Update

1 December 2010 Price 1.7p Electrum Resources Market Cap £6m

Year Revenue PBT* EPS* DPS P/E Yield End (£m) (£m) (p) (p) (x) (%) Share price graph 06/08 0.0 (1.9) (3.0) 0.0 N/A N/A

09/09 4.1 (2.0) (1.1) 0.0 N/A N/A

09/10e 5.3 (3.5) (0.8) 0.0 N/A N/A

09/11e 4.3 (3.6) (0.8) 0.0 N/A N/A Note: *PBT and EPS are normalised, excluding goodwill amortisation and exceptional items. Investment summary: Phase 1 completed Share details THEMAC Resources – the TSX-Venture listed vehicle in which Electrum is due to Code ECR have a holding of 14.5m shares and 14.5m warrants – has updated the market on Listing AIM various aspects regarding the acquisition and development of the Copper Flat Sector Natural Resources project. Principal among them was the fact that it has secured interim finance to Shares in issue 372.8m make a US$1.85m payment towards exercising its option over Copper Flat. This Price represents a precursor to the completion of the C$10.2m equity financing 52 week High Low announced with Marley Holdings earlier this month, which will allow THEMAC to 3.4p 0.8p substantially complete a pre-feasibility study with respect to the deposit in 2011 and Balance Sheet as at 31 March 2010 a full feasibility study in 2012. THEMAC shares have risen more than five-fold since Debt/Equity (%) 84 February and now trade at C$0.60 per share. Excluding all other assets and NAV per share (p) 0.91 liabilities, we estimate that Electrum’s holding in THEMAC alone is worth £8.7m Net borrowings (£m) 2.74 alone (cf its market capitalisation of £6.3m). Business 22% interest in THEMAC Electrum Resources is a mineral development company with a substantial Marley Holdings’ financing of THEMAC involves the issue of 40m shares plus 40m interest in THEMAC Resources Group, warrants to Marley, after which we estimate that THEMAC will have 132.7m (fully which is developing the Copper Flat copper project in New Mexico, and diluted) shares in issue. At their current market price of C$0.60 per share, this gives additional holdings in Silver Swan Group, the company a (fully diluted) market capitalisation of C$79.6m, in which Electrum will ACS Asia and Paniai Gold. have a 21.8% interest (prior to any further dilution) worth C$17.4m, or £10.8m or Valuation 2.9p per Electrum share currently in issue. 2009 2010e 2011e Valuation P/E relative N/A N/A N/A We calculate the value of Electrum’s pre-warrant exercise holding in THEMAC to be P/CF N/A N/A N/A £5.5m currently, to which an additional £3.2m can then be added for its (in the EV/Sales 0.9 1.3 2.9 money) warrants, valued according to the Black-Scholes model. Considering all other ROE N/A N/A N/A assets and liabilities, we estimate Electrum’s market value of £6.3m stands at a 52% Revenues by geography discount to a sum of the parts valuation of £13.3m. Assuming THEMAC re-rates to UK Europe US Other the NPV of the discounted dividend flows available from the Copper Flat project, we 0% 0% 0% 0% calculate that Electrum’s net asset value will almost double to £23m and its NAV per share (excluding any possible future equity dilution) rise to 6.0p per share (4.1p in the Analysts Charles Gibson 020 3077 5724 event that Electrum’s outstanding convertible bond is converted in full). Michael Starke 020 3077 5727 [email protected]

Electrum Resources is a research client of Edison Investment Research Limited

2 | Edison Investment Research | Update | Electrum Resources | 1 December 2010

Investment summary: The next stage

THEMAC’s updating of the market on various aspects of the financing surrounding its development of the Copper Flat deposit has caused us to adjust our valuation model on Electrum Resources. The pertinent feature of THEMAC’s financing arrangement is that it will take the form of a placement of 40m units of THEMAC, issued to Marley Holding Pty Ltd (or its affiliate Tulla Resources Pty Ltd), at a price of C$0.255 per unit to raise a total of C$10.2m. Each unit consists of one share and one warrant exercisable at C$0.34 (cf a current share price of C$0.60). Electrum’s warrant holding in THEMAC is similarly ‘in the money’, being exercisable at a price of C$0.28.

A summary of our assessment of the shares and warrants outstanding in THEMAC is as follows:

Exhibit 1: THEMAC shares and warrants outstanding Shares Warrants Shares held Warrants Electrum Electrum and options by Electrum held by basic fully diluted Electrum interest (%) interest (%) Opening balance total 17,775,816 353,000 Issued re subscription receipts' financing 5,582,556 5,582,556 4,000,000 4,000,000 Issued to Electrum re Copper Flat deal 10,500,000 10,500,000 10,500,000 10,500,000 Management share options granted 2,450,000 November ’10 Marley financing 40,000,000 40,000,000 Closing balance total 73,858,372 58,885,556 14,500,000 14,500,000 19.6 21.8 Source: Electrum Resources, THEMAC Resources, Edison Investment Research Knowing the price at which the financing has been concluded plus the knowledge that all of the warrants outstanding in THEMAC are well ‘in the money’ has allowed us to revise our valuation for Electrum as shown in Exhibit 2. Of particular note, we have used the Black-Scholes option price model to value Electrum’s warrant holdings in THEMAC. Assuming a risk-free interest rate of 3% and 10% volatility, our valuation of its holding of 10.5m warrants exercisable by 2015 is C$0.355 each, while our valuation of its 4m warrants exercisable in 2013 (formerly 2011) is C$0.340 each.

Exhibit 2: Electrum interest in THEMAC, summary Note: * As determined by Black-Scholes option price model Holding Amount Price Value Value (C$m) (£m) THEMAC common shares 14.5m 0.600 8.7 5.5 THEMAC 2015 warrants 10.5m *0.355 3.7 2.3 THEMAC 2013 warrants 4.0m *0.340 1.4 0.9 Total 13.8 8.7 Source: Electrum Resources, THEMAC Resources, Edison Investment Research

3 | Edison Investment Research | Update | Electrum Resources | 1 December 2010

Exhibit 3: Electrum valuation, three scenarios Note: Cash assumed to be the same as consolidated group cash number £’000s Low-end Median scenario Top-end scenario scenario Non-Current assets Property, plant and equipment 1,363 1,363 1,363 Investments in subsidiaries (ACS Asia and Paniai) 3,001,864 3,001,864 3,629,335 Investments in associate (THEMAC) 8,674,111 7,875,823 17,375,872 Other Investment 0 0 0 Other non-current assets 0 0 0 11,677,339 10,879,050 21,006,569 Current Assets Trade and other receivables (excl Meekathaara) 242,951 242,951 242,951 Trade and receivables (Meekathaara) 3,396,858 3,396,858 3,396,858 Cash and cash equivalents 972,891 972,891 972,891 Investment to be sold 0 0 0 Inventory 0 0 0 Taxation 9,816 9,816 9,816 Other current assets 8,000 8,000 8,000 Current Assets 4,630,516 4,630,516 4,630,516 Total Assets 16,307,855 15,509,566 25,637,085

Non-current liabilities Interest bearing borrowings 2,565,995 2,565,995 2,565,995 Current liabilities Trade and other payables 393,432 393,432 393,432 Provision for costs 0 0 0 Total Liabilities 2,959,427 2,959,427 2,959,427

Net Assets 13,348,428 12,550,139 22,677,658 Minority Interest 0 0 0 Net assets attributable to shareholders 13,348,428 12,550,139 22,677,658

No. shares in issue 375,815,536 375,815,536 375,815,536 NAV per share (pence) 0.036 0.033 0.060

Share price (pence) 0.017 0.017 0.017 Share price premium/(discount) -52.1 -49.1 -71.8 Source: Edison Investment Research As can be seen, we have valued Electrum according to three different scenarios. Our most conservative scenario uses current values of Electrum’s listed assets and the written down value of the Meekatharra gold project with our estimates for ACS Asia and Paniai Gold, plus cash minus liabilities to give an updated valuation of £13.3m or 3.6p per share. This rises to 6.0p in the event that THEMAC re-rates to our estimate of its value based on the present value of future dividend flows in the event of the development of the Copper Flat project. We have valued ACS Asia at either 10x earnings (the low-end and median scenarios) or 75% of current revenue (the top-end scenario). For Paniai Gold we have used the price of A$0.015 achieved for pre-IPO funding. In each instance, we have excluded Electrum’s 4m performance shares in Silver Swan. If Silver Swan were to report a 350,000oz resource increase at its current tenements and Electrum’s 4m performance shares were subsequently converted to ordinary shares however, Electrum’s interest would be valued at A$1.2m (£0.75m, or 0.2p per currently listed Electrum share) at the current share price. All other things being equal however, we would expect the Silver Swan share price to increase

4 | Edison Investment Research | Update | Electrum Resources | 1 December 2010

upon the announcement of a resource upgrade as well. For further details see our Outlook note of September. Convertible loan note dilution In addition to its equity, Electrum has an issue of convertible loan notes outstanding, convertible into ordinary equity in October 2013 at a conversion price of 1.1p per ordinary share (at the election of the loan note holders). In the event that these notes, totalling £2.56m, are converted into equity, we estimate an increase in the number of shares in issue of 233m to bring Electrum’s total to 609m. Applied to our valuation scenarios this would give an NAV per share of 2.6p for our low-end scenario (to which Electrum’s shares are currently trading at a 34.9% discount), 2.5p for our median scenario (a 31.5% discount) and 4.1p for our high-end scenario (a 59.0% discount). THEMAC / Copper Flat Marley’s financing of THEMAC has allowed the latter to make the latest required option payments regarding the Copper Flat project and will fund a substantial portion of the related pre-feasibility study. Additional financing may be required which, unless Electrum participates pro-rata, could further dilute its interest in THEMAC. In the meantime, Electrum will have no board representation in THEMAC; however, nor will its shareholding be subject to escrow (as was previously going to be the case), while its 4m May 2011 warrants will be extended to May 2013.

THEMAC is now in the process of executing an in-fill drilling campaign to upgrade its Copper Flat inferred resources to the indicated category and also step-out and geotechnical campaigns as well as a programme to re-assay old samples. The re-assay programme is of particular importance, as it will allow the gold and silver content of the deposit to be included in the resource model and hence future studies. Argentina With its plans for Copper Flat having largely been brought to fruition, it is likely that Electrum’s Argentinean projects (which it acquired in October) will now come to greater prominence within the company. We expect an update on these assets shortly.

5 | Edison Investment Research | Update | Electrum Resources | 1 December 2010

Exhibit 4: Financials £ '000s 2008 2009 2010e 2011e 2012e Year end 30 September IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Year to Jun 15-mths Sep R evenue 0 4,06 4 5,29 7 4,3 41 4,420 Cost of Sales (1,652) (5,513) (8 ,392) (7,714) (7,771) Gross Profit (1,652) (1,448 ) (3,095) (3,373) (3,352) EBITDA (1,6 52) (1,448 ) (3 ,09 5) (3 ,3 73 ) (3 ,3 52) Operating Profit (before GW and except.) (1,6 56 ) (1,507) (3 ,159 ) (3 ,444) (3 ,429 ) Intangible Amortisation 0 0 0 0 0 Exceptionals (30,044) (2,036) (6) 0 0 Other 0 0 0 0 0 Operating Profit (3 1,700) (3 ,543 ) (3 ,16 5) (3 ,444) (3 ,429 ) Net Interest (198 ) (526) (38 0) (191) (497) Profit Before Tax (norm) (1,8 54) (2,03 3 ) (3 ,540) (3 ,6 3 5) (3 ,9 25) Profit Before Tax (FRS 3) (3 1,8 9 8 ) (4,06 8 ) (3 ,546 ) (3 ,6 3 5) (3 ,9 25) Tax 60 0 0 0 0 Profit After Tax (norm) (1,79 4) (2,03 3 ) (3 ,540) (3 ,6 3 5) (3 ,9 25) Profit After Tax (FRS 3) (3 1,8 3 8 ) (4,06 8 ) (3 ,546 ) (3 ,6 3 5) (3 ,9 25)

Average Number of Shares Outstanding (m) 55.5 8 0.8 227.1 355.3 499.1 EPS - normalised (p) (3.3) (3.0) (1.1) (0.8 ) (0.8 ) EPS - FRS 3 (p) (57.3) (5.0) (1.1) (0.7) (0.6) Dividend per share (p) 0.0 0.0 0.0 0.0 0.0

Gross Margin (%) N/A N/A N/A N/A N/A EBITDA Margin (%) N/A N/A N/A N/A N/A Operating Margin (before GW and except.) (%) N/A N/A N/A N/A N/A

BALANCE SHEET Fixed Assets 4,29 9 775 505 51 (1,077) Intangible Assets 0 0 0 0 0 Tangible Assets 4 507 504 495 479 Investments 4,295 268 2 (443) (1,556) Current Assets 105 8 ,570 6 ,6 46 4,408 4,077 Stocks 0 889 441 362 368 Debtors 80 4,717 2,612 1,427 1,090 Cash 25 344 973 0 0 Current Liabilities (3 3 9 ) (2,526 ) (1,6 8 0) (2,6 48 ) (2,527) Creditors (339) (2,526) (1,68 0) (1,074) (958 ) Short term borrowings 0 0 0 (1,574) (1,569) Long Term Liabilities (2,206 ) (2,56 6 ) (2,56 6 ) (2,56 6 ) (2,56 6 ) Long term borrowings (2,206) (2,566) (2,566) (2,566) (2,566) Other long term liabilities 0 0 0 0 0 Net As s ets 1,8 58 4,253 2,9 05 (755) (2,09 3 )

CAS H FLOW Operating Cash Flow (1,010) (1,401) (1,774) (2,9 05) (3 ,6 3 3 ) Net Interest 23 16 0 0 0 Tax 60 0 0 0 0 Capex 0 (62) (62) (62) (62) Acquisitions/disposals 1 (420) 267 0 0 Financing 107 4,169 2,198 420 3,700 Dividends 0 0 0 0 0 Net Cash Flow (8 19) 2,303 629 (2,547) 6 Opening net debt/(cash) 1,3 6 2 2,18 1 2,222 1,59 3 4,140 HP finance leases initiated 0 0 0 0 0 Other 0 (2,343) 0 0 0 Closing net debt/(cash) 2,18 1 2,222 1,59 3 4,140 4,13 5 Source: Electrum Gold accounts, Edison Investment Research

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