicated 9.37 57.3 0.11 Manganiferous Indicated 1.27 53.2 0.11
Inferred 2.74 55.2 0.15 Goethite Inferred 0.01 52.0 0.18
Total 12.12 56.8 0.12 Total 1.28 53.2 0.11
Territory has also reported an Ore Reserve that includes scalps stockpiles and low-grade stockpiles as at 31 March 2011 outline in the table below.
Probable Ore Reserves Tonnes (Mt) Fe% P% SiO 2% Al 2O3%
Total 5.22 57.9 0.1 8.5 3.6
Additionally, Xstract is aware of a number of informal estimates relating to the Francis Creek project. Based on Xstract’s understanding of the nature of these estimates, which are supported by drillhole intersections, the project has an Exploration Target in the order of 5 Mt to 15 Mt grading 57% to 59% Fe. The Reynolds Range project consists of a single tenement granted in 2011. This project is in an early exploration stage, with planned desktop geology studies in the current and following financial years. In forming its opinion of the likely fair market value of Territory’s mineral assets outside the current LOM plan, Xstract has used a variety of valuation methodologies. Xstract’s preferred value of A$27.4 M is within a range of A$12.5 M to A$37.4 M for Territory’s mineral assets outside of the LOM. Xstract’s valuation is summarised in the table below.
Values (A$ M)* Project Aspect Low High Preferred Francis Creek Remnant resources 9.1 24.8 19.9 Exploration Target 2.0 8.2 5.0
For personal use only use personal For Exploration potential 1.3 3.8 2.3 Reynolds Range Exploration potential 0.1 0.6 0.3 Total 12.5 37.4 27.4 Implied Value (A$1.2/t Fe or (A$3.6/t Fe or (A$2.7 /t Fe or A$20,900/km 2) A$62,400/km 2) A$45,700/km 2) *any discrepancies due to rounding errors
Executive summary i BDO Corporate Finance (WA) Pty Ltd | July 2011
Contents
Executive summary ______i
1 Introduction ______1
1.1 Background 1
1.2 Terms of reference 1
1.3 Reporting standard 3
1.4 Data sources 3
1.5 Competent Person statement 3
1.6 Warranties and indemnities 4
1.7 Consent 4
2 Location ______4
3 Frances Creek project ______5
3.1 Access and infrastructure 5
3.2 Tenure 5
3.3 Tenement Agreements 7
3.4 History 7
3.5 Geology 8
3.6 Mineralisation 10
3.7 Mineral Resources and Ore Reserves 12
3.8 Mining 13
3.9 Processing 15
3.10 Operating costs 16
3.11 Exploration potential 18
3.12 Rehabilitation 19
4 Reynolds Range project ______20
5 Valuation ______22
5.1 Valuation considerations 22
5.2 Income based approach 23
5.3 Market-based approach 24
5.4 Cost-based approach 26
5.5 Xstract’s technique 29
5.6 Frances Creek remnant resource valuation 29
For personal use only use personal For 5.7 Frances Creek exploration target valuation 33
5.8 Frances Creek exploration potential valuation 35
5.9 Reynolds Range exploration potential valuation 38
5.10 Other considerations 39
5.11 Valuation summary 40
ii Executive summary Territory Resources | Independent Valuation
6 Declaration ______41
6.1 Independence 41
6.2 Qualifications 41
7 Glossary of terms ______43
8 Bibliography ______44
Tables
Table 3.1: Frances Creek project tenement schedule 6
Table 3.2: Frances Creek tenement application schedule 6
Table 3.3: The Frances Creek project haematite Resource estimates 12
Table 3.4: The Frances Creek project manganiferious goethite Resource estimate 12
Table 3.5: The Frances Creek Project’s Ore Reserve estimate 12
Table 3.6: Xstract’s proposed operating costs 1 17
Table 5.1: Mineral asset classification 22
Table 5.2: Valuation approaches for different types of mineral assets 23
Table 5.3: Geoscience rating criteria 29
Table 5.4: Market-based valuation summary of the Frances Creek project’s remnant resources 31
Table 5.5: Expected value of the Frances Creek project’s remnant resources 32
Table 5.6: Frances Creek remnant resource valuation summary 33
Table 5.7: Market-based valuation summary of the Frances Creek project’s Exploration Target 34
Table 5.8: Expected value of the Frances Creek project’s Exploration Target 35
Table 5.9: Frances Creek Exploration Target valuation summary 35
Table 5.10: Market based summary valuation of the Frances Creek project’s exploration potential 37
Table 5.11: Expected Value of the Frances Creek project’s exploration potential 37
Table 5.12: Frances Creek project exploration valuation summary 38
Table 5.13: Market based summary valuation of the Reynolds Range project’s exploration potential 39
Table 5.14: Frances Creek and Reynolds Range project valuation summary 40
Figures
Figure 2.1: Locality of Territory’s mineral assets 5
Figure 3.1: Shipped tonnes by quarter 8
Figure 3.2 Mineral provinces of Northern Territory 9
For personal use only use personal For Figure 3.3: Simplified geology of the Frances Creek project area 11
Figure 3.4: Localised failure in Helene Pit 14
Figure 4.1: Simplified geology of the Reynolds Range project 21
Figure 5.1: Vendor and acquirer considerations in the replacement valuation process 27
Figure 5.2: ASX All Ordinaries index from October 2008 to July 2011 30
Executive summary iii BDO Corporate Finance (WA) Pty Ltd | July 2011
Appendices
Appendix A Australian Iron Deposit Transactions (non-magnetite)
Appendix B Australian Iron Deposit Transactions (exploration targets, excluding magnetite)
Appendix C Australian Iron Deposit Transactions (Inferred Resources, excluding magnetite)
Appendix D Australian Iron Exploration Transactions
Key abbreviations
% percent
A$ Australian Dollar
CP Closure Plan
BDO BDO Corporate Finance (WA) Pty Ltd
Northern Territory Department of Resources – Primary Industry, Fisheries and DoR Resources
ha hectares
Jonesville Jonesville Limited
JORC Code 2004 the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2004 edition)
km kilometres
km 2 square kilometres
LOM life of mine
Ltd limited
M millions
Ma millions of years
Mt million tonnes
MMP Mining Management Plan
Noble Noble Group Limited
Pty Ltd proprietary limited
Softwood Softwood Plantations Pty Ltd
t tonnes
Territory Territory Resources Limited
US$ United States of America Dollar
VALMIN Code 2005 edition of the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports
Xstract Xstract Mining Consultants Pty Ltd
For personal use only use personal For A detailed glossary is presented on page 43.
iv Executive summary Territory Resources | Independent Valuation
1 Introduction
At the request of BDO Corporate Finance (WA) Pty Ltd (BDO), Xstract Mining Consultants Pty Ltd (Xstract) has prepared an Independent Valuation Report relating to the mineral assets of Territory Resources Limited (Territory). It is Xstract’s understanding that its report will be included as an appendix to BDO’s Independent Experts Report (IER) relating to an on-market cash takeover bid for Territory by Jonesville Limited (Jonesville) a wholly owned subsidiary of Noble Group Ltd (Noble). Xstract is required to provide the technical inputs to the discounted cash flow valuation model for BDO and value resources (excluding reserves) and the exploration tenements. The mineral assets considered in this report comprise the wholly owned Frances Creek project area of mining leases and exploration tenements located 200 km southeast of Darwin and the wholly owned Reynolds Range exploration tenement, recently granted in 2011, located 250 km northwest of Alice Springs. Within the Frances Creek project area are a number of producing pits that contain a Mineral Resource and Ore Reserve according to the guidelines of the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). The effective valuation date for this report is 10 July 2011 with all values compiled in Australian dollar (A$) terms.
1.1 Background
Territory is listed on the Australian Stock Exchange and holds tenements in the Northern Territory focused on iron mining and exploration. Iron production commenced in June 2007. Territory made its first shipment from its Frances Creek project in September 2007. Marketing agreements with Noble, a Singapore listed company, are in place to manage the supply chain of Territory’s saleable iron production. On 9 June 2011, Jonesville announced an unconditional, on-market takeover bid of A$0.50/share for the 67.99% equity interest it did not already own in Territory. Territory has commissioned BDO to provide an independent expert’s report as to whether the proposed transaction is fair and reasonable to Territory’s shareholders. BDO subsequently engaged Xstract to provide technical advice in support of its assessment. In particular, BDO engaged Xstract to provide a specialist’s technical assessment of the capital and operating cost assumptions relating to Territory’s Frances Creek operation, as well as a valuation report relating to the company’s exploration assets.
1.2 Terms of reference This technical assessment and valuation report has been prepared at the request of BDO, on behalf of Territory, to provide an independent opinion on the production and physical inputs as well as capital and operating cost assumptions at Frances Creek mine and the fair
market value of the company’s exploration assets located in Northern Territory. For personal use only use personal For
Introduction 1 BDO Corporate Finance (WA) Pty Ltd | July 2011
Specifically, Xstract was requested to assist BDO with the following: • brief technical overview of Territory’s operating, development and exploration assets, including: • approvals and licenses to operate the mine • geology and exploration, including reserve and resource estimates • progress and status of exploration and development projects • operating and transport arrangements. • identifying and verifying the following technical assumptions contained in the Frances Creek Mine financial model: • quantum of reserves and resources and production profiles • expected life of mine • operating costs estimates, including comparison with historical performance • transport costs estimates • the quantum and timing of capital cost estimates • rehabilitation and closure costs • any other technical assumptions considered relevant. • views on: • potential mineralisation outside of what is considered to be reserves, including expected conversion rates to reserves and possible development profile (timing and capital cost) • alternative technical assumptions, where considered appropriate. • the value of the Territory’s exploration portfolio. Xstract’s services exclude any work in relation to: • marketing, commodity price, and exchange rate assumptions adopted in BDO’s cash flow model • financial and/or corporate taxation analysis • comment on the fairness or reasonableness of any consideration in relation to Territory’s assets. The conclusions expressed in this valuation report are appropriate as at 10 July 2011. The valuation is only appropriate for this date and may change in time in response to variations in economic, market, legal or political factors, in addition to ongoing exploration results. All monetary values outlined in this report are expressed in Australian dollars (A$) unless otherwise stated. For the technical assessment outlined in this report, Xstract personnel engaged on this project have undertaken a site visit to Territory’s Frances Creek project. Discussions were held with Territory’s personnel on site during the week starting the 11 April 2011.
For personal use only use personal For
iv 2 Introduction Territory Resources | Independent Valuation
1.3 Reporting standard
This report has been prepared in accordance with the following: • The 2005 edition of the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (VALMIN Code); and • The 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). For the purposes of this report, value is defined as “fair market value”, being the amount for which a mineral asset should change hands between a willing buyer and a willing seller in an arm’s length transaction where each party is assumed to have acted knowledgeably, prudently and without compulsion.
1.4 Data sources
In developing our assumptions for this report, Xstract has relied upon information provided by Territory and information gained from publically available sources. Key sources are outlined in this report and all data included in the preparation of this report has been detailed in the Bibliography. The material on which this report is based consists of internal and open-file project memorandums, technical reports, and location plans, which were all provided by Territory. In the execution of its mandate, Xstract reviewed all relevant technical and corporate information made available to Xstract by the management of Territory, which accepted in good faith as being true, accurate and complete, having made due enquiry. Territory’s directors have agreed in writing with their obligation to provide Xstract all material information for this purpose. Xstract has made due enquiries of the Northern Territory Government Department of Resources in order to validate information provided by Territory. However, Xstract is not qualified to express legal opinion and has not sought any independent legal opinion on the ownership rights and obligations relating to the respective mineral assets under licence or any other fiscal or legal agreements that Territory may have with any third party. A draft version of this report was provided to the directors of Territory for comment in respect of omissions and factual accuracy. Territory has warranted that all material information in its possession has been fully disclosed to Xstract and has agreed to indemnify Xstract from any liability arising from its reliance upon information provided or information not provided.
1.5 Competent Person statement
The information in this report that relates to an Exploration Target is based on information compiled by Mr J A Bell, who is a Member of the Australasian Institute of Geoscientists. Mr Bell is a Principal Consultants at Xstract and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore For personal use only use personal For Reserves”. The information in this report that relates to Exploration Results and Mineral Resources is based on compiled information, which has been reviewed by Mr Shaun Barry. Mr Barry is a full time employee of Xstract and a Member of the AusIMM.
Introduction 3 BDO Corporate Finance (WA) Pty Ltd | July 2011
1.6 Warranties and indemnities
Territory has represented in writing to Xstract that full disclosure has been made of all material information and that to the best of its knowledge and understanding, such information is complete, accurate and true. As recommended in Section 39 of the VALMIN Code, Territory has provided Xstract with an indemnity under which Xstract is to be compensated for any liability and/or any additional work or expenditure resulting from any additional work required which: • results from Xstract’s reliance on information provided by Territory and/or Independent consultants that is materially inaccurate or incomplete, or • relates to any consequential extension of workload through queries, questions or public hearings arising from this report.
1.7 Consent
Xstract consents to this report being included in BDO’s IERs (for inclusion in Territory’s Target Statement in relation to the takeover offer from Jonesville) in the form and context in which it is provided, and not for any other purpose. Xstract provides this consent on the basis that the technical assessments and opinions expressed elsewhere in the IER are considered with, and not independently of, the information set out in Xstract’s complete report.
2 Location
As at the 14th June 2011, being the effective date of this valuation, Territory held the following mineral assets in the Northern Territory of Australia (Figure 2.1): • a 100% interest in the iron rights to the Frances Creek project located approximately 200 km southeast of Darwin; • a 100% interest in the Reynolds Range project located approximately 250 km northwest of Alice Springs; and • the rights to explore, develop, mine, upgrade and purchase iron from the Yarram
haematite project located near Batchelor township some 80 km south of Darwin. For personal use only use personal For
iv 4 Location Territory Resources | Independent Valuation
Figure 2.1: Locality of Territory’s mineral assets The tenements (ERL125, ERL146 and MLN1163) that comprise the Yarram project are owned by Compass Resources Limited (Compass). An agreement with Compass gives Territory rights to the iron only on a small portion of all three tenements (centred around MLN1163). These tenements have not been included in the valuation of Territory’s mineral asset as they are not considered in Xstract’s view to have a material impact.
3 Frances Creek project
3.1 Access and infrastructure
The Frances Creek project lies 220 km south of Darwin near the town of Pine Creek. Access is along the sealed Stuart Highway. The Adelaide to Darwin rail line passes 15 km south of the Frances Creek mine.
For personal use only use personal For 3.2 Tenure
The Frances Creek project’s tenement schedule and status is outlined in Table 3.1 and Table 3.2. In Figure 3-3, the relationship of the tenements to the geology and mineralisation are shown.
Frances Creek project 5 BDO Corporate Finance (WA) Pty Ltd | July 2011
Table 3.1: Frances Creek project tenement schedule
Tenement Current Area Holder Grant Date Expiry Date No. Blocks ha
EL 9999 Territory 22/07/03 21/07/11 2
EL 10137 Territory 10/07/02 09/07/12 8
EL 22270 Territory 10/07/02 09/07/12 1
EL 23237 Frances Creek P/L 8/12/03 07/12/11 5
EL 23506 Teelow, Orridge & Clark 08/05/03 07/05/11 52
EL 23824 Softwood 49%, Territory 51% 09/02/04 08/02/12 31
EL 24040 Territory 19/08/04 18/08/12 19
EL 24045 Territory 19/08/04 18/08/12 2
EL 24715 Terragold Mining P/L 01/03/06 29/02/12 17
EL 24990 Territory 24/07/06 23/07/12 1
AN 389 Frances Ck P/L 15/11/93 14/11/2010 1 4
EMP 27677 Territory 13/05/10 12/05/12 2.3
ML 24727 Territory 05/04/07 04/04/32 1216
ML 25087 Territory 24/04/07 23/04/32 61.3
ML 25088 Territory 24/04/07 23/04/32 33
ML 25152 Territory 24/04/07 23/04/32 137.9
ML 25396 Territory 24/04/07 23/04/32 165.1
ML 25529 Territory 22/12/10 21/12/35 31.5
ML 26222 Territory 22/12/10 21/12/35 6 Note: 1 Renewal pending
Table 3.2: Frances Creek tenement application schedule
Tenement Application Current Area Holder No. Date Blocks ha
EL 28514 Territory Iron 16/12/10 1
EML 28689 Territory 17/03/11 3.0
ML 26429 Territory 75%, Softwood 25% 11/09/07 668
ML 27224 Territory 12/03/09 129
ML 27225 Territory 12/03/09 244.4
ML 27226 Territory 12/03/09 388
ML 27227 Frances Ck P/L 12/03/09 13
ML 27228 Territory 12/03/09 116
ML 27229 Frances Ck P/L 12/03/09 92
For personal use only use personal For ML 27230 Territory 12/03/09 97
ML 27807 Territory 24/11/09 79.6
ML 27808 Territory 24/11/09 333.2
iv 6 Frances Creek project Territory Resources | Independent Valuation
3.3 Tenement Agreements
In September 2004, Territory entered into an agreement with Softwood Plantations Pty Ltd (Softwood) by which Territory earned an initial 51% interest in EL 23824 through completion of an exploration programme (minimum expenditure of A$250,000) and paying Softwood a consideration of A$1. Territory owns a claimed 75% of ML 26429 with Softwood retaining 25%. Softwood has objected to this, indicating that the ownership only lifts from 51/49 to 75/25 on ML 26429 when a commercially viable deposit is defined. In December 2006, Territory entered an agreement with GBS Gold Australia Pty Ltd (GBS), which allows Territory to explore for iron on GBS controlled tenements EL 24715 and EL 23506 in the Frances Creek area. In return, GBS has the right to explore for gold on Territory tenements EL 24040, EL 9999, and EL 22856. GBS will receive a 1.5% gross revenue royalty from any iron production within its tenement areas and Territory will receive a 1.5% gross revenue royalty from any gold production within its tenement areas. In June 2007, Territory entered an agreement to acquire Arafura’s tenements and mineral rights (except gold) over AN 389, EL 22270 and EL 10137 through staged payments totalling A$2.5M. Under the agreement, Territory assumed ownership of the tenements and subsequent Mining Leases granted on those tenements. In addition, this agreement cancelled the royalty agreement between Territory and Arafura. GBS Gold Australia went into voluntary administration on 15 September 2009 and as a result, all assets were placed under care and maintenance. Crocodile Gold Australia Pty Ltd purchased all liquidated assets located in the Northern Territory in June 2009, and after meeting regulatory and statuary requirements, these assets were transferred to Crocodile Gold Australia Pty Ltd on 6 November 2009.
3.4 History
The Frances Creek area has undergone extensive exploration and mining activities since the 1960s. Territory estimated that between 1967 to 1974 some 8 million tonnes (Mt) of ore with an average grade of 59% iron (Fe) has been produced from deposits in the Frances Creek iron field. In 1975, the iron field closed due to: • the combined effects of Cyclone Tracey • high operational costs • a declining iron market • failed rail infrastructure. A number of historical open pit and underground mining operations are covered by the Frances Creek mining area, including those at Jasmine West, Jasmine Centre, Rosemary, Thelma 1, Thelma 2, and Helene 2 to 10. It is reported that the bulk of the previous production came from of the Helene 6/7 deposit. Ownership of Frances Creek has changed several times over the past 40 years, with the area explored for iron during the 1960s and 1970s by numerous mining and exploration companies, often in joint venture. Intermittent exploration was carried out during the 1980s, with the feasibility of reopening the Frances Creek mining operation briefly examined in
For personal use only use personal For 1981. Under the conditions at the time, Frances Creek did not represent a viable proposition. Limited exploration was carried out in the late 1990s and comprised rock chip sampling, re- sampling of historical drill core and interpretation of aeromagnetic data collected in the late 1980s to early 1990s. Five anomalies were delineated by this work, two of which were in the Helene and Thelma to Jasmine areas.
Frances Creek project 7 BDO Corporate Finance (WA) Pty Ltd | July 2011
Territory started acquiring tenements in the Frances Creek area in 2003 and commenced production in 2007 (Figure 3-1). Production ramped up reaching a monthly peak of just over 600,000 t in September 2009. Total production for the six months to 31 December 2010 was 860,396 t, 27% down from the same period in 2009, due to adverse weather conditions restricting access to pits.
Figure 3.1: Shipped tonnes by quarter
(tonnes) 700,000
600,000
500,000
400,000
300,000
200,000
100,000
- Sep '07 Dec '07 Mar '08 Jun '08 Sep '08 Dec '08 Mar '09 Jun '09 Sep '09 Dec '09 Mar '10 Jun '10 Sep '10 Dec '10 Mar '11
3.5 Geology
The Frances Creek project is located within the Archaean to Palaeoproterozoic Pine Creek Orogen in the Northern Territory (Figure 3.2), one of the major mineral provinces of northern Australia. The Pine Creek Orogen is a deformed and metamorphosed sedimentary basin, which hosts significant resources of uranium, gold, and platinum group metals, as well as substantial base metal, silver, iron and tin-tantalum mineralisation. The Pine Creek Orogen comprises a series of late Archean-aged (2,670 to 2,500 Ma) granite- gneiss basement domes which are overlain by a fluvial to marine meta-sedimentary sequence of Palaeoproterozoic age (2,500 to 1,600 Ma). Several highly reactive rock units are included within this sedimentary sequence including carbonaceous shale, ironstone, evaporite, carbonate and mafic to felsic volcanic units of the South Alligator and Finnis River Groups. This sequence has been subject to regional greenschist facies metamorphism and multiphase deformation which has resulted in the development of a northwest trending fabric. Subsequent widespread felsic volcanism and the intrusion of granitoids caused contact metamorphism in aureoles between 500 m and 2 km wide, which overprint the earlier regional metamorphism. After granitic intrusion, an extensive array of northeast and northwest trending dolerite dykes intruded the meta-sedimentary sequence during regional extensional deformation.
For personal use only use personal For Haematite mineralisation within the Frances Creek project area is preferentially developed within strata of the South Alligator Group and lower parts of the Finnis River Group along synclines, in proximity to several intrusive granitoid bodies. Of particular stratigraphic importance to the iron deposits of the region are the Masson Formation and the Wildman Siltstone.
iv 8 Frances Creek project Territory Resources | Independent Valuation
Figure 3.2 Mineral provinces of Northern Territory For personal use only use personal For
Source: Northern Territory Geological Survey
Frances Creek project 9 BDO Corporate Finance (WA) Pty Ltd | July 2011
The Masson Formation represents basement to the Frances Creek project area and comprises phyllites, slate, siltstone and sandy limestone with subordinate haematite and limonite ironstone units. Unconformably overlying the Masson Formation are units of the Mount Partridge Group comprising the Mundogie Sandstone and the Wildman Siltstone. The Mundogie Sandstone consists of feldspathic quartzite, conglomerate, phyllite and siltstone. The Wildman Siltstone consists of fine grained pyritic carbonaceous sediments which are overlain by sulphidic and carbonaceous argillite, ferruginous chert, ironstone, silicified dolomites and phyllitic mudstones of the Koolpin Formation. The Koolpin Formation is in turn overlain by tuffaceous sediments of the Gerowie Tuff and turbiditic sediments of the Burrell Creek Formation and the transitional Mount Bonnie Formation. Numerous sills of Zamu Dolerite intrude the Koolpin Formation and the Gerowie Tuff. Numerous granitoid bodies, including the Cullen Granite, the Burnside Granite and Mount Goyder Syenite also intrude the sedimentary sequence. This sequence has been moderately to tightly folded along several north-northwest trending axes within the project area. The axial plane of these folds is characterised by intense bedding-parallel faulting and shearing along predominantly northwest trends.
3.6 Mineralisation
The Frances Creek project area hosts a series of replacement shear-hosted iron deposits which are scattered throughout the western and southern portions of the project (Figure 3.3). Iron mineralisation at Frances Creek occurs in two main rock units; the basal portions of the Wildman Siltstone and the Masson Formation (Figure 3.3). Within the project area, these units are folded about a regional scale north-northwest trending antiform. Mineralisation typically comprises a series of discontinuous, moderately to steeply dipping haematite lenses, which occur over a 40 km strike length. Geometries of the iron deposits vary from tabular to complexly folded plunging bodies. Lenses within the principal host, the Wildman Siltstone, are typically stratabound predominantly occurring 300 m stratigraphically above the contact between the Wildman Siltstone and the underlying Mundogie Sandstone. Thick iron intersections occur within gently plunging anticlinal and synclinal structures under shallow cover. There is a close spatial relationship between the iron deposits and Early Proterozoic Zamu dolerite dykes. However, there is no evidence to suggest that the dolerites were the source of the hydrothermal iron-bearing fluids as none of the weathered dolerites at Frances Creek are
depleted in iron. For personal use only use personal For
iv 10 Frances Creek project Territory Resources | Independent Valuation
Figure 3.3: Simplified geology of the Frances Creek project area For personal use only use personal For
Frances Creek project 11 BDO Corporate Finance (WA) Pty Ltd | July 2011
3.7 Mineral Resources and Ore Reserves
The following Mineral Resource and Ore Reserve in Table 3.3, Table 3.4 and Table 3.5 are a compilation of Resource and Reserve reports which meet the minimum reporting criteria outlined by the JORC Code and are a further update to that last published in the 2010 Territory annual report. The underlying Mineral Resource figures are as of 8 July 2011 and no updated Ore Reserve figures were available at the time of writing this report. As reported by Territory, Frances Creek project contained 5.2 Mt of Probable Ore Reserves within 13.4 Mt of Mineral Resources (including 1.27 Mt of manganiferous goethite Mineral Resources).
Table 3.3: The Frances Creek project haematite Resource estimates
Hematite Resources Indicated Inferred Total
Mt Fe% P% Mt Fe% P% Mt Fe% P%
Helene 3/4 0.53 57.9 0.10 0.19 56.4 0.15 0.72 57.5 0.10
Helene 5/6/7 4.91 57.7 0.11 1.97 54.4 . 6.88 56.8 0.12
Helene 11 0.21 56.4 0.18 0.02 50.0 0.27 0.23 55.9 0.19
Jasmine 1.78 57.2 0.08 0.15 56.4 0.08 1.93 57.1 0.08
Ochre Hill 0.10 58.2 0.43 0.01 56.7 0.55 0.11 58.1 0.45
Saddle East - - - 0.10 58.7 0.08 0.10 58.7 0.08
Thelma 1 0.53 60.8 0.12 0.05 57.7 0.09 0.59 60.5 0.12
Thelma-Rosemary 1 0.48 58.7 0.12 0.26 58.1 0.28 0.74 58.5 0.18
Scalps Stockpiles 0.63 51.5 0.10 - - - 0.63 51.5 0.10
Low Grade Stockpiles 0.19 52.7 0.09 - - - 0.19 52.7 0.09
Total 9.37 57.3 0.11 2.75 55.2 0.15 12.12 56.8 0.12 (1) – amalgamates the Thelma Rosemary and Rosemary Deposits Cut-off grades used are 45% Fe for Helene 5/6/7, 48% Fe for Jasmine, Helene 3/4 and Helene 11, and 50% Fe for the remainder. As at 8 July 2011
Table 3.4: The Frances Creek project manganiferious goethite Resource estimate
Indicated Inferred Total Manganiferous Goethite Resources Mt Fe% P% Mt Fe% P% Mt Fe% P%
Millers 1 1.27 53.2 0.11 0.01 52 0.18 1.28 53.2 0.11
Total 1.27 53.2 0.11 0.01 52 0.18 1.28 53.2 0.11 (1) – cut off grade used is 50% (Fe + Mn) Resource estimates were calculated using cut-off grades of 50% (Fe + Mn) As at 31 March 2011
Table 3.5: The Frances Creek Project’s Ore Reserve estimate For personal use only use personal For Probable Ore Reserve Hematite Reserves Mt Fe% P% SiO 2% Al 2O3%
Helene 5/6/7* 2.60 59.2 0.08 8.9 3.7
iv 12 Frances Creek project Territory Resources | Independent Valuation
Hematite Reserves Probable Ore Reserve
Helene 9* 0.11 56.4 0.13 8.7 2.9
Helene 11* 0.18 58.1 0.16 6.9 3.3
Jasmine Central* 0.69 59.6 0.09 9.1 2.9
Jasmine East 0.03 58.7 0.09 8.2 4.3
Jasmine West* 0.16 60.1 0.05 8.3 3.3
Thelma-Rosemary 0.24 58.2 0.16 8.7 4.4
Thelma 1* 0.35 60.9 0.12 5.9 3.6
Scalps Stockpiles 0.69 50.4 0.12 - -
Low Grade Stockpiles 0.15 52.3 0.09 - -
Total 5.22 57.9 0.10 8.6 3.6 * Ore Reserves derived from single optimised pit shell Note 1. Ore Reserves were calculated using a cut-off grade of 50% Fe, with the exception of Helene 9 which used 48% Fe Note 2. Head Grades shown Note 3. Ore Reserves are a subset of the reported Mineral Resources As at 31 March 2011
The Ore Reserves and Mineral Resources supplied by Territory have not been subject to detailed independent verification by Xstract. However, through the course of its high level review of the underlying assumptions, Xstract has not identified any reason to doubt the validity of these estimates.
In reviewing the stated Mineral Resources and Ore Reserves, Xstract considers it appropriate to identify potential opportunities and risk, based on its discussions with site personnel: • To date, the Indicated Mineral Resource to Reserve conversion rate has been approximately 65%. • Further conversion of the indicated Resources to Reserves will depend upon iron pricing going forward. Further increases in iron prices will result on expansions to the designed pit shells, particularly at depth. • The defined stockpiles are included as part of life of mine (LOM), thereby removing them from the stated resource. • Following the discovery of geothitic material at Helene 9 and 11, the stated resource has been reduced by approximately 126 kt to reflect the lower density of this material. Risk of discovering further localised geothitic pockets exist. • Exclusion of the manganiferous component of the defined resources (Table 3.4). The stated resources of 1.28 Mt consist of a combined iron and manganese grade of approximately 58%. The manganese grade averages 4.55% manganese.
3.8 Mining
3.8.1 Geotechnical risk Inspection of the open pit mines has shown there to be limited geotechnical risks associated For personal use only use personal For with near surface mining to date. Most pits are currently less than 50 m deep and have stable walls. Historical pits have been mined from the 1950s to 1974.
Frances Creek project 13 BDO Corporate Finance (WA) Pty Ltd | July 2011
These pits remain stable and indicate that at shallow depths, there is limited geotechnical risk to further accessing the defined mineralisation within the stated Ore Reserve. Inspection of Helene 5/6/7 pits indicates some multiple batter scale failures, as shown in the Figure 3.4 below. This appears to be a localised failure and should not pose significant risk to Reserve recovery. Other walls within this pit appear to have been appropriately designed.
Figure 3.4: Localised failure in Helene Pit
3.8.2 Pit optimisation
To determine the economic viability of each pit, Territory has completed optimisation runs using Lerchs Grossman techniques. These optimisations use mining and processing costs along with expected product recoveries and sales prices to determine the economic size of the open pit mine. Territory has used the following cost and revenue profiles. A mining cost of A$2.90 per tonne across the entire project has been used. No adjustment has been made for depth mined or mine location. Mining costs include ancillary activities and are based on the company’s 2011 budget. Processing costs (including processing, beneficiation and logistics) used for pit optimisation range from A$24.32 for reprocessed fines to A$52.71 for crushed/screened fines and lumps. A product price of US$100 per tonne of lump and US$90 per tonne of fines has been used
For personal use only use personal For for optimisation purpose. In Xstract’s opinion, the cost return profile used by Territory for pit optimisations is conservative. Potential exist to increase reserve by optimising pit based on near term prices.
iv 14 Frances Creek project Territory Resources | Independent Valuation
3.8.3 Mine reconciliation
Mine reconciliation has been completed by Territory on a periodic basis, whereby actual mined tonnes are compared with the resource model. Discussions with site geological personnel indicates that the actual tonnes mined are overall higher (by between 5% to 10%) than outlines in the reserve model and the mined iron grade is slightly lower. This corresponds to: • Conventional cut off grade theory in the application of mining dilution. • The inclusion of the Inferred Resource in actual mined, but excluded from the reserve. Accordingly, it is anticipated that the models used to generate the reserves are robust and as such, the ore should present itself as modelled.
3.8.4 Mining methodology
Conventional open cut mining methods of drill and blast followed by load and haul operations are employed at the Frances Creek mine. Drill and blast operations are completed on site by a specialised drilling contractor. Drilling is carried out by two Tamrock Pantera 1500 drill rigs drilling either 5 or 10 m bench heights. Blasting is completed using Orica down the hole services with either ANFO explosives for dry areas, or emulsion for wet areas. The contract is structured such that a fixed price component will cover overhead costs for the contractor, combined with unit rates for drilling and blasting. Load and haul operations are carried out using three 120 t class backhoe configuration excavators, combined with a fleet of twelve 90 t off highway haul trucks. Ancillary equipment includes water carts, graders, and dozers. The run of mine (ROM) is managed using front-end loaders. All mining equipment is leased from an equipment supplier, who also provides maintenance services. The cost of planned maintenance is covered by the fleet lease, while any out of plan maintenance is additional. Labour and fuel are provided by the company. Territory mining costs therefore include both fixed and variable components.
3.9 Processing
3.9.1 Crushing & screening plant
The Frances Creek mine is supported by a mobile crushing and screening system, which is owned and managed by Barminco. The plant consists of feeders, a jaw crusher, cone crusher, screen, and conveyors. The mobile plant is designed to produce at a rate of 350 metric tonnes per hour or over 2.7 Mtpa. The plant is capable of treating various grades of ore (high grade and low grade). It produces lump product (40 mm to 8 mm) and fine product (-8 mm). The rejects (scalps) from the plant are stockpiled separately for potential re-processing in the future using the newly commissioned beneficiation plant. The recovery from the processing plant is dependent on the feed grade. The average recovery over the remaining life of mine is forecast to be 77%. The ratio of lump: fine production is For personal use only use personal For forecast to be 58:42. The crushing plant has been underperforming and not achieving the desired throughput rate due to various operating and maintenance issues. Barminco has increased the resourcing level to address these issues.
Frances Creek project 15 BDO Corporate Finance (WA) Pty Ltd | July 2011
3.9.2 Low grade beneficiation plant
Territory has approximately 800,000 tonnes of 51% Fe scalp ore on stockpiles, which can be beneficiated to fine product with 58% to 60% Fe. The beneficiation plant was designed to process this low-grade stockpiled material in 2010 and upgrade them to a saleable product. The plant consists of a prep-screen section, dense media separation, and spiral gravity separation. The construction of the plant has proceeded on budget and was successfully commissioned in January 2011. The plant is designed at the nominal feed rate of 130 tonnes per hour (tph), with a 55% mass recovery of fine product from scalps. At steady state operation, which was achieved in February 2011, the plant will treat 80,000 t of scalp feed to produce approximately 44,000 t of high-grade fines product every month. At this early stage, the plant has been successfully operating at a steady state of 100 to 120 tph and this will be gradually increased to the name-plate rate of 130 tph in coming months. The cost of operating the beneficiation plant is A$8.60/t of material processed at present but is forecast to reduce to A$6.35/t as the throughput rate is increased. The addition of the beneficiation plant opens up a raft of new blending opportunities for the project, while generating a new source of cash flow. The company plans to conduct tests to determine if the beneficiation process will be able to upgrade lower grade deposits located along the northern side of existing pit. Addition of such material will extend the mine life well beyond the current delineated reserves.
3.9.3 Logistics
The Frances Creek project is located approximately 220 km from the port of Darwin and within close proximity of rail, road, and port facilities. The product from the mine site is transported using heavy duty road trucks (100 t) to the stockpiling and rail loading facility which is located 16 km away using dedicated haul roads. Ore haulage and road maintenance is carried out under contract. Shipping from Darwin port uses Panamax size ships with maximum capacity of 74,000 t of product.
3.9.4 Marketing
Territory is in a unique position amongst Australia’s iron juniors, with marketing agreements in place with the company’s cornerstone shareholder, Noble. Noble plays a key role as intermediary in the supply chain of iron into China, currently trading about 20 Mt annually into that market. Territory has entered into a life-of-mine supply agreement with Noble for a set fee based on sales revenue.
3.10 Operating costs
Xstract has reviewed the Territory’s management reports, which provide a summary of actual achievements against budget for the production, operating, and capital costs. Xstract has formed a view on the expected operating costs based on past performance and Xstract’s
database of operating costs for open pit operations. For personal use only use personal For The 2011 financial year budget has Frances Creek total mined material as 18,724 kt, with 1,767 kt of ore included in this. The unit cost at budget is A$3.47 per mined tonne, or A$36.75 per mined ore tonne.
iv 16 Frances Creek project Territory Resources | Independent Valuation
Budget total material mined ranges between 1,407 kt in February (50.2 kt per day) to 1,688 kt (54.4 kt per day) in July. This is essentially a constant production rate for every day. For the year to date, Frances Creek has produced a total of 10,376 kt or 37.8 kt per day. This is a shortfall of 24.6% per day. Unusual prolonged wet season is the major contributor to this shortfall. Arrangements to lease additional equipments are under progress to address this issue. Using first principles for the current fleet, it is anticipated that maximum total mining for the existing fleet would be 16,000 kt, without allowance for significant wet season losses. Allowing for wet season losses of 50% total mined for a period of three months, the maximum possible at Frances Creek with the existing mining fleet is 13.4 Mt per annum. Considering increases in haulage depth and reducing machine availability over time, a long term production rate of 12,100 kt total mined per year is anticipated. Additional proposed fleet of excavators and trucks should address this shortfall. It is likely that further equipments will be required when the total material movement is in excess of 17 Mt per annum. Costs for mining activities are both fixed and variable. What are essentially fixed costs include labour and on costs, equipment hire, equipment damage, and mine services such as survey, supervision, and technical services. Accordingly, due to the inability to meet budget production rates, the unit costs for these activities increase. Variable costs such as fuel, maintenance, tyres, explosives, grade control have been left as unit costs per tonne. Consequently, using the model of 17 Mt total mined per annum, the mining cost per mined tonne should be A$4.00/t. This should be used for valuation purposes. The company has a contract with Barminco for crushing and screening. The cost of crushing and screening is A$6.73/t of material crushed. The company is considering switching from contract crushing to owner operations. The cost of operating beneficiation plant is A$8.60/t of material processed at present but is forecast to reduce to A$6.35/t as the throughput rate is increased. In Xstract’s opinion, these cost are achievable. The complete product supply chain is managed using contractors. The cost of logistics from mine to ship (including port charges) is forecast to remain steady at A$18.50/t. The site administration cost of A$8.6 million and corporate overheads of A$6.4 million are unlikely to change. In Xstract’s opinion, the Frances Creek’s operating costs are unlikely to change materially from current operating costs. Xstract has benchmarked current operating costs for Frances Creek against other operations within Australia using the same mining method. Total mining costs for these operations are than expected for Frances Creek due to economies of scale. Table 3.6 compares Xstract’s proposed operating costs to those in Frances Creek’s financial model.
Table 3.6: Xstract’s proposed operating costs 1
2009-10 Actual Xstract’s Description
Performance Proposed Costs For personal use only use personal For
Mining (total material) 3.96 4.00
Crushing & Screening – Owner operator n/a 6.00
Crushing & screening – Contractor 7.11 6.73
Frances Creek project 17 BDO Corporate Finance (WA) Pty Ltd | July 2011
2009-10 Actual Xstract’s Description Performance Proposed Costs
Beneficiation Plant n/a 6.35
Logistics (road, rail, port) 17.52 18.50
Administration (Fixed, A$M) 8.2 8.6 1 Excludes overheads and marketing cost
3.11 Exploration potential
Iron prospects in the Frances Creek area lie within haematitic and carbonaceous shales and slates of the lower Wildman Siltstone. The Koolpin Formation has been found to be underexplored for iron mineralisation and is possibly associated with ferruginous shales. Some 30 named and perhaps 20 unnamed iron occurrences within the Frances Creek district are hosted within the rocks of the Namoona and Mt Partridge Groups. The Wildman Siltstone of Mt Partridge Group is the main host to the iron occurrences. Iron lenses near the base of the Formation are currently mined at Frances Creek. A similar lithology, the Masson Formation within the Namoona Group, which also contains quartzite and minor dolomite, is the host of the sub-economic Frances Creek East deposit in EL 23506. A new exploration programme was put in place in mid 2010 after a downturn in the company’s exploration efforts following the Global Financial Crisis in 2008/2009. Exploration expenditure is estimated at A$6 M in 2010/11. This is expected to increase to A$12 M in 2011/12 financial year. A detailed gravity survey was completed between July and August 2010 in areas north of the identified Saddles Extended deposit on EL 22856. The survey was completed over a 20 km strike length of the Wildman Formation that hosts high-grade iron mineralisation in Frances Creek’s northern tenements (EL 22856, EL 23506, EL 23824 and EL 24715). A significant number of new targets were identified in this survey for drilling during the upcoming 2011/12 exploration season. Drilling, mapping, and sampling in the 2010/11 exploration season has focused around the Frances Creek mine to understand the complex structural folding and shoot plunges on identified high grade iron mineralisation identified by previous drilling programmes and pit mapping. The emphasis of the recent drilling programme was on infill drilling and closing off the extent of mineralisation at the near mine site prospects, being Jasmine East, Jasmine Central, Jasmine West and Helene 2 to 5. The objectives of the future exploration programme are twofold: • Increase the defined Mineral Resources and Ore Reserve inventory to extend the life of mine to beyond 2016. • Open up new resource areas away from the current mining operation, to replace the 2 Mtpa mine depletion. The exploration programme will target iron within the Wildman Formation. However, some deposits in the Frances Creek tenements appear to be manganiferous iron mineralisation in the Koolpin Formation. These deposits will also be evaluated in future exploration with particular reference to tenement AN389. Within this tenement the Koolpin formation has
For personal use only use personal For been shown to have 3.4 km of strike length. This formation has been shown to host multiple lenticular zones of haematite enrichment that assay up to 66.8% Fe in rock chip samples. In Xstract’s view, there is a potential of extending the life of the mine given the focus of the exploration programme, the prospective geology within the Frances Creek project’s tenements and the history of mining in the area.
iv 18 Frances Creek project Territory Resources | Independent Valuation
3.12 Rehabilitation
A security is required as a condition of the Authorisation (NT Mining Management Act; s43) for mining activities that will result in substantial disturbance. The Department of Resources’ (DoR) policy is that 100% of the cost for rehabilitation of disturbances is required as a security. Xstract has received key documentation including Agency guidelines, the Mining Management Plan (MMP), Closure Plan (CP), 2010 Annual Report, letters confirming formal approval and direct communication with Territory officers. In regards to security, Territory’s Financial Officer (Goldberg, pers. comm.) confirmed that the company lodged a total security of A$3,710,000 in December 2010. Xstract notes that an amount (A$4.29 M) is included in the 2010 financial statement under ‘non-current liabilities – provisions’ (Territory Resources Limited, 2010). Explanatory notes indicate that the provision represents the “present value of the estimated cost of legal and constructive obligations to restore the site, and any associated environmental obligations”. Territory’s Financial Officer (Goldberg, pers. comm.) has indicated that the provisional amount was arrived at by forecasting rehabilitation and demolition costs and then appropriate discounting by applying accrual accounting methods. Xstract notes that the 2010 provisional amount was approximately A$0.90 M higher than the previous year. Territory submitted a revised MMP (Territory Iron, 2010) to DoR in late December 2010. Territory understands that DoR is in the process of assessing the proposal and associated security. Xstract notes that the time to gain approval has been lengthy. Territory is expecting the security to be raised approximately A$500,000. When approved, Territory is expecting to be able to provide the security by payment plan. Xstract anticipates that an agreed schedule for payment will be negotiated between the DoR and Territory. The MMP (Territory Iron 2010) provides the key environmental approval for the Project during 2011. The MMP also forecasts rehabilitation costs based on the area of disturbance for the current planning period (January to December 2011).
Forecast closure cost The forecast cost to rehabilitate the Frances Creek mining operation to the appropriate standard is calculated at A$4.28 M by Territory. The MMP states that the closure costs are conservative and based on the range in DoR guidelines (DRDPIFR 2007 and 2008). Although there remain several items about which some uncertainty regarding cost may remain, Xstract’s view is that the forecast closure cost for Frances Creek project was based on sound methods (rates, areas, and rehabilitation actions) that are in accordance with both DoR guidelines and standards typically acceptable for the Australian mining industry. Xstract acknowledges that closure cost forecasts will generally improve in accuracy with advancing time-to-closure. Xstract considers the closure cost calculated in the MMP (A$4.28 M) to be within +/- 25 to 30% of the likely actual cost. It appears that Territory has recognised this in booking a larger, depreciated amount of A$4.29 M in its 2010 financial statement. With ongoing development of the site in 2011, and one year closer to closure, Xstract expects that the 2011 statement
will include a somewhat higher amount as a provisional liability for rehabilitation. For personal use only use personal For
Frances Creek project 19 BDO Corporate Finance (WA) Pty Ltd | July 2011
4 Reynolds Range project
4.1.1 Introduction
The Reynolds Range project comprises of a single granted exploration licence, EL 28077, consisting of 42 blocks (Figure 4.1). Territory is negotiating a JV with Blackwood Corporation Ltd, who hold the adjacent EL 26071. If successful, the combined area of these EL’s is approximately 276 km 2. The project is accessed from the Stuart Highway, approximately 250 km north-northwest of Alice Springs near the town of Pine Hill. The project area is 120 km from the nearest potential rail-head on the Alice Springs to Darwin rail line.
4.1.2 Geology
The Company’s Reynolds Range project is situated in the Aileron Province of the Aruntu Region (Figure 4.1). It comprises basement Palaeoproterozoic to Mesoproterozoic metamorphosed sedimentary and granitic rocks. The Aileron Province comprises greenschist to granulite facies metamorphic rocks with protolith ages in the range 1,865 to 1,710 Ma. Supracrustal rocks in the Reynolds Range area are divided into two broad units: the Lander Rock Beds and the Reynolds Range Group. The Lander Rock Beds comprise (meta)turbiditic sedimentary rocks that range in metamorphic grade from greenschist to granulite facies. Granite intrusions occur throughout the Reynolds Range area and have been dated at between 1,810 and 1,790 Ma. The supracrustal rocks and granites were overprinted by high- grade metamorphism to amphibolite and granulite facies about 1,590 to 1,560 Ma ago. Dykes and irregular masses of very coarse-grained pegmatite intrude the supracrustals and intrusive rocks, and transgress all observed metamorphic foliation.
4.1.3 Exploration potential and mineralisation
At the Reynolds Range project, the known mineralisation consists of massive stratabound ironstone lenses hosted in Palaeoproterozoic, ferruginous siltstone of marine origin. Hydrothermal fluids derived from magmatic or connate brines during orogenic activity remobilised sedimentary iron in the host sequence into adjacent stratigraphic and structural trap sites. Several ironstone lenses, the largest being 122 m long and 6 m wide, are present at Barney’s ironstone (AMG 268930mE 7531970mN), (Ryan 1958, Stewart 1981). The ironstone is limonitic in composition and is hosted within quartz mica schist, which is assigned to the Lander Rock Beds. The Reynolds Range tenement (EL 28077) has extensive outcrops of Lander Rock Beds as shown in Figure 4.1 and is location in the area same area as Barney’s ironstone. Territory expects to spend A$0.50 M on exploration in 2010/11, much of which will be based on a desktop study of the Reynolds Range project. This is planned to increase to A$0.80 M in the 2011/12 financial year and will include satellite imagery, geophysics mapping an drilling. The target will be the Lander Rock Beds occurring within the tenement area.
For personal use only use personal For
iv 20 Reynolds Range project Territory Resources | Independent Valuation
Figure 4.1: Simplified geology of the Reynolds Range project
4.1.4 Environmental considerations
For the proposed exploration programme to proceed, complete requisite environmental, Native Title and heritage survey work will be carried out. At this early exploration stage, rehabilitation is expected to be limited as the programme planned is largely a desktop study.
For personal use only use personal For
Reynolds Range project 21 BDO Corporate Finance (WA) Pty Ltd | July 2011
5 Valuation
5.1 Valuation considerations
The VALMIN Code classifies mineral assets according to the maturity of the asset. The term mineral asset refers to all property held for the purpose of near term or eventual mineral extraction including but not limited to: • real property • intellectual property • tenements, plant, equipment and associated infrastructure. Most mineral assets can be classified as outlined in Table 5.1 (VALMIN, 2005).
Table 5.1: Mineral asset classification
Project development Criterion stage
Exploration areas Mineralisation may or may not have been defined, but where a Mineral Resource has not been identified.
Advanced exploration Considerable exploration has been undertaken and specific targets areas identified. Sufficient work has been completed on at least one prospect to provide a good geological understanding and encouragement that further work is likely to result in the determination of a Mineral Resource.
Pre-development / Mineral Resources and/or Ore Reserves have been identified and their resource extent estimated. A positive development decision has not been made. This includes properties where a development decision has been negative and properties are either on care and maintenance or held on retention titles.
Development Committed to production but not yet commissioned or not initially operating at design levels.
Operating Mineral properties, in particular mines and processing plants, which have been fully commissioned and are in production.
The VALMIN Code defines value as the Fair Market Value of a mineral asset. The Fair Market Value is the amount of money or the cash equivalent for which the mineral asset should change hands on the Valuation Date between a willing buyer and a willing seller in an arm’s length transaction. Each party is assumed to have acted knowledgeably, prudently and without compulsion. In essence, the fair market value of the mineral asset comprises: • The underlying or ‘technical value’, which is an assessment of a mineral asset’s future economic benefit under a set of assumptions, excluding any premium or discount for market, strategic or other considerations • The market component, which is a premium relating to market, strategic or other considerations which depending on circumstances at the Valuation Date, can be either positive, negative or zero. For personal use only use personal For To determine the market value, all Material information should be presented and discussed. As more advanced projects may contain extensive technical detail, the valuer must determine what is Material on the basis that its omission would result in the reader arriving at a different conclusion than would otherwise be the case.
iv 22 Valuation Territory Resources | Independent Valuation
As a rough rule-of-thumb if the omission of an item results in a change of: • less than 5%, the information is generally not Material • between 5% and 10% it may be Material • more than 10% it is Material. There are three generally accepted approaches to valuing a mineral asset, based on income, cost, and the open market. Each approach may contain a number of methodologies that are suited to different times and circumstances. As the VALMIN Code is not prescriptive regarding the appropriate valuation approaches, the more prescriptive 2008 Edition of The South African Code for the Reporting of Mineral Asset Valuation (SAMVAL) and the Canadian 2003 Edition of the Standards and Guidelines for Valuation of Mineral Properties (CIMVAL) provide insight into what may be applicable, as shown in Table 5.2 (CIMVAL, 2003).
Table 5.2: Valuation approaches for different types of mineral assets
Project development stage Approach Exploration Resource Development Operating
Income No Rarely Yes Yes
Cost Yes Rarely No No
Market Yes Yes Yes Yes
5.2 Income based approach
The income-based approach is based on the assumption that using the information available at the time of valuation, economic returns can be modelled over the useful life of the mineral asset (SAMVAL, 2008). The income-based approach is suited for the valuation of individual assets for which a large amount of technical data has already been collected or can be preliminarily estimated. An income-based valuation generally involves the construction of a discounted cash flow (DCF) model based on a preliminary or more advanced project development concept and may include sophisticated risk analysis and simulation such as Monte Carlo simulations, modern asset pricing, and real options analysis. Despite having various levels of sophistication, the income-based approach has limitations in that it: • may not fully reflect the marketable value (e.g. the market may attribute a discount or premium to the income-based value) • relies on a number of critical but subjective inputs (e.g. the appropriate discount rate) despite using extensive amounts of technical detail • excludes numerous assets with lower levels of development as specific technical detail is rarely available at the exploration or pre-scoping study level.
5.2.1 Discounted cashflow analysis method
For projects where there is sufficient techno-economic information, the discounted cashflow For personal use only use personal For analysis (DCF) method is the predominant means for estimating a technical value of a project (Van Horne, 2002 and Schwab & Lusztig, 1969). A DCF analysis determines the technical value of a project by approximating the value of a project if it were developed under the prevailing economic conditions.
Valuation 23 BDO Corporate Finance (WA) Pty Ltd | July 2011
Once a Mineral Resource has been assessed for its mining potential by considering revenues and operating costs, the economically viable component of the resource becomes the Ore Reserve. When this is scheduled for mining, and the capital costs and tax regime are considered, the net present value (NPV) of the project is established by discounting future annual cash flows using an appropriate discount rate. The resulting ‘classical’ NPV has several deficiencies that are linked to the fact that the method assumes that once commissioned, the course of action is irreversible and that the prevailing economic conditions will eventuate as predicted. Despite its shortcomings, DCF is a fundamental method to valuing a proposed or on-going mining operation and is widely used within and outside of the mining industry (Smith, undated).
5.3 Market-based approach
The market-based approach uses the transaction prices of projects in similar geographical, geopolitical and geological environments to derive a market value using a process similar to that used in the real estate industry (CIMVAL, 2003). The market-based approach may use the assumption either of joint venture terms or outright acquisitions, and can be presented in range of unitised values including on a dollar per ounce or tonne of contained metal/mineral; dollar per square kilometre; or as a percentage of the prevailing commodity price. In Xstract’s opinion, a market-based approach is well suited to establishing a likely value for iron deposits and exploration projects. This approach’s strength is that it is designed to include all value drivers, and because of its simplicity, has an in-built ‘reality check’ that helps ensure that the science of the methodology does not dominate the assessment (O’Connor and McMahon, 1994). The market based approach is easy to calculate and communicate and does not require in-depth project specific knowledge, except insofar as geologically, geographically and/or commercially similar assets to the one being valued are sought for comparable values. Notwithstanding this practicality, the market based approach relies on a number of assumptions and often lacks true comparability with the assets being valued. Moreover, where only small datasets are available the negotiating ability of the parties to broker a deal may distort the dataset’s statistics. Despite its documented shortcomings, there is significant merit in using market based benchmarks for valuations (Grant, 1994). By undertaking a qualitative analysis of comparable transactions, it is possible for the valuer to develop a ‘gut feel’ for likely market price responses to varying levels of equity interest. However, this intuitive approach is limited by the variability of values obtained across a range of investments, which makes it difficult to consistently and robustly decipher the value of control premia or any other aspect, which may contribute to the value of a project. Furthermore, market-based methodologies often have a common underlying weakness: heuristics and bias. Heuristics concerns the use of rules of thumb or mental shortcuts, which enable valuers to undertake pattern recognition within incomplete datasets (Tversky & Kahneman, 1974). Heuristics can introduce serious bias. On one hand the valuer is shielded from technical uncertainty in that all projects are subject to the same judgments; on the other hand the valuer has to contend with applying poorly quantified value drivers to uncertain inputs. As discussed in detail by McCuaig, Kreuzer & Brown (2007), the most common sources of bias in heuristic judgements are: • Representivity – based on limited, imperfect datasets, there is a tendency to over-
For personal use only use personal For generalise based on a few data points. Consequently, data density and quality can have big impacts on interpretation. • Availability – the outcomes are usually based upon personal experience, resulting in the full range of possibilities being truncated.
iv 24 Valuation Territory Resources | Independent Valuation
• Anchoring – Initial impressions anchor subsequent perceptions and influence outcomes. Any adjustments to the initial impression are often insufficient, narrow and biased towards the anchor. • Salience – the most recent and prominent information overly influences judgement and there is a resistance to change once a model is established. The reliance on heuristics is not confined to geologists and valuers; rather it has been shown that even experienced statisticians cannot avoid intuitive judgments. Valuers need to be ever- cognisant of the bias associated with the use of heuristics and to maintain an open mind to opinions outside of their own. Unfortunately, running contrary to this notion is that “the more we publicly defend (or promote) a particular model, the more difficult it is to radically challenge it” (Vann, 2005). 1
5.3.1 Comparable transactions method
The comparable transaction approach is an adaptation of the common real estate method to valuation. For the purposes of mineral asset valuation, a valuer compiles and analyses 100% equity acquisitions of projects of similar nature, time, and circumstance with a view to establishing a range of values that the market is likely to pay for a project. The comparable transactions method: • is intuitive, easily understood and readily applied; • implies a market premium/discount for the prevailing sovereign risk • captures market sentiment for specific commodities or locations • accounts for intangible aspects of a transaction (i.e. IP). The transactions deemed to be analogous to the mineral asset being valued are used to determine a unit price (e.g. A$/km 2 or A$/oz gold) for the asset being valued. However, there is an intricate value dynamic between the quantity (size) and quality (grade or prospectivity) that may result in the exclusion of a large number of comparable transactions which in turn may undermine the accuracy of this method. It is also important to note that transactions may include provisions for additional factors such as arrangement of debt financing, marketing rights, contingent payments, and future royalties. Therefore, the price disclosed as paid for an asset may not necessarily equate to the value of the tenement, as other circumstances or conditions may have influenced the calculation of the implied value. The comparable transactions method is widely used throughout the minerals industry. However, the valuer must take into account that it is largely retrospective and may not account for anticipated or recent commodity or other variable value drivers.
5.3.2 Joint venture terms method The joint venture terms method is a variation of the comparable market value method. This technique involves transactions where only partial ownership of a project is acquired. The joint venture terms method provides the valuer with a larger acquisitions dataset than the comparable market value method, and consequently these approaches are often used simultaneously in mineral asset valuations. It is widely recognised that the market will
attribute a sliding-scale premium in accordance with the level of ownership acquired. For personal use only use personal For
1 A more thorough discussion on the merits and limitations of the market-based approach are presented in Lawrence (2001).
Valuation 25 BDO Corporate Finance (WA) Pty Ltd | July 2011
For example, a joint venture agreement for a 51% interest in a project may attract a market value significantly above that for an identical project in which a 49% interest is acquired. Therefore, the valuer needs to account for any potential of ownership premiums.
5.4 Cost-based approach
The cost-based approach is based on the notion that a return is expected from an investment such as mineral exploration. This approach can be both retrospective and forward looking. By taking the position of the vendor who is likely to seek re-imbursement of sunk costs with a risk premium, a possible market position may be determined. By analysing the future costs associated with a project, and the anticipated risk-adjusted returns, the acquiring party’s view of value may be quantified. The three common cost-based methods are based on expected values (EV), multiples of exploration expenditure (MEE) and geoscience rating criteria.
5.4.1 Expected values method
The EV method uses probability theory to quantify an exploration project’s value by determining the likely ‘pay-off’ for each step in the exploration process. The EV is the sum of the probabilities of each possible outcome multiplied by the outcome value (or pay-off), less the implementation costs at each stage (Kreuzer et al., 2008). A valuer can form an opinion on whether the proposed exploration budget for a project is prudent and warranted, as unlike the coin tossing game, exploration is not mutually exclusive and collectively exhaustive (i.e. each exploration programme changes the probability of successfully finding a deposit). As an exploration programme is a staged process, wherein the most cost effective techniques typically precede more expensive but often more definitive exploration techniques, a tree- diagram can be constructed of possible outcomes, their payoffs and associated costs. The strength of the EV method lies in its transparency and ability to replicate exactly how an exploration manager would intuitively assess the value of a project. While it may be possible to estimate the amount of metal remaining in a mineral belt (Guj et al, 2009), the main drawback of the method is that it is not always possible to confidently gauge the value of a discovery, especially in areas where there has previously been little mining activity. Furthermore, the technical value determined by the EV method may not reflect market value due to among other things, supply and demand forces.
5.4.2 Multiple of exploration expenditure method
The MEE method is largely based on vendor psychology. Where possible vendors will seek a return on sunk investments and as a result multipliers are used to estimate the possible market value (Onley, 1994). Some valuers may also include warranted future expenditure in the calculations, thereby taking into account some of the acquirer’s position. The process of establishing the replacement/retrospective value is relatively intuitive, however the potential future value of a project based on existing expenditure is somewhat ambiguous. The research by Wastell et al. (2010) found that there is no statistically significant relationship between probability estimates of finding a commercially viable deposit and justified future expenditure commitments. It is also suggested that despite mounting negative exploration results, they did not affect the probability estimation in a manner that is akin to ‘Gambler’s
For personal use only use personal For Ruin’. The illogical interaction between mounting exploration expenditure and static probability estimates raises concern over what constitutes warranted expenditure. As a consequence, the MEE method is considered by some Australian practitioners as a method of last resort for estimating market values (Etheridge, 2009).
iv 26 Valuation Territory Resources | Independent Valuation
Yet the method appears to be more accepted by Canadian practitioners despite the regulatory authorities being more resistant (Spence, 2007). The main considerations in determining the appropriate MEE multipliers are shown in Figure 5.1 (after Bell, Ghandar & Guj, in prep). Xstract is aware of descriptive matrices, however there is no empirical evidence supporting the multiplicative weights used and as a consequence are not used by Xstract. This lack of transparency is partly due to the lack of publically available information, which can directly be correlated with the comparable transactions method.
Figure 5.1: Vendor and acquirer considerations in the replacement valuation process
5.4.3 Replacement value method
The replacement value+EV method is a discrete way of calculating the historical and warranted future expenditure used in the MEE method. While the shortcomings of the MEE method are well known, the replacement value of the historical records is an important value driver as it reflects the vendors desire to at least recover sunk funds with an appropriate rate of return. Likewise, the replacement cost is of interest to the acquirer, as without access to the existing data there is an additional time and monetary cost incurred. For example, in jurisdictions where free-market forces are not at play, the historical records may be acquired through a separate transaction to the mineral asset, demonstrating that it is a form of tangible IP. If treated as IP, which is not freely available in the public domain, then the acquirer may undertake an EV analysis of the project without the historical records, and weigh that up with the benefit of purchasing the IP. In this way, replacement+EV method For personal use only use personal For partially takes into account why a project may attract a purchase price above its technical value in a similar way to how deposits may trade above their NPV. Xstract considers the replacement+EV method to be a useful tool in gauging a project’s technical value.
Valuation 27 BDO Corporate Finance (WA) Pty Ltd | July 2011
It is important to note that this method does not take into account all market value drivers, including the supply/demand for similar projects.
5.4.4 Geoscientific rating method
The geoscientific rating (or Kilburn method), is an attempt by the valuer to quantify the various technical aspects of a property through the use of multipliers, which are applied to a base or intrinsic value (Goulevitch J & Eupene G S, 1994 and Kilburn, 1990). This intrinsic value is known as the base holding cost (BHC) which represents “the average cost to identify, apply for, and retain a base unit of area of title”. To arrive at a value for each property, the valuer considers four key attributes, which either enhance or downgrade the BHC of each property. The technical factors considered are: • the Off-property factor – nearby properties containing physical indications of favourable mining conditions such as old workings and/or mines; • the On-property factor – the property being assessed hosts favourable mining indications such as historic workings or mines. Importantly any mineralisation capable of supporting a Mineral Resource estimate, compliant according to the guidelines of the JORC Code, will be assessed using other valuation methods; • the Anomaly factor – assesses the degree of exploration completed over the property and the number of resultant mineralised targets identified; and • the Geological factor – assesses the area covered by and degree of exposure of favourable rock types and/or structures (if this is related to the mineralisation style being assessed) within the property. These attributes are given incremental, fractional or integer ratings to arrive at a series of multiplier factors. These multipliers are applied sequentially to the BHC to estimate the Technical Value of each mineral property. This is adjusted for local market conditions to determine the Fair Market Value of the project as at the effective valuation date. Xstract’s multipliers or ratings and the criteria for rating selection are summarised in Table 5.3. The strength of the geoscientific method is that it makes an attempt to implement a systematic system. Whilst it does require a subjective assessment of the various multipliers, it also demands a degree of detached rigor to account for the key factors that can be reasonably considered to impact on the exploration potential of a property.
For personal use only use personal For
iv 28 Valuation Territory Resources | Independent Valuation
Table 5.3: Geoscience rating criteria
Anomaly Geological Rating Off property Factor On Property Factor Factor Factor
0.1 Unfavourable geological setting
0.5 Extensive previous Poor geological exploration gave poor setting results
0.9 Poor results to date Generally favourable geological setting, under cover
1.0 No known No known No targets outlined Generally favourable mineralisation in mineralisation on geological setting district lease
1.5 Minor workings Minor workings or Target identified, mineralised zones initial indications exposed positive
2.0 Several old workings Several old workings Favourable geological in district or exploration targets setting with 2.5 identified Significant grade structures or intercepts evident but mineralised zones not linked on cross or 3.0 Mine or abundant Mine or abundant Significant long section workings with workings with mineralised zones significant previous significant previous exposed in production production prospective host rocks
3.5 Several economic grade intercepts on 4.0 Along strike from a Major mine with adjacent sections major deposit(s) significant historical production 5.0 Along strike of world class deposit
10.0 World class mine
(modified by Xstract)
5.5 Xstract’s technique
For the purpose of valuing Territory’s mineral assets outside of the life of mine (which has been valued separately by BDO using a DCF technique), Xstract has used a combination of the comparable transactions, joint venture terms, expected values and replacement cost methods.
5.6 Frances Creek remnant resource valuation
For personal use only use personal For In deriving the remnant resource figures for the Francis Creek project, Xstract has deducted the Ore Reserve (5.22 Mt grading 57.9% Fe) from the Mineral Resource inclusive of the manganiferous material (13.40 Mt grading 56.5% Fe). This resulted in 8.18 Mt grading 56% Fe, of which the Indicated Mineral Resource accounts for 67% of the contained metal and the manganiferous material 18% of the contained metal.
Valuation 29 BDO Corporate Finance (WA) Pty Ltd | July 2011
5.6.1 Market based approach
To determine the possible market value for the remnant resources, Xstract has reviewed recent comparable transactions and joint venture terms involving Australian non-magnetite iron deposits. To reflect that there is not capital infrastructure expenditure requirements for the Francis Creek remnant resources, Xstract has only considered transactions where capital cost estimates were available. To obtain a dataset that is relevant under current time and circumstances, Xstract has only selected transactions that occurred after March 2009, when the ASX All Ordinaries Index began to recover from a major downturn (Figure 5.2).
Figure 5.2: ASX All Ordinaries index from October 2008 to July 2011
Xstract identified seven transactions as relevant to the possible value of Francis Creek’s remnant resources, which are outlined in Appendix A. Most of these transactions did not involve producing mines or had higher risk profiles and capital expenditure requirements compared to the Francis Creek remnant resources. Xstract’s upper limit to the market-based value of the Francis Creek remnant resources is A$5.00/t Fe. Of the seven transactions identified in Appendix A, only that concerning BC Iron Ltd (“BC Iron”) did not involve significant capital investment programmes and an operating mine. However, this transaction included Ore Reserves. On this basis, Xstract considers that a figure below the BC Iron transaction’s unit value to set the roof of its market based analysis. In setting its lower limit of the market-based analysis to the Francis Creek remnant resources, Xstract has assigned iron a value of A$2.00/t. Xstract notes that the median of various permutations of the transactions in Appendix A had a median value of A$2.06. As Xstract considers the near term economic value and risk of the Francis Creek remnant resources to be better than most of the transactions, there is statistical support for its
For personal use only use personal For preferred value. Furthermore, the preferred lower limit is qualitatively supported by the United Minerals Corporation NL’s acquisition as relative to other iron projects it had low capital-expenditure requirements; and the acquirer’s (BHP Billiton Ltd) consideration was free of infrastructure concerns as it already had that in place.
iv 30 Valuation Territory Resources | Independent Valuation
Xstract’s preferred value for the Francis Creek remnant resources is A$4.00/t Fe. Xstract applied a positive bias in assigning its preferred value within its range of A$2.00 to A$5.00, in recognition of the ability to incorporate the remnant resources into the existing mining operation in the foreseeable future. A summary of Xstract’s market based valuation of the Frances Creek remnant resources is presented in Table 5.4.
Table 5.4: Market-based valuation summary of the Frances Creek project’s remnant resources
Frances Creek remnant resource Values (A$)
Item Tonnage Grade In-situ Metal Low High Preferred (Mt) (% Fe) (Mt Fe)
Frances Creek project 8.18 56% 4.55 2/t Fe 5/t Fe 4/t Fe
Market value 9.1 M 22.7 M 18.2 M
5.6.2 Expected value method
In order to verify its valuation using the market based approach, Xstract has also considered the EV of the conceptual incorporation of the Frances Creek project’s remnant resources into a future mining operation. Xstract considers that the EV method has merit, given Territory’s near term exploration programme is targeting exactly such a conversion. In forming its opinion on the EV of Territory’s proposed resource:reserve conversion programme, Xstract has: • designed a conceptual exploration programme over two years • used A$6 M and A$2 M costs for each programme. Based on its discussions, Xstract understands that for 2011/2012 Territory has proposed an exploration budget of A$12 M, of which 50% would be assigned to work on the remnant resources. Xstract also understands that in the second year, about A$2.0 M may be assigned to the remnant resources • applied a probability of 75% that the first years exploration programme will warrant a second phase of exploration expenditure • assigned a resource:reserve conversion factor ranging from 50% to 60%. This was derived by using a historical conversion rate of 65% for the Indicated Mineral Resources and assigning an arbitrary 50% conversion rate to the Inferred Mineral Resources • considered only the low-manganese resources • assigned an operating margin of A$24 to A$42/t Fe based on ±25% error margin of BDO’s net cashflow for the current Frances Creek LoM and a 90% factor to beneficiation costs (i.e. A$111.33 M / 3.02 Mt Fe reserve x 90% = A$33) • applied the same discount rates as BDO of 13.3% for to reflect the possible timing to bring this material into production.
For personal use only use personal For In order to derive the EV of the Frances Creek project, Xstract created a decision tree based on likely probabilities, cost, and pay-off for the conversion of resources to reserves. Based on the assumptions outlined in Table 5.5, Xstract has derived an EV for the Frances Creek project of A$21.6 M, within a range of A$18.3 M to A$24.8 M.
Valuation 31 BDO Corporate Finance (WA) Pty Ltd | July 2011
Table 5.5: Expected value of the Frances Creek project’s remnant resources
Input Programme Type Payoff Low High Preferred
Infill drilling Cost A$6 M
Probability 75%
Resource:reserve Cost A$2 M
conversion Pay-off (large) 20% 40% 30% A$51 M
Pay-off (medium) 30% 50% 40% A$41 M
Pay-off (small) 50% 10% 30% A$24 M
Technical value A$18.3 M A$24.8 M A$21.6 M
5.6.3 Replacement value method
To validate its opinion of the Frances Creek project’s possible market value determined by the comparable transactions and EV methods, Xstract also reviewed the exploration expenditure history, which has a mixed-nominal total of ~ A$17.71 M. Based on Broomfield (2010), the Territory’s total expenditure details, of which ~95% was spent at Francis Creek, are: • 2010 and 2011: A$6.00 M. About A$4.57 M, was budgeted but based on Xstract’s discussions this figure is likely to be exceeded. • 2009 and 2010: A$2.18 M • 2008 and 2009: A$6.37 M • 2007 and 2008: A$7.47 M • 2006 and 2007: A$2.14 M • 2005 and 2006: A$0.48 M No other expenditure records for the Frances Creek project were available at the time of writing this report. In calculating a technical value for the Frances Creek project, Xstract used: • 13.3% per annum for its value-of-time rate. • Half the time taken to collect the information for its time discount period. This reflects the benefit of hindsight and the targeted nature of any conceptual replacement programme. • Consumer price index inflation rates sourced from the Reserve Bank of Australia (RBA, 2011) • 3% per annum for the industry specific inflation. While qualitative in origin, Xstract considers this to be a reasonable rate over the last decade which was marked by significant industry inflation especially between 2005 and 2008 • 15% per annum to reflect the affect of age on the usefulness of old data in the
For personal use only use personal For mineral estimate process.
iv 32 Valuation Territory Resources | Independent Valuation
• 20% replacement factor to account for the proportion of the work which would be reproduced with the benefit of hindsight. This arbitrary figure is based on Xstract’s discussions with Territory’s management. The figure reflects that much of the prior expenditure is associated with current reserves or mined material. A range of 15% to 25% is used to define the lower and upper values for the replacement value. Based on the above assumptions, Xstract estimates the replacement based technical value for a 100% interest in the Frances Creek project’s remnant resources is approximately A$4.3 M within a range of A$3.2 M and A$5.3 M. As this is a technical value that cannot be reliably converted to a market value, Xstract considers the replacement value represents a useful guide in validating its assumptions and conclusions drawn from other valuation methodologies.
5.6.4 Remnant resource valuation summary
In forming its opinion of the market value of the Frances Creek remnant resources, Xstract has taken guidance from the comparable transactions, joint-venture terms, expected values and replacement cost methodologies. On this basis, Xstract has used the market-based approach to identify its lower range; the expected value method for the upper value to reflect a possible value-in-use; and the average of all methods for the definition of its preferred value. A summary of Xstract’s valuation of the Frances Creek project’s remnant resources is presented in Table 5.6.
Table 5.6: Frances Creek remnant resource valuation summary
Values (A$ M) Approach Method Low High Preferred
Market-based Comparable + joint venture terms 9.1 22.7 18.2
Cost-based Expected values 18.3 24.8 21.6
Cost-based Replacement value 3.2 5.3 4.3
Selected 9.1 24.8 19.9
5.7 Frances Creek exploration target valuation
Xstract is aware that there are a number of informal quantity and quality estimates which fall outside of Territory’s currently defined Mineral Resources. Xstract held discussions with Territory’s management regarding the basis for these estimates and is satisfied that given recent or historical drillhole intersections, there is basis for its estimates. In consultation with Territory, Xstract considers it reasonable that the Francis Creek project contains an aggregate Exploration Target in the order of 5 Mt to 15 Mt of material grading 59% Fe to 57% Fe. Xstract cautions that the potential quantity and quality of the Exploration Target is conceptual in nature and there has been insufficient information to define a Mineral Resource. Furthermore it is uncertain if further exploration will result in the determination of a Mineral Resource.
5.7.1 Market based approach
For personal use only use personal For To help determine an appropriate market value for the Francis Creek Exploration Target, Xstract has reviewed recent comparable transactions and joint venture terms involving Australian non-magnetite iron projects for which there are stated exploration targets (Appendix B). The transactions identified involve assets which in Xstract’s opinion are largely inferior in both quality and infrastructure access relative to the Francis Creek Exploration
Valuation 33 BDO Corporate Finance (WA) Pty Ltd | July 2011
Target. In order to gauge the wider market appetite, Xstract has also taken guidance from transaction involving assets containing resources estimates (Appendix C).
To determine the lower limit to the Francis Creek Exploration Targets market value, Xstract has relied on the transactions identified in Appendix B, which had a median of A$0.10 to A$0.18/t Fe depending on which transactions are included. On the basis that the Roper Bar, 450 Mt exploration target transaction (A$0.25/t Fe) is the most similar to that at Francis Creek, Xstract has assigned a lower limit of A$0.30 to its market-based valuation range. The upper value of the Francis Creek Exploration Target is gained from a review of Appendix C, which had a median value of A$0.47/t Fe. Based on a qualitative analysis, which takes into account the access to infrastructure, Xstract is of the opinion that the upper value of the Exploration Target may be around A$0.60/t Fe. Xstract’s preferred unit value for the Francis Creek Exploration target is A$0.50/t Fe within a range of A$0.30 and A$0.60/t Fe. Xstract’s positive bias reflects that the Exploration Target includes estimates that may be converted to resources and the value in use to Territory of such resources. A summary of Xstract’s market-based valuation of the Francis Creek Exploration Target is outlined in Table 5.7.
Table 5.7: Market-based valuation summary of the Frances Creek project’s Exploration Target
Frances Creek Exploration Target Values (A$)
Item Tonnage Grade In-situ Metal Low High Preferred (Mt) (% Fe) (Mt Fe)
Upper estimate limit 5 59% 3.0 0.30/t Fe 0.60/t Fe 0.50/t Fe Lower estimate limit 15 57% 8.6
Market value 0.9 M 5.1 M 4.3 M
5.7.2 Expected value method
Using the same principals used in section 5.6.2, Xstract has also used the EV of the Frances Creek project’s Exploration Target. In forming its opinion on the EV of the Frances Creek Exploration Target, Xstract: • designed a conceptual exploration programme comprising two sequential work programmes; • used A$1.2 M for the cost of the first pass assessment, this figure is obtained from discussions with Territory’s management; • assuming the first pass exploration programme is successful, Xstract assigned A$8.0 M to reserve conversion (i.e. consistent with the total costs of the remnant resource EV); • used a probability of 50% that the first years exploration programme will warrant a second phase of exploration expenditure;
• assigned an arbitrary resource:reserve conversion factor ranging from 15% to 25%; For personal use only use personal For • used the same operating margin as that in the remnant resource EV (i.e. A$28 to A$46/t Fe); and
iv 34 Valuation Territory Resources | Independent Valuation
• applied at time discount rate of 15% for six years to reflect the higher risk associated with the Exploration Target, and the possible timing to bring this material into production.
Based on the assumptions outlined above, an EV of the Frances Creek project’s Exploration Target was created. Based on the assumptions outlined in Table 5.8 Xstract has derived an EV for the Frances Creek project’s Exploration Target of A$5.7 M, within a range of A$3.1 M to A$8.2 M.
Table 5.8: Expected value of the Frances Creek project’s Exploration Target
Input Programme Type Payoff Low High Preferred
Confirmation Cost A$1.2 M
drilling Probability 50%
Detailed drilling Cost A$8 M
and reserve Pay-off (large) 20% 40% 30% A$43 M conversion Pay-off (medium) 30% 50% 40% A$18 M
Pay-off (small) 50% 10% 30% A$5 M
Technical value A$3.1 M A$8.2 M A$5.7 M
5.7.3 Exploration target valuation summary
In forming its opinion of the market value of the Frances Creek Exploration, Xstract has taken guidance from the comparable transactions, joint-venture terms, and expected values methodologies. Xstract used the expected value for the upper value to reflect a possible value-in-use; and the average of both methods for the definition of its lower and preferred values. A summary of Xstract’s valuation of the Frances Creek Exploration Target is presented in Table 5.9
Table 5.9: Frances Creek Exploration Target valuation summary
Values (A$ M) Approach Method Low High Preferred
Market-based Comparable + joint venture terms 0.9 5.1 4.3
Cost-based Expected values 3.1 8.2 5.7
Market value 2.0 8.2 5.0
5.8 Frances Creek exploration potential valuation
For personal use only use personal For 5.8.1 Comparable transactions method
Xstract has elected to value the project tenements using multiples implied by recent Australian transactions for early-stage iron exploration projects (Appendix D). Xstract has considered 100% equity, comparable market transactions involving Australian early-stage iron
Valuation 35 BDO Corporate Finance (WA) Pty Ltd | July 2011
(non-magnetite) exploration projects that occurred after March 2009, when the ASX All Ordinaries Index and metal prices began to recover from a major downturn (Figure 5.2). Xstract considers that while commodities markets have improved significantly since March 2009, the market for early-stage exploration assets remains subdued due to the prevailing market’s aversion to risky investments. To assist in identifying the market signals contained within the dataset, Xstract has:
• Compared each transaction based on its geoscientific rating; • Used an unweighted score where the geoscientific descriptive text for each transaction matches that for the Frances Creek project. This ensures that the same value drivers are identified and that the Kilburn score is not a product of completely different value driver. This count was based on descriptions matching minor off-project workings, abundant project workings, targets identified and generally favourable geology, areas between 350 and 450 km 2 (i.e. ±100 km 2) and those which occurred within the last six months; and • A manual qualitative analysis examining the merits and peculiarities of each transaction. This is undertaken to take into account the valuer’s experience and judgment as to whether each transaction is representative of the broader market. As part of this process, projects that are similar, less or more desirable than the Frances Creek project’s exploration potential were identified. The range of values suggested by the ‘similar’ assets is tested by examining the upper value range indicated in the less desirable assets and the lower value range suggested by the more desirable assets. This technique ensures that information from all three data subsets is taken into account. Xstract’s manual ‘geoscientific’ analysis of the transactions identified in Appendix D suggests that Australian early-stage, iron exploration projects similar to the Frances Creek project may attract market values in the range A$3,400 to A$6,700/km 2. As a manual analysis of a dataset may be subject to user error, a regression analysis was performed using a much larger dataset by comparing the unit sales value (A$/km 2) and project area (km 2). This produces a regression formula and correlation co-efficient (r 2 value) which reflect the size value driver associated with an early-stage iron exploration project’s market value. The remaining co-efficient (1- r2) is an indication of the influence of other value drivers or market eccentricities. Xstract used the trendline method and determined that using all transactions (except for two which were deemed to be outliers), the dataset had an r 2 value of 0.32 and predicted a unit value for the Frances Creek project of A$2,400/km 2. Xstract notes that this r 2 value is low compared to its experience with iron transaction datasets. The low correlation may be a function of a less liquid market and greater variance in economic potential (contingent on access to infrastructure etc). Based on a combination of the qualitative analysis, regression formulae and r2 values, Xstract considers that the exploration component of the Frances Creek project could achieve a price in the range of A$3,100/km 2 and A$7,000/km 2. The lower limit is based on the regression of Australian iron exploration transactions and the upper limit on a combination of the manual analysis of Appendix B with a premium reflecting Territory’s potential to rapidly bring any discoveries into production (highest and best use principal). Xstract’s preferred value is A$5,500/km 2 based on a positive skew of the manual analysis of the valuation range’s midpoint to reflect access to established infrastructure. A summary of Xstract’s For personal use only use personal For market based valuation methods is presented in Table 5.10.
iv 36 Valuation Territory Resources | Independent Valuation
Table 5.10: Market based summary valuation of the Frances Creek project’s exploration potential
Scenario Item Basis Units Low High Preferred
Area Technical km 2 466 (excludes mining leases) Qualitative Manual A$/km 2 3,400 6,700 elimination Regression analysis Technical A$/km 2 2,400
2 Selected Manual A$/km 3,100 7,000 5,500
Market value (89% equity) A$ M 1.3 2.9 2.3
5.8.2 Expected value method
Xstract undertook an EV analysis of the Frances Creek project’s exploration potential to help validate its interpretation of the market-based data. In forming its opinion on the EV of the Frances Creek’s exploration potential, Xstract has: • designed a conceptual exploration programme comprising various three phases; • used a first pass exploration cost of A$4.8 M with a 70% probability of defining an anomaly. This cost is based on a proposed exploration budget provided by Territory; • a second phase cost of A$6 M with a 50% of probability of warranted future work and a further A$2 M for the third phase. These costs are consistent with the assumptions used in the remnant resource and Exploration Target EVs; and • elected to assign discovery values of the range A$30 M to A$50 M with a preferred value of A$40 M. These figures reflect corporate objectives associated with a ‘greenfields’ exploration drilling programme Based on the assumptions outlined in Table 5.11, Xstract estimates the Frances Creek project’s technical exploration EV of A$1.1 M, within a range of A$0 M to A$3.8 M. As Territory is the only iron mining operation in the region and there for it is the highest and best user of any exploration success, Xstract considers there is no market premium payable above the EV for the Frances Creek project’s exploration potential.
Table 5.11: Expected Value of the Frances Creek project’s exploration potential
Input Programme Type Payoff Low High Preferred
Reconnaissance Cost A$4.8M
Probability 70%
Follow-up drilling Cost A$6 M
Probability 50%
Reserve Cost A$2 M
conversion Pay-off (large) 20% 40% 30% A$50 M For personal use only use personal For Pay-off (medium) 30% 50% 40% A$40 M
Pay-off (small) 50% 10% 30% A$30 M
Technical value A$0.0 M A$3.8 M A$1.1 M
Valuation 37 BDO Corporate Finance (WA) Pty Ltd | July 2011
5.8.3 Replacement value method
Xstract has not used the replacement cost method to value the exploration potential associated with the Frances Creek project. Much of the historical expenditure within the project is associated with the mined material, current Ores Reserves and remnant resources. While it may be possible to calculate a replacement value, the figure falls below the minimum holding cost associated with the tenements as the method does not incorporate a forward looking value component. A value below the holding cost suggests that the tenements should be relinquished, a conclusion that would be at odds with the exploration merits of the project.
5.8.4 Exploration valuation summary
Xstract’s opinion of the possible market value of the exploration potential associated with the Frances Creek project area is summarised in Table 5.12. In determining its lower and preferred values, Xstract has relied upon the comparable transactions methodology. Xstract’s upper limit is based on the EV method. A higher emphasis is placed on the market based analysis to reflect higher uncertainty associated with constructing a ‘greenfields’ EV.
Table 5.12: Frances Creek project exploration valuation summary
Values (A$ M) Method Low High Preferred
Comparable transactions 1.3 2.9 2.3
Expected value 0 3.8 1.1
Selected 1.3 3.8 2.3
5.9 Reynolds Range exploration potential valuation
5.9.1 Market based approach
Xstract has elected to use the comparable transaction method to establish the market value of the Company’s Reynolds Range project. Xstract re-iterates that commodity markets have improved substantially since March 2009. However, the market for early-stage exploration assets remains subdued due to the market’s aversion to risky investments. In its opinion, Xstract considers the Reynolds Range project to be early stage exploration play and thus a high-risk asset. Xstract’s ‘geoscientific’ analysis of the transactions identified in Appendix D suggests that Australian early-stage, iron exploration projects similar to the Frances Creek project may attract market values in the range A$1,900 to A$6,500/km 2. Using the same regression formula as for the valuation of the Frances Creek exploration potential, the predicted value of the Reynolds Range project is A$4,400/km 2. The transactions manually identified as being similar to the Reynolds Range project had an average value of A$2,800/km 2, a median of A$2,300/km 2 and a range of A$1,100 to A$6,700/km 2. The less desirable assets had an average of A$1,000/km 2, a median of 2 2 For personal use only use personal For A$700/km and a maximum value of A$2,200/km . The more desirable asset transactions had an average implied value of A$18,400/km 2, a median of A$8,400/km 2 and a minimum value of A$4,500.
iv 38 Valuation Territory Resources | Independent Valuation
Having analysed the transactions dataset using four techniques, Xstract is of the opinion that the market is likely to pay in the range between A$900 and A$4,500/km 2 with a preferred value of A$2,100/km 2 (Table 5.13).
The lower value is defined using the average of the median of the less desirable assets and the lower limit of the similar transactions (i.e. A$700 + A$1,100/km 2)/2. Xstract’s upper value is based on the lowest value in the more desirable asset dataset. Xstract considers that the trendline of the price may overstate the markets’ appetite for assets similar to Reynolds Range project. Consequently in assigning its preferred value Xstract has taken into account the median of less desirable dataset; the lower limit of the more desirable dataset; and the median of the similar dataset (respectively A$700, A$4,500 and A$2,300/km 2).
Table 5.13: Market based summary valuation of the Reynolds Range project’s exploration potential
Scenario Item Basis Units Low High Preferred
Area Technical km 2 133 Qualitative Manual A$/km 2 700 4,500 2,300 elimination Regression analysis Technical A$/km 2 4,400
2 Selected Manual A$/km 900 4,500 2,100
Market value A$ M 0.1 0.6 0.3
5.9.2 Expected value and replacement value methods
Xstract has not used the EV or replacement value methods in assessing the technical value of the Reynolds Range project. Xstract is of the opinion that there is insufficient technical data to support an assumption on the value of an iron discovery within the Reynolds Range project, and the exploration probabilities leading to such a discovery would be excessively sensitive. Similarly, as no tangible ground activities have commenced, a replacement value analysis would yield no useful insights.
5.10 Other considerations
5.10.1 Previous valuations
Xstract notes that an intrinsic valuation report on the Frances Creek and Reynolds Range projects had been commissioned in the months preceding this Independent Valuation Report. Xstract understands that there were factual inaccuracies with this third party valuation and it did not proceed beyond a first draft. Given the material deficiencies associated with this third party valuation, Xstract does not consider its contents to be sufficiently reliable for public disclosure. The mineral assets of Territory have previously been the subject of various independent valuations dating back to 2007. However, the time and circumstance of the information
For personal use only use personal For contained within these are in Xstract’s opinion, no longer relevant.
Valuation 39 BDO Corporate Finance (WA) Pty Ltd | July 2011
5.11 Valuation summary
In forming its opinion on the market value of Territory’s mineral assets, Xstract has taken guidance from a variety of valuation methodologies. As each valuation methodology has its own strengths and weaknesses, it is generally accepted as best practice to apply as many methods as possible under the relevant time and circumstances. Furthermore, Xstract notes the following: • The Francis Creek project is an operating iron mine. Given the access to established infrastructure, equipment and personnel, Territory represents the highest and best user of its assets. On this basis, the principle value driver of the Francis Creek assets outside of its LOM is their value-in-use. • The market appears to be risk averse. Given the demonstrated production records and that no capital infrastructure is required, the market may apply a premium to the assets outside of the LOM relative to other iron projects. On the basis of the above, Xstract has used EV method to calibrate where in the market the Francis Creek mineral assets may reside. As such, Xstract has applied premiums in its assessment of and arrived at a preferred value of A$26.9 M within a range of A$12.1 M to A$36.1 M for Territory’s mineral assets outside of the LOM. Xstract’s valuation of the Francis Creek mineral assets which fall outside of the LOM is summarised in Table 5.14.
Table 5.14: Frances Creek and Reynolds Range project valuation summary
Values (A$ M)* Project Aspect Low High Preferred
Frances Creek Remnant resources 9.1 24.8 19.9
Exploration Target 2.0 8.2 5.0
Exploration potential 1.3 3.8 2.3
Reynolds Range Exploration potential 0.1 0.6 0.3
Total 12.5 37.4 27.4
Implied Value (A$1.21/t Fe or (A$3.62/t Fe or (A$2.65/t Fe or A$20,900/km 2) A$62,400/km 2) A$45,700/km 2)
*any discrepancies due to rounding errors For personal use only use personal For
iv 40 Valuation Territory Resources | Independent Valuation
6 Declaration
6.1 Independence
Xstract is a privately owned and operated mining and resource industry consultancy providing independent, strategic and tactical advice and personalised professional services to exploration and mining companies, engineering firms, financial institutions and investors. We operate through our offices in Brisbane and Perth. Our corporate services include technical audits, project reviews, valuations, independent expert reports, project management plans and corporate advice. Xstract personnel have extensive experience in the preparation of independent valuations for a variety of commodities including coal, gold, base metal, platinum, diamonds and iron. This report has been prepared independently and in accordance with the VALMIN and JORC Codes. The authors do not hold any interest in Territory, related parties, or in any of the mineral properties or interested parties, which are the subject of this report. Fees for the preparation of this report are being charged at Xstract’s standard rates, whilst expenses are being reimbursed at cost. Payment of fees and expenses is in no way contingent upon the conclusions drawn in this report.
6.2 Qualifications
Jonathan Bell (Principal Consultant – Corporate Services) Jon is a geologist and mineral economist with over 10 years experience in exploration, resource definition, mining and project valuation gained by working with various Western Australian mining and consulting companies. Jon specialises in the field of mineral asset valuations, in which he is a practitioner, trainer and innovator of advanced methodologies. Since gaining his Bachelor’s degree in Applied Geology, Jon has complemented his geological skills with a Masters in Mineral Economics. Jon is currently pursuing a PhD in Mineral Economics with the view towards deriving new valuation methods and quantifying mineral market characteristics using the market-based approach. Jon is a Graduate of the Australian Institute of Company Directors and Member of the Australian Institute of Geoscientists, the latter of which he also serves on the Western Australian Branch Committee. Jon is a current member of a joint AIG/AusIMM Committee reviewing and updating the VALMIN Code. In addition to his technical and academic pursuits, Jon holds non-executive directorships within the private, non-mining sector.
Shaun Barry (Senior Consultant – Corporate Services) With over 20 years experience, Shaun is a mineral industry professional experienced in mineral economics, mining business analysis, and minerals marketing. His previous role as a Senior Marketing Specialist Shaun worked for Rio Tino Alcan in their Brisbane offices. His main focus was to provide support in strategic commercial projects and synergy projects in the acquisition of Alcan with emphasis on business improvement. Prior to this Shaun was a Senior Sales Specialist for Rio Tinto Alcan (2006-2007). Shaun has worked for Anglo Coal Australia as a Senior Business Analyst (2004-2005), Anglo Platinum’s Marketing Manager
(1999-2004) and prior to this as a Mining Share Analyst, Mineral Economist and Mine For personal use only use personal For Geologist in South Africa. Shaun has a BSc (Hons) (Geology), MSc (Eng – Min. Econ.) and a Diploma in Investment Management and is a member of AusIMM.
Declaration 41 BDO Corporate Finance (WA) Pty Ltd | July 2011
Manish Garg (Principal Consultant – Corporate Services) Manish has some 20 years mining experience in mining operations, marketing, corporate roles and consulting. Before joining Xstract Manish has managed business analysis, planning and improvement functions at Rio Tinto Coal, BHP Billiton Illawarra Coal, WMC Resources, Oceanagold and Pasminco apart from working as Metallurgy Manager at base metal operations. Manish’s experience includes market intelligence, due diligence, metal and concentrate marketing, valuation, strategic planning and optimizing business performance. He seeks to enhance business performance and profitability by analysing business performance and deploying appropriate business planning and improvement systems. Manish has managed and worked on due diligences, feasibility studies and reviews for banks, financial investors and mining companies on worldwide projects including Australia, New Zealand, India, South Africa, Congo, Zambia, Kazakhstan, Peru & Bolivia. Manish is a BEng (Hons) (Metallurgical Engineering), Master of Applied Finance, and a member of the Financial Services Institute of Australia.
John Millbank John is a Mining Engineer with more than 18 years of experience having worked in open pit mining operations for a number of companies including Hamersley Iron Normandy NFM, Mt Gibson Iron and Energy Resources Australia. John currently operates his own consultancy Proactive Mining Solutions with recent clients including Thiess, Crocodile Gold Australia Operations, BHPBilliton Iron ore and Newcrest Cadia Hill. John has extensive experience in short, medium and long term planning, pit and cut design, fleet optimization and mine design. John holds a BEng, MBA, WA Quarry Managers Certificate of Competency.
Jeames McKibben (General Manager/Principal Consultant – Corporate Services) During more than 17 years in the mining and mineral industry, Jeames has served in a diverse range of roles including corporate consultant, project manager, geologist and analyst. Jeames’ most recent role was as the Divisional Manager for Snowden Mining Industry Consultants Pty Ltd’s Corporate Services Division. He has a strong record in project due diligence, independent technical review, valuation, deposit evaluation and the promotion of best practice strategies in the workplace. As a corporate consultant he specialises in valuations and Mineral Expert Reports for equity transactions and Independent Technical Reports in support of project finance. He has assisted numerous mineral companies, financial and legal institutions in securing regulatory approvals for IPOs and other secondary filings on the following international exchanges: Australian Securities Exchange, Alternative Investment Market, London Stock Exchange, Johannesburg Securities Exchange and Toronto Stock Exchange. Other mandates include technical due diligence in support of information memoranda, divestments, acquisitions and mergers, Pre-Feasibility Studies and independent Competent Persons’ Reports. Jeames has a MBA and a BSc (First Class Honours), and is a member of the AIG and the AusIMM. Jeames was recently appointed to a joint AusIMM/AIG Committee to review the VALMIN Code.
For personal use only use personal For
iv 42 Declaration Territory Resources | Independent Valuation
7 Glossary of terms
A metamorphic rock consisting mainly of hornblende amphibole and plagioclase Amphibolite feldspars, with little or no quartz.
a term referring to silicate minerals, magma, and rocks which are enriched in the Felsic lighter elements such as silicon, oxygen, aluminium, sodium, and potassium.
Gneissic granite A granite that has been subjected to high-grade regional metamorphic processes.
A common and widely occurring type of intrusive, felsic, medium to coarse-grained, Granite igneous rock.
A general field petrologic term applied to metamorphic and/or altered mafic volcanic Greenschist facies rocks.
one of the three main rock types and formed through the cooling and solidification of Igneous magma or lava.
A concentration of occurrence of material of intrinsic economic interest in or on the Mineral Resource Earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction.
Mudstone a fine grained sedimentary rock whose original constituents were clays or muds.
The economically mineable part of a Measured and/or Indicated Mineral Resource. It Ore Reserve includes diluting materials and allowances for losses, which may occur when the material is mined.
Palaeozoic An era of geologic time spanned from roughly 542 to 251 million years ago.
An informal name for the span of time from the formation of Earth around 4,600 Precambrian million years ago to the beginning of the Cambrian Period, about 542 million years ago.
Sandstone a sedimentary rock composed mainly of sand-sized minerals or rock grains.
A group of medium-grade metamorphic rocks, containing more than 50% platy and Schist elongated minerals, often finely interleaved with quartz and feldspar.
Formed by sedimentation of material at the Earth's surface and within bodies of Sedimentary rock water.
A fine-grained clastic sedimentary rock composed of mud that is a mix of flakes of Shale clay minerals and tiny fragments (silt-sized particles) of other minerals, especially quartz and calcite.
Sill A sub-horizontal sheet intrusion of molten or solidified magma. A metamorphic rock that is usually variably colored green or red and forms by chemical metasomatism of rocks during metamorphism and in the contact zone of Skarn magmatic intrusions like granites with carbonate-rich rocks such as limestone or dolostone.
For personal use only use personal For
Glossary of terms 43 BDO Corporate Finance (WA) Pty Ltd | July 2011
8 Bibliography
Bell J A, Ghandar A A and Guj P, in prep. Using Neural-networks to Estimate the Value of Exploration Projects in Safe and Mature Jurisdictions.
Bloomberg, 2011. Australian Government Bonds [online]. Available from:
CIMVAL, 2003, Standards and Guidelines for Valuation of Mineral Properties, The CIMVAL Committee of the Canadian Institute of Mining, Metallurgy and Petroleum [online]. Available from: < www.cim.org/committees/CIMVal_Final_Standards.pdf > [Accessed: 09 February 2011].
DRDPIFR (2007). Security Calculation Procedure, Department Regional Development, Primary Industry, Fisheries, and Resources, Northern Territory Government November 2007. DRDPIFR (2008). Security Unit Costs, Department Regional Development, Primary Industry, Fisheries, and Resources, Northern Territory Government, August 2008. Etheridge M A, 2009. The Black Art of Valuing Mineral Properties, paper presented to Mineral Asset Reporting and Valuation Seminar, Perth 18 October 2009 [online]. Available from < http://aig.org.au/conferences-and-seminars/marv09 > [Accessed 04 December 2011].
Goulevitch J and Eupene GS, 1994. Geoscience Rating for Valuation of Exploration Properties – Applicability of the Kilburn Method in Australia and Examples of its Use, in VALMIN'94: Mineral Valuation Methodologies 1994 , (pp. 175-190). Sydney, Australia: Australasian Institute of Mining and Metallurgy and the Mineral Industry Consultants Association
Grant R, 1994. The Comparable Sales (Real Estate) Method of Valuation. VALMIN'94: Mineral Valuation Methodologies 1994 , (pp. 155-165). Sydney, Australia: Australasian Institute of Mining and Metallurgy and the Mineral Industry Consultants Association.
JORC, 2004. Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves – The JORC Code – 2004 Edition [online], The Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia. Available from: < http://www.jorc.org/pdf/jorc2004web_v2.pdf > [Accessed: 15 February 2011].
Kilburn L C, 1990. Valuation of Mineral Properties which do not Contain Exploitable Reserves; CIM Bulletin, 83:90-93.
Kreuzer O P, Etheridge M A, Guj P, McMahon M E and Holden D J, 2008. Linking Mineral Deposit Models to Quantitative Risk Analysis and Decision-Making in Exploration. Economic Geology , 829-850.
Lawrence M J, 2001. An Outline of Market-based Approaches for Mineral Asset Valuation For personal use only use personal For Best Practice, in VALMIN01: Mineral Asset Valuation Issues for the Next Millennium 2001 , pp115-137 9 (Mineral Industry Consultants Association, The Australian Institute of Mining and Metallurgy; Sydney).
iv 44 Bibliography Territory Resources | Independent Valuation
McCuaig C T, Kreuzer O P and Brown W M, 2007. Fooling Ourselves – Dealing with Model Uncertainty in a Mineral Systems Approach to Exploration, in Proceedings of the Ninth Biennial SGA Meeting 2007 , 1432-1438 (The Society of Geology Applied to Mineral Deposits: Dublin).
McKibben J A and Snowden P A, 2007. Updated Independent Valuation of the Mineral Assets of Territory Resources Ltd. O'Connor C and McMahon D, 1994. A Producing Miners View of DCF Methods in Mineral Valuation. VALMIN'94: Mineral Valuation Methodologies 1994 , (pp. 75-80). Sydney: Mining Industry Consultants Association and the Australasian Institute of Mining and Metallurgy.
Onley P G, 1994. Multiples of Exploration Expenditure as a Basis for Mineral Valuation, in VALMIN94: Mineral Valuation Methodologies 1994 , pp191-197 (Mineral Industry Consultants Association, The Australian Institute of Mining and Metallurgy; Sydney).
PwC, 2011. Giralia Resources N.L Target’s Statement, PricewaterhouseCoopers Securities Ltd [online]. Available from: < http://www.asx.com.au/asxpdf/20110120/pdf/41w91fdt0syx8t.pdf > [Accessed: 03 May 2011].
RBA, 2011. Measures of Consumer Price Inflation, Year-ended percentage change [online]. Available from: < http://www.rba.gov.au/inflation/measures-cpi.html > [Accessed: 17 April 2011].
SAMVAL, 2008, The South African Code for the Reporting of Mineral Asset Valuation (The SAMVAL Code), The South African Mineral Asset Valuation Committee (SAMVAL) of the Southern African Institute of Mining and Metallurgy and the Geological Society of South Africa [online]. Available from: < www.samcode.co.za > [Accessed: 28 August 2009].
Spence K N, 2007. An Overview of valuation of Mineral Properties [online], China Mining Conference, Beijing, 14 November 2007 [online]. Available from: < http://www.powershow.com/view/98100- NjFkM/AN_OVERVIEW_OF_VALUATION_OF_MINERAL_PROPERTIES > [Accessed 08 February 2011].
Territory Iron Ltd, Mine Management Plan for Frances Creek, 23 February 2011 – 22 February 2012. Territory Resources Limited, 2010, Annual Report and Financial Accounts. Territory Iron (2010). Mining Management Plan January 2011 to December 2011. Territory Iron Pty Ltd and Eden Tech, December 2011. Territory Iron (2011). Closure Plan, Territory Iron Pty Ltd, February 2011 Territory Resources Limited (2010). Annual Report 2010, 30 June 2010 Territory’s Financial Officer (Ian Goldberg, pers. comm.), 12 April 2011
Tversky A and Kahneman D, 1974. Judgement under Uncertainty: Heuristics and Biases, For personal use only use personal For Science 185, 1124-113.
Van Horne J, 2002. Financial Management and Policy, Twelfth Edition, Pearson Higher Education pp 84-95, 197-225, New Jersey.
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Vann J, 2005. Turning Geological data Into Reliable Mineral Resource Estimates, in Davis T, Vann J (eds) The Estimation and Reporting of Resources and JORC: The Role of Structural Geology, Australian Institute of Geoscientists Bulletin 42:9-16.
VALMIN, 2005; “Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports”, prepared by the VALMIN Committee, a joint committee of the Australasian Institute of Mining and Metallurgy, Australasian Institute of Geoscientists and Mineral Industry Consultants Association with the participation of the Australian Securities and Investment Commission, the Australian Stock Exchange Limited, the Minerals Council of Australia the Petroleum Exploration Society of Australia, the Securities Association of Australia and representatives of the Australian financial section, 2005 Edition
Wastell C A, Etheridge M, McMahon M, Lucas G and Hartley L, 2010. The Impact of Cognitive Predispositions on Exploration Decisions in the Minerals Industry [online], Applied Cognitive Psychology . Available from:
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iv 46 Bibliography BDO Corporate Finance (WA) Pty Ltd | July 2011
Appendix A Australian Iron Deposit Transactions (non-magnetite)
For personal use only use personal For
Appendices | Territory Resources | Independent Valuation For personal use only Territory Resources | Independent Valuation
Equity Metal and Implied unit Transaction Details Project Details Comparative Comments Grade value (A$/t Fe)
The principal assets of FerrAus Ltd are its 100% interest in its 187,683,110 0.91 This is of higher confidence, In July 2011, Atlas Iron Ltd 782 sqkm iron and manganese exploration projects located in @ 57% Fe maturity and longer-lived offered to acquire FerrAus Ltd the Pilbara region of Western Australia. On aggregate, the value proposition than the through a stock-swap Roberston Range, Davidson Creek and MirrinMirrin projects remnant resources at Frances transaction with a stated contained a Probable Ore Reserve of 163 Mt grading 57.4% Creek. The ease of value of A$0.858 per acquired Fe, 5.2% SiO2, 3.0% Al2O3, 0.09% P with an LOI of 8.6%. beneficiating CID and canga share. As at 31 March 2011, These reserves were contained within a Measured Mineral may offset the lower grades. FerrAus Ltd was composed of Resource of 32.9 Mt grading 58.69% Fe, an Indicated Mineral However, there is time, risk 249.60 M ordinary shares, Resource of 197.6 Mt grading 57.45% Fe and an Inferred and capital to which the 9.14 M options and 7.50 M Mineral Resource of 100.58 Mt grading 54.58% Fe. Based on market may have applied a performance shares; and had a scoping study, the Robertson Range and Davidson Creek discount. about A$43.1 M cash within projects may have been able to support a 15 Mtpa open pit with no significant debt. The mining operation with a CapEx of A$600 M to A$1,000 M, an ordinary shares are used and OpEx of A$32 to A$36/t material for an NPV8% for A$880 M the financial position is to A$1,100 M with an IRR of 21% to 30% and a 6 to 8 year disregarded from this payback period. FerrAus Ltd also had early-stage iron and valuation calculation. manganese exploration projects.
In January 2011, Regent The principal asset of BC Iron Ltd is its 50% interest in the 22,026,459 5.38 This transaction contained Pacific Group Ltd offered to Nullagine project located about 140 km north of Newman in @ 54% Fe Probable Ore Reserves and acquire the 80.1% interest it Western Australia. The commissioning open pit mining the mining operation which didn't already on in BC Iron operation contained a Probable Ore Reserve of 35.6 Mt had access to infrastructure
Ltd for A$3.30 cash per grading 56.9% Fe, 3.23% SiO 2, 1.96% Al 2O3, 0.02% P, was about to commence its share, or about A$276.4 M on 0.01% S with an LOI of 12.1%. The reserves were contained first iron shipments, which a fully diluted basis. As at 31 within a Measured Mineral Resource of 2.2 Mt grading 54.5% occurred in February 2011. December 2010, BC Iron Ltd Fe, an Indicated Mineral Resource of 68.8 Mt grading 54.0% had A$39.69 M cash with an Fe and an Inferred Mineral Resource of 30.6 Mt grading This transaction is a good expected outflow in the 54.4% Fe. Based on a July 2009 Feasibility Study, the project comparison given the coming quarter of A$19.95 M. could support an 8 year mine life using a 1:1 stripping ratio, infrastructure component has The financial position is with an initial CapEx of A$43.0 M, an OpEx of A$43/t for an been taken into account in the
disregarded from this IRR of 10% and a positive NPV providing the received product acquisition price. However, as For personal use only use personal For valuation calculation. This price is above A$49/t. the offer was deemed to be offer was rejected by BC Iron unfair and unreasonable, the Ltd on the basis of it being
Appendices | Territory Resources | Independent Valuation BDO Corporate Finance (WA) Pty Ltd | July 2011
Equity Metal and Implied unit Transaction Details Project Details Comparative Comments Grade value (A$/t Fe) unfair and unreasonable. implied unit value may be understated.
In December 2010, Atlas Iron The principal assets of Giralia Resources NL are is iron 227,654,589 3.38 These assets were subject to Ltd offered to acquire Giralia deposits located in Western Australia. The 100% Equity a positive scoping study using Resources Ltd through a McPhee Creek open pit scoping study project contained an road haulage, with an stock-swap transaction with a Indicated Mineral Resource of 65.3 Mt grading 56.3% Fe, alternative model using a 160
stated value of A$828.0 M. As 0.11% P, 6.20% SiO 2, 2.60% Al 2O3 and 9.7% LOI; an km rail spur. These assets at 30 September 2010, Inferred Mineral Resource of 194.7 Mt grading 56.2% Fe, represent a longer-lived value
Giralia Resources Ltd had a 0.13% P, 6.9% SiO 2, 2.3% Al 2O3 and 9.5% LOI; and a second proposition than Territory's cash backing of about Inferred Mineral Resource of 5.17 Mt grading 53.6% Fe, remnant resources. Also, the
A$57.81 M (included in this 0.03% P, 7.20% SiO 2 and 2.40% Al 2O3. The 100% equity transaction value includes valuation calculation). Western Creek project contained an Inferred Mineral operational and capital
Resource of 52.4 Mt grading 56.7% Fe, 0.06% P, 6.20% SiO 2, synergies associated with
3.6% Al 2O3 and 8.9% LOI. The 75% equity Daltons-Mt combining with an existing Webber project contained an Indicated Mineral Resource of iron producer in a world-class
28.9 Mt grading 57.9% Fe, 0.097% P, 1.49% SiO 2, 1.49% province. However, additional
Al 2O3 and 8.17% LOI; and an aggregate Inferred Mineral CapEx investment is required Resource of 6.20 Mt grading 54.1% Fe, 0.05% P, 13.09% (and risk-exposure) to unlock
SiO 2, 1.55 Al 2O3 and an LOI of 7.12%. The 100% Anthiby value from these assts. Well project contained an Inferred Mineral Resource of 37.6
Mt grading 53.6% Fe, 0.04% P, 7.50% SiO 2, 4.80% Al 2O3 and 9.3% LOI. The 100% equity Beebyn-Weld Range project contained an Inferred Mineral Resource of 7.20 Mt grading
57.2% Fe, 0.074% P, 8.36% SiO 2, 4.8% Al 2O3 and 5.24% LOI. The 100% held Yerecoin magnetite deposit contained an Inferred Mineral Resource of 186.8 Mt 30.9% Fe. The Snake Well project contained an Indicated Mineral Resource of 1.96 Mt grading 1.87 g/t Au and an Inferred Mineral Resource of 0.92 Mt grading 1.58 g/t Au. The Kathleen Valley project contained a historical estimate of 0.06 Mt grading 2.75 g/t
For personal use only use personal For Au. The Diorite Hill project contained a laterite hosted Inferred Mineral Resource of 0.06 Mt grading 1.04% Ni and 0.0183% Co. Giralia Resources NL also had early-stage
2 Appendix A Territory Resources | Independent Valuation
Equity Metal and Implied unit Transaction Details Project Details Comparative Comments Grade value (A$/t Fe) exploration projects in South Australia and Chile. Based on an Independent Experts Report (PwC, 2011) the Daltons-Mt
Webber open pit scoping study project had an NPV 8% of 134.3 M, a 17 year mine life, an initial CapEx of A$129.1 M and an OpEx of A$493.32/t ore. The McPhee Creek scoping study
project had a NPV 8% of A$91.1 M, a 25 year mine life, a CpaEx fo A$129.1 M and an OpEx of A$54.97 M. The
Yerrecoin scoping study project had an NPV 8% of A$37.2 M, a 25 year mine life, a A$447.0 M CapEx and an Opex of A$68.90/t. Giralia Resources Ltd’s non-iron assets had been assigned a preferred value of A$11.5 M within a range of A$6.7 M to A$19.3 M.
In November 2010, Wah Nam The principal assets of Brockman Resources Ltd are its 100% 469,361,716 1.34 This is of higher confidence, International Holdings Ltd interest in the Marillana project and a 40% interest in the @ 44% Fe maturity and longer-lived offered to acquire the 77.3% projects respectively located in the Pilbara and near Leonora value proposition than the interest it didn't already own in Western Australia. The Marillana CID and detrital project remnant resources at Frances in Brockman Resources Ltd contained a detrital Proved Ore Reserve of 133 Mt grading Creek. The ease of through a stock-swap 41.6% Fe and a Probable Ore Reserve of 868 Mt grading beneficiating CID and canga transaction with a stated 42.5% Fe; contained within a Measured Mineral Resource of may offset the lower grades. value of A$6.47 per acquired 173 Mt grading 41.6% Fe, an Indicated Mineral Resource of However, there is time, risk share. As at 30 June 2010, 1,154 Mt grading 43.0% Fe and an Inferred Mineral Resource and capital to which the Brockman Resources Ltd had of 201 Mt grading 40.7% Fe. The Marillana project also market may have applied a about A$84.23 M cash within contained a CID hosted Probable Ore Reserve of 48.5Mt discount.
current assets of A$85.13 M grading 55.55% Fe, 5.3% SiO 2, 3.7% Al 2O3, 0.09% P with an which were offset by liabilities LOI of 9.7%; contained within an Indicated Mineral Resource
of A$4.00 M. The current of 84.2 Mt grading 55.8% Fe, 3.6% Al 2O3, 5.0% SiO 2, assets less liabilities position 0.097% P and an LOI of 9.8%; and an Inferred Mineral
is used in this valuation Resource of 17.7 Mt grading 54.4% Fe, 4.3% Al 2O3, 6.6%
calculation. SiO 2, 0.080% P and an LOI of 9.3%. Based on a September 2010 open pit Feasibility study the Marrilana project may
For personal use only use personal For have been able to support a 17 Mtpa 25 year mine life with a CapEx of A$1,300 M to A$1,900 M, an OpEx of A$35.6 of
A$36.9/t FOB for a post-tax NPV 10% of A$2,300 M to A$2,600
Appendices | Territory Resources | Independent Valuation BDO Corporate Finance (WA) Pty Ltd | July 2011
Equity Metal and Implied unit Transaction Details Project Details Comparative Comments Grade value (A$/t Fe) M, an IRR of 27.7% to 37.9% and a payback period of less than four years. The midpoint of the CapEx estimate is used in this valuation calculation. The Irwin-Coglia exploration project contained a laterite hosted Indicated Mineral Resource of 16.9 Mt grading 1.07% Ni and 0.14% Co (excluded from this valuation calculation).
In November 2009, Mineral The principal assets of Polaris Metals NL are its 100% interest 29,449,700 5.65 The total metal endowment is 2 Resources Ltd offered to in the 1,000 km Carina-Chameleon project located in the @ 58% Fe much larger for these assets, 2 2 acquire Polaris Metals NL Yilgarn; 120 km Weelumurra and 50 km Calwinga projects 0.64 including however the grade is lower through a stock swap (1:10 located in the Pilbara; 532 km 2 Ashburton project; a further and the Carina and exploration 2 basis) and A$0.05 per 1,963 km tenement holding in Western Australia; and a 70% targets Weelumurra projects are acquired share. As at 30 June interest in the 335 km 2 Johnston Range and 1,000 km 2 located about 40 km from one 2009, Polaris Metals NL was Evanston projects located in the Yilgarn of Western Australia. another. Importantly, these comprised of 175.69 M The Carina project contained a haemaite BIF-related assets may require significant ordinary shares or 213.26 M Indicated Resource of 17.7 Mt grading 59.0% Fe, 3.16% CapEx in order to establish
shares on a fully diluted SiO 2, 0.1% P, 1.24% Al 2O3, 0.07% S with a 9.23% LOI; and rail connection to port basis. Polaris Metals NL had a an Inferred Resource of 23.8 Mt grading 58.56% Fe, 4.47% facilities.
cash backing of SiO 2, 0.17% P, 1.28% Al 2O3, with a LOI of 9.09%. The Carina approximately A$4.2 M cash. project and adjacent tenements also contain a further The ordinary shares and cash exploration target in the order of 40 to 58 Mt of DSO at hand are used in this material. Based on a July 2009 pre-feasibility study, the
valuation calculation. Carina project had an A$100 M NPV 10%, an initial CapEx of A$120 M to A$130 M and an OpEx of A$60/t to A$70/t. The Mayfield prospect in the Carina-Chameleon project area contained a DSO Inferred Resource of 9.3 Mt grading 54.5% Fe and a magnetite BIF exploration target in the order of 70 to 90 M with grades of 45% to 50% Fe. The Weelumurra project contained a CID exploration target in the order of 200 to 250 Mt in addition to a canga exploration target of 50 to 60 Mt (average assay grades in the order of 58% Fe). The
For personal use only use personal For exploration targets excluded from this valuation calculation. The remaining project areas largely remained at an early- stage of exploration.
4 Appendix A Territory Resources | Independent Valuation
Equity Metal and Implied unit Transaction Details Project Details Comparative Comments Grade value (A$/t Fe)
In October 2009, BHP Billiton The principal assets of United Minerals Corporation NL are its 92,875,082 2.06 These assets are of higher- 2 Ltd offered to acquire United 100% interest in the 1,263 km Pilbara Iron; and a 25% @ 58% Fe grade, and due to the Minerals Corporation NL for interest in the 6,830 km 2 Kimberley Bauxite projects located proximity to the acquiring A$1.30 cash per share in a in Western Australia. The Pilbara Iron project contains the party’s established rail transaction with a stated total open pit scoping study Railway prospect which contained a infrastructure it was able to value of A$204 M. As at 30 near surface, bedded haematite Indicated Resource of 100.7 take advantage of market
June 2009, United Minerals Mt grading 60.34% Fe, 2.62% Al 2O3, 3.71% SiO2, 0.067% P infrastructure-access Corporation NL held roughly and 7.31% LOI; and a bedded and detrital Inferred Resource discounts.
A$9.87 M cash within current of 59.49 Mt grading 53.98% Fe, 4.82% Al 2O3, 7.45% SiO 2, assets of A$10.66 M and 0.057% P and 9.27% LOI. The Railway deposit lies close to offset by current liabilities of three established railway lines and six operating iron mines. A$1.86 M. The current assets Depending on the development scenario, the Railway project less liabilities position is used had a CapEx range of A$24.2 M to A$57.2 M and an OpEx of in this valuation calculation. A$23.06 M to A$66.31/t. The Kimberley Bauxite project contained a number of anomalous drillhole intersections but was largely at an early-stage of exploration.
In August 2009, Pluton The Irvine Island project is located approximately 150 km 13,230,000 1.36 While the Irvine Island project Resources Ltd acquired from north of Derby in Western Australia. The project contained a @ 49% Fe (or 5.10 using the has lower grade with lower Cliffs Natural Resources Inc near surface, Inferred Resource of 13.0 Mt grading 54.4% Fe 13 Mt estimate) confidence, it has a the 50% interest it didn't with low phosphorous, sulphur and alumina content. In comparable metal endowment already won in the Irvine September 2009, Pluton Resources Ltd announced that by re- and may require limited/no Island project for A$5.0 M interpreting the existing drillhole information and assuming infrastructure (port/rail) to be cash, 19.46 M shares the use of simple beneficiation, it had increased the Inferred established. Xstract considers (deemed A$0.67/share) and a Mineral Resource to 54.0 Mt grading 49% Fe. The 13.0 Mt that the 54.0 Mt estimate is 1% FOB royalty. estimate is used in this valuation calculation. Assuming Pluton what Pluton Resources Ltd Resources Ltd had inside information on this asset, the 54.0 would have attributed the Mt estimate is used in this valuation calculation. value to, not the 13 Mt estimate which was in the public domain. This transaction also includes a For personal use only use personal For control premium.
Copyright © of Alexander Research Pty Ltd. All rights reserved.
Appendices | Territory Resources | Independent Valuation For personal use only Territory Resources | Independent Valuation
Appendix B Australian Iron Deposit Transactions (exploration targets, excluding magnetite)
For personal use only use personal For
Appendices | Territory Resources | Independent Valuation For personal use only Territory Resources | Independent Valuation
Transaction Details Project Details Equity Metal Implied Comparative and Grade unit value Comments (A$/t Fe)
In February 2010, Batavia Mining Ltd The 3,500 km 2 Roper Bar project is centred about 120 km east of 180,000,000 0.25 This transaction obtained from an undisclosed vendor the Mataranka and 475 km southeast of Darwin in the Northern @ 40% Fe involves lower-grade option to acquire a 100% interest in the Territory, Australia. During the 1950s and 1960s, the project was iron mineralisation Roper Bar project for A$15.00 M cash, subject to exploration mapping and drilling programmes which and is further from 150.00 M shares (deemed A$0.18/share), resulted in the generation of a exploration target in the order of 400 established 100.00 M in-the-money A$0.135 2.5 year Mt to 500 Mt grading more than 40% Fe, within which was a target infrastructure. options and unspecified hurdle payments. of 80 Mt to 150 Mt grading between 50% and 60% Fe. A 450 Mt exploration target grading 40% Fe is used in this valuation calculation. The known iron mineralisation consisted of haematite and goethite within oolitic ironstones. The project lay within 85 km of the Stuart Highway and 105 km of the Adelaide-Darwin railway line.
In February 2010, Batavia Mining Ltd The 3,500 km 2 Roper Bar project is centred about 120 km east of 63,250,000 0.75 obtained from an undisclosed vendor the Mataranka and 475 km southeast of Darwin in the Northern @ 55% Fe option to acquire a 100% interest in the Territory, Australia. During the 1950s and 1960s, the project was Roper Bar project for A$15.00 M cash, subject to exploration mapping and drilling programmes which 150.00 M shares (deemed A$0.18/share), resulted in the generation of a exploration target in the order of 400 100.00 M in-the-money A$0.135 2.5 year Mt to 500 Mt grading more than 40% Fe, within which was a target options and unspecified hurdle payments. of 80 Mt to 150 Mt grading between 50% and 60% Fe. A 115 Mt exploration target grading 55% Fe is used in this valuation calculation. The known iron mineralisation consisted of haematite and goethite within oolitic ironstones. The project lay within 85 km of the Stuart Highway and 105 km of the Adelaide-Darwin railway line.
In December 2009, Dragon Energy Ltd The 365 km 2 Ashburton project is located in the southern Pilbara 540,000,000 0.00 This transaction is 2 acquired from Polaris Metals NL a 100% region; the 191 km Milly Milly project is located around 360 km @ 60% Fe disregarded from
For personal use only use personal For interest in the Ashburton and Milly Milly northwest of Geraldton; and the Lee Steere Range project about 22 forming an opinion projects and a 75% interest in the Lee km northeast of Wiluna in Western Australia. The Ashburton project on the Francis Creek Steer Range project for A$0.45 M cash, contained a CID exploration target in the order of 600 Mt to exploration target.
Appendices | Territory Resources | Independent Valuation BDO Corporate Finance (WA) Pty Ltd | July 2011
Transaction Details Project Details Equity Metal Implied Comparative and Grade unit value Comments (A$/t Fe) by spending A$1.00 M on exploration 1,200 Mt grading 60% Fe. The Milly Milly magnetite and Lee Steere The asset is far from within the Lee Steer Range project; and Range haematite-goethite-magnetite projects were at an early-stage established for a A$1.00/t royalty capped at A$10.0 M of exploration. infrastructure and (excluded from this valuation calculation). the exploration target appears to be conceptual.
In June 2009, Warwick Resources Ltd The 617 km 2 Jigalong project is located within 100 km southeast of 43,500,000 0.09 This project, located acquired from Hannans Reward Ltd and Newman in the Pilbara Region of Western Australia. Warwick @ 58% Fe in an area where Atlas Iron Ltd a 100% interest in the iron Resources Ltd reported that the project contained a 10 km strike infrastructure access rights to the Jigalong project for A$0.75 M extension of the Marra Mamba BIF containing high-grade haematite could be an issue. cash, A$2.1 M in shares and a deferred mineralisation (up to 63% Fe) from depths in the order of 50 m payment of 3.33 M shares (stated value below surface, which it considers to represent an exploration target of A$0.15/share) if a Resource of 50 Mt is in the order of 50 to 100 Mt grading 57 to 59% Fe. defined within 6 months; or 4.97 M shares if 100 Mt is defined within 1 year. The deferred payments are excluded from this valuation calculation.
In April 2009, Mineral Resources Ltd The ~886 km 2 Poondanoo project is located approximately 30 km 3,750,000 0.10 This is close to obtained from Polaris Metals Ltd the right southeast of Port Hedland in Western Australia. The project is @ 50% Fe infrastructure, to mine, process, transport and ship iron proximal to Mineral Resources Ltd's existing mining operations and however the known from the Poondano project by spending infrastructure. Polaris Metals Ltd reported that the project contained mineralisation may A$0.4 M on an 'operational feasibility a CID exploration target in the order of 5 to 10 Mt, although no iron require beneficiation. review' and for an undisclosed production grades were outlined. A 7.5 Mt exploration target grading 50% Fe is royalty. used in this valuation.
Copyright © of Alexander Research Pty Ltd. All rights reserved. For personal use only use personal For
2 Appendix C Territory Resources | Independent Valuation
Appendix C Australian Iron Deposit Transactions (Inferred Resources, excluding magnetite)
For personal use only use personal For
Appendices | Territory Resources | Independent Valuation For personal use only Territory Resources | Independent Valuation
Transaction Details Project Details Equity Implied Comparative Metal and unit value Comments Grade (A$/t Fe)
In October 2010, Dragon The 35 km 2 Rocklea project is located about 33 km southwest of Tom Price in 25,262,08 0.27 This asset is located in a Energy Ltd acquired from the Pilbara region of Western Australia. Using a 50% Fe cut-off grade, the 5 world-class location and AusQuest Ltd a 75% interest CID project contained an Inferred Mineral Resource of 63.1 Mt grading @ 53% Fe included Inferred Mineral
in the Rocklea project for 53.58% Fe, 7.69% SiO 2, 2.54% Al 2O3 and 0.03% P with a LOI of 11.59%. Resources. However, A$7.00 M cash payable over Using a 54% Fe cut-off grade, the project contained an Inferred Mineral significant infrastructure
two years. Resource of 28.2 Mt grading 55.58% Fe, 6.04% SiO 2, 2.26% Al 2O3 and capital may be required to 0.03% P with a LOI of 11.33%. The 50% cut-off is used in this valuation develop these assets. calculation.
In October 2010, Dragon The 35 km 2 Rocklea project is located about 33 km southwest of Tom Price in 11,755,17 0.58 Energy Ltd acquired from the Pilbara region of Western Australia. Using a 50% Fe cut-off grade, the 0 AusQuest Ltd a 75% interest CID project contained an Inferred Mineral Resource of 63.1 Mt grading @ 56% Fe
in the Rocklea project for 53.58% Fe, 7.69% SiO 2, 2.54% Al 2O3 and 0.03% P with a LOI of 11.59%. A$7.00 M cash payable over Using a 54% Fe cut-off grade, the project contained an Inferred Mineral
two years. Resource of 28.2 Mt grading 55.58% Fe, 6.04% SiO 2, 2.26% Al 2O3 and 0.03% P with a LOI of 11.33%. The 54% cut-off is used in this valuation calculation.
In May 2010, Western Desert The 1,200 km 2 Roper Bar project is located around 60 km southwest of Port 9,048,000 0.30 The total metal Resources Ltd acquired from Roper in the Northern Territory. The project contained a near-surface, BIF @ 39% Fe endowment is within the Itochu Corp the 20% interest related Inferred Mineral Resource of 116.0 Mt grading 39% Fe. The known Francis Creek Exploration it didn't already own in the mineralisation included a DSO component. Target Range, although Roper Bar project for A$2.75 the grade is much lower M cash. and would require
beneficiating. For personal use only use personal For
Appendices | Territory Resources | Independent Valuation 1 BDO Corporate Finance (WA) Pty Ltd | July 2011
Transaction Details Project Details Equity Implied Comparative Metal and unit value Comments Grade (A$/t Fe)
In January 2010, Mineral The principal assets of Polaris Metals NL are its 100% interest in the 260,926,2 0.64 These core assets to this 2 2 Resources Ltd offered to 1,000 km Carina-Chameleon project located in the Yilgarn; 120 km 00 transaction vastly acquire Polaris Metals NL Weelumurra and 50 km 2 Calwinga projects located in the Pilbara; 532 km 2 superior to the Francis @ 57% Fe 5.65 2 through a stock swapand Ashburton project; a further 1,963 km tenement holding in Western excluding Creek Exploration Target. 2 2 A$0.101 per acquired share, Australia; and a 70% interest in the 335 km Johnston Range and 1,000 km exploration However, the size of the with a total offer value of Evanston projects located in the Yilgarn of Western Australia. The Carina exploration targets targets A$170.93. Polaris Metals NL project contained a haemaite BIF-related Indicated Resource of 17.7 Mt included in this
had a cash backing of grading 59.0% Fe, 3.16% S iO2, 0.1% P, 1.24% Al 2O3, 0.07% S with a 9.23% acquisition give some
approximately A$4.2 M cash LOI; and an Inferred Resource of 23.8 Mt grading 58.56% Fe, 4.47% SiO 2, insight into the dilution of
within current assets of 0.17% P, 1.28% Al 2O3, with a LOI of 9.09%. The Carina project and adjacent unit value that they A$4.62 M offset by liabilities tenements also contain a further exploration target in the order of 40 to 58 invoke. of A$0.87 M. The current Mt of DSO material. Based on a July 2009 pre-feasibility study, the Carina
assets less liabilities are used project had an A$100 M NPV 10%, an initial CapEx of A$120 M to A$130 M and in this valuation calculation an OpEx of A$60/t to A$70/t. The Mayfield prospect in the Carina-Chameleon project area contained a DSO Inferred Resource of 9.3 Mt grading 54.5% Fe and a magnetite BIF exploration target in the order of 70 to 90 M with grades of 45% to 50% Fe. The Weelumurra project contained a CID exploration target in the order of 200 to 250 Mt in addition to a canga exploration target of 50 to 60 Mt (average assay grades in the order of 58% Fe). The midpoints of the exploration targets are used in this valuation calculation. The
remaining project areas largely remained at an early-stage of exploration. For personal use only use personal For
2 Appendix C Territory Resources | Independent Valuation
Transaction Details Project Details Equity Implied Comparative Metal and unit value Comments Grade (A$/t Fe)
In August 2009, Cazaly The Mt Cauldan project is located approximately 15 km southeast of Marvel 1,951,555 0.57 These assets had access Resources Ltd acquired from Lock and 50 km by road south of the Perth-Kalgoorlie railway line in Western @ 55% Fe to road and rail Gondwana Resources Ltd a Australia. The project contains a BIF hosted Indicated Resource of 8.43 Mt infrastructure (albeit further 15% interest (totalling grading 55.0% Fe and an Inferred Resource of 12.39 Mt grading 56.3% Fe. distal). The known 95%) in the Mt Cauldan The project also includes a canga Indicated Resource of 1.42 Mt grading mineralisation was of project for A$1.11 M cash. 53.3% Fe and an Inferred Resource of 1.25 Mt grading 51.3% Fe. smaller and lower grade, but were estimated with higher confidence. This is also an incremental acquisition, which affects the unit value.
Copyright © of Alexander Research Pty Ltd. All rights reserved. For personal use only use personal For
Appendices | Territory Resources | Independent Valuation 3 For personal use only Territory Resources | Independent Valuation
Appendix D Australian Iron
Exploration Transactions For personal use only use personal For
Appendices | Territory Resources | Independent Valuation For personal use only Territory Resources | Independent Valuation
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In March 2011, Forward Mining The 324 km 2 Blythe project is located in the Similar - the project is of similar Higher - This asset is close to Ltd acquired from Iron Mountain Burnie area of Tasmania, Australia. The size and adjacent to an active known mineralisation, albeit not Mining Ltd and Red River project surrounded Tasmania Mines Ltd's mining operation. Presumably the of export quality. Resources Ltd a 100% interest in Kara scheelite/magnetite mine. The project market valued this asset based the Blythe project for A$1.55 M lay within 27 km south of the Burnie Port on its potential to yield export cash and 5.00 M shares (deemed and 7 km from railway access. The third- quality iron (magnetite). A$0.20/share) on listing on the party Kara mine mineralisation is related to ASX. On a decision to mine skarn mineralisation and the magnetite from A$2.00 M cash is payable; on the that operation was being sold for use in coal 7,900 first shipment of ore a further washeries. A$2.00 M is payable; and a 1.5% gross FOB is payable on all shipments of iron ore from within the Blythe project. The performance payments are excluded from this valuation calculation.
In March 2011, Fe Ltd acquired The 371 km 2 Mt Ida project is located Disregarded - This transaction appears to be anomalously low (e.g. from Cape Lambert Resources approximately 180 km northwest of below the Government mandated holding costs). Ltd a 100% interest in the iron Kalgoorlie in Western Australia. The project rights to the Mt Ida project for contained about 9.5 km of strike extensions A$0.05 M cash and a $1.00 DSO of the Mt Ida-Mt Bevan BIF. Third party 100 and concentrate production projects along strike of the Mt Ida project royalty. Cape Lambert Resources were known to contain magnetite Ltd retained the non-rion rights exploration targets and deposits
to the project. For personal use only use personal For
Appendices | Territory Resources | Independent Valuation 1 BDO Corporate Finance (WA) Pty Ltd | July 2011
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In January 2011, Radar Iron Ltd The 913 km 2 Central Yilgarn project is Lower - While seemingly Similar - this asset is also at an acquired from Southern Cross located between 100 and 200 km north of containing large strike lengths or early-stage of exploration and Goldfields Ltd a 100% interest in Southern Cross in Western Australia. The units prospective for iron, the may have distances to rail the iron rights to the Central project contained over 80 linear kilometres project was at an early-stage of infrastructure. However the size Yilgarn project for A$1.50 M cash of BIF which Radar Iron Ltd considered 2,000 exploration of a potential discovery may be and 1.00 M shares (deemed prospective for hosting haematite and larger in this asset, the large A$0.3445/share). Southern magnetite mineralisation. The project had tenement area may suppress unit Cross Goldfields Ltd retained the previously been subject to little iron related values. non-iron rights to the project. exploration activity.
In October 2010, Dragon Energy The 31 km 2 Nameless project is located Higher - the small aerial extent, Higher - This asset is located in a Ltd acquired from AusQuest Ltd about 10 km northwest of Tom Price in the location in a world-class region world-class region and a 100% interest in the Nameless Pilbara region of Western Australia. Based may have resulted in a high unit presumably there is an active project for A$0.50 M cash. on limited exploration drilling, the project 16,100 value. market competing for such was known to contain a CID palaeochannel. assets. The project may also have been prospective for BIF haematite occurrences.
I In August 2010, Blackcrest The principal asset of Vincent Resources Pty Lower - The large aggregate area Similar - Like Reynolds Range, Resources Ltd obtained the Ltd is its 100% interest in a 2,000 km 2 associated with the transaction these tenements are located in option to earn a staged 100% tenement area located in central and eastern appears to be largely located in areas not well known for their interest in Vincent Resources Pty Australia. Blackcrest Resources Ltd reported areas not well known for hosting iron potential. Ltd for A$1.30 M cash, 175.0 M that the projects contained CID iron mineralisation. options with an average strike mineralisation which with on-site 1,400 price of A$1.36 (ranging from beneficiation could produce material grading A$0.40 to A$3.00) between two more than 55% Fe. and four years from issue. At the
time of announcement Blackcrest For personal use only use personal For Resources Ltd shares were worth around A$0.017/share.
2 Appendix D Territory Resources | Independent Valuation
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In August 2010, Enterprise The ~405 km 2 Burracoppin project is located Lower - The project area is Similar - Like Reynolds Range, Metals Ltd acquired from private on the western limb of the Westonia comparable in size, however it is these tenements are located in vendors a 100% interest in the greenstone belt some 280 km east of Perth in a region not previously areas not well known for their Burracoppin project for 4.00 M in Western Australia. Based on airborne associated with iron mining iron potential. shares (deemed A$0.23/share) magnetic geophysical surveys and 2,300 activities. and for a 1.5% gross return geochemical rockchip sampling programmes royalty. the project was known to contain goethite and haematite mineralisation associated with BIFs.
In June 2010, Coltstar Ventures The principal asset of Ridge Exploration Pty Lower - The market for such a Lower - Along with being located Inc acquired from D'Aguilar Gold Ltd is its 100% interest in a 7,000 km 2 large early-stage exploration in a region not know for its iron Ltd a 100% interest in Ridge tenement holding located in the northern project, and its associated potential, the very large Exploration Pty Ltd for 10.00 M Surat Basin of Queensland, Australia. The liabilities may be limited, thereby tenement holding and subsequent shares (deemed C$0.045/share). project was known to contain sedimentary suppressing the unit value. expenditure liabilities would 700 iron occurrences with grades up to 40% Fe. suppress the market appetite for The project area was also proximal to such assets. established coal and gas infrastructure. The project was also considered to be prospective for uranium mineralisation.
In June 2010, Meteoric The 3.0 km 2 E52/2412 is adjacent to Higher - The very small size of Higher - while this asset appears Resources NL acquired from an Meteoric Resources NL's Robinson Range the project area makes it likely to to have early-stage exploration undisclosed vendor a 100% project located about 100 km north of carry a higher market value than potential, the very small nature interest in E52/2412 for 1.25 M Meekatharra in Western Australia. The either the Frances Creek or of the tenement area resulted in shares (deemed A$0.11/share) project had previously been subject to 44,500 Reynolds Range projects. a high unit value. payable over one year. Government sponsored geochemical rockchip sampling programmes which For personal use only use personal For identified up to 52.7% Fe in goethite dominant BIF outcrop.
Appendices | Territory Resources | Independent Valuation 3 BDO Corporate Finance (WA) Pty Ltd | July 2011
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In May 2010, Bluestar Minerals The ~224 km 2 Mardie project is located Similar - While at an earlier stage Higher - This asset is located in a Pty Ltd acquired from Epsilon about 110 km southwest of Dampier and 35 of exploration, the projects world-class region and access to Energy Ltd a 100% interest in km southwest of Cape Preston in the Pilbara proximity to the coast may infrastructure, on a comparative the Mardie project for A$0.70 M region of Western Australia. The project was reduce CapEx requirements. basis, would not be a major 4,500 cash. Epsilon Energy Ltd retained being targeted for large scale magnetite and While purported to be being hurdle. a 10% free-carried-interest in haematite/detrital DSO mineralisation. targeted fro a large deposit, it the salt rights to the project. may be magnetite dominant thereby suppressing value.
In March 2010, Cliffs Natural The 335 km 2 Johnston Range project is Similar - The project is of similar Higher - this assets proximity to Resources Inc acquired from located about 150 km north of Southern size and adjacent to active iron an active mining operation makes Golden State Resources Inc a Cross in Western Australia. The project was mines. it inherently more valuable than 100% interest in the Johnston adjacent to Cliff Natural Resources Inc's the Reynolds Range project. 9,000 Range project for A$3.0 M cash, Yligarn iron mining operations. The project a 2% gross royalty on FOB iron also contained geochemical soil sampling ore and a 2% royalty on all other gold anomalies. minerals.
In March 2010, Archer The 816 km 2 Wild Horse Plains and 79 km 2 Lower - The region is known for Lower - This seemingly cheap Exploration Ltd obtained from Elbow Hills projects are located in the Cleve- its magnetite exploration asset's value may be lower than UraniumSA Ltd the right to earn Cowell are of the Eyre Peninsula, South potential. The earlier-stage at Reynolds Range due to the a 100% interest in the non- Australia. A late 1970s exploration exploration project is roughly large land holding and possibly uranium rights to the Wild Horse programme identified zones of +60% Fe 300 twice the size of the Frances being more prospective for Plains and Elbow Hill projects by within the project area. Much of the Creek project which may magnetite mineralisation. spending A$0.30 M on subsequent exploration activity was suppress value. exploration over two years. focussed on base metals and uranium
mineralisation. For personal use only use personal For
4 Appendix D Territory Resources | Independent Valuation
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In January 2010, Buka Gold Ltd The principal asset of Mooloogool Ltd is its Lower - The project area is Lower - this asset is of similar acquired the privately owned 100% interest in the iron and manganese extensive, at an earlier-stage of exploration maturity, however it Mooloogool Ltd for 20.46 M rights to a 2,023 km 2 tenement holding exploration and lacks access to is much larger than Reynolds shares (deemed A$0.18/share) located about 100 km north-northeast of infrastructure. Range and access to 2,200 and 12.5 M A$0.12 M two year Meekatharra in the Midwest region of infrastructure may be a larger in-the-money options. Western Australia. At the time of consideration. announcement, little additional project specific detail was identified.
In January 2010, Pilbara The 620 km 2 project area is located south of Lower- The project may not Similar - while this asset is larger Minerals Ltd acquired from Karratha in the west Pilbara region of suffer from the same and may have similar Seefingan Exploration Pty Ltd a Western Australia. Pilbara Minerals Ltd infrastructure related issues infrastructure considerations, 100% interest in an unnamed reported that the project had not been associated with other iron given it was being touted as a project are for A$0.06 M cash subject to systematic exploration activity projects in the Pilbara region, polymetallic project, its iron and 3.00 M shares (arbitrarily and was prospective for iron, gold and base however any exploration success exploration potential may be low. 1,100 deemed A$0.20/share). metal (particularly copper and nickel) would take much longer to yield mineralisation. an economic benefit when compared to Frances Creek. It is possible that iron prospectivity may be low given the statement
about other mineral types. For personal use only use personal For
Appendices | Territory Resources | Independent Valuation 5 BDO Corporate Finance (WA) Pty Ltd | July 2011
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In December 2009, Batavia The 3,444 km 2 Roper River project is Disregarded - In relation to the other transaction, the unit value is Mining Ltd obtained from centred about 120 km east of Mataranka high, this may reflect the magnitude of the historical estimates. On Northern Australian Iron Pty Ltd and 475 km southeast of Darwin in the this basis it is disregarded in forming a valuation opinion of the and Australian Ilmenite Pty Ltd Northern Territory, Australia. Between 1955 Frances Creek and Reynolds Range projects. the right to acquire a 100% and 1961 the project was subject to interest in the Roper River exploration programmes which identified 26 project for A$15.0 M cash, 150.0 deposits of oolitic iron mineralisation, of M shares (deemed which six deposits displayed grades between A$0.11/share), 100 M A$0.135 43% to 63% Fe. Previous exploration 8,900 2.5 year options and payments activity include 1,793 m of diamond drilling, contingent upon defining JORC shaft sinking, bulk sampling and Resources. metallurgical testing programmes. Although historical estimates of the known mineralisation had been made, the figures weren't disclosed at the time of announcement. The project was about 100 km east of the Adelaide-Darwin Railway and 80 km east of the Stuart Highway.
In November 2009, Teng Fei The Legune prospect is located within the Lower - The project may require Similar - This asset is known to Mining Ltd acquired from TNG 407 km 2 Manbarrum project in some 80 km infrastructure development and is contain haematite mineralisation Ltd a 100% interest in the northeast of Kununura, Western Australia. In in a region with no significant in a region not know for its iron Legune prospect for A$1.4 M 2008, reconnaissance geochemical rockchip history of iron mining. potential, but it is larger and cash. sampling programmes identified high-grade possibly more distal to transport 3,400 haematite mineralisation within Legune infrastructure. prospect. It is uncertain whether this acquisition relates to the iron rights to the
For personal use only use personal For entire Manbarrum project, or the Legune prospect for which no area was identified.
6 Appendix D Territory Resources | Independent Valuation
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In November 2009, Red Hill Iron The 150 km 2 Pannawonica project is located Higher - The project is smaller, Higher - The world class location Ltd acquired from Zanthus Pty in the western Pilbara region of Western located in an area with market of this project, and its favourable Ltd a 100% interest in the CID Australia. Red Hill Iron Ltd reported that the appeal and a style of geology make it much more iron rights to the Pannawonica project was known to contain two significant 53,300 mineralisation the market is desirable to the market. project for A$2.0 M cash and 2.0 paleodrainage systems which may be familiar with. M shares (deemed prospective for CID style iron mineralisation. A$3.00/share).
In November 2009, Cliffs Natural The ~318 km 2 tenement area is located in Lower - It is broadly similar in Similar - The asset is of similar Resources Inc acquired from the central Yilgarn region of Western size, however at an earlier stage exploration maturity and Southern Cross Goldfields Ltd a Australia. No project specific detail was of exploration and in a region less infrastructure access may be 100% interest in the iron and identified at the time of annoucnment. 2,400 well known for its iron analogous. As the asset is more manganese rights to six endowment. than twice the size of the tenements for A$0.75 M cash. Reynolds Range project, the unit value may be lower.
In October 2009, Quest Minerals The approximately 81 km 2 Victory Bore Similar or higher - It is much Similar or more - The asset is of Ltd acquired from Mutual project is located in the mid-west region of smaller and located in a region similar exploration maturity and Holdings Pty Ltd a 100% interest Western Australia. At the time of better known for its magnetite infrastructure access may be in the Victory Bore project for announcement, no project specific detail was projects (with start-up DSO analogous. As the project is A$0.05 M cash; 7.0 M shares identified. components). Access to nearly half the size of the with a stated price of 6,700 infrastructure may possibly be an Reynolds Range project it may A$0.07/share; 7.0 M 3.5 year issue. attract a higher unit value. A$0.07 options; and various royalties on iron, phosphate, uranium, precious and base
metals. For personal use only use personal For
Appendices | Territory Resources | Independent Valuation 7 BDO Corporate Finance (WA) Pty Ltd | July 2011
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In October 2009, Zinc Co The ~54 km 2 Mt Alexander Project is located Lower - lacks access to Lower - this asset while known to Australia Ltd acquired from Vital approximately 15 km south of the Nanutarra infrastructure and is at an earlier contain iron mineralisation, does Metals Ltd a 100% interest in the Roadhouse and 370 km north of Carnarvon, stage of exploration. The small not appear to be located near Mt Alexander project for A$0.02 Western Australia. The project contained a extent of the tenement area may established heavy infrastructure M cash and 0.20 M shares BIF rock unit and during the 1980s shallow 600 have driven up its value, however and may be targeted for its base (deemed A$0.052/share). Zinc RC exploration drilling programmes it is located in an area not well metal potential. Co Australia Ltd already held a intersected anomalous 'Cyprus-type' base known by the market to be 100% interest in the tungsten metal mineralisation. particularly prospective for iron. rights to the project.
In October 2009, Fortuna The 1,095 km 2 West Pilbara project is Disregarded - Based on its technical merits, this asset appears to be Minerals Ltd acquired from located in the Pilbara region of Western relative expensive and may be an outlier Pilbara Mining Pty Ltd a 100% Australia. Fortuna Minerals Ltd reported that interest in the West Pilbara the project had not previously been subject 11,500 project for A$0.6 M cash and to systematic exploration programmes but 12.0 M shares (deemed was prospective for iron, gold, base metal A$1.0/share). and nickel sulphide mineralisation.
In September 2009, Atlas Iron The 200 km 2 Mindy project is located Less - the failure of a previous drilling programme to intersect iron Ltd obtained from Royal approximately 55 km northeast of Newman mineralisation is likely to have suppressed this assets value. Resources Ltd the right to in the Pilbara region of Western Australia. In acquire a 100% interest in the 2008, an exploration drilling programme 1,000 Mindy project for A$0.115 M targeting detrital iron deposits did not cash, by spending A$0.08 M on intersect any significant iron mineralisation. exploration within 1 year and for
a 1% gross royalty. For personal use only use personal For
8 Appendix D Territory Resources | Independent Valuation
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In June 2009, Midas Resources The principal asset of Mulga Minerals Pty Ltd Lower - The iron prospective Lower – the mineral sand Ltd acquired from a related party is its 100% interest in the 144 km 2 tenements lack of access to component of this transaction a 100% interest in Mulga Marandoo, West Angelas, West Pilbara, infrastructure which could hinder may have suppressed its unit Minerals Pty Ltd for A$0.075 M Yandicoogina and Red Hill projects located in economic potential. While the value. cash and 6.0 M shares (deemed the Pilbara Region' and a 100% interest in inclusion of the mineral sands A$0.01/share). the approximately 147 km 2 Bindaminna prospective tenements bring the project located in the northern portion of total area closer to that of the Perth Basin of Western Australia. The Frances Creek project (albeit Marandoo project is located 35 km northeast smaller), presumably the market of Tom Price; the West Pilbara project 110 would view these with less km west of Tom Price; the Yandicoogina enthusiasm than iron prospective project some 85 km northwest of Mt tenements. Newman; the West Angelas project 500 approximately 12 km southwest of Rio Tinto Plc's West Angelas iron mine site; and the Red Hill project lies roughly '15- sub-blocks to the west of Dynasty Metal's Red Hill CID prospect". The Pilbara project areas were largely prospective for BIF and CID hosted haematite mineralisation and remained at an early stage of exploration. Midas Resources Ltd reported that the Bindaminna project was interpreted to contain the strike extension of the strandlines associated with Image Resources Ltd's Bindaminna South
mineral sands deposit. For personal use only use personal For
Appendices | Territory Resources | Independent Valuation 9 BDO Corporate Finance (WA) Pty Ltd | July 2011
Implied Comparative Comments – Comparative Comments – Transaction Details Project Details Value Frances Creek project Reynolds Range project ($/km2)
In April 2009, Polaris Metals NL The 664 km 2 Bullfinch North, Golden Valley Similar - A larger area but is More - the asset is proximal to, acquired from Southern Cross and Marda project area is located in the proximal to mineralisation of and contains the extensions of a Goldfields Ltd a 100% interest in eastern Goldfields Region of Western potential economic interest. known iron deposit making it the Bullfinch North, Golden Australia. The project contained the northern more desirable than the Reynolds Valley and Marda projects for extensions of Polaris Metals NL's Carina iron Range project. A$0.4 M cash and a A$1.0 wet deposit, although the project has only been metric tonne royalty capped at subject to geochemical rock chip sampling. 5,300 A$3.0 M. An additional A$0.25 M is payable on defining a Resource greater than 3.0 Mt with grades of more than 58% Fe. All terms are used in this valuation.
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10 Appendix D