Constructive Dialogue: Copper M&A the Cupboard is Nearly Bare, page-25

Hi Clark

The only reason BDO Kalkaroo NPV was close to the RPM NPV was that BDO used a higher copper price. BDO identified areas where RPM had understated operating costs by a significant margin and adjusted the costs higher.The RPM numbers are also quite old i.e December 2017 and there have been significant price increases such as in diesel and steel. This does not bode well for the new PFS.

The question has to be asked as to why it has taken Havilah well over a decade to get to the point where it has not completed its various studies on Kalkaroo. Why did Glencore and Wambo walk away from the project and why has no other mining company decided to get involved in the project.

One of the reasons is that the project is technically challenging:
1. The Kalkaroo ore body sits under an unstable thick clay zone. Whilst, the geotechnical issues this throws up can be managed as it was at Portia by laying back the pit walls, it adds considerably to both pre-production and operating costs. Portia was only a short term pit so the risks of wall failure in the longer term cannot be ignored.
2. The project has significant metallurgical challenges. It has multiple ore types sapolite gold ore, native copper and sulphide copper ore. This results in higher capital as the plant has to be designed to treat multiple ore types. It also adds to operating costs and increases its risk profile. Have a look at Cudeco!

I am not saying that Kalkaroo is not valuable but utilizing industry averages to value a project and cherry picking analysis that suits your purposes can be misleading. Focusing on tonnes and grade and ignoring other aspects of the project is dangerous. Remember, all the big miners in this world have access to all this data that you are placing on Hotcopper and much more but they are not biting.

Always be suspicious when something is going cheap. The question needs to be asked as why it is cheap.

TOD