Toro Energy Limited (TOE) Initiating coverage

November 2012 WHO IS IIR?

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Independent Investment Research Toro Energy Limited (TOE)

Contents

Key Points...... 1

SWOT Analysis...... 3

Overview...... 4

Financial Position ...... 4

Strategy...... 4

Projects...... 5

Exploration Projects...... 8

Uranium Market...... 10

Uranium Demand...... 11

Peer Comparison...... 13

Corporate Activity...... 13

Risks...... 14

Valuation of TOE...... 14

Investment Case ...... 15

Recent Corporate Activities...... 15

Capital Structure...... 16

Recent Events...... 16

Board and Management ...... 17

Independent Investment Research Toro Energy Limited (TOE) Initiating coverage

Investment Profile Share price ($) as at 2 November WILUNA GAINS APPROVAL 0.13 2012 Toro Energy Limited (TOE) is an ASX-listed uranium development exploration company Valuation ($) 0.144 seeking to make the transition to producer status. TOE’s flagship Wiluna Uranium Project Issued Capital: in Western Australia has a resource base of 54 million lbs. First production is expected Ordinary shares (M) 1,041.9 in 2014/15 with project life of greater than 14 years. TOE also has exploration projects in Options (M) 37.1 Western Australia, Northern Territory and Namibia Africa. Fully Diluted (M) 1,079.1 Market capitalisation ($M) 135.5 KEY POINTS 52-week L/H ($) 0.06/0.14 EPA gains approval for Wiluna Project: After three years of consultation, the Western Australian government has approved the Wiluna Uranium Project. The company can now Board and Management progress with the engineering design and costing phase to complete the Definitive Feasibility Directors Study (DFS). TOE expects to make final investment decision in first half of 2013. Dr Erica Smyth (Non-Exec Chairman) New mineralised areas found at the Theseus Project: TOE has found new mineralised Greg Hall (Managing Director) areas to the south and east of the Theseus Uranium Project in WA. The mineralised area is Derek Carter (Non-Exec Director) 600-700m wide, 2km long and is opened to the south. TOE has an exploration target range Peter Lester (Non-Exec Director) for the Theseus Project of 20Mt to 40Mt @ 400 to 500ppm U3O8 for 22Mlb to 44Mlb of U3O8. The company has advised that a maiden JORC resource is expected to be released in 4Q’12. Andrew Coles (Non-Exec Director) Donald Stephens/ Todd Alder (Company High Grade Uranium Zones at Theseus Project: In 2012, a total of 122 mud rotary holes Secretary) were completed for approximately 16,000m during the months of May and June. The high grade uranium zones include 0.79m @ 1.17% pU3O8 from 124.32m in LM0175. The Theseus Major Shareholders % Project is developing into a major uranium discovery potentially mineable with lost cost in-situ recovery (ISR) technology. OZ Minerals Ltd 39.4 ANZ Nominees 2.3 Global Uranium Market: The Fukushima incident impacted near-term uranium market HSBC Nominees 1.5 sentiments, however uranium prices over the long-term are expected to improve. Uranium demand is supported by 63 new reactors under construction, 18 reactors undergoing Top 20 shareholders own 57.2% of company power capacity upgrades, the looming HEU agreement cessation and anticipation of further Japanese reactors coming back online. While spot uranium prices continues to trade below Share price performance US$50/lb, long-term uranium prices have had their first increase since Fukushima and are 0.20 trading at US$61/lb.

0.15 Valuation: Our base case valuation for TOE is $0.144 per share.

Y/e June 2010 2011 2012F 2013F 2014F 0.10 Revenue ($M) 2.2 2.4 0.9 5 10 0.05 EBITDA ($M) -2.2 -1.1 -3.9 0.5 5.5 Reported NPAT ($M) -16.3 -21.7 -10.7 -16.5 -11.5 0.00 Normalised NPAT ($M) -16.3 -21.7 -10.7 -16.5 -11.5 01-Jun-10 01-Jun-11 01-Jun-12 Reported EPS (A$) -0.02 -0.02 -0.01 -0.01 -0.01 Normalised EPS (A$) -0.02 -0.02 -0.01 -0.01 -0.01 PER na na na na na DPS na na na na na Price /Cash (x) na na na na na Price/Book (x) 0.3 0.8 0.8 0.5 0.5

Independent Investment Research 1 Toro Energy Limited (TOE)

PROFIT & LOSS ($M) CASHFLOW ($M) Y/E June 2010 2011 2012 2013 2014 Y/E June 2010 2011 2012 2013 2014 Sales Revenue 0.0 0.0 0.0 0.0 0.0 Receipts from customers 0.0 0.0 0.0 0.0 0.0 Other Revenue 2.2 2.4 0.9 5.0 10.0 Payments to suppliers -3.3 -2.8 -3.4 -3.3 -3.3 Total Costs 4.4 3.5 4.8 4.5 4.5 Net interest 1.0 3.3 1.1 1.0 10.0 EBITDA -2.2 -1.1 -3.9 0.5 5.5 Tax Paid -0.3 0.0 0.0 0.0 0.0 Depreciation -14.1 -20.6 -6.8 -10.0 -10.0 Other 0.0 0.0 0.0 0.0 0.0 EBIT -16.3 -21.7 -10.7 -9.5 -4.5 Operating Activities -2.5 0.5 -2.2 -2.3 6.7 Interest 0.0 0.0 0.0 -7.0 -7.0 Capital Expenditure -0.9 -2.1 0.0 -91.0 -91.0 Pre-Tax Profit -16.3 -21.7 -10.7 -16.5 -11.5 Exploration, Development, Evaluation -9.8 -15.5 -17.8 -8.0 -8.0 Tax expense 0.3 0.0 0.0 0.0 0.0 Asset Sales/Acquisitions 0.0 -7.3 -2.0 0.0 0.0 Net Profit After Tax -16.6 21.7 -10.7 -16.5 -11.5 Other 0.3 0.0 0.0 0.0 0.0 Abnormals 0.0 -0.1 0.0 0.0 0.0 Investment Activities -10.4 -25.3 -19.8 -99.0 -99.0 Reported Net Profit After Tax -16.6 -21.8 -10.7 -16.5 -11.5 Share Issues /(Buybacks) 60.6 0.0 5.3 130.0 0.0 Debt Drawdown/ (Repaid) 0.0 0.0 0.0 100.0 0.0 BALANCE SHEET ($M) Dividends Paid 0.0 0.0 0.0 0.0 0.0 Y/E June 2010 2011 2012 2013 2014 Other -2.2 0.0 -0.1 0.0 0.0 Cash 54.5 29.7 12.8 141.5 49.2 Financing Activities 58.5 0.0 5.2 230.0 0.0 Trade and other Receivables 0.5 0.3 0.3 0.1 0.1 Net Cash Increase/(Decrease) 45.6 -24.8 -16.9 128.7 -92.3 Inventories 0.0 0.0 0.0 0.0 0.0 Cash at beginning 8.9 54.5 29.7 12.8 141.5 Investments 0.0 0.0 0.0 0.0 0.0 Cash at end 54.5 29.7 12.8 141.5 49.2 Other 1.3 0.3 0.2 0.1 0.1 Current Assets 56.3 30.9 13.2 141.7 49.4 Key Model Assumptions PPE 1.1 2.6 2.1 91.0 182.0 Wiluna Uranium Project

Investment in Joint Venture 0.0 0.0 0.0 0.0 0.0 Resource U3O8 54Mlbs Exploration & Evaluation 64.5 67.4 83.7 75.0 80.0 Recovery 85% Other 0.0 0.0 0.0 0.0 0.0 Cash Cost US$33/lb Non-current Assets 65.7 70.0 85.8 166.0 262.0 Capital Cost A$280M Total Assets 121.9 100.3 99.0 307.7 311.4 Product 1.8Mlbs/year Trade and other Payables 1.5 1.2 3.2 1.0 1.0 WA Royalty as % of revenue 5% Short-term Debt 0.0 0.0 0.0 0.0 0.0 Tax Rate 30% Long-term Debt 0.0 0.0 0.0 100.0 100.0 Uranium Price US$65/lb Provisions 0.3 0.3 0.4 0.4 0.4 Depreciation method Straight line Other 0.0 0.0 0.0 0.0 0.0 First production year 2015 Total Liabilities 1.8 1.5 3.6 101.4 101.4 Mine Life 20 years Net Assets 120.2 98.8 95.4 206.3 210.0 A$/US$ rate 0.95 Share Capital 211.6 211.6 217.6 341.6 341.6 Equity interest 65% Reserves 2.1 2.3 3.3 -9.1 -24.3 Sensitivity Analysis Retained Earnings -93.5 -115.1 -125.5 -144.4 -155.9 Base Case Shareholders’ Equity 120.2 98.8 95.4 206.3 210.0 Exchange Rate US$/A$ 0.85 0.95 1.05 Minorities 0.0 0.0 0.0 0.0 0.0 NPV per share ($) 0.167 0.144 0.114 Other 0.0 0.0 0.0 0.0 0.0 Uranium Price US$/t 55 65 75 Total Equity 120.2 98.8 95.4 206.3 210.0 NPV per share ($) 0.063 0.144 0.213 Shares on Issue (M) 351.3 964.9 1041.9 1916.9 1916.9 Discount Rate 6% 8% 10% Options Outstanding (M) 21.7 32.8 37.0 32.7 29.2 NPV per share ($) 0.189 0.144 0.100 Fully Diluted (M) 373.0 997.7 1079.0 1949.6 1,946.1

Independent Investment Research 2 Toro Energy Limited (TOE)

SWOT ANALYSIS

STRENGTHS

 The Western Australian government has approved the Wiluna Uranium Project.  Uranium demand growth driven by China, Russia, South Korea and India.  Wiluna Project is one of only a handful of projects worldwide which will be in a position to take advantage of uranium shortages and the increase in uranium prices which are anticipated to occur in 2014 and 2015.  Wiluna uranium first sale to be in 2014/2015.  Established JORC resources of > 50mlbs.  Feasibility study underway to be completed in first half 2013.  Skilled and experienced management team.  Exploration potentials in Western Australia, Northern Territory and Namibia. All of TOE exploration potentials are in jurisdictions that allow uranium mining.

WEAKNESS

 No production history.  Still needs Federal Government approval of the Wiluna Project.  Very high regulatory requirements for uranium mining compared to other commodities.  With global financial weakness raising capital could be difficult.

OPPORTUNITIES

 With efforts to reduce greenhouse gases there could be increased demand for uranium.  JV potential candidates from China, South Korea, India, Japan and the Middle East.  Off-take agreements to offset sale risk.  Ability to further upgrade resources and reserves.

THREATS

 Given the high leverage to the uranium market, a fall in uranium prices will have an adverse impact on the company’s revenue once producing or in the event of a significant and sustained fall in prices may render the Project uneconomical to develop.  Increasing construction and mining costs due to labour shortages in WA.  Another disaster like Fukushima will have a significant impact on the nuclear industry.

Independent Investment Research 3 Toro Energy Limited (TOE)

OVERVIEW  Toro Energy Limited (TOE) is an Australian uranium explorer and project developer with a growth strategy set to deliver sustainable production. Its flagship Wiluna Project in Western Australia is expected to have first production in 2014/15. It has other exploration projects in Western Australia, Northern Territory and Namibia.

FINANCIAL POSITION  TOE reported a cash balance of A$12.8M and no debt in the June 2012 Quarterly Report. In the September quarter it is expected for the company to spend A$3.8M with completion of drilling and studies expenditure, reducing to A$2.0M for the December quarter. Cash burn in the future is expected to be around $2.4M/quarter.

STRATEGY  TOE’s strategy is to become a significant sustainable uranium mining company focusing on developing a top tier exploration and production profile in the global uranium mining sector generating superior shareholder returns.  TOE’s future growth strategy is through exploration or by value adding acquisitions.

 TOE’s aim is to have production of greater than 2.2Mlb (1,000t) U3O8 pa by 2015. By

2020 it aims to have production of greater than 5.5Mlb (2,500t) U3O8.

 By 2015 TOE aims to have a JORC resource greater than 100Mlb (45,000t) U3O8 and by

2020 a JORC resource greater than 220Mlb (100,000t) U3O8.  Wiluna Project schedule: – The WA Government has approved the Wiluna Project. The company is now waiting for Federal Government approval, which is anticipated by the end of 2012. – DFS is anticipated to be completed in 1H’13. - TOE has commenced negotiations with the Traditional Owners regarding a mining agreement. An agreement is expected to be finalised in 1H’13. - Design and construct of the plant in 2013/2014. - First production anticipated to be in 2014/2015. - In discussion on off-take agreements with utilities/trading houses in China, USA, Europe, South Korea, India and Japan.

Project timetable for the Wiluna Project (Source: TOE)

 Theseus Project schedule: – Exploration target range of 20Mt to 40Mt @ approximately 400 to 500 ppm U3O8. - About 16,000m drilling recently completed. - To have maiden uranium resource defined in accordance with JORC code in 4Q’12.

Independent Investment Research 4 Toro Energy Limited (TOE)

PROJECTS

WILUNA PROJECT

Location

The Wiluna Uranium Project is situated 30km south of Wiluna in Western Australia. Existing infrastructure includes close proximity to the Goldfields Gas Pipeline, the Goldfields Highway and Wiluna Airport (direct flights to Perth).

Map of Wiluna Project

Source: TOE

Resource

The Wiluna Uranium Project is based on the mining of the Centipede and Lake-Way deposits. Recent regional resource acquisitions of Nowthanna and Dawson Hinkler Well anticipated to increase the resource base and life of the project.

Project Name Category Resource (Mt) Grade Contained Contained Cutoff grade U3O8 U3O8 (t) U3O8 200ppm U3O8 (ppm) (Mlb) Centipede Measured 3.08 552 1,703 3.75 Centipede Indicated 7.56 555 4,197 9.25 Centipede Inferred 2.30 272 627 1.38 Lake Way Indicated 2.57 192 1,265 2.79 Lake Way Inferred 7.38 544 4,015 8.85 Millipede Indicated 1.77 412 728 1.61 Millipede Inferred 5.51 533 2,935 6.47 Dawson Hinkler Well Inferred 13.09 312 4,077 8.99 Nowthanna Inferred 11.91 399 4,750 10.47 Total Wiluna Measured, Indicated & 55.17 441 24,297 53.56 Resources Inferred

Product Transport

 TOE plans to transport product by road via Kalgoorlie to Port Adelaide (or if desired by rail onto Darwin) for overseas export. The volume of production at Wiluna would require two container trucks (four to five containers) per month to transport the uranium to Port Adelaide. Transport of product is subject to stringent regulations applied and monitored by both WA and Federal authorities.

Independent Investment Research 5 Toro Energy Limited (TOE)

Public and Worker Safety

 All operations on site, including construction, mining and processing, will be conducted under an approved Radiation Management Plan to ensure that radiation exposures are minimised and kept well within regulatory limits. The Department of Mines and Petroleum and the Radiological Council in Western Australia regulate the management and transport of radioactive materials under strict Australian and International permits and regulations.

Feasibility & Approval

 Completion of a DFS is expected by mid-2013 and project commitment is scheduled for 3Q’13.  The WA government has approved the Project. The company is now waiting for approval by the Australian Federal Government. Approval is anticipated to be received by the end of 2012.

Environment

 TOE has undertaken a range of environmental studies that have provided the company and the Environmental Protection Authority with detailed information regarding the existing environment. This will enable TOE to plan and implement the necessary management plans to protect the environment and to effectively develop a rehabilitation and closure plan.  Key environmental factors that have been addressed in TOE’s Environmental Review and Management Plan (ERMP) and Response to Submissions from members of the public include: – Tailings and mine closure; – Water supply and mine dewatering and groundwater management; – Radiation management and transport; – Flora and fauna impacts; and – Aboriginal and cultural heritage.

Rehabilitation

 TOE’s proposed mine will result in direct disturbance of about 1,530 hectares of land, and all impacts of mining will be localised. The tailings from the processing plant will be returned to the mined out pits below the natural land surface at Centipede and will be progressively rehabilitated over the life of the operation. At the end of the mine life, uranium and other trace elements in groundwater beyond the perimeter of mining disturbance would not exceed concentrations in the pre-mining environment. TOE will fully rehabilitate the site and return it as close as reasonably practicable to original condition after mining is complete.

Mining

 The ore in the Wiluna deposit is shallow at between 1m and 8m below the surface. Mining would be open cut, with Centipede deposit being initially mined followed by Lake Way. No blasting would be required as the ore occurs in relatively thin layers of low to medium strength rock. TOE proposes to use a Vermeer continuous mining machine to mine the ore, a method which has been successfully tested during test mining operations.

Independent Investment Research 6 Toro Energy Limited (TOE)

Processing

 After the ore is mined, it has to be processed to extract the uranium. TOE proposes to utilise the Alkaline Agitated Leach process to extract the uranium. This process is commercially proven and exhibits very good recoveries approaching 85%.  As part of the study for the Project, a pilot plant test program which utilised bulk sampled material from the test-pit was recently completed. The test program confirmed the viability of the process and its operating parameters.

Financing

 TOE has engaged offshore advisory groups to assist in identifying and approaching potential joint venture partners for Wiluna.  TOE is offering around 35% stake in Wiluna with off-take rights for up to 50%.  Utilities/Trading Houses in China, South Korea, India and Japan have been identified as potential candidates and have been engaged in the process.  TOE will raise a total of A$300M in capital potentially comprising of A$100M debt and A$200m of equity. TOE intends to fund its A$130M share through the sale of 35% interest in the mine and through equity markets.

THESEUS PROJECT

Location

 The Theseus Project comprises 3500km² of exploration licences near Lake Mackay in north-eastern Western Australia.

Map of Thesus Project

Source: TOE

History

 Theseus was discovered by TOE during a grassroots regional air core drilling program in 2009. Initial results highlighted the potential for sandstone hosted uranium mineralisation.

Independent Investment Research 7 Toro Energy Limited (TOE)

Thesus Zones

Source: TOE

Resource

 122 mud rotary holes for 16,000m completed during the month of May and June at the Theseus Project.  The mineralised zone at Theseus was extended over an area of 6km x 1.5km.

 Confirmation of high grade uranium zone, including 0.79m @ 1.17% pU3O8 from 124.32m in LM175.  A maiden JORC resource is expected to be released by the end of the year.  In late 2011, TOE identified an exploration target range of 20 to 40 million tonnes @

approximately 400 to 500 ppm for 22 million lbs to 44 million lbs U3O8.

Potential In Situ Leach Recovery (ISR)

 The uranium mineralisation is in oxidised/reduced sands between 100 -120 metres below the surface.  Early Metallurgical test work (bottle roll method) has indicated that the uranium is leachable with extraction rates in excess of 95%. Most of the extraction occurs in the first two hours of leaching. The tests indicate a very low consumption of acid.

EXPLORATION PROJECTS The Australian and Namibian exploration licenses and applications held by TOE as at 1 July 2012 are show below.

TOE Tenure Area (km2) Comment Granted Application Northern Territory 14,499 13,105 Namibia 1,323 0 25% share of Nova Energy Namibia 3,838 25 Total 19,241 13,437 TOE exploration area as at 31 December 2011 (Source: TOE)

Independent Investment Research 8 Toro Energy Limited (TOE)

 TOE exploration projects include: –– Tanami Project in Northern Territory; –– Wiso Project in Northern Territory; –– Reynolds Range Project in Northern Territory; –– Kintore Project in Northern Territory; –– Amadeus Project in Northern Territory; –– McArthur Project in Northern Territory; –– Benmara Project in Northern Territory; –– Gawib West Project in Namibia (TOE 25%, Sixzone Investments 10% & Deep Yellow Ltd 65%); –– Tumas North Project in Namibia (TOE 25%, Sixzone Investments 10% & Deep Yellow Ltd 65%); –– Chungochoab Project in Namibia (TOE 25%, Sixzone Investments 10% & Deep Yellow Ltd 65%).

Map of Exploration Project Areas

Source: TOE

Independent Investment Research 9 Toro Energy Limited (TOE)

URANIUM MARKET  The Japanese natural disaster and subsequent accident at the Fukushima Daiichi Nuclear Plant on 11 March 2011, had a significant impact on the nuclear industry and the demand for uranium.  Prior to the Fukushima event, the uranium price had been increasing on the back of Chinese buying, mine supply disruption in Australia and news of an increasing number of new nuclear plant proposals.  As shown in the below graph, the spot price has fallen significantly since the Fukushima

disaster, with the spot price below US$50/lb U3O8. The long-term price has had a much

less violent reaction, falling only US$10/lb to be trading at ~US$61/lb U3O8.  In the short term, demand for uranium has fallen as the market deals with excess inventories from the current shutdowns in Japan and Germany. However, the long term price remains well supported at current levels of around US$61/lb.

Spot & Long-Term Uranium Prices

Source: Ux Consulting

 After the Fukushima incident, the European Union requested all plants operating in Europe to be “stress tested” for likely similar events. All 104 operating nuclear plants in the United States, along with the two reactors under construction and a further nine planned, were reviewed by the Nuclear Regulatory Commission and found to be safe for any potential and likely large scale natural disasters. China, India, South Korea and Russia, which together make up 70% of plants under construction and being planned, reviewed their safety planning and re-committed to expansion of the nuclear industry.  The German Government introduced a nuclear shutdown program under which all 17 reactors are planned to be phased out by 2022 (including eight reactors to be closed immediately). Along with this, Switzerland announced to phase out its three nuclear power reactors at the end of their planned operating lives in the 2030s.  Japan shutdown all of its 55 reactors after the Fukushima incident. Two reactors have come online thus far in 2012. Four reactors at the Fukushima plant are likely to be permanently shut and it will take some time for the remaining reactors to get back on line.  The major nuclear power dependant countries such as China, USA, France, South Korea, India, Russia and United Kingdom have all affirmed their commitment to nuclear power and are maintaining their existing reactor build programs. Even new nuclear countries such as UAE, Turkey and Vietnam are continuing their planning and build programs, with Saudi Arabia recently indicating it is planning to build 16 reactors.

Independent Investment Research 10 Toro Energy Limited (TOE)

URANIUM DEMAND  The latest figures published by the World Nuclear Association, indicate there has only been a small fall in operating and anticipated world nuclear generating capacity since Fukushima.  According to the table below there would be a 27% increase in net nuclear capacity (in GWe) by 2020.

Nuclear Capacity (MWe) 2012 2015 2020 % United States 102.2 103.4 109.0 8 France 63.1 64.8 66.4 5 Japan 44.4 45.0 44.7 –5 Russia 24.2 29.7 41.0 81 Germany 12.0 11.7 9.0 –56 South Korea 20.8 24.2 28.1 50 Ukraine 13.2 13.1 16.2 23 Canada 12.8 12.6 15.0 19 United Kingdom 10.0 9.6 12.7 16 China 11.9 37.1 63.1 527 314.6 351.2 405.2 27

Source: World Nuclear Association

 China, South Korea, India, Russia together comprise 73% of reactors currently under construction, with China alone accounting for 40% of reactors under construction.  According to the WNA (May 2012), 44 countries were continuing with their nuclear programs. –– 433 operating nuclear plants (6 have come online since Fukushima) –– 63 nuclear plants under construction (5 have started since Fukushima) –– 160 planned nuclear plants –– 329 proposed nuclear plants.

 Forecast increase in demand to 2025 is est. +100Mlb U3O8 p.a. (270Mlb total).  It is widely accepted that worldwide nuclear capacity will continue to grow at an annual growth rate of 2 to 3% per annum. This growth is largely expected to occur in China, India, Russia and South Korea. However, the growth potential is supported with decisions by Vietnam, Lithuania, UAE and Turkey in recent months to commit to the construction of their first nuclear reactors.

SUPPLY OF URANIUM

 Total uranium supply in 2011 was approximately 170Mlb U3O8 p.a.

New Primary Uranium Supply Project Market Expectation Risks Kazakhstan Production to increase to 65Mlbs p.a. Government may cap production to 50Mlbs. by 2016. Cigar Lake First production late 2013, ramping up Significant technical risk. to 18Mlbs p.a. Olympic Dam Additional production from 2018. The expansion project has been suspended. Husab First production 2016, ramping up to Ownership issues could delay financing. Three year 12Mlbs p.a. construction period. Yeelirrie First production 2016, ramping up to Project deferred due to further studies. Cameco recently 7Mlbs p.a. acquired the Yeelirrie Project. Ranger 3 Deeps First production late 2016. Subject to favourable exploration and feasibility studies. Requires Traditional Owner and Government approvals. Trekkopje First production 2016, ramping up to Areva has suspended project. 7Mlbs p.a. Immouraren First production 2014, ramping up to Project delayed to 2016. Security issues in Niger remain 13Mlbs p.a. an issue.

Independent Investment Research 11 Toro Energy Limited (TOE)

 The USA-Russia highly enriched uranium (HEU) deal ends in 2013 reducing supply by

24Mlb U3O8.  There has been increasing evidence which indicates that uranium supply growth is going to be constrained: –– The recent announcement by Areva of the suspension of development of three African uranium projects (including the large Trekkopje project) due to financial constraints and project issues; –– The decision by the Kazakhstan Government (the world’s largest producer) to cap production at its current 52Mlbs per annum to avoid depressing prices and ensure adequate returns; –– Ongoing production difficulties at some currently producing uranium mines; –– Project approvals and expansions with scheduled ramp ups considerably delayed compared with analysts’ forecasts; and –– Numerous approval and study delays indicated at many proposed uranium projects.  In summary, the uranium prices are to remain suppressed in the short term but the long term fundamentals remain robust due to new reactor builds and impending supply issues.

Independent Investment Research 12 Toro Energy Limited (TOE)

PEER COMPARISON

Comparison of ASX Listed Uranium Companies (as at 24 October 2012) Market Cap Enterprise Value Resource U O EV/Resource Company Name ASX Code 3 8 ($m) ($m) (mlbs) ($/lb) Summit Resources SMM 436 431.2 82.8 5.21 Paladin Energy PDN 1004 1716.8 538.3 3.19 Toro Energy TOE 109 96 54 1.78 Peninsula Energy PEN 85 73.6 51.5 1.43 ERA* ERA 720 652.4 619.5 1.05 Manhattan Corp MHC 15 14.3 17 0.84 Deep Yellow DYL 103 100.8 132.48 0.76 Energy Metals EME 45 20.7 30.8 0.67 Berkeley Resources BKY 75 37.3 59.2 0.63 Energy and Minerals EMA 26 29.2 60 0.49 Greenland Minerals GGG 186 175.1 575 0.30 Forte Energy FTE 15 13.2 44.9 0.29 UraniumSA USA 12 8.8 42 0.21 Energia Minerals EMX 4 2 13 0.15 Black Range Minerals BLR 15 12.6 90 0.14 Bannerman Resources BMN 27 24.2 182.9 0.13 Marenica Energy MEY 6 5 61 0.08 Stonehenge Metals SHE 9 5.2 65 0.08 A-Cap Resources ACB 31 27.8 352 0.08 Energy Ventures EVE 4 2.6 38 0.07 Aura Energy AEE 19 17.3 860 0.02

*Contains $565m rehabilitation provision as debt. Source: CommSec and Independent Investment Research

 The above list ranks the ASX listed companies that have uranium as primary focus by EV/ Resource. The lower the EV/Resource value the more undervalued the company is.  EV/resource value for TOE is high compared to its peers due to the advanced nature of its Wiluna Project.  Companies with a low EV/resource value are mostly in the exploration stage and have higher risk or hold resources with a low uranium grade.

CORPORATE ACTIVITY  A significant level of corporate activity could continue in 2012/2013 as certain participants in the uranium industry capitalise on the current weakness in the uranium market.  The potential for a shortage of uranium has been identified by some of the major participants in the uranium market: –– Tanzania: ARMZ/Uranium One make A$1.02 billion acquisition of Mantra Resources

Ltd owner of 105Mlb U3O8 Mkuju River deposit. –– Namibia: CGNPC makes A$2.2 billion acquisition Extract Minerals owner of 512Mlb

U3O8 Husab project. –– South Africa: GoldOne makes US$250 million acquisition of RAND Uranium (41Mlb

U3O8 + Gold). –– Canada: Cameco acquires AREVA’s 27.94% interest in Millennium project for

C$150M. Project valued at $537M on 100% basis or $7.90/lb. for 67.6Mlb U3O8. –– Canada: Rio outbids Cameco for Hathor. C$623M transaction to acquire a high

grade pre-development property in the Athabasca Basin (58Mlb U3O8). –– USA: Korean nuclear utility KEPCO completes a US$40M phased investment deal with Strathmore over the Gas Hills Project (historic resources only). Independent Investment Research 13 Toro Energy Limited (TOE)

–– USA: Energy Fuels acquires Titan Uranium for US$25.2 million. (4.2Mlb U3O8 at Sheep Mountain Project). –– USA: Denison sells USA assets to Energy Fuels Inc. –– Peru: Macusani Yellowcake and Southern Andean Energy merge to consolidate their assets in Peru. –– Australia: Cameco acquires Yeelirrie Uranium Project from BHP for US$430 million.  These takeover offers indicate the major players in the uranium market remain optimistic regarding the future of uranium.

RISKS  Ore Body Risk – Uncertainties in resource estimation, mine planning and mineral project evaluation.  Exploration Risk – There is no assurance exploration will result in the discovery of new economic resource.  Mining Risk - Inherent technical risks associated with all mining projects irrespective of method used.  Radiation Risk – Uranium mining produce radioactive products which may be a health risk if not properly managed.  Construction and Infrastructure Development Risk – As with the construction of all mines, potential for costs to escalate with the development.  Environmental and Regulatory Risks – The Company still needs approval from the WA Government and the Federal Government for the Wiluna Project.  Commodity Price Risk – Changes in the uranium price have a significant impact on revenue. With the Japanese Fukushima Daiichi nuclear plant accident there has been slowdown in the demand for uranium.  Exchange Rate Risk – Sales of TOE’s ore production is typically denominated in USD. Therefore a change in the AUD/USD will impact revenue.  Financing Risk – TOE will require funding to be able to continue with its exploration. It would require further funding to develop the mine. There remains the risk that all the financing won’t be sourced.

VALUATION OF TOE  Discounted cash flow (DCF) methodology was used to value the Wiluna Project to derive value for TOE of a base case valuation of $0.144 per share.  The cost approach was used to value the Theseus Project, to date A$6M were spent on the project. Valuing the project at A$6M or $0.006 per share  Combining the valuation of the Theseus Project and the Wiluna Project it gives Toro valuation of $0.144 per share. We have not included valuation of other exploration projects given the early stage of development.  We have assumed that TOE will go into JV, selling 35% of equity in the Wiluna Project, leaving TOE with 65%. TOE will finance A$300M for the Wiluna Project. It will comprise of A$100M in debt and A$200M in equity. The A$200M equity will comprise of A$130M from TOE and A$70M from JV.  A basic sensitivity analysis as shown below, given the Key Model Assumptions it suggests that our valuation is most sensitive to price of uranium with an increase in the long-term price of uranium providing significant upside to the valuation.

Independent Investment Research 14 Toro Energy Limited (TOE)

Key Model Assumptions

Model Assumptions – Wiluna Uranium Project

Resource U3O8 54Mlbs Recovery 85% Cash Cost US$33/lb Total Capital Cost A$280M Product 1.8Mlbs/year WA Royalty as % of revenue 5% Tax Rate 30% Uranium Price US$65lb Depreciation method Straight line First production year 2015 Mine Life 20 years A$/US$ rate 0.95 Equity interest 65%

TOE Sensitivity Analysis

Sensitivity Analysis Base Case Exchange Rate US$/A$ 0.85 0.95 1.05 NPV per share ($) 0.167 0.144 0.114 Uranium Price US$/t 55 65 75 NPV per share ($) 0.063 0.144 0.213 Discount Rate 6% 8% 10% NPV per share ($) 0.189 0.144 0.100

INVESTMENT CASE  TOE’s prime assets are the Wiluna Project and the Theseus Project in WA. Its major hurdle will be securing Government approval for its projects. Both projects look promising with good exploration potentials. The Wiluna Project has received approval from the WA Government and is now waiting for Federal Government approval. Once the Government approval is received TOE can proceed with finding a JV partner for the Project.  The company is highly leveraged to the uranium price. There will likely be short-to- medium term volatility in the uranium price due to global supply/demand factors, however, the long-term price is expected to increase. Any increase in the long-term uranium price provides upside to the TOE valuation.  In addition to the development of the two above mentioned projects, the company has an active exploration program, particularly throughout NT where it holds numerous exploration licenses.  We initiate coverage of Toro Energy (ASX: TOE) with a fair value target of A$0.144 per share.

RECENT CORPORATE ACTIVITIES  The Mt Woods Tenement Access Agreement was terminated and TOE received the cash consideration of $3.75 million.  TOE agreed to cancel its uranium rights over certain Gawler Craton tenements held by Minotaur Exploration Limited for a cash consideration of $0.5 million.  A farm-in JV with TNG Limited was implemented for non-uranium minerals over a group of tenements in the Mount Peake area of Northern Territory.  In March 2012, TOE completed a Share Purchase Plan raising A$5.3 million at $0.08 per share.

Independent Investment Research 15 Toro Energy Limited (TOE)

CAPITAL STRUCTURE  As at 2 November 2012, there were 1,041.9M ordinary shares and 37.1M unlisted options with a market cap of $135.5M.  As at 29 September 2011, there was one substantial shareholder (shareholding greater than 5%): – OZ Minerals Limited: 39.4%

RECENT EVENTS  27 August 2012 - Assays confirm high-grade uranium at Toro’s Theseus Project  27 July 2012 – Quarterly Activities Report  20 July 2012 - TNG: Helitem survey commenced over NT Copper Projects  19 July 2012 - Greg Hall Presentation to 2012 Aust Uranium Conference WA  19 July 2012 - Toro Energy Update on Uranium Market and Project Progress  17 July 2012 - Toro confirms high grade uranium zones at Theseus, WA  5 July 2012 – Lapse of Options  2 July 2012 - Final Director’s Interest Notice  2 July 2012 - Resignation of Director  29 June 2012 - Sale of Roxby Tenements Completed  21 June 2012 - High Grade Uranium at Theseus Project, WA  15 June 2012 - DYL: Strategic Update  13 June 2012 – Positive Disequilibrium Results for the Theseus Uranium Project.  13 June 2012 - Presentation at 2012 AusIMM Uranium Conference in Adelaide.  28 May 2012 – New mineralised areas found during Toro’s 2012 drill program at Theseus, WA.  28 May 2012 – Toro Energy Investor Presentation May 2012.  28 May 2012 – Toro presentation at Alta Conference 2012.  21 May 2012 - EPA recommends approval for Toro’s Wiluna Uranium Project to proceed.  21 May 2012 - Media Release - EPA recommends approval for Wiluna Project.  16 May 2012 - Exciting new uranium results from Toro’s 2012 drill program at Theseus, WA.  1 May 2012 - Toro commences 2012 drilling at Theseus Uranium Project WA.  27 April 2012 - Quarterly Report - March 2012.  23 April 2012 - Joint Venture formalised with Northern Minerals to expand Browns Range HREE Project.  23 April 2012 - Toro Sells Roxby Downs Uranium Rights.  12 April 2012 - Heads of Agreement signed with TNG Limited for Joint Venture.  4 April 2012 - RCR Uranium Sector Review - March 2012.  22 March 2012 - SPP Letter Sent to Participating Shareholders.  16 March 2012 - Toro Share Purchase Plan Completed with A$5.3m Raised  6 March 2012 - Toro Presentation at PDAC Uranium Session in Toronto.

Independent Investment Research 16 Toro Energy Limited (TOE)

BOARD AND MANAGEMENT Sourced from TOE’s Website (www.toroenergy.com.au)  Dr Erica Smyth MSc, FAICD, Non-executive Chairman. Dr Smyth has over 30 years experience in the mineral and petroleum industries. She was Principal Geologist for BHP Minerals Limited (including several years in uranium exploration) and BHP-Utah Minerals International’s Beenup Project Manager, Manager Gas Market Development WA for BHP Petroleum and, more recently, General Manager – Corporate Affairs for Woodside Petroleum Limited. She has a Bachelor of Science from University of Western Australia and an Applied Master of Science from McGill University in Montreal, Canada. In 2008 she was awarded an Honorary Doctor of Letters from the University of Western Australia. Dr Smyth is a Fellow of the Australian Institute of Company Directors, is the Chair of Toro Energy Limited, the WA interactive science centre Scitech; the WA Government’s film screen industry funding body ScreenWest, the Diabetes Research Foundation of WA and the UWA Centenary Trust for Women. She is also a Director of the Australian Nuclear Science and Technology Organisation (ANSTO); the Cooperative Research Centre for Sustainable Resource Processing and the Diabetes Western Australia. The Chamber of Mines & Energy (WA) awarded Dr Smyth a Lifetime Achievement Award in 2010 for her contribution to the industry and as part of the Women in Resources Award 2010.  Greg Hall BEng, M AusIMM and MAICD, Managing Director. Mr Hall is a Mining Engineer with 28 years experience in the resources industry, including 17 years in the uranium sector in engineering, senior marketing and operational management roles. Mr Hall was Marketing Manager (North America) for ERA Ltd from 2000 to 2004 and during this time he undertook uranium sales negotiations and contracts with North American utilities, and visited a number of nuclear power plants, conversion and enrichment plants and various waste repository facilities, enabling a broad view and understanding of the global nuclear power industry. During this time he also undertook a period managing a business improvement project at the Ranger Mine. Prior to this Mr Hall was Manager – Mining of ERA Ltd’s Ranger and Jabiluka operations and coordinated and updated the Jabiluka mine feasibility study and managed technical and planning work for the mine. This encompassed stakeholder liaison with state and federal governments, Aboriginal organisations and external parties and ongoing involvement in community issues and committees. Mr Hall has also held a variety of senior technical and operational management roles at WMC Resources Ltd at its nickel operations and the Olympic Dam project, where he was Underground Manager then Mining Manager from 1987 to 1992.  Derek Carter BSc, MSc, FAusIMM (CP), Non-executive Director & member of the Audit Committee. Mr Carter is a geologist with over 30 years experience in corporate management, exploration and mining. He worked in Australia and overseas for Billiton (Shell Group of Companies) for 16 years. For five years he was General Manager – Exploration for Burmine Ltd before establishing Minotaur Gold NL in 1993. He formed Minotaur Resources Limited in 2000 and Minotaur Exploration Limited in 2005 and he was Managing Director of all of these groups at their inceptions. He is currently Managing Director of Minotaur Exploration. He is a member of the Boards of Mithril Resources Limited, Petratherm Limited (Chairman) and the Resources Industry Development Board and is a member of the South Australian Experts Group (Resources). He is a Councillor of the South Australian Chamber of Mines and Energy. In 2003 he became the Prospector of the Year (jointly awarded) and was awarded a Centenary Medal. In July 2007, he was appointed Chairman of the Minerals Exploration Advisory Group.

Independent Investment Research 17 Toro Energy Limited (TOE)

 Peter Lester BEng (Mining – Hons), Non-Executive Director & member of the Audit Committee. Mr Lester is a mining engineer with extensive experience in senior operating, development and corporate roles with Citadel REsources Group, OZ Minerals (and Oxiana prior), Newcrest, North, CRA and MIM. His activities have covered Australia, South East Asia, the Middle East and the Americas and includes a period in broking on both the research and corporate desks. In addition to being a Non-Executive Director of Toro Energy, Mr Lester is currently a Non-Executive Director at Castlemaine Goldfields, a Director at Accessio Resources Pty Ltd and a Non-Executive Director at Nord Gold NV.  Andrew Coles B.Ec, MBA, Non-Executive Director. Andrew Coles is the Chief Financial Officer of OZ Minerals Limited. In this role, Andrew is responsible for sales and marketing, investor and external relations, risk management, financial control, treasury, taxation, business planning and analysis, and business systems and services. Andrew was appointed to this role in June 2009. Andrew originally joined an antecedent company of OZ Minerals, Pasminco Limited in May 2003 as Group Treasurer. He worked on the IPO of Zinifex Limited and then became Group Treasurer of Zinifex in April 2004. In 2007, Andrew managed the project to demerge Zinifex’s smelting assets, merge these with the smelting assets of Umicore and then the IPO of the resulting company Nyrstar NV on Euronext Brussels. This project was successfully completed in November 2007. Andrew then managed the negotiation of Zinifex’s merger with Oxiana and Zinifex’s scheme of arrangement process to effect the merger during the first half of 2008. On completion of the merger and the creation of OZ Minerals in July, Andrew was appointed General Manager of Strategic Planning. His responsibilities in this role included management of the sale process to China Minmetals during the first half of 2009. Andrew commenced his career in the resources industry with CRA Ltd (now Rio Tinto) where he held a wide range of roles in accounting, finance and treasury in Melbourne, London and Dampier over an 11 year period. He then joined Esso Australia where he held roles in treasury, business planning, and government and public relations in Melbourne and Houston over an eleven year period, culminating as Treasurer of ExxonMobil Australia & New Zealand, before joining Pasminco. Andrew holds a Bachelor of Economics from the Australian National University and a Master of Business Administration from the University of Melbourne and is a member of CPA Australia and the Finance & Treasury Association. Andrew joined the Toro Energy Board as a non-executive director in September 2009.  Donald Stephens BA (Acc), FCA, Company Secretary. Mr Stephens is a Chartered Accountant and corporate adviser with over 20 years experience in the accounting industry, including 14 years as a partner of HLB Mann Judd (SA) Pty Limited, a firm of Chartered Accountants. He is a Non-Executive Director of Mithril Resources Limited and Papyrus Australia Limited and is Company Secretary to Minotaur Exploration Limited, Mithril Resources Limited, Petratherem Limited, FerrAus Limited, Arasor International Limited, Chesser Resources Limited and Innovance Limited. He holds other directorships with private companies and provides corporate advisory services to a wide range of organisations. He is a member of Toro Energy’s Audit Committee.

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