S2R.asx Speculative Buy S2 Resources Ltd (S2R) 19 Oct 2015 S2 RESOURCES LTD (S2R) Share Price $0.170 Price Target - 12 months $0.30 Can success be repeated with SIR mark II? th Brief Business Description: S2 Resources (S2) listed on the ASX on the 19 October 2015 as the Gold and base metal explorer demerged entity from Sirius Resources NL. The Company holds exploration Hartleys Brief Investment Conclusion assets located south of Kalgoorlie in WA (Polar Bear) and in Scandinavia S2R formed through the demerger of Sirius (through an equity interest in Sakumpu Exploration – a private Finnish Resources. Ow ns 100% of the Polar Bear Project, located south of Kalgoorlie and currently company). S2 is currently focused on gold and base metal exploration, holds a 67% interest in exploration assets in advancing discoveries towards (potential) development. Scandinavia. Resource drilling underw ay at the Baloo gold deposit for maiden resource in Q1 S2 has the people (talented and committed team with a track record of first- CY16. Walk-up drill targets generated in class discoveries and project developments), funding (healthy cash position Scandinavia. of ~A$22.2m – implies cash backing of ~11cps) and ground (proven Issued Capital 207.4m prospectivity through gold and nickel discoveries), which in our opinion, sets - diluted ITM 207.4m the Company up well for continued success. - fully diluted 236.1m Market Cap A$35.3m We initiate coverage of S2 Resources with a Speculative Buy - diluted ITM A$35.3m recommendation with a 12-month price target of 30cps. The Company’s low - fully diluted A$40.1m EV provides strong leverage to positive exploration results and new Cash (30 Sep 15a) A$22.2m discoveries. With advanced stage exploration underway, we anticipate good Debt (30 Sep 15a) A$0.0m EV A$13.1m near-term catalysts for share price appreciation, including a maiden resource Projects for the Baloo oxide gold zone at Polar Bear, due in Q1 2016. Polar Bear Project 100% Key Asset of Polar Bear – Baloo gold and Taipan nickel Scandinavian Assets 67% The 100%-owned Polar Bear Project is located near the gold mining districts Au Ni Cu Reserves (Kt) - 100% na na na of St Ives (~12Moz), Higginsville (~2Moz) and Norseman (~10Moz), and Resources (Kt) -100% na na na contains the Baloo gold and Taipan nickel discoveries. The project area is Board largely unexplored, as the tenure covers the salt lake sediments of Lake Jeff Dow ling (Non-Exec Chairman) Cowan, and wind-blown sediments of the Polar Bear Peninsula. Mark Bennett (CEO/MD) Significant gold mineralisation was discovered at Baloo in late 2014. The Anna Neuling (Exec Director) oxide gold zone now spans some 700m of strike, with diamond drilling Company Address Level 2, 1 Manning Street defining a primary (free-milling) high-grade shoot (10m x 70m) which remains Scarborough WA 6019 open down-plunge to the south. Gold grades for the deposit have been very S2 Resources good in parts, with many +5g/t Au (up to 8.35g/t Au) zones reported to date. 0.18 25. Metals X’s Higginsville gold mine is the nearest operation, located only 10kms 0.16 20. to the west of Baloo, and currently has idle mill capacity (we would estimate 0.14 0.12 15. to be ~0.5Mtpa). S2 has commissioned an RC rig for the deposit drill-out, to 0.10 A$ M 0.08 enable an initial resource estimate for the shallow gold zone. We see scope 10. for good maiden resource for oxide zone which could grow over time with the 0.06 0.04 5. addition of primary mineralisation (~300Koz potential). Mining of the shallow 0.02 Baloo deposit may be feasible and could provide early cash flows, but will be 0.00 . Oct-14 Feb-15 Jun-15 Oct-15 determined by the planned drilling and development studies. Volume - RHS Source: IRESS S2R Shareprice - LHS Scandinavia - world-class address and walk-up drill targets Sector (S&P/ASX SMALL RESOURCES) - LHS Sakumpu holds exploration permits in Sweden and Finland. S2 currently holds a 67% interest in Sakumpu and has an option to increase its ownership Gold & Base Metal: Explorer / Developer to 80% by investing a further A$2m. Recent exploration includes airborne EM Mike Millikan surveys (interpreted data expected late October), mapping and sampling. Resource Analyst Previous recon drilling at the Tienpaa prospect, Finland highlights high-grade Ph: +61 8 9268 2805 nickel (12.8m @ 2.9% Ni from 124.5m) and gold (1.6m @ 3.9g/t Au), which E: [email protected] is yet to be followed up. Rock chip sampling in Sweden (Brannas prospect), The analyst has a beneficial interest in S2R shares has identified outcropping disseminated copper sulphides, with grades of 1.6% -1.8% Cu, and anomalous Au, Ag and Pt. IP surveys are underway to define the extent of the sulphide zone with results expected late October. Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141Page St Georges 1 of 19 Terrace, Perth, Western Australia, 6000 Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Further information concerning Hartleys’ regulatory disclosures can be found on Hartleys website www.hartleys.com.au Hartleys Limited S2 Resources Ltd (S2R) 19 October 2015 SUMMARY MODEL S2 Resources Limited Share Price Oct-15 S2R $0.170 Speculative Buy Key Market Information Directors & Management Company Details Share Price $0.170 Jeff Dowling (Non-Exec Chairman) Level 2, 1 Manning Street Market Capitalisation $35.3m Mark Bennett (CEO/MD) Scarborough WA 6019 Cash $22.2m Anna Neuling (Exec Director) +61 8 6166 0240 Debt $0.0m Jeffrey Foster (GM Project Generation) Net Debt (Cash) -$22.2m John Bartlett (GM Exploration) www.s2resources.com.au Issued Capital 207.4m Su-Mei Chan (CFO) Issued Capital (fully diluted ITM options) 207.4m Options 28.65m @ A$0.277 Top Shareholders (est) m shs % Issued Capital (fully diluted all options) 236.1m Mark Creasy Investment Companies 71.74 34.6% EV $13.1m Board 1.36 0.7% Preliminary Valuation $0.26 12Mth Price Target $0.30 Investment Summary Projects Interest Location Commodity Owns 100% of the Polar Bear Project, located south of Kalgoorlie and currently holds a 67% interest in exploration assets in Scandinavia. Polar Bear Project 100% WA Au, Ni Highly experienced board and management. Strong track record. Scandinavian Assets 66.67%* Finland, Sweden Au, Ni Resource drilling underway at the Baloo gold deposit for maiden resource in Q1 CY16. Walk-up drill targets generated in Finland and Sweden. * Subject to stage 1 program S2R can interest ownership to 80.01% for A$2m Key Milestones Project Lists on the ASX 19-Oct-15 Resource drilling - Baloo gold oxide Q4 CY15 Polar Bear Resources Mt Grade Metal Attr. Maiden resource - Baloo gold oxide Q1 CY16 Polar Bear Ongoing exploration - Finland/Sweden CY15/CY16 Scandinavia No JORC resources Ongoing exploration - Au, Ni CY16 Polar Bear Unpaid Capital No (m) $ (m) Ave Pr % Ord P&L FY2015F FY2016F FY2017F Options 30-Jun-16 0.00 0.00 0.00 0% Net Revenue na na na 30-Jun-17 0.00 0.00 0.00 0% Total Costs na na na 30-Jun-18 0.00 0.00 0.00 0% EBITDA na na na 30-Jun-19 0.00 0.00 0.00 0% Deprec/Amort na na na 30-Jun-20 28.65 7.95 0.278 14% EBIT na na na Total 28.65 7.95 0.278 12% Net Interest na na na Pre-Tax Profit na na na Tax Expense na na na NPAT na na na Comments Abnormal Items na na na Reported Profit na na na S2R formed through the demerger of Sirius Resources NL. Analyst: Mike Millikan Phone: +61 8 9268 2805 Last Updated: 19/10/2015 Sources: IRESS, Company Information, Hartleys Research Page 2 of 19 Hartleys Limited S2 Resources Ltd (S2R) 19 October 2015 COMPANY OVERVIEW S2 Resources Ltd (S2) listed on the ASX under the code “S2R” on the 19th October S2R is an ASX listed 2015 and was formed through the demerger of assets from the highly successful Sirius gold and base metal Resources (SIR). The Company has 207.4m ordinary shares, 28.65m unlisted options explorer and ~A$22.2m in cash. S2 is focused on gold, nickel and other base metal exploration. The Board of S2 comprises: Dr Mark Bennett (MD and CEO), former Sirius MD and CEO and current non-executive director of Independent Group (IGO); Anna Neuling S2R is the demerged (Executive Director), former Corporate and Commercial director of Sirius; and Jeff entity of Sirius Dowling (Non-executive Chairman), former chairman of Sirius. In addition, Jeff Resources Foster (GM Project Generation), John Bartlett (GM Exploration) and Su-Mei Chan (CFO) have also joined S2 and are all former Sirius employees. Fig. 1: S2R Market Cap and EV at different share prices The Company is S2R managed by the core A$m 120.0 (former) SIR team 100.0 45cps 40cps 93.3 35cps 83.0 S2R trading range of 80.0 72.6 15cps to 30cps 30cps 71.2 62.2 implies market cap 60.0 25cps 60.8 51.9 levels of ~$31m to 20cps 50.4 15cps 41.5 ~$62m (or EV’s of 40.0 40.0 31.1 ~$9m to ~$40m) 29.7 20.0 19.3 8.9 0.0 0.10 0.12 0.14 0.16 0.18 0.20 0.22 0.24 0.26 0.28 0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50 Exploration is Share price $ currently focused on -20.0 MC EV the Baloo gold prospect in WA and Source: Hartleys Estimates early stage The Company owns 100% of Polar Metals and 100% of Sirius Europa.