Selected Gold Equities

Indaba February 2011

3 February 20 11

Ambrian Partners Limited Old Change House 128 Queen Victoria Street London EC4V 4BJ United Kingdom Tel +44 (0)207 634 4700 Fax +44 (0)207 634 4701

Selected Gold Equities 3 February 2011

Contents
Executive Summary Top Picks Gold Peer Comparison A review of the gold market Equity Top Picks
Archipelago Resources Avocet Centamin Egypt Chalice Gold Mines Condor Resources Gold One International Hambledon Mining Nyota Minerals Rusoro

1 2 3 6 11
12 16 20 24 28 32 36 42 46

All prices in this document are as of 3 February 2011

Peter Davey
+44 (0)20 7634 4764 [email protected]

Duncan Hughes
+44 (0)20 7634 4775 [email protected]

Adam Kiley
+44 (0)20 7634 4777 [email protected]

Nick Mellor
+44 (0)20 7634 4762 [email protected]

Selected Gold Equities 3 February 2011

Executive Summary
Our Gold Price Forecast
1500 1250 1000 750 500 250 0 1Q09 1Q11 1Q13 1Q15 Gold Price (US$/oz)

Gold-focused mining equities performed well in 2010, as the gold price continued to rally, breaking new highs. In an assessment of share price performance amongst a global peer group of explorers last year; we feel that many investors had the opportunity to yield good returns without necessarily having had to be too objective when it came to the question of which particular stocks to have picked. A large number of junior explorers acquired tenements in gold exploration hotspots and without a single drillhole their share prices sky rocketed. If the gold price continues its northward trend, this exuberance in the equity markets will no doubt continue. Whilst we are certainly bullish on the gold price for 2011, we would prefer to recommend stocks that, in our view, present more tangible prospects for exploration success than simply being in the right location. For producers, we found that those that failed to deliver on production guidance were heavily sold down by the market while those that delivered were rewarded.

Source: Ambrian

Avocet, Gold One and Chalice Gold Mines are our top picks

Avocet, Gold One and Chalice Gold Mines are our top picks this year. We think that all three companies offer value at their current price. All
have presented clear and defined plans as to how they will achieve their goals this year and we expect that further development of their respective assets throughout 2011 will drive their market valuations higher.

Avocets 2010 was a watershed, as the new Inata mine over delivered and the company found a buyer for its Pacific Rim assets. Now 100% focused in arguably the worlds hottest gold region of West
Africa, Avocet is set to continue ramping-up production at Inata and explore its multiple properties in the region. The company has an aggressive near term target of doubling reserves at Inata (3Q11). We do not think the implications of this are yet reflected in the market value. We could even expect further corporate activity as it will have a substantial war chest post the divestment of the SE Asian assets.

Gold One has continued to improve production and cash costs over the past six months. Provided this trend continues, we think the
market might be forced to recognise its achievements and provide a re-rating. We estimate that the company is trading on a 0.6x multiple to the NPV of our forecast cash flows. This valuation is substantially below its peer group (even by South African standards). We feel that sustained operational performance may well invoke a re-rating for the stock this year.

Chalice Gold Mines has a high grade (5.3g/t) shallow gold deposit that is due to produce 105,000oz pa LOM by 2013. We look forward
to hearing more about this enticing prospect as the project is developed in 2011. Chalice has also planned to spend $20M over the next two years on exploration as it holds one of the dominant land positions in Eritrea (which is central to the Arabian Nubian shield that hosts world class gold deposits such as Centamins Sukari and some exciting VMS anomalies).
Ambrian Favoured Gold Stocks
Company Avocet Mining1,2,3,4 Gold One.2 Chalice Gold Mines Share price 220p $0.29 $0.65 Mkt cap 180m A$235 A$138 Reserve Resource (Moz)* (Moz)* Price Driver 1.3 1.5 0.7 4.5 21.7 0.8 Long-term Technical Risk Long-term Political Risk Low: licences in place, experienced operators Medium: Strikes last yr

Inata performance, double reserve base in Low: off-the-shelf technology 3Q11, further exploration in wider region Meet production targets, cost guidance Development of first deposit, additional exploration discoveries Low: actual mined v planned grade reconciliation

Low: Exploration unsuccessful Medium: licensing

Note: *Attributable gold equivalent; Ambrian acts as: 1Market Maker, 2Broker, 3Nomad; 4Investment banking client in last 12 months; Source: Ambrian

Selected Gold Equities 3 February 2011

Top Picks
Last years Top Picks were based on cash, growth and technical strength. In the case of European Goldfields and Avocet both companys continued to develop their assets on schedule. However Petropavlovsk and Rusoro failed to deliver on their production targets and were punished by the market.
Review of Ambrian 2010 Top Picks Company Avocet European Goldfields Petropavlovsk Rusoro
Source: Ambrian

Price 2010 92p 335p 961p

Price 2011 220p 990p 1068p

12M Return 139% 196% 11% -19%

Comment Successful ramp up at Inata Further progress on permitting last year Management significantly downgraded production 2H10 Failure to deliver on production and cashflow issues

$C0.42 $C0.35

With last years picks in mind, we select this years stocks on a different basis. Cash constraints are less of an issue given the recovery in the capital markets, which leaves us with two key criteria: 1. current price most gold stocks are at hefty premiums so bargains are hard to find; and 2. growth profile many producers have definite growth plans in place. A summary of our 2011 top picks, as well as a selection of other gold miners from the universe which we like the potential of, is shown below.

Ambrian 2011 Top Picks Company TOP PICKS Avocet Mining1,2,3,4 Chalice Gold Mines Gold One Intl2* Archipelago Res.2 Centamin Egypt1,2,4 Condor Resource Hambledon Nyota Minerals Rusoro2*
1

Price 220p

Recommendation Comment/share price drivers BUY, TP: 271p Doubling of reserves at Inata (targeted 3Q11), further exploration & SE Asian asset sales Aggressive exploration program and a valuation on Zara by ENAMCO Sustained operational performance to provide a re-rating. 120koz pa target for 2011 Production imminent and an aggressive exploration programme planned for 2011 2011 production target of 250-290k oz, some U/G production is essential Management reshuffle and a new mining strategy Price has factored in early drilling success, but confident resource could double Potential for re-rating with stable gold sales/cashflow

A$0.65 BUY, TP: A$0.79 A$0.29 BUY, TP: A$0.47 63p 137p 5.5p 7.4p 25p BUY, TP: 74p BUY, TP: 174p HOLD,TP 7.5p HOLD, TP: 27p

OTHER GROWTH STOCKS WE LIKE

2,3

SPEC BUY,TP 7.5p 1H11 from drilling results and upgraded resources

1,2,3,4

C$0.35 BUY, TP: C$0.60

2 3 4

Ambrian acts as: Market Maker, Broker (* agency), Nomad; Investment banking client in last 12 months; Source: Ambrian

Selected Gold Equities 3 February 2011

Gold Peer Comparison

Selected Gold Companies EV (US$m) Producers
Oxus Gold Rusoro Mining Gold One Serabi Mining Hambledon Mining Galantas Gold Pan African Resources Norseman Gold Vatukoula Gold Cluff Gold Resolute Orosur Mining Allied Gold Yamana Gold Peninsular Gold Noble Mineral GMA Resources Minera IRL Mineral Deposits Highland Gold La Mancha Goldplat Catalpa Resources Anglo Asian Mining Mean Avocet Mining Adamus Resources CGA Mining Randgold Resources Integra Avion Gold Petropavlovsk Centamin Egypt Semafo Centerra Gold Kirkland Lake Gold Medusa Mining 35 191 282 17 57 13 218 166 229 214 594 70 575 8,787 64 172 62 178 284 771 288 27 318 139 1,046 726 359 940 6,756 447 569 3,342 2,396 2,518 3,635.0 940.7 1,279 8.1 16.8 21.7 0.7 1.9 0.4 4.9 3.8 4.3 3.6 9.4 1.1 8.4 101.9 0.7 2.0 0.7 1.8 2.7 6.7 2.4 0.2 2.2 1.0 8 5.0 1.9 4.9 27.3 1.8 2.1 11.8 7.3 7.5 9.7 2.3 2.7 4 8 13 25 31 32 44 44 53 59 63 67 69 86 86 87 93 99 104 115 122 143 145 144 146 146 189 191 247 255.7 274 284 328 336 374.7 414.9 481.7 2.5 2.4 1.4 0.2 0.7 0.4 0.9 0.8 2.5 0.6 3.4 65.8 0.2 0.6 0.1 1.3 5.8 0.8 1.1 0.6 4 1.4 1.0 1.9 15.6 0.3 6.7 4.5 2.0 7.3 1.4 0.5 14 73 190 90 330 395 266 278 238 115 169 134 316 286 1,781 216 133 376 289 230 421 512 373 485 434 1,398 501 533 1,259 498 673 2,559 15 229 120 8 27 4 95 80 48 80 380 50 76 1,070 14 40 22 30 140 161 135 21 85 78 166 185 100 200 406 90 89 553 225 262 679 86 100 2,302 834 2,353 2,212 2,104 3,181 2,301 2,073 4,747 2,672 1,564 1,398 7,604 8,215 4,558 4,295 2,797 5,956 2,027 4,786 2,132 1,244 3,740 1,781 4,791 3,925 3,593 4,702 16,647 4,972 6,396 6,042 10,651 9,609 5,354 10,916 12,793

Resource (Moz)1

EV/Resource (US$/oz)

Reserve (Moz)1

EV/Reserve (US$/oz)

Prodn (000oz pa)2

EV/Prodn (US$/oz)

Pre-production
Metals Exploration Trans-Siberian Gold Gabriel Resources European Goldfields Perseus Mining Mean Archipelago Resources 71 135 2,601 2,852 1,047 1,206 530 1.7 1.1 16.9 18.0 6.8 8 1.6 41.3 118.4 153.6 158.5 154.0 160 331.3 10.9 16.0 3.9 5.3 0.9 10.9 178 269 174 589

Pre-BFS
Republic Gold Greystar Resources Kryso Resources Condor Resources Stratex Ariana Resources Signature Metals Chaarat Gold Auryx Gold Shanta Gold GGG Resources Ortac Resources Volta Resources Keegan Resources Oro Gold Nyota Minerals Azumah Resources Gold Road Mean Red 5 Chalice Gold African Aura Papillon Gryphon Castle Minerals Ampella Mining Patagonia Gold 22 184 64 43 35 12 50 135 69 94 50 65 248 315 25 128 127 85 154 198 138 311 108 422 33 524 540 1.9 12.1 2.9 1.7 1.1 0.4 1.5 4.0 1.9 2.2 1.0 1.1 4.1 4.9 0.3 1.3 1.2 0.7 2.0 1.2 0.8 1.5 0.5 1.5 0.1 1.2 0.9 12 15 23 23 30 31 34 34 36 42 51 59 60 64 85 91 106 114 127 171 181 205 207 281 328 437 606

Note: *JORC only, excludes Russian; 1. Attributable; 2. 2011 Forecast or where no forecast available (last reported production annualised); Source: Company data, gold equivalent on spot prices, Fidessa, Ambrian

Peer Group Analysis EV/Attributable Resources

Republic Gold Greystar Resources Condor Resources Kryso Resources Stratex Ariana Resources Chaarat Gold Signature Metals Auryx Gold Shanta Gold GGG Resources Ortac Resources Volta Resources Keegan Resources Oro Gold Nyota Minerals Azumah Resources Gold Road Mean Chalice Gold Red 5 African Aura Papillon Gryphon Castle Minerals Ampella Mining Patagonia Gold

Selected Gold Equities 3 February 2011

EV / Resource (US$/oz)
Metals Exploration Trans-Siberian Gold Gabriel Resources European Goldfields Perseus Mining (ASX) Mean Archipelago Resources

Oxus Gold Rusoro Mining (TSX) Gold One (ASX) Serabi Mining Hambledon Mining Galantas Gold Norseman Gold Pan African Resources Vatukoula Gold Cluff Gold Resolute Allied Gold Orosur Mining Noble Mineral Yamana Gold Peninsular Gold GMA Resources Minera IRL Mineral Deposits Highland Gold La Mancha Catalpa Resources Anglo Asian Mining Goldplat Avocet Mining Mean CGA Mining Adamus Resources Randgold Resources Integra Avion Gold Petropavlovsk Centamin Egypt Semafo Centerra Gold Kirkland Lake Gold Medusa Mining

4
EV / Resource (US$/oz) 100 200 300 400 500 600 0

Pre-BFS (US$125/oz mean) (US$62/oz median) Pre-production (US$178/oz mean) (US$151/oz median)

Resource ( Moz)

Production (US$143/oz mean) (US$102/oz median)

Resource (Moz)

12

15

18

21

24

27

Selected Gold Equities 3 February 2011

Peer Group Analysis EV/Attributable Reserves For Producers

EV / Reserve (US$/oz) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Hambledon Mining Galantas Gold GMA Resources Goldplat Avion Gold Oxus Gold Rusoro Mining (TSX) Serabi Mining Orosur Mining Highland Gold Yamana Gold Allied Gold Gold One (ASX) Mineral Deposits Anglo Asian Mining Resolute Vatukoula Gold Cluff Gold Noble Mineral Catalpa Resources Peninsular Gold Pan African Resources Adamus Resources La Mancha Norseman Gold Mean Randgold Resources CGA Mining Centerra Gold Petropavlovsk Avocet Mining Centamin Egypt Kirkland Lake Gold Semafo Integra Minera IRL Medusa Mining Source: Fidessa, Company Data, Ambrian Estimates

Peer Group Analysis EV/Production with attributable resources

EV (US$m)
10,000 3Moz resource base 6Moz resource base Centerra Petropavlovsk Regression CGA Mining Randgold Yamana

Balloon Size

Relatively expensive producers on 2011E's production

1,000 Catalpa Median 3.3Moz resources 89Kozpa production Vatukoula Minera IRL 100 Peninsular GMA Hambledon Oxus Goldplat Orosur Kirkland Lake Allied Gold

Centamin Adamus Highland Avion Integra Adamus Gold One Cluff Pan African Norseman Anglo Asian La Mancha

Semafo

Avocet Mineral Deposits Rusoro

Resolute

Noble Mineral

Relatively cheap producers on 2011E's production

10 10

2011E production rate (000oz pa)

100

1,000

Source: Fidessa, Company Data, Ambrian Estimates

Selected Gold Equities 3 February 2011

A review of the gold market

Since the Global Financial Crisis (GFC), there has been much structural change in the weighting of the components on either side of the supply/demand balance. YoY Change in Supply/Demand Categories 2009/2008
ETFs & similar Industrial & dental Net producer hedging Bar & coin retail investment3 Jewellery Official sector sales Old gold scrap Mine production -10% -5% 0% 5% 10% 15%

2010/2009
ETFs & similar Industrial & dental Net producer hedging Bar & coin retail investment3 Jewellery Official sector sales Old gold scrap Mine production -10% -5% 0% 5% 10% 15%

Source: WGC, Ambrian Estimates

Source: WGC, Ambrian Estimates

Considering supply, in 2009 it was of no surprise that mined production ramped up in response to the rallying gold price. The fact that this growth in supply has not been maintained into 2010, is a poignant bull point. The same is also true of the growth in scrap flooding into the market which flattened off in 2010, despite an ever increasing gold price over the period. Annual Supply/Demand Balance
(Tonnes) 5,000 4,000 Old gold scrap 3,000 2,000 Mined production 1,000 -1,000 -2,000 -3,000 -4,000 -5,000 Supply/Demand Category (5yr Trend)

Official sector sales 2004 2005 2006 2007 2008 2009 2010* Jewellery Net producer hedging Bar & coin investment Industrial & dental ETFs & similar

Note: We have annualised 4Q10 numbers and added our estimates for official sector sales in 3Q10 and 4Q10 Source: WGC, Ambrian Estimates

Selected Gold Equities 3 February 2011

Total Central Gold Reserves

(Kt of Au) 34 33 32 31 30 29 28 27 1Q00 Source: WGA, Ambrian 1Q10 Global gold reserves (Kt) After 10yrs of selling, Central Banks turn net buyers

In our view, the most significant changes to the demand side of this balance have been the reversal of the Official Sector Sales (Central Banks selling down gold reserves) and the rise in ETF holdings. It is also interesting to see that whilst in 2009, the jewellery sector managed to reduce its exposure to the rallying gold price (scaling back its buying influence by nearly 8% YoY), during 2010, the jewellers had to come back into the fray despite the higher prices (buying was up 4% YoY). Bar and coin investment had an even greater demand impact than ETF holdings during 2010 again demonstrating private investors appetite for physical. Change in Global ETF Holdings

Source: WGA, Ambrian

In a market where outside observers only have a loose gauge on the physical supply/demand balance and when that balance in-turn, appears to have little bearing on the direction in which the spot price goes; we are not about to over engineer our analysis in this section. That said, we do however think it worthwhile to outline a number of the points that make us, on the whole, bullish for 2011 on the gold price. QE2 will likely result in inflation Even the Chinese have begun developing gold ETFs Can Western Governments service their debt and at what cost? We think that the true impact of QE2 has yet to play out. The outcome is likely to involve inflation. Inflation fear is now back on the agenda. Gold is perceived as a natural hedge. Pertinently in 2010, Chinese authorities gave Lion Fund Management the go ahead for the development of the first physicallybacked ETF. We are worried about inflation in the Western World because deleveraging has not really begun yet and (perhaps with the exception of the US this year), growth outlooks for GDPs still look sluggish. This is already pushing up the cost of financing the regional debt burdens and as a result; the cost of balancing the budget deficits. This is increasing the fears over defaults (most notably in developing Europe). Good for gold, as we have already seen. In the longer term, as the dollar continues to weaken against a basket of international currencies, we think foreign governments will continue to hedge/diversify their USD reserves. It will take a long time for another formal reserve currency to develop, which is good news for gold. This will also push up the cost of the US balancing its deficit.

Longer term, foreign lenders look to reduce their exposure to the dollars weakening position in the global market

Selected Gold Equities 3 February 2011

The US, EU, JPN and UKs economies remain highly geared but the...
Gain in value of outstanding debt securities (% rebased to 2002) 120% 100% 80% 60% 40% 20% 0% Jan '02 Jan '04 Jan '06 Jan '08 Jan '10 Surplus/Deficit as % of GDP 0 -2 -4 -6 -8 -10 -12

..cost of financing the deficits is growing in line with worries over GDP growth outlook and...
10 9 8 7 6 5 4 3 2 1 0 Jan '10 Source: Bloomberg, Ambrian Jul '10 Jan '11 Ireland - 10yr Gov'nt bond yield (%) Portugal - 10yr Gov'nt bond yield (%) Gold price (US$/oz) RHS 1100 1000 900 1200 1400 1300 1500

Euro Area Debt (LHS) Euro Area Surplus/Deficit Source: IMF, Ambrian

US Debt (LHS) US Surplus/Deficit

...inflation fear is now back on the agenda...

10 8 6 4 2 0 Jan '06 -2 -4 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 China (CPI %) EU (CPI %) UK (CPI %) USA (CPI %)

...and a good portion of debt needs servicing this year (aggregate bonds due this year)
Bonds due (as a % of GDP) 25 2007 Bank 2011 Bank Government

20

Government

15

10

Source: Bloomberg, Ambrian

Source: IMF, Ambrian

...longer term, as the dollar weakening continues, we think foreign governments will continue to hedge/diversify their USD reserves but It will take a long time for another formal reserve currency to develop, which is good news for gold.
110 100 90 80 70 400 60 50 200 0 X-rate for USD vs. Trade Wt'd basket Gold price (US$/oz) RHS 1400 1200 1000 800 600

Jan '03 Jan '04 Jan '05 Jan '06 Jan '07 Jan '08 Jan '09 Jan '10 Source: Bloomberg, Ambrian

Selected Gold Equities 3 February 2011

With these points in mind, we thought we would highlight on what we feel is the most important recent change in the physicality of the gold market: Central Banks becoming net buyers of gold. The dollars strength has been declining for a long time The extreme volatility of the USDs strength recently appears to be changing attitudes at some Central Banks There are fears that Western Governments are going to struggle to reduce their deficits Former director of the PBoC takes a dim view Some Central Banks hold very large reserves of US dollars, or US dollarpaying debt securities (like those with large budget surpluses e.g. China or those where commodity exports dominate earnings e.g. Russia/Saudi Arabia.) Whilst, the dollars strength has been declining against a basket of global currencies for some time, the battering and extreme volatility the currency has witnessed over the last three years appears to be changing attitudes at some Central Banks. Coupled with a general fear that Western Governments are going to struggle to reduce their deficits, many Central Bank portfolio managers have opted for investments in gold this year. On this point, our guest commodities research commentator, Ted Arnold, was very interested to note the comments of Yu Yongding, a former director of the PBoCs monetary policy committee. Writing in the Financial Times earlier this year, Mr. Yu said China should give no commitment to support the Eurozone through direct government bond purchases this risks simply throwing good money after bad. ...it is little wonder why some are bullish on the gold price over the longer term.
(Gold as a % of Total Government's Reserves) 100 Time frames are1Q'2000 to 1Q'2010 90 80 70 60 50 40 30 20 10 0 Time frames are1Q'2000 to 1Q'2010

...when one considers what happens if developing countries continue recent physical buying trends...
(Gold as a % of Total Government's Reserves) 100 90 80 70 60 50 40 30 20 10 0

Note: we note that asset class valuations within reserves have been fluid over time (e.g. gold rising over last ten years vs. bonds). However, our aim here was to focus the reader on the broad difference between the two graphs. Source: Bloomberg, Ambrian

Source: IMF, Ambrian

With the above points in mind, we think it is worth reviewing the graphs on the following page; where it appears as though the net Central Bank selling trend has been reversed of late. This move has occurred with apparently only small changes to individual countrys reserve management policies. As the above graphs demonstrate, there could be a long way to go on this front. Anyone who follows the spot gold price in detail will no doubt have observed the hugely positive impact that a relatively small amount of Chinese Central Bank buying did in 2Q09. Clearly, sentiment and

Selected Gold Equities 3 February 2011

subsequently, the spot price of gold rallied on this news. This is not something that we foresee happening regularly, as the occurrence was not necessarily normal (in historical terms) for China (either in one off volume terms or the fact that its buying intentions were made so public). The reason for the latter is that the majority of the developing countries choose to transact physical purchases by buying from producers, intergovernment trade and purchasing from organisations such as the IMF. This is so as not to destabilise what we have already highlighted is a reasonably finely balanced physical market (where spot prices can rally even with a positive balance on the supply side). Even if Central Bank buying is well managed, what it is does mean however is that; over time, we see good support for the demand side of that balance. We expect this support to continue (given what is at stake from a developing countrys reserves perspective), even if say, Jewellers, scale down their buying as the price rises during a given period. Putting the Outstanding Central Bank Reserve Volumes in Context
(000't of gold in reserves) 40 35 30 25 20 15 10 5 0 1Q00 The volume of just how much gold sits in reseves (measured in tens of 000's of tonnes!) is key - given that total annual physical demand or supply has only averaged 4kt annually over the last few years (with the difference in balance only varying by several hundred tonnes).

The change in Central Bank holdings since the GFC is far more significant than the differences in the physical supply/demand balance on any given year.

Global gold reserves (Kt) Upper Limit of difference in Physical Supply vs Demand YoY Lower Limit of difference in Physical Supply vs Demand YoY 1Q02 1Q04 1Q06 1Q08 1Q10

Source: WGA, Ambrian

Percentage Changes in a Countys Gold Reserves (weighted by their relation to the total global outstanding in 2008)
2.0% 1.5% 1.0% 0.5% 0.0% 3Q08 -0.5% -1.0% Net sellers over period Germany Sweden IMF Greece France Kazakhstan Netherlands Slovakia ECB Chech Republic Source: WGA, Ambrian Net buyers over period China Russia Philippines Thailand Belarus Ukraine Mexico Mauritius Bangladesh Tajikistan Suriname Cameroon 4Q08 1Q09 2Q09 3Q09 IMF 4Q09 1Q10 2Q10 3Q10 4Q10

China

Russia

....We conclude high gold prices are here to stay for the time being.

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Selected Gold Equities 3 February 2011

Equity Top Picks

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Selected Gold Equities 3 February 2011

Archipelago Resources
BUY
Upcoming Events First production - 1Q11 US$30m exploration budget - Next 2 years

Londons Next Gold Producer

Archipelago is fully funded and due to commence production in 1Q11 at its 1.7Moz Toka Tindung gold project in Indonesia. In addition to entering the ranks of being a gold producer, Archipelago has outlined an aggressive exploration programme that should further enhance the projects economics beyond it current valuation.
Asset Toka Tindung, Indonesia Resource 1.77Moz @ 3.4 g/t Au Interest 95% CY11E production 100,000oz Au

Price (p) Target Price (p) Ticker Market cap (m) Estimated cash (US$m) Debt (US$m) Debt Facility avg (US$m) Attr Reserve (Moz Au) Attr Resource (Moz Au) EV/Reserve (US$/oz) EV/Resource (US$/oz) 52-week (p) High Low 3M-avg daily vol (000) 3M-avg daily val (000) Shares Basic (m) Fully diluted (m) Top shareholders (%) Rajawali Group Baker Steel Columbia Wanger Total

63.0 74.0 AR. 358 48 55 0.9 1.6 589 331

65.0 30.0 331 176

The Toka Tindung Gold Project is set to commence production by the end of 1Q11 and produce 160,000oz Au Eq p.a. Eq over an eight-year project life. Archipelago announced in January 2011 that it had acquired an additional 10% interest in the project, taking its ownership to 95%, with the remaining 5% interest owned by the companys major shareholder Rajawali Corpora (52% - holder of Archipelago). In January Archipelago secured a US$55m debt facility with a prominent Indonesian bank that should provided sufficient funding to complete construction of the project. As part of the financing package, Archipelago is required to buy 100,000oz gold put options with a floor price of US$900/oz. The company has committed to spend US$30m on an exploration programme over the next two years that will focus on as yet untested depth and strike extensions of existing deposits, as well as target the large exploration landholding around the Toka Tindung Project area.

569 581

52.2 9.1 6.4 67.7

Share Price Performance (p)

65 55 45 35 25 Feb 10 May 10 Aug 10 Nov 10 Feb 11
Source: Fidessa

Recommendation BUY; Target Price 74.0p

We have calculated the NPV10% for the Toka Tindung Project to be US$405m. We have applied a 1.5x multiple, which is in-line with its peers, to make a target share price of 74p per share. We believe there is vast exploration potential at Toka Tindung and positive results should aid in driving the share price in 2011. We therefore maintain our BUY recommendation.

Financial Forecasts
Yr to Dec (US$m) Gold sold (000oz) Cash costs (US$/oz) EBITDA Free cashflow EPS (p) 11E 100 440 79 71 2.6 24.1 12E 146 425 109 57 8.6 7.1 13E 154 425 108 58 6.6 9.2 14E 155 425 99 68 6.0 10.2

Ambrian acts as Broker to this company

P/E (x)
Source: Ambrian estimates

Adam Kiley
+44 (0)20 7634 4777 [email protected]

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Selected Gold Equities 3 February 2011

Asset Summary
Project Equity Comment DEVELOPMENT/PRODUCTION Toka Tindung Indonesia 95% High-quality 1.7Moz gold deposit (open-pittable, 3.4 g/t head grade, free milling), plant part-constructed, now seeking finance to complete construction EXPLORATION Pac Lang gold Vietnam Thanh Hoa chrome Vietnam Cam Thuy-Ba Thuoc gold Vietnam Corplex gold/copper Philippines 65% Minority1 Majority1 100%2 JV with state over historic gold mining area targeting >15 2m wide quartz veins JV to mine chromite at a 16.6km2 mine in the northern Thanh Hoa province JV with state entity in area prospective for Carlin-style gold deposits Right to acquire licences in a copper- and gold-rich region close to Anglos Boyongan

1: Under negotiation; 2: Right to acquire; Source: Company reports, Ambrian

Toka Tindung (95%)

Toka Tindung Open-pit Development The companys main asset is the Toka Tindung Gold Project, which has reserves and resources of 0.9Moz and 1.7Moz Au respectively. The company forecasts LOM production of 160,000oz p.a Au Eq over an eightyear project life, with first gold production scheduled by end 1Q11.
Toka Tindung Resource and Reserve Statement Category In-pit reserve Measured Indicated
Source: Company

Tonnes (Mt) 7.6 2.2 11.0 2.2 15.4

Grade (g/t Ag) 9.2 8.0 8.0 8.0 8.0

Grade (g/t Au) 3.8 3.6 3.2 4.3 3.4

Contained (Moz) 0.9 0.3 1.1 0.3 1.7

Attributable (Moz Au Eq) 0.9 0.2 1.1 0.3 1.6

Inferred Total

Source: Toka Tindung CPR (Snowden's), Company presentations, Ambrian

Committed US$30m to ongoing exploration programme

The company has committed to spending US$30m on an exploration programme over the next two years, targeting an increase in reserves and resources above current levels. It has identified untested depth and strike extensions (current known mineralised areas) and also intends to explore untested exploration landholdings around the Toka Tindung Project area. In January 2011 Archipelago acquired an additional 10% interest in the project from the 15% Indonesian minority interest holders. This took its interest in the project from 85% to 95%, with the remaining 5% interest purchased by Archipelagos major shareholder Rajawali Corpora (52%). The 10% interest was purchased for US$4.5m. Production Forecast

Source: Ambrian forecast

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Selected Gold Equities 3 February 2011

Toka Tindung Open-pit Development

Source: Fidessa, Company Data, Ambrian Estimates

US$55m Loan Facility to Complete Project Construction

Archipelago announced a US$55m secured loan facility from a prominent Indonesian bank in January 2011 that will be used to complete construction of the project. The key terms of the facility were: maturity date nine months from the initial facilitys agreement date; and an interest rate of 5.5% pa, with interest paid every three months. Upon maturity of the initial 9-month facility above, a second loan facility of US$55m will be available (if required) to refinance the initial facility, the key terms of which are: maturity date of four years after the agreement date of the second loan facility; and an interest rate of 5.75% pa, with interest paid every three months. As part of the facility agreement, the company is also required to acquire 100,000oz of gold put options with a floor price of US$900/oz over the life of the loan.

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Selected Gold Equities 3 February 2011

Investment Case
2011 will see explorer turn producer We expect Archipelago to have an exciting 2011 on two fronts: first, we believe it has one of the outstanding gold assets on the AIM market and will make a successful transition from developer to producer by the middle of 2011; and second, we are very bullish on the exploration potential at Toka Tindung as there has been very little exploration over the past decade. With a US$30m exploration budget, we expect the current reserve/resources to expand beyond their current levels and we are hopeful there will be further discoveries outside the current known mineralised zones. The particulars of the loan agreement were in line with other gold project financing over the past 12-18 months, and buying gold puts at US$900 (approximately US$450 out of the money) are most likely the cheapest option available (as the bank would have required some form of hedging for the loan agreement), while being fully exposed to what management believes will be an increasing gold price in the future.

Recommendation BUY; Target Price 74.0p

We have calculated the NPV10% for the Toka Tindung Project to be US$405m. We have applied a 1.5 multiple before a steady-state of production is achieved as we dont believe the asset should face any major issues during the ramp-up phase due as it is a relatively high-grade open-pit gold mine, that is processed in a CIL facility; this is as easy as it comes for a gold mine. When applied, this increases the NAV to US$608m, or 74p per share. Financial Forecasts
Yr to Dec (US$m) Ore processed (Mt) Head grade (g/t) Gold sold (000oz) Revenue Cash costs (US$/oz) EBITDA JV Payments Tax Cash Balance PP&E Debt Free cashflow EPS (p) P/E (x)
Source: Ambrian forecast

11E 1.1 3.0 100 146 440 79 (3) 119 132 40 71 2.6 24.1

12E 1.6 3.1 146 195 425 109 (4) (24) 176 113 22 57 8.6 7.1

13E 1.7 3.1 154 187 425 108 (4) (25) 234 91 4 58 6.6 9.2

14E 1.7 3.1 155 177 425 99 (4) (22) 303 68 68 6.0 10.2

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Selected Gold Equities 3 February 2011

Avocet
BUY
Upcoming Events 22-Feb FY10 Financial results 1Q - Completion on sale of SE Asian assets

West African Phoenix

2010 was a watershed for Avocet and we expect its transformation to be completed in 2011 with the sale of its Southeast Asian mining assets and plans for West African growth. Production fell at the companys SE Asian operations in 2010, as it also did in 2009, but the new Inata mine was an outright winner, with production of 137,732oz.
Asset Penjom Indonesia Inata TOTAL Reserve 0.4Moz @ 2.30 g/t 0.2Moz @ 1.17 g/t 1.1Moz @ 2.06 g/t Interest 100% 80% 90% 2010A production* 51,084oz 47,580oz 137,732oz 236,396oz

Price (p) Target price (p) Ticker Market cap (m) Estimated cash (US$m) Debt (US$m) Attr Reserve (Moz) Attr Resource (Moz) EV/Reserve (US$/oz) EV/Resource (US$/oz) 52-week (p) High Low 3M-avg daily vol (000) 3M-avg daily val (000) Shares Basic (m) Fully diluted (m) Top shareholders (%) Elliot Associates Datum AS BlackRock JP Morgan Total

220 271 AVM 434 46.3 84.0 1.4* 4.8* 529 150

*Avocet changed its financial year end to 31 December at the start of 2010; Source: Company data, Ambrian

246 81.5 695 1,520

197.5 197.5

16.2 12.4 7.3 6.7 42.6

Share Price Performance (p)

225 175 125 75 25 Feb 10
Source: Fidessa

Avocets strategic direction comprises of four key components: Realising and growing the potential of Inata. The resource and reserve statement was updated in 3Q10, and the life-of-mine plan now includes the expansion (avg 165,000oz pa) until 2016, at a capital cost of US$25m, funded from cashflow. Accelerated organic growth in West Africa. An aggressive exploration campaign in Burkina Faso and Guinea has commenced; this includes 200,000m of drilling on the Inata and Belahouro licences, and resource drilling at Tri-K and Balandougou. Maximising value from its Southeast Asian assets. In December the company announced a binding sale and purchase agreement for its Penjom, North Lanut and Bakan assets in Malaysia and North Sulawesi, Indonesia, for US$200m cash. Completion is conditional on government approvals and certain rights of first refusal; we have presumed these will be satisfied during 2Q11. Ready and prepared to act on value-adding acquisitions. Prospective exploration portfolio aside, the company continues to apply its considerable in-house expertise to review the West African landscape.

Recommendation BUY; Target Price 271p

Share price momentum is building as Inata delivers, the investment thesis is now about West African growth, and we firmly believe management can make this a 500,000oz pa gold company within five years.
Jun 10 Oct 10 Feb 11

We value Avocet at 1.5x NAV Inata plus cash from the sale of the Southeast Asian assets, which we assume contribute to revenue in 1Q11. Financial Forecasts
Yr to Dec (US$m) Gold Sold (oz) Sales EBITDA 9m09* 82,174** 82,945 24,503 (12,643) (7.63) N/A N/A 1H10 97,747 92,054 28,674 8,623 3.34 N/A N/A 2010E 236,396 253.9 98.6 23.7 12.0 6.9 28.2 2011E 215,899 256.2 111.2 42.1 21.3 6.1 15.9 2012E 172,626 188.4 85.0 34.6 17.5 8.0 19.3

Ambrian acts as Broker and Nomad to and as a Market Maker in this company

Adj PAT EPS (US) EV/EBITDA (x) P/E (x)

Duncan Hughes
+44 (0)20 7634 4775 [email protected]

Note: *9-months ending 31 December 2009 (change of year end to Dec);** CY09 = 109,548oz; Source: Company data, Ambrian estimates

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Selected Gold Equities 3 February 2011

Asset Summary
Project Equity Comment PRODUCING Inata Burkina Faso 90% Distressed commissioning led to acquisition of Wega Mining. Avocet successfully commissioned the plant and ramped up to exceed nameplate capacity regularly in 2H10. Capacity increases are now underway to maintain 165,000oz pa ASSETS deemed SOLD Penjom Malaysia 100% Hard-rock open-pit mine processing ore using a proprietary resin-cyanide process. Extended period of waste stripping in 1H10 has contributed to recent growth in production and lower cash costs. Potential underground expansion Open-pit heap-leach operation processing near-surface ore. Underlying sulphides very high-grade, but not amenable to heap leaching Close to North Lanut, potentially open-pit oxide resource, suitable for dump/heap-leach awaiting full permitting

North Lanut Indonesia Bakan Indonesia

80% 80%

Source: Company reports

Inata (90%) Inata is a large, medium-grade, open-pit mine in Burkina Faso. The previous owner, Oslo-listed Wega Mining, ran over-budget, over-schedule and breached debt covenants as commissioning took longer than expected. Avocet acquired Wega in an all-share deal that completed in June 2009, and immediately commenced extensive rectification work that paved the way for the first gold pour in December 2009. Nameplate capacity of 285t per hour (tph) was achieved by September 2010. The Inata deposit is a robust orebody comprising relatively simple NE trending, structurally controlled mineralisation in close proximity to graphitic shales and associated with quartz veins and sulphides. Extensive weathering has resulted in oxide mineralisation up to 100m depth. The known mineralisation is open along strike and at depth.
Avocets Production Profile

Source: Company, Ambrian

Inata the focus of a string of expansions

The life-of-mine plan was revised upwards in September 2010 to achieve 165,000oz pa (average) until 2016, subject to orebody extensions and/or additional greenfield discoveries. An expanded plant capacity of 2.7Mtpa (340tph), scheduled from July 2011, will require a third phase expansion of the mining fleet. Whilst the expansion of the pit will result in a higher overall strip ratio of 9.4, rising from 6.5 in 2010 to 12.7 in 2011/2012,

17

Selected Gold Equities 3 February 2011

declining thereafter. Cash costs are estimated to be in the range US$525575/oz. West African Exploration Avocet has exploration tenements in Burkina Faso, Guinea and Mali. The immediate focus is to delineate adequate resources at one prospect to justify a production decision at the end of 3Q11. As a result, exploration activity in 2011 will concentrate in two areas: the Inata mine area, including prospects that are sufficiently distant to be likely to require a standalone plant (eg, Filio), and the Tri-K district in Guinea. Although an initial resource has been calculated for the Souma Trend, which is an attractive exploration target with commercial potential, this is not considered to be an immediate priority. Objectives and Anticipated Newsflow in 2011
Objectives Double the Inata Reserve Inata Prospect areas immediately adjacent to Inata Mine Drilling Drilling results 1Q 2Q 3Q Resource and reserve upgrade Initial resource estimate at Filio

Future project oz lie hidden in West African exploration programme

Western Domain: ~100,000m of RAB drilling to test anomalies Blahouro Eastern Domain (including Souma Trend) future exploration Tri-K Resource target 2Moz Guinea Increase Koulkoun resource Establish a maiden resource at Kodiran -

Drilling results

Tri-K (Kodieran) scout drilling results Balandougou scout drilling results

Tri-K (Koulekoun) resource update

Follow-up drilling results from Guinea Tri-K resource upgrade

SE Asian Exit
The Penjom, Lanut and Bakan are all subject to the sale and purchase agreement for the Southeast Asian assets. Penjom (100%)
2009 Ore Treated (t) Grade (g/t) Gold Produced (oz) Cash Costs (US$/oz) 972,000 3.24 62,654 705 2010 420,000 2.56 51,084 944 1Q11E* 190,000 2.30 12,223 1,039

Source: Company reports Note: *We show 1Q only, as this is our expectation of attributable production before sale completion

Penjom is a complex orebody, exploited by way of an open-pit mine with a proprietary resin-in-leach processing plant that has historically produced more than 90,000oz pa at cash costs of less than US$400/oz, although gold production has been falling and costs rising for several years. Following an extensive drilling programme, the company released an updated Mineral Resource statement in March 2010, containing 1,197,900oz @ 1.76 g/t. The current mine reserve is sufficient for a four-

18

Selected Gold Equities 3 February 2011

year life, but the expectation is that this can be extended on the back of the expanded resource at depth. In 2010 Avocet decided to undertake intensive waste stripping in the first six months to access higher-grade ores, especially in the Jalis Zone. This had a further, negative impact on production and costs (most noticeably in 2Q), but was carefully managed and full-year production met the guidance provided by the company. North Lanut (80%)
2009 Ore Treated (t) Grade (g/t) Gold Produced (oz) Cash Costs (US$/oz) 1,282,000 1.69 46,894 550 2010 1,301,000 1.87 47,580 674 1Q11E 400,000 1.80 12,269 722

Source: Company reports Note: *We show 1Q only, as this is our expectation of attributable production before sale completion

Financial Summary
At 30 September 2010, Avocet had cash at bank of US$46.3m and net debt of US$84m (comprising US$59m outstanding of the US$65m project finance facility with Macquarie Bank for Inata and a US$25m corporate revolving credit facility with Standard Chartered Bank). The project finance is being repaid at US$6m/Q first repayment made in September 2010. Connected with the debt, linked to the acquisition of Wega Mining, Avocet has a gold hedge of 362,019oz (31 October 2010) at an average US$970/oz. The hedge is being delivered at ~25,000oz/Q.

Investment Case
All cashed-up by 2Q11 on completion of US$200m SE Asian asset sale Although the disposal of the Southeast Asian assets would enable Avocet to repay in cash a large part of the gold hedge, managements current preference is to focus efforts and cashflow on increasing production, reducing the impact of the below-market hedge. The already announced expansion of Inata, for example, will decrease the proportion of hedged production ounces from ~70% to 55%. Avocets perceived weakness (and its not much of one given the production and management costs of Southeast Asia) is the imminent loss of production in return for cash; however some of this cash could be utilised for cancelling some debt. With what will be a sizable cash balance and an operating mine (and large exploration package) in what is arguable the hottest gold region in the world Avocet is our preferred West African gold play on AIM.

Recommendation BUY; Target Price 271p

We value Avocet at 1.5x NAV Inata, plus cash from the sale of the Southeast Asian assets which provides a target share price of 271p. We firmly believe management can make this a 500,000oz pa gold company within five years through an expanding Inata and an aggressive exploration program on nearby targets. With a sizable war chest post the divestment of the SE Asian assets there is also the potential for further corporate activity.

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Selected Gold Equities 3 February 2011

Centamin Egypt
BUY
Upcoming Events 1Q11 Q1 Results 2Q11 Board approves expansion to 10Mtpa 1H11 Decision on U/G development Price (p) Target Price (p) Ticker Market cap (m) Estimated cash (US$m) Debt (US$m) Attr Reserve (Moz Au) Attr Resource (Moz Au) EV/Reserve (US$/oz) EV/Resource (US$/oz) 52-week (p) High Low 3M-avg daily vol (000) 3M-avg daily val (000) Shares Basic (m) Fully diluted (m) Top shareholders (%) Massachusetts Mutual El-Raghy Family Aegon UK Group Ameriprise Financial Inc Total 7.6 6.7 5.0 5.0 24.3 137 174 CEY 1,481 166 4.5 7.3 486 303

Underground Production holds the key

Recent events in Egypt have not distracted Centamin from having its best quarterly results to date. After producing 53,189oz at a cash cost of US$498/oz in the December 2010 qtr, Centamin is on track to meet its 2011 production target of 250-290,000oz. However, to meet those targets the continuing development of the underground holds the key.
Asset Sukari Resource 14.5Moz @ 1.5 g/t Interest 50% CY11E production 270,000oz

197 131 5,816 9,409

Expected 2011 production will be in the range of 250-290,000oz, with average cash costs around US$450/oz. Production from the open pit and heap leach is expected to produce 200215,000oz, and the balance of production will come from the underground development. Further guidance is planned for mid-2011 as more information becomes available on the timing and scale of commercial underground production rates. Record quarterly gold production of 53,189oz was achieved from its in the December quarter, with production averaging over 20,000oz per month in November and December. Cash operating cost averaged US$498/oz for the quarter. Positive Scoping Study for a 10Mtpa gold processing facility at Sukari, which would result in gold production peaking at 700,000oz pa in 2015 and averaging 415,000oz pa over the 15-year study period (2012-26) at LOM operating costs of around US$425/oz (excluding u/g). Recent political events in Egypt have not affected the safety of the companys employees or the day-to-day operations at its flagship project Sukari.

1,081 1,085

Recommendation BUY; Target Price 174p

We believe that a 1.7x NAV seems appropriate for Centamin as we think that growing production should drive the multiple higher. For that reason, we have calculated a price target of 174p. We believe Centamins LOM production forecast of 415,000oz Au pa is achievable, but we highlight that the grade mined/processed in the earlier years is much higher than that in the latter years. We do, however, expect the underground production to compensate this potential drop off. Financial Forecasts
Yr to Dec (US$m) 10A 130 124 514 166 3.0 50.5 11E 216 302 500 335 10.0 15.0 12E 289 370 403 389 13.2 11.3 13E 427 497 407 661 14.6 10.2 14E 518 569 399 867 10.3 14.5 15E 703 773 278 1,176 15.4 9.8

Share Price Performance (p)

220 200 180 160 140 120 100 Feb Apr 10 10
Source: Fidessa

Jun Aug Oct Dec Feb 10 10 10 10 11

Gold sold (000oz) Revenue Cash costs (US$/oz) Cash Balance EPS (p) P/E (x)
Source: Ambrian estimates

Ambrian acts as Broker to and as a Market Maker in this company

Adam Kiley
+44 (0)20 7634 4777 [email protected]

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Selected Gold Equities 3 February 2011

Asset Summary
Project Equity Comment PRODUCING Sukari Egypt 50%* World-class gold deposit. Open pit is scheduled to be mined until 2026. Currently developing the underground extension to the deposit. Forecast 2011 production 250-290,000oz

*50% profit share after cost recovery on 100% equity basis equates to some 38% tax with front-loaded cashflows; Source: Company reports, Ambrian

Sukari Resource and Reserve Growth

Sukari (50%)
Overview Sukari is located approximately 700km south of Cairo and 25km west of Marsa Alam on the Red Sea. Sukari began commercial production in 2010 and produced approximately 150,000oz Au for CY10 at an average cash cost of US$514/oz. Sukari has forecasted 2011 production of between 250-290,000oz, with average cash costs around US$450/oz. Production from the open pit and heap leach is expected to produce 200 215,000oz and the balance of production is to come from the underground development phase. Selection of the optimal underground mining method is expected to occur during 1H11, following the completion of the definition drilling programme.
Sukari Resource and Reserve Statement Category Tonnes (Mt) 102.4 142.9 245.3 235.7 68.9 304.6 Grade (g/t Au) 1.09 1.19 1.15 1.45 1.60 1.48 Contained (Moz) 3.6 5.5 9.1 11.0 3.5 14.5

Source: Company

Proven Probable Total Reserve Measured & Indicated Inferred Total Resource

Source: Toka Tindung CPR (Snowden's), Company presentations, Ambrian

Scoping Study 10Mtpa Positive scoping study for next expansion phase to avg. 415koz pa Centamin completed a scoping study on a 10Mtpa processing facility at Sukari in December 2010 and found the results confirmed the project economics of a further expansion to 10Mtpa increased the value for investors beyond that expected from the current expansion to 5Mtpa (completion expected mid-2011). The key findings of the study which have been applied to our valuation are summarised below: Increased open pit mining rate peaking at 74Mtpa was selected to maximise plant feed grade in the early years of the project based on the most recent proven and probable reserves and pit designs. Resultant gold production peaking at 700,000oz pa in 2015 and averaging 415,000oz pa over the 15-year study period (2012-26) with a LOM operating cost of around US$425/oz. Capex scoped at US$179m Capital cost for the expanded plant was estimated at approximately US$179m (excluding contingency and additional mobile mining equipment). The Board is expected to provide a final commitment to proceed with construction of the project expansion late in 1Q/early in 2Q11, which would include the placing of orders and deposits for long lead items (such as mills, key mining equipment and large electrical equipment), once the

Decision expected 2Q11

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Selected Gold Equities 3 February 2011

front-end engineering and design, detailed capital cost and scheduling are all largely outlined/completed. Average LOM production 415,000 oz p.a at US$425/oz of
15E 9.7 6.0 10.0 94% 703 703

Yr to Dec Ore Mined (Mt) Strip Ratio Ore Processed - CIL Recovery % Gold Produced CIL* Gold Produced H/L Total gold Produced

10A 6.1 3.3 3.1 87% 142 8 150

11E 5.0 5.6 4.3 90% 200 17 216

12E 10.5 1.9 6.0 94% 272 16 289

13E 9.7 4.7 10.0 94% 423 4 427

14E 9.7 6.6 10.0 94% 518 518

Source: Ambrian estimates Note: *Open pit production only excludes u/g production;

Geology Underground zones come into play The Sukari deposit is hosted by a large porphyry body, which is located on a regional shear zone. The body has provided a competency contrast and favourable conditions for shallow-dipping ore zones to form. Ore is hosted in four different zones along a steep hill: Amun, Ra, Gazelle and Pharaoh. The open pit is based on the Main and Hapi ore zones, which have been well drilled. The initial open pit was optimised to 300m depth, then expanded to 450m at the deepest. We do not expect the pit to get much deeper, but do expect some good resource upgrades from a poorly-drilled section in the middle of the orebody (red circle in below cross section), which should support additional underground mining.

Schematic Long-section of the 2.5km Long Sukari Ore Deposit

Source: Centamin

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Selected Gold Equities 3 February 2011

Investment Case
Improved production with 20koz/mth produced in Nov/Dec last year The December quarterly report was positive on a number of accounts. First, Centamin vastly improved its gold production for the quarter, producing 53,189oz of gold. This was approximately 23,000oz (or a 76%) improvement on September gold production. Contributing to this was the mining/processing of underground ore. We believe if Centamin and beyond production expect to be updated underground operations is to achieve their production guidance into 2011 from the underground is going to be vital. We on a clearly-defined plan and guidance on the by the middle of 2011.

2011 target +250,000oz

Recent political events have little effect on operations

Recent political event have been the major cause for the recent decline in Centamins share price. We dont believe that a potential presidential change should have an effect on the ownership of Sukari, as either the current or a new government would want to protect its income stream from its only operating mine and encourage foreign investment, not deter it.

Recommendation BUY; Target Price 174p

Further valuation potential from the underground We have calculated a value for the Sukari Project (10Mtpa processing facility) based on a 1.7x NPV10% of 174p. We believe Centamins LOM production forecast of 415,000oz Au pa is achievable, but we highlight the grade mined/processed in the earlier years is much higher than that in the latter years. We do, however, expect the underground production to compensate this potential drop-off in both grade and oz produced. We strongly believe the underground development is the key for the maintenance of production for Centamin in the future and will be the swing factor that will determine if Centamin reaches its production targets or misses them.

Key Production and Financial Forecasts

Yr to Dec Strip Ratio (x) Ore Processed - CIL Grade (g/t) Total gold Produced (000oz) Revenue (US$m) Cash costs (US$/oz) EBITDA (US$m) Profit before Govt. pmt (US$m) Government distribution (US$m) Net Profit (US$m) Cash Balance (US$m) Free cashflow (US$m) EPS (p) P/E (x)
Source: Ambrian estimates

11E 5.6 4.3 1.6 216 302 500 179 173 173 335 171 10.0 15.0

12E 1.9 6.0 1.5 289 370 403 237 229 229 389 54 13.2 11.3

13E 4.7 10.0 1.4 427 497 407 302 283 29 253 661 273 14.6 10.2

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Selected Gold Equities 3 February 2011

Chalice Gold Mines

BUY INITIATION
Upcoming Events Determine payment from ENAMCO US$20m exploration budget over next 2 yrs Granting of further tenements in Eritrea Price (A$) Target Price (A$) Ticker Market cap (A$m) Estimated cash (A$m) Debt (A$m) Attr Reserve (Moz Au) Attr Resource (Moz Au) EV/Reserve (A$/oz) EV/Resource (A$/oz) 52-week (A$) High Low 3M-avg daily vol (000) 3M-avg daily val (A$000) Shares Basic (m) Fully diluted (m) Top shareholders (%) Franklin Group Tim Goyder (Chairman) Lujeta Pty Ltd Total 0.65 0.79 CHN.ASX 138 7 0.7 0.8 200 181

Dominant position in Nubian Shield

The Arabian-Nubian shield continues to gain recognition as one of the great under-explored gold regions in the world; Chalice Gold Mines was early to recognise this and is now one of the largest tenement holders in Eritrea. With an aggressive exploration programme underway and larger miners starting to look at the once troubled region, Chalice should continue to gain momentum in 2011.
Main Assets Zara Gold Project, Eritrea Resource 840,000oz @ 5.3 g/t Au Interest 90%* LOM production 105,000oz Au p.a

*Government has option to acquire an additional 30% interest in the project which it has indicated it will exercise

0.78 0.32 521 362

The companys key asset is the Zara Gold Project in Eritrea, which is due to begin production in 2013. The project has a current resource of 840,000oz Au at a grade of 5.3 g/t and the company believes it will produce 105,000oz Au p.a LOM at a cash cost of US$338/oz. Chalice is one of the largest tenement holders in Eritrea, with approved holdings of over 1,400km and some 18,000 km currently under application. The company has an exploration budget for the coming two years of approximately US$20m. The Eritrean Government has indicated that it will exercise its 30% paid participating interest in the Zara Project . Assuming an agreement on the valuation can be made (discussions are ongoing), this will provide an upfront cash payment to Chalice which will have the effect of lowering its future capital raising requirements.

211 224

14.8 11.9 6.8 33.5

Recommendation BUY; Target Price $0.79 - INITIATION

We have calculated a value for the Zara Project based on a 0.65x NPV10% of US$0.64. We originally applied a 0.75x NPV multiple, but lowered this due to the uncertainty surrounding the size and timing of the payment to be made by ENAMCO for its additional 30% paid participation interest. We believe the driver of Chalices share price for 2011 will be the potential for exploration success. For that reason, we have increased our valuation by US$0.14 to a target share price of US$0.79. Below we highlight the metrics of the project once in production (assuming a 90% interest and 100% equity funded). Financial Forecasts
Yr to Dec (US$m) Gold sold attr (000oz) Cash costs (US$/oz) EBITDA Free cashflow
Source: Ambrian estimates

Share Price Performance (A$)

0.8 0.7 0.6 0.5 0.4 Feb Apr 10 10
Source: Fidessa

Jun Aug Oct Dec Feb 10 10 10 10 11

13E 35 439 20.4 (25)

14E 127 262 132.1 98

15E 111 316 111.0 86

16E 96 366 92.5 74

Adam Kiley
+44 (0)20 7634 4777 [email protected]

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Selected Gold Equities 3 February 2011

Zara Gold Project (90% CHN, Eritrean Government 10%)

The Zara Gold Project is a high-grade, shallow gold project located in the East African country of Eritrea. The project is in the highly prospective Nubian Shield gold belt that hosts several major gold deposits, including the world-class Sukari gold mine (Centamin Egypt).
Major Gold Deposits in the Nubian Shield

Source: Company

Open pit production planned for 2013

The key deposit in the Zara Project is the Koka gold deposit, which hosts a JORC resource of 5Mt at 5.3 g/t Au for 840,000oz Au. The company plans to begin open-pit mining the deposit and at a LOM rate of 105,000oz p.a.
Koka Resource and Reserve Statement Tonnes (Mt) 4.6 4.6 5.0 5.0 Grade (g/t Au) 5.1 5.1 5.3 5.3 Contained Au (000oz) 760 760 840 840 Contained Au (000) Attr 90% 684 684 756 756 Contained Au (000) Attr 60% 456 456 504 504

Category Proven Probable Reserve Measured Indicated Inferred Total

Source: Annual Report - 2010

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Selected Gold Equities 3 February 2011

Company has put exploration applications covering ~15% of the country

In addition to the Zara Project, the company was recently granted a another 830km as a tenement package. When this is added to the Zara tenement package, Chalice becomes one of the largest tenement holders in Eritrea. The company also has approximately 18,000km tenement applications under review.
Land Holdings Applied and Granted

Source: Company

The company is planning to spend approximately US$20m over the next two years on exploration. Whilst the majority of this will be spent on areas close to Zara (to improve the project economics), there will also be greenfield exploration on the newly acquired tenements. One of the recent granted tenements is located 10km no rth of Nevsun Resources Bisha polymetallic VHMS deposit.

Government Option to Buy 30% Interest

Government have indicated it will exercise its option to buy 30% of the company The state-owned Eritrean National Mining Corporation (ENAMCO) has an option to purchase, at fair value, a 30% paid participating interest to add to its 10% free participating interest provided for in Eritrean mining legislation, resulting in a potential total state participation of 40%. The purchase price to be paid by the state will be determined by either an agreement between the government and Chalice or, as is the case with Nevsun Resources Bisha Project, an independent valuation based on the NPV of 30% of the project. ENAMCO has indicated that it will be exercising its rights. Discussions in relation to the acquisition are currently ongoing.

Investment Case
The Zara Project provides a strong underlying base for the companys share price, and as Zara moves closer to production the share price should receive a re-rating.

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Selected Gold Equities 3 February 2011

Eritrea one of Africas hotspots for VMS deposits

However we believe driving force behind Chalices share price in the future will be the potential for further exploration success. We believe management has recognised this by outlining an aggressive US$20m exploration programme over the coming two years. Whilst finding nearmine expansions will help the economics of Zara, the search for a worldclass deposit is the main game for Chalice, in an area that has become one of Africas top gold & polymetallic exploration regions. With a number of larger companies reportedly considering investing in Eritrea, any exploration success will surely attract attention.

Recommendation BUY; Target Price A$0.79

Exploration upside for free based on strong project economics for Zara We have calculated a value for the Zara Project based on a 0.75x NPV 10% of A$0.74 (based on a 90% interest in the project). However, as announced by Chalice in November 2010, ENAMCO will exercise its right to acquire an additional 30% (paid participating interest) in the project. In a perfect world, this would have no effect on the valuation of Chalice because ENAMCO will pay 30% of the projects NPV at time zero, therefore (theoretically) having zero effect on the value to Chalice. However, as we do not live in a perfect world, the perception of increased uncertainty in relation to a fair-value transaction has resulted in us applying a temporarily decreased NAV multiple of 0.65x NAV, reducing the Zara Projects value to US$0.64. On the announc ement of the terms for the divestment we will raise the multiple back to 0.75x. As highlighted earlier, we believe the key driver for Chalice will be the potential for exploration success. We therefore have added a conservative US$30M (or US$0.14/share), which with the Zara Project puts our target price at US$0.79. We emphasise that any new discoveries or extension to the Zara Project would result in a share price re-rating that would most likely surpass our current target price.

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Selected Gold Equities 3 February 2011

Condor Resources
SPEC BUY INITATION
Upcoming Events 1Q11 - Complete current resource conversion process and site visit 2Q11 - Additional resource update at La India, anticipate it could take resource over 1Moz Price (p) Target Price (p) Ticker Market cap (m) Estimated cash (US$m) Debt (US$m) Attr Reserve (Moz eq Au) Attr Resource (Moz eq Au) EV/Reserve (US$/eq Au oz) EV/Resource (US$/eq Au oz) 52-week (p) High Low 3M-avg daily vol (000) 3M-avg daily val (000) Shares Basic (m) Fully diluted (m) Top shareholders (%) M Child (Chr) Oracle Management Ltd J Mellon Total 5.5 7.5 CNR 30.15 0.5 0 0 1.65 0 23

Nicaraguan Gold Pot

Condor is in the process of converting and upgrading gold resources at its La India Project in Nicaragua. The company looks set to tap into high-grade gold mineralisation in and around historical mine infrastructure.
Asset La India - Nicaragua La Calera El Salvador Pescadito El Salvador Resource 0.91Moz @ 5.0 g/t Au 0.31Moz @ 1.4 g/t Au 0.43Moz @ 1.9 g/t Au Interest 80-100% 100% 100% CY11E production N/A N/A N/A

Source: Company data, Ambrian estimates

Last months announcement on the conversion of 0.9Moz of Russian (GKZ) resources to JORC-compliant resources presented an incomplete picture. Not all the data was processed and completion of the Russian resource conversion is now expected in March 2011. A diamond drill programme is underway at La India. This new programme is designed to upgrade a significant portion of the current inferred resource as well as expand the current JORC resource. We expect a number of high-grade gold intersections to be announced to the market from March 2011 onwards. An announcement on a resource upgrade is anticipated at La India during the summer. A 1.2M Eq Au oz resource in El Salvador is currently receiving little value from the market. These projects are currently on hold pending the outcome of the El Salvadorian governments moratorium on mining .

11.0 0.43 7,789 501

292.3 346.8

10.2 9.9 4.6 24.7%

Recommendation Spec Buy; Initiation -Price Target 7.5p

Our sector analysis has determined that the industry average EV/resource ounce valuation for a pre-BFS Latin American project is US$63/oz Au. Applying this to Condors Nicaraguan resources only, we estimate an appropriate fair value start point for Condor is 7.5p/share. This represents a ~36% premium to the current market price of 5.5p. We are comfortable that applying an average EV per resource ounce valuation from the sector is fair and reasonable when taking into account the high-grade gold, proximity to infrastructure, inferred nature of the resource and exploration upside at La India. Given the uncertainty over mining in El Salvador, we have assigned no value to the La Calera and Pescadito resources at this time, and believe this should be viewed as a free option with upside. If we were to apply the same metrics to the El Salvador resource, then Condors fair value would rise to 16p/share on an in-situ resource basis.

Share Price Performance (p)

12.1
10.1

8.1 6.1 4.1 2.1 0.1 Feb 10 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10

Source: Fidessa

Ambrian acts as Broker and Nomad to this company

Duncan Hughes
+44 (0)20 7634 4775 [email protected]

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Selected Gold Equities 3 February 2011

Asset Summary
Project Equity Comment DEVELOPING La India - Nicaragua Rio Luna Nicaragua La Calera El Salvador Pescadito El Salvador 80%/100%* 100% 100% 100% 0.9Moz inferred resource located in and around historical mine infrastructure. High-grade, low sulphidation epithermal gold veins Potential for shallow high-grade gold 0.31Moz @ 1.6 g/t Au JORC resource 0.43Moz @ 1.8 g/t Au and 22Moz @ 96 g/t Ag JORC resource

*40% of La India tenement package is in 80% JV with B2 Gold; Source: Company data, Ambrian

La India Project (80%-100%)

Good local infrastructure The La India low-sulphur epithermal gold project is located in Western Nicaragua, approximately 50km east of the city of Leon. The project is well placed with regard to infrastructure, with a good quality sealed road, grid power and water sources nearby. In 2010 Condor completed a tenement swap with TSX-listed B2 Gold whereby B2 acquired an 80% interest in Condors tenements along strike from B2s La Libertad Mine in return for 80% of part of the La India concession. The project hosts the La India Mine, which mined a reported 576,000oz of gold at 13.4 g/t between 1938 and 1956. Inferred JORC resource of 0.9Moz and growing at La India SRK commenced conversion of a 2.4Moz Russian resource (1.5Moz is in the P1 category and, consequently, only sparsely drilled) to an inferred JORCcompliant resource of 4.6Mt @ 5.9 g/t, or 868,777oz Au. The conversion process was incomplete at the end of December 2010, which was the date by which management had committed to releasing a JORC resource to the market. As an interim measure, an incomplete JORC-compliant resource was announced in early January and was, consequently, lower than the market was anticipating. The huge volume of data supplied from historical drilling, trenching and mine infrastructure will now be fully processed by March 2011 and Condor will then be in a position to present a more complete resource picture. The company also expects a portion of the resource to be upgraded to the indicated category, through surveying historical drill ho les, trenches, existing mine infrastructure and mine geology. Running in tandem to the conversion process, we also expect to see La Indias resource grow over 1Moz as a result of the current 5,000m diamond drilling programme started in January, the results of which are expected to be released during the summer. Additional upside also exists within a currently excised tenement at La India. The tenement is believed to host several hundred thousand ounces and is surrounded by the Condor gold resource. The tenement is owned by a local businessman and we would not be surprised if Condor looked to acquire these assets at some point in the future.

Completion of Russian to JORC resources expected in March

Further resource upgrades to follow pending exploration programme

Rio Luna (100%)

This project is located half way between La India and B2 Golds La Libertad mine. Exploration drilling results including 2.7m @ 16 g/t, 21m @ 3 g/t and 19m @ 12.5 g/t targeting 18km of auriferous veining are encouraging. We expect to see more activity here in the future as the company targets additional gold ounces.

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Selected Gold Equities 3 February 2011

Nicaragua
Nicaragua is pro-mining, with three operating gold mines The days of civil war are long gone in Nicaragua. Unlike some of its Central American neighbours, the government is pro-mining; in fact, the current president originates from the mining town of La Libertidad. Infrastructure in the west of the country is good, with roads, power and a local workforce available to support mining. Mining revenue is becoming increasingly important as a contributor to GDP the country already hosts three gold mines at La Libertidad, El Limon and Bonanza. In 2010, gold was the countrys third largest export. The government has a workable mining code and a relatively low tax rate of 25%, with royalties in the region of 3%.

El Salvadorian Assets
El Salvador has an unofficial moratorium on mining The situation in El Salvador is not as favourable. In 2006 the government placed an unofficial moratorium on all mining activities, forcing Condor, and others, to stop all activities in country. However, signs indicate the situation is improving, if a little slowly, with the government inviting the Spanish-owned Tau group to carry out an environmental impact assessment on mining in the country. In recent months the government and the Tau group have been open to dialogue with Condor. Condors La Calera project hosts a shallow 300,000oz resource only 10km west of Pacific Rims 1.6Moz El Dorado project in central El Salvador. We see opportunities for toll treating or farming out this project should the situation improve in El Salvador. Condors Pescadito project hosts close to 0.5Moz Au equivalent in eastern El Salvador. However, these are spread over several deposits. We believe that more work is required at Pescadito should the company wish to mine at some future date.

Peer Analysis
Condor looks significantly undervalued on an EV/resource oz basis A group of 13 Latin American listed exploration companies was used to determine an average value for in-situ resource ounces in Condors peer group. The graph below shows an average valuation of US$63/oz. Condor appears undervalued in the sector on its Nicaraguan resources alone, and looks extremely undervalued when the El Salvadorian resources are included.
EV/Resource Ounce for Latin Gold American Explorers

Source: Ambrian

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Selected Gold Equities 3 February 2011

Investment Case and Opinion

1H11 resource upgrades will rebuild market confidence We believe Condor is oversold on the back of the release of an incomplete resource statement. Predictably, the market reacted negatively to what appeared to be a disappointing announcement, but this should be seen as an opportunity in an exciting gold prospecting region that has effectively been ignored because of regional instability. The situation has not been helped by the selling down of one of the company directors shareholdings in the company. The upshot of this is that there will be subsequent releases showing an improved conversion to JORC resources later this quarter. The key risk going forward, as with all exploration companies, is technical. However, we note that the initial upgrade of the resource requires little exploration activity and expenditure and is more a case of low-cost surveying and data interrogation. We are comfortable that Nicaragua now presents a relatively stable environment to explore and develop gold projects. We expect some positive news over 1H11 from drilling results and upgraded resources. This newsflow is likely to act as a catalyst to grow Condors share price. Given Condors cash position at present and its current programme of 2,0005,000m of diamond drilling, we envisage that the company may require additional funds in 2011. The likely sources of funds would be a farm-out of some exploration tenure or a fund raise on AIM. El Salvador resources offer options We also feel that the resources in El Salvador should be viewed as upside potential. A lifting of the moratorium would likely increase the market valuation for Condor significantly.

Resource upgrade requires little/no additional funding

Recommendation Speculative Buy

In our valuation we have applied an average EV/resource ounce valuation of US$63/oz to Condors La India resource. This average is based on a Latin American gold universe. It compares well to the US$61/oz mean we calculate for an AIM and selected Australian universe. Initiating applying a relatively low US$/oz resource factor Applying the US$63/resource oz to Condors Nicaraguan resources only suggests a fair valuation of 7.5p/share. This represents a ~36% premium to the current market price of 5.5p. It is important to note that this implies no value for the El Salvador assets; if these resource ounces are applied then Condor should expect to be valued at 16p/share on an insitu resource basis. We are comfortable that an average resource ounce valuation from the sector is fair and reasonable when taking into account the high-grade gold, proximity to infrastructure, inferred nature of the resource and exploration upside at La India. Given the uncertainty over mining in El Salvador we have applied no value to the La Calera and Pescadito resources at this time, and believe this should be viewed as a free option with upside. We initiate on Condor with a SPECULATIVE BUY and a price target of 7.5p, and anticipate that newsflow over the next 6-9 months will act as a catalyst for further uplift.

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Selected Gold Equities 3 February 2011

Gold One International

BUY
Upcoming Events: Ventersburg PFS report 1Q11 1st quarter report April 2011

Deserves to be Re-rated
Gold One has continued to improve and meet its quarterly gold production targets over the past six months; it is forecast to produce 25,000oz Au in the March 2011 quarter. Provided the company continues to achieve and improve on its production/cash cost targets, we believe the share price will be re-rated.
Main Asset Modder East, South Africa Reserve 1.5Moz@ 4.0 g/t Au Interest 76% Production 2011CY 120,000oz Au

Price (A$) Target Price (A$) Ticker Market cap (A$m) Estimated cash (A$m) Convertible Note (US$m) Reserve (Moz Au) Resource (Moz Au) EV/Reserve (A$/oz) EV/Resource (A$/oz) 52-week (A$) High Low 3M-avg daily vol (000) 3M-avg daily val (A$000) Shares Basic (m) Fully diluted (m) Top shareholders (%) African Global capital Baker Steel The Au Limited Partnership Titan Nominees Total

0.29 0.47 GDO.ASX 235 11 62 1.5 21.7 156 10

The December 2010 quarter was a record for Gold One: it produced 21,480oz Au at a cash cost of US$467/oz. The company has forecast production of 25,000oz in the March 2011 quarter and 120,000oz Au for CY11. Unaudited financials for 2010 indicated that Gold One achieved a profit before tax of approximately US$18m vs. a loss of US$25.8m in 2009. Convertible bondholders also decided not to exercise their one-off put option to redeem their bonds for cash in November 2010. Reserves and Resources at Modder East continue to grow. Gold One upgraded the reserve in December 2010 to 1.5Moz Au. This extended the mine life to 2023. The resource has also increased to 4.3Moz Au. Ventersburg, with a 3.9Moz Au resource, is scheduled to be Gold Ones next producing operation. The company is scheduled to complete the pre-feasibility report by the end of this March quarter.

0.42 0.21 1,950 661

807 896

17.7 9.7 4.6 2.9 34.9

Recommendation BUY; Target Price A$0.47

We have set a price target for Gold One of A$0.47 based on a 1.0x NPV10% for the Modder East Project. Provided that management achieves its production rates and grade/costs targets, we believe there is scope for a NPV multiple re-rating to 1.5x, which would potentially lift our price target to A$0.70. There is also further upside potential when the Ventersburg project feasibility study is released (due this March quarter end) as this could boost our Gold One NPV and further lift our price target. Financial Forecasts
Yr to Dec (A$m) Gold sold (000oz) Cash costs (US$/oz) Revenue EBITDA Cash Convertible Note (US$m) EPS (A) P/E (x)
Source: Ambrian estimates

Share Price Performance (A$)

0.44 0.40 0.36 0.32 0.28 0.24 0.20 Feb 10 Jun 10 Oct 10 Feb 11

11E 120,000 430 169.5 106.2 52.8 62.0 9.1 3.5

12E 150,000 400 207.7 128.5 61.0 0.0 8.9 3.6

13E 150,000 400 193.8 114.0 137.5 0.0 8.0 4.0

14E 150,000 400 206.3 118.9 221.3 0.0 8.3 3.9

Source: Fidessa

Ambrian acts as Agency Broker to this company

Adam Kiley
+44 (0)20 7634 4777 [email protected]

32

Selected Gold Equities 3 February 2011

Asset Summary
Project Equity Comment PRODUCTION Modder East Sub Nigel 74% 74% Underground mine in the Witswatersrand Basin. First gold pour was in 2H09, targeting 2011 production as 120,000oz pa Small operating mine used to train staff for Modder East DEVELOPMENT Ventersburg
Source: Company reports, Ambrian

51-74%

3.9Moz @ 3.5 g/t from 465-800m; currently evaluating project economics

Modder East (74%)

Shallow deposits with potential to deliver bonanza grades Modder East, the flagship operation, has been developed on a greenfield site 75km east of Johannesburg. It targets a high-grade reef horizon at a shallow depth, which has the advantage of minimised travelling time for men, materials and delivery of ore to surface. Ventilation is simple and support in the working areas will be minimal due to the shallow depth and competent rock. Hydropower drills (high-pressure water rather than air) enables rapid drill penetration. Gold One upgraded the reserve and resource at Modder East in December 2010 to approximately 1.5Moz and 4.3Moz respectively. This has extended the current mine life to 13 years. A breakdown of the reserves and resources are shown in the table below.
Modder East Resource and Reserve Statement Category Proven Probable Total Reserve Measured Indicated Inferred Total Resource
Source: Gold One

Modder East Portal

Tonnes (Mt) 0.2 11.7 11.9 0.3 45.8 20.7 66.9

Grade (g/t Au) 10.9 3.9 4.0 16.3 2.0 1.8 2.0

Contained Au (000oz) 84 1,451 1,535 152 2,976 1,206 4,334

Source: Annual Report - 2010

Access development at Modder East is a 3,000m trackless decline (exclusively for ore transportation), plus a 350m 6.5m diameter vertical shaft (personnel & materials). The 1.2Mtpa CIL gold plant is (and has been) producing at a recovery rate of 96%. Historical and forecast mining and production statistics are shown in the table below.
Yr to Dec (A$m) Ore processed (Mt) Head grade (g/t) Gold sold (000oz) Recovery % Cash costs (US$/oz ) Capex Revenue
Source: Ambrian estimates

10A 0.3 7.0 66,445 96% 484 (32) 82

11E 0.5 7.1 120,000 94% 430 (42) 170

12E 0.7 6.6 150,000 94% $400 (16) 207

13E 0.7 6.5 150,000 94% $400 (17) 194

14E 0.8 5.6 150,000 94% $400 (19) 206

33

Selected Gold Equities 3 February 2011

Ventersburg (74%)
Next project to be brought into production The Ventersburg project is located in the Free State Goldfields and is the next major project for Gold One. The Ventersburg deposit is at a depth between 465-850m and Gold One owns 74% of Phase 2 and Phase 3. Gold Fields Ltd has an earn-in right to 51% of Phase 1. Gold One will continue exploration drilling at Ventersburg during the March quarter and is due to complete the pre-feasibility study by the end of March 2011. The prefeasibility will be based on the recent resource upgrade at Ventersburg, which increased the resource to 3.8Moz Au.
Ventersburg Resource and Reserve Statement Category Measured Indicated Inferred Total Resource
Source: Annual Report - 2010

Tonnes (Mt) 20.4 13.4 33.9

Grade (g/t Au) 3.7 3.3 3.5

Contained Au (000 oz) 2,429 1,430 3,859

Convertible Bond
In November Gold One announced no convertible bondholders had exercised their one-off put options to redeem the bonds for cash. Gold One had received credit approval for a debt facility from ABSA Bank and BNP Paribas to fund the potential redemption value of the remaining bonds.

Investment Case
Latest qtr can start to prove sceptics wrong Up until the middle of 2010 Gold One had failed to meet a number of production targets for a variety of reasons. Since then, however, management has revised its production targets to more realistic and achievable levels and has been achieving those targets. This has started to renew confidence in the asset (as well as management). We believe that the March 2011 quarter will prove to be the biggest in Gold Ones short history. If it meets/surpasses its production target, it would be for the third quarter in a row. This should give the market greater confidence that it will achieve its 2011 production target of 120,000oz Au pa, and should result in a well deserved re-rating. Gold One will also complete the pre-feasibility for Ventersburg in the March quarter. The market has paid little attention to Ventersburg up until now, as the focus has been on Modder East. A positive pre-feasibility will be well received by the market as it would give an indication of when/if Gold Ones next asset will come into production.

Recommendation BUY; Target Price A$0.47

Potential uplift in NPV multiple to 1.5x We have calculated a value for the Modder East Project based on a 1.0x NPV10% of A$0.47. As we have highlighted, Gold One has to continue to achieve and surpass its forecasts to build up the markets confidence in management. We believe management has a handle on its forecasts and we are confident management will be able to achieve its targets. Provided that it does do this, we think that the NPV multiple should be re-rated up to 1.5x.

34

Selected Gold Equities 3 February 2011

The table below highlights the key forecast production and financial statistics.
Yr to Dec (A$m) Ore processed (Mt) Head grade (g/t) Gold sold (000oz) Cash costs (US$/oz gold) Capex Revenue EBITDA JV Payments (BEE) Tax PP&E Cash Convertible Note (US$m) Free cashflow - yr EPS (A) P/E (x)
Source: Ambrian

11E 0.5 7.1 120,000 430 (42.4) 169.5 106.2 0.0 (11.6) 172.5 52.8 62.0 45.8 9.1 3.5

12E 0.7 6.6 150,000 400 (16.1) 207.7 128.5 0.0 (27.7) 162.1 61.0 0.0 8.2 8.9 3.6

13E 0.7 6.5 150,000 400 (16.7) 193.8 114.0 0.0 (22.6) 149.2 137.5 0.0 76.7 8.0 4.0

14E 0.8 5.6 150,000 400 (18.8) 206.3 118.9 0.0 (21.8) 133.3 221.3 0.0 84.0 8.3 3.9

We have not placed a nominal value on Ventersburg at this time, but will review this decision post the release of the pre-feasibility study.

35

Selected Gold Equities 3 February 2011

Hambledon Mining
HOLD - INITATION
Upcoming Events March quarter production figures

New Management, Big Plans

Hambledon has re-shuffled management and is focused on improving production at its 100%-owned Sekisovskoye mine in Kazakhstan. The company is looking to build a solid and consistent production profile in the short term, with ambitious expansion plans going forward.
Asset Sekisovskoye
Source: Company data, Ambrian estimates

Price (p) Target Price (p) Ticker Market cap (m) Estimated cash (US$m) Debt (US$m) Attr Reserve (Moz) Attr Resource (Moz) EV/Reserve (US$/Moz) EV/Resource (US$/Moz) 52-week (p) High Low 3M-avg daily vol (000) 3M-avg daily val (000) Shares Basic (m) Fully diluted (m) Top shareholders (%) N Bridgen (NED) BlackRock Barclays PLC Gartmore Total

7.4 7.5 HMB 38 1.6 0 0 1.9 N/A 31

Resource 1.9Moz @ 3.9 g/t

Interest 100%

CY11E production 26,150oz

8.5 3.9 3,449 234

A recent visit to Hambledons Sekisovskoye left a good impression of managements ability to improve production output. The project is currently producing circa 26,000oz pa from an open pit and 0.85Mtpa CIL plant operation. Management has taken steps to improve production performance that has historically been hampered by harsh winters and poor recoveries. Hambledon has ambitious plans to expand production to over 110,000oz pa by 2016. Capex estimated at US$100m will be required to develop underground infrastructure to mine 850,000tpa (the company is currently debt free). We expect Hambledon to finance a significant portion of this capital requirement from cashflows, although at least part of this requirement is likely to be raised from external sources in 2011. We believe the company is also looking at M&A opportunities that will complement the existing operation in Kazakhstan.

516.1 531.4

17.5 9.3 5.0 4.8 36.6

Recommendation HOLD; Initiation Target Price 7.7p

We estimate that Hambledon should have a market valuation of US$67m (43m) or 8.5p/share on a 1x NAV basis. However, given the history of uncertain production and future commissioning risk, we have discounted NAV on a 0.9x basis to produce a price target of 7.5p. We initiate with a HOLD recommendation on Hambledon until we have seen how management continues to perform at Sekisovskoye. Given the quantum of capex required to develop underground operations at Sekisovskoye, the company will not generate positive cashflow in our model until 2014. We estimate that management will have to raise funds (something that is as yet - not factored into our modelling).

Share Price Performance (p)

10p 9p 8p 7p 6p 5p 4p Feb Apr Jun Aug Oct Dec Feb 10 10 10 10 10 10 11
Source: Fidessa

Financial Forecasts
Yr to Dec (US$m) Gold sold (000oz) Sales EBITDA FCF Adjusted EPS (US) EV/EBITDA (x) 11E 26,148 35.7 14 (5.9) 1.5 4.8 7.9 12E 41,946 51.6 21.9 (7.9) 2.7 3.1 4.5 13E 56,864 64.2 22.6 (7.9) 2.3 3.0 5.2 14E 69,567 78.4 34.1 5.5 3.3 2.0 3.6 15E 76,915 86.7 44.6 10.7 4.4 1.5 2.8

Duncan Hughes
+44 (0)20 7634 4701 [email protected]

P/E (x)
Source: Company data, Ambrian estimates

36

Selected Gold Equities 3 February 2011

Project

Equity

Comment PRODUCING

Sekisovskoye - Kazakhstan

100%

Open pit with future underground operation. CIL plant with expansion to >100,000oz pa expected in 2017, 1.9Moz resource

Sekisovskoye (100%)
We visited the Sekisovskoye (Sekis) project in December 2010. Sekis is an operating open-pit mine with a planned underground operation from late 2011. The Sekis gold project is located 40km north of the regional capital Ust Kamenogorsk on sealed roads. The project hosts a JORC-compliant resource of 15.52Mt @ 3.9 g/t Au for 1.94Moz Au and a silver resource of 2.65Moz Ag. It is important to note that 63% of this resource is in the inferred category. Drilling designed to bring the confidence level of this resource up to reserve status has commenced.
Underground Drilling had Commenced at the Time of our Visit

JORC resources of 1.9Moz Au and 2.65Moz Ag

Source: Ambrian

Gold grade is variable through the breccia

Mineralisation is confined to a brecciated diorite pipe. The breccia appears to be of volcanic origin, with gold mineralisation associated with a later tectonic overprint. Gold is associated with sulphide (pyrite) alteration, usually within the matrix of the breccia or around the edge of the diorite clasts. The orebody dips at approximately 75 degrees, in line with the breccia horizon. Consequently, the orebody is visually distinct, which will assist mining from underground. However, gold grade varies significantly through the breccia owing to the unpredictable nature of the breccia clasts.

37

Selected Gold Equities 3 February 2011

Cash costs at US$620/oz, production ramping up to 100,000oz Au pa by 2016

Life-of-mine cash costs from the underground and open-pit mining at Sekis are estimated at US$620/oz excluding royalties, exploration and capex. The company aims to reduce these costs with increased production (to 100,000oz pa by 2016). The mine is currently producing ~26,000oz Au pa; annual production is well shy of the original company target of 40,000oz pa from the open-pit operation. Mine production has historically dropped off significantly over the colder months of January and February, with plant availability as low as 35% last winter. Whilst the back end of the plant is fully enclosed, the front end is exposed to temperatures significantly below -20C. The conditions also make it hazardous to operate outside for much of this time. The company has since covered the crusher at a cost of approximately US$0.5m, which it believes will improve plant throughput this winter.
Mining at Sekis Open Pit

Production falls over winter as temperatures fall below -20C

Source: Ambrian

Management plans to improve gold recoveries at Sekis

The Sekis plant is a standard CIL plant, with 0.85Mtpa capacity producing a gold/silver dore bar which is sent to Metalor in Switzerland. Processing recoveries are low at only 85% for an ore consisting of predominately free (non-refractory) gold. The company aims to improve recovery to a more palatable >90% through a re-design of the sparging circuit and improving crushing efficiencies by replacing rubber lifters with steel lifters. The plant currently relies on manual cyanide injection, and Hambledon intends to upgrade and automate this process in order to improve recoveries and reduce unnecessary cyanide consumption. The Sekis open pit has sufficient mineral reserve/resource to 2014, but the non-JORC mineral inventory that is expected to support an underground operation at least 7 years beyond (assuming a 47% conversion factor) is currently being drilled out (2 yr programme) with the aim of establishing a JORC compliant reserve/resource.

38

Selected Gold Equities 3 February 2011

Sekis indicated resources appear adequate for a ten-year mine life

The Sekis open pit is expected to finish in 2014, with underground ore expected to commence feeding the plant in late 2011. Hambledon intends to ramp up underground production to 850,000tpa at a head grade of 4.2 g/t Au to produce 110,000oz pa in 2016. Low-grade stockpiles will be used to supplement mill feed as required during the transformation from open-pit to underground mining. The decline is already well advanced and on schedule. Underground mining will utilise sub-level open stoping techniques, with haulage utilising an existing shaft and the current decline infrastructure. Underground infrastructure will be fast tracked in order to open up multiple faces of the orebody.

Decline is well advanced and on schedule to mine ore late 2011

The Sekis Underground Portal

Source: Ambrian

Drilling will provide greater confidence for underground mining

Due to the unpredictable gold grade and narrow, often discontinuous, pod-like nature of the orebody, we believe significant underground drill definition is required prior to advancement of underground infrastructure. This drilling programme has commenced. Another drill rig is expected on site later this year. Exploration Opportunities

The resource is open at depth

Exploration upside is limited to the Sekis resource. Underground drilling is expected to increase the confidence of known mineralisation and grow the resource which remains open at depth. However, regional exploration potential is unlikely to come from Hambledons current land package. We believe the most sensible source of additional ounces will come through acquisition growth rather than organic growth. Sekis is located in a prolific gold and base metals belt and Hambledon expects to be well placed to take advantage of M&A activities in the region going forward.

39

Selected Gold Equities 3 February 2011

The new CEO brings the strong hands on approach required to turn production performance around

New Management In September 2010 the company appointed Tim Daffern as Director and Chief Executive Officer. Tim has over 22 years experience in the mining sector. He holds a degree in Mining Engineering from the University of New South Wales and an MBA from the Open University. He was Director of Mining and Exploration of Angel Mining plc and was previously Technical Director and Principal Engineer of Wardell Armstrong. We believe this is a good move for the company as Tim brings a wealth of experience and a more hands-on approach to management at a time when the company needs to turn its production performance around. Kazakhstan Kazakhstan is the largest nation and economy in Central Asia. The country has excellent infrastructure and cheap reliable power through a well developed national grid. The country is no stranger to mining, and is a significant uranium, petroleum, base metals and gold producer. The government is stable (under Nazarbaevs leadership since 1991), if a li ttle bureaucratic. Tax is relatively low at 20%, while royalties are in the region of 5.5%.

Kazakhstan mining

is

no

stranger

to

Investment Case and Opinion

Hambledon Mining has had a difficult time of late. Production failed to meet some relatively unrealistic targets set by previous management. As a result, a number of significant shareholders have begun to reduce their interest in the company. However, we were impressed with new CEO Tim Dafferns hands-on approach to running the company. It needs to demonstrate to the market that it can consistently meet its production and financial targets. With this in mind, the March quarter production figures will be of particular interest in determining Hambledons ability to mine year round effectively at Sekis. As we see it, the key risk going forward is in the commissioning of the underground operation. The narrow, unpredictable and often discontinuous nature of the mineralisation carries with it inherent risks. It is, in our opinion, essential that the company continues to drill into the current inferred resource to improve confidence in the nature and location of ore shoots. More work is planned to determine and manage the stress field in an area where the company intends to mine multiple shoots through open stoping. The companys ambitious production ramp up to >100,000oz Au requires strong management to ensure targets are met. Increased production should grow EBITDA to well over US$50m as more production and the resulting economies of scale increase revenue and reduce operating costs respectively. Management is experienced in Kazakhstan, and relatively cheap power and labour costs will keep operating costs competitive. Once production is stabilised, we believe Hambledon will be well placed to pursue M&A opportunities in-country. Based on its EV per resource ounce, the company is valued at only US$32/oz. We believe that if the company is able to overcome a number of significant technical risks, there is significant upside in the valuation. However, given our current valuation of NAV the company looks fairly valued at present.

Increased production should grow EBITDA to over US$50m

Recommendation Hold
We estimate that Hambledon should have a market valuation of US$67m (43m), or 8.5 pence per share, on a 1x NAV basis. However, given the

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Selected Gold Equities 3 February 2011

history of uncertain production, poor recoveries and the commissioning risk associated with the future of the project, we have discounted NAV on a 0.9x basis to produce a target price of 7.5p. We are cognisant of the fact that management produced some solid production quarters in 2010, but remain aware of the difficulties facing the company through the winter months and the commissioning of the underground mine at Sekis. As a result, we place a HOLD recommendation on Hambledon until we have seen how the new management team copes with the technical challenges at Sekis. Given the quantum of capex required to develop underground operations at Sekisovskoye, the company will not generate positive cashflow until 2014 in our model. Whilst a large portion of the capex will be financed through cashflow, we expect management to raise some funds through equity or debt financing and have not factored this into our model.
Sekisovskoye Production and Total Cost Profile
100,000 90,000 80,000 70,000
Gold ounces

$1,600 $1,400 $1,200

USD per ounce

60,000

$1,000 $800
$600 $400 $200 $2011 2012 2013 Yr end 31st December 2014 2015

50,000 40,000
30,000 20,000 10,000 0

Gold produced

Gold Mined

Gold Price

Total Production costs per ounce (excl. Capex)

Source: Ambrian estimates

Operational and Financial Forecasts Yr to Dec Gold sold (000oz) Revenue (US$m) Cash costs (US$/oz)* EBITDA (US$m) Debt repayment (US$m) Tax (US$m)** Mining capex (US$m) FCF (US$m) 11E 26,148 35.7 762 14 0 0 14 (5.9) 12E 41,946 51.6 573 21.9 0 0 23 (7.9) 13E 56,864 64.2 536 22.6 0 0 23 (7.9) 14E 69,567 78.4 522 34.1 0 3.2 17.2 5.5 15E 76,915 86.7 563 44.6 0 5.1 20 10.7

Note: *Before royalties, exploration, capex and corporate expenses; **Tax losses of US$30m carried forward; Source: Ambrian estimates

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Selected Gold Equities 3 February 2011

Nyota Minerals
HOLD
Upcoming Events 1Q 11- Preliminary economic assessment of Tulu Kapi and results of a regional airborne survey Price (p) Target price (p) Ticker Market cap (m) Estimated cash ($Am) Debt (m) Attr Reserve (Moz) Attr Resource (Moz) EV/Reserve (US$/oz) EV/Resource (US$/oz) 52-week (p) High Low 3M-avg daily vol (000) 3M-avg daily val (000) Shares Basic (m) Fully diluted (m) Top shareholders (%) Chase Nominees IFC State Street Nominees Harewood Nominees Pershing Nominees Total 25 27 NYO 112.8 34.8 1.3 125

Ethiopian Resource Growth

Nyota Minerals has focussed the last 18 months on its Tulu Kapi gold project in Ethiopia; results have been consistently encouraging, and we fully expect the resource base to double again this year. Nyota appointed new management at the start of 2010 and ramped up its exploration effort in the country. This has paid handsome dividends.
Asset Tulu Kapi Au project Muremera Ni project
Source: Company data

Resource 1.295Moz @ 1.81 g/t N/A

Interest 100% 100%

CY10E production N/A N/A

30.0 9.1 3,448 873

Mineralisation at Tulu Kapi is open at depth and along strike. There are multiple exploration targets proximal to the main deposit as well as significant regional exploration prospects. The company currently has five diamond drill rigs mobilised on the project. A Preliminary Economic Assessment undertaken by SRK will be complete this quarter. Initial metallurgical and design work points to an open-pit mine and excellent processing characteristics, with conventional cyanidation giving gold recoveries of +95%. The companys prospective Muremera nickel project in Burundi is on care and maintenance as the company focuses on Tulu Kapi (and the Swazigold project has been packaged for sale or JV). Nyota raised 21.6m in 4Q10 @ 16p/share to fund its Ethiopian exploration and to fast track the evaluation and possible development of Tulu Kapi.

455.3 513.3

9.8 6.6 5.2 3.1 2.7 27.4

Recommendation HOLD; Target Price 27p

Tulu Kapi has all the hallmarks of a significant gold belt that could contain a number of +1Moz gold deposits. As such, exploration and discovery will surely drive the share price. Our peer group analysis puts a fair market value of US$165m on the current Tulu Kapi resource as it stands, using our AIM gold universe which shows the mean value put on a pre-BFS gold resource at US$127/resource oz, and cash adding another 4.5p/share. However, given that we are confident the resource base is likely to double, we therefore rate Nyota a HOLD on a 12-month basis, presuming that the economic assessment is positive and that the cash spend generates additional resources at Tulu Kapi, and regionally, that the market values more highly.

Share Price Performance (p)

35p 30p 25p 20p 15p 10p 5p Feb Apr 10 10
Source: Fidessa

Jun Aug Oct Dec 10 10 10 10

Duncan Hughes
+44 (0)20 7634 4775 [email protected]

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Selected Gold Equities 3 February 2011

Asset Summary
Project Equity Comment DEVELOPMENT Tulu Kapi Au Project, Tanzania Muremera Ni Project, Burundi
Source: Company reports

100% 100%

Accelerated drilling programme expected to see some resource upgraded to Indicated Currently on care & maintenance as management focus on Tulu Kapi

Tulu Kapi (100%)

Tulu Kapi Surrounds

The Tulu Kapi project is located 9km off the E-W trunk road, 530km west of Addis Ababa. Infrastructure is adequate for exploration needs, but will need improving as the project progresses. A 40MW substation is located 40km away and major hydro-power projects are being developed. An adequate water supply can be drawn from the Birbir River, 5km north. Geologically, the project is located within the Arabian-Nubian Shield that hosts numerous gold and base metal deposits in Egypt, Saudi Arabia, Sudan and Eritrea. At Tulu Kapi, gold mineralisation occurs in intruded pyrite-bearing syenites, with higher grades locally associated with quartz veins and silicified wall rocks.

Source: Ambrian

Background Tulu Kapi was hydraulically mined in the 1930s, recovering eluvial gold from prominent gullies on the steeper southern side. Minerva Resources took over the project area about five years ago, bringing together exploration data from a number of previous parties at Tulu Kapi and other nearby gold occurrences, and completing a 34-hole diamond drill programme to test the Tulu Kapi anomaly. Capital restraints inhibited Minerva advancing the projects further, and Nyota acquired the company in 2009. An initial JORC resource of 13.5Mt at 1.58% Au (690,000oz Au) at a 0.5 g/t cut-off was announced within six months and a major drilling campaign was initiated. Nyota then completed an infill drilling programme between drill traverse lines to increase the level of confidence attributable to earlier diamond drilling. The results of the upgraded resource calculation at differing cut-off grades are shown below.
Tulu Kapi Resource Statement - Inferred Cut-off grade (g/t Au) 0.5 1.0 1.5
Source: Company data

Tonnes (Mt) 25.45 22.25 10.26

Grade (g/t Au) 1.68 1.81 2.43

Gold (oz Au) 1.38 1.29 0.80

Nyotas work has shown that the well-defined geochemical and geophysical anomaly that coincides with the main Tulu Kapi mineralisation extends over 1.2km along strike and has a number of parallel or offset zones, and that the geological controls extend well beyond this on a regional scale.

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Selected Gold Equities 3 February 2011

Recent Exploration at Tulu Kapi During 2010 extensive drilling, trenching and other geological field work was undertaken within and close to the main orebody as defined by the existing resource. Highlights from the results included: The identification of Lode 3 adjacent to the original orebodies (Lodes 1 and 2) identified by deep drilling in the main resource area. A new Lode 0 above and to the west of Lodes 1 and 2. The identification of a high-grade feeder zone at depth beneath the main Tulu Kapi orebody. Intersections include 25.76m @ 23 g/t and 15.70m @ 37 g/t. Preliminary Economic Assessment Two phases of metallurgical test-work were undertaken in 2010. Both confirmed recoveries of +95% with a large component of free gold and low reagent consumption. Although the ore is hard and abrasive, it is not unusual and is not expected to have a significant detrimental impact on the process costs. Two conventional process flow routes for cyanidation and recovery of the gold are being evaluated. Geotechnical drilling has also been completed to assist with mine design. International consultancy group SRK is currently undertaking a Preliminary Economic Assessment of the project, due for completion in 1Q11. The assessment will include: an updated resource statement , including the majority of the drilling completed in 2010 and not yet incorporated in the resource base and at least some of the central deposit upgraded from the Inferred to the Indicated category; an economic assessment of the various mine and gold recovery options; and a separate social and environmental impact assessment with a future work programme. A scoping study based on the initial resource was undertaken by Venmyn Rand late in 2009 and indicated the potential economic viability of an open-pit mine at Tulu Kapi at a sustained gold price above US$950/oz. Regional Exploration and Upside During the last quarter of 2010 Nyota undertook a regional airborne geophysical survey of the whole of its 3,550km 2 exploration area. The results and interpretation of the airborne survey will be available in 1Q11 and will assist the company in identifying and evaluating new targets as well as prioritising existing ones that have previously been delineated by historic workings, exploration by previous groups and by Nyotas own geochemical and trench sampling. An initial 2,000m diamond drill programme started on the Billa Gulliso and Yubdo licences in early December. New Licences In December Nyota announced that it had acquired 100% of two further licences, a combined area in excess of 3,000 km 2, situated to the north of the Tulu Kapi Project. The new area is considered to be highly

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Selected Gold Equities 3 February 2011

prospective, showing the same (or similar) geological controls as are present at Tulu Kapi, and with primary and alluvial gold anomalies.

Muremera Nickel Project (100%)

The Muremera Project, located in north-east Burundi, was acquired in 2007. Muremera is only 2km from the Kabanga Nickel Project (36Mt @ 2.8% Ni) in neighbouring Tanzania. A JV was set up with BHP Billiton, which in March 2009 elected not to continue although it had invested in excess of US$7.3m in the project. Nyota therefore retains a 100% interest and ownership of the exploration programme, camp infrastructure, vehicle fleet and other fixed assets. Grassroots nickel sulphide exploration in Central Africa is not to be entered into lightly, and without a well funded, major partner, Nyota has kept the project on a care and maintenance basis since then to satisfy permitting requirements. In 2010 it undertook geophysical surveys and desktop interpretation and modelling of the sulphide body.

Recommendation Hold, Target Price 27p

Nyota acquired Minerva at a very modest price (1.81m equivalent equity) and has moved the project forward at a rapid pace and achieved considerable success. We have ascribed an in-situ valuation of US$127/oz for the current inferred resource, which is in line with the pre-BFS universe of peers with JORC resources we have analysed. Including cash of 21m, this equates to a NAV of 27p/share. The key price driver is the potential for a much larger resource, and as many of Nyotas small-cap peers are now sitting on mature drilled-out assets, where resource growth has come to a halt, the market cap will almost certainly reflect this potential growth.

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Selected Gold Equities 3 February 2011

Rusoro
BUY
Upcoming Events 1Q Feasibility Study - Choco expansion 1Q - Increible-6 starts production 30 April 2011 - FY10 Financial Results Price (C$) Target price (C$) Ticker Market cap (C$m) Estimated cash (US$m) Debt (US$m, Sept 10) Attr Reserve (Moz) Attr Resource (Moz) EV/Reserve (US$/oz) EV/Resource (US$/oz) 52-week (C$) High Low 3M-avg daily vol (000) 3M-avg daily val (C$000) Shares Basic (m) Fully diluted (m) Top shareholders (%) Gold Fields Andre Agapov Capital Group BlackRock Inc BlackRock Group Total 26.4 12.4 8.9 6.9 5.6 60.2 0.35 0.60 RML 185 8 29 1.8 16.8 73 8

Follow-up Site Visit

Rusoros Venezuelan assets host a 17.5Moz resource that could support a +500,000oz pa (attrib) production rate from 2013. As the governments partner of choice, and Venezuelas only privately owned gold miner, Rusoro is currently scheduling a multi-mine expansion.
Asset Choco 10 Increible-6 Isidora San Rafael/El Placer (SREP) Total Resource (100%) 11.1Moz @ 1.7 g/t 2.7Moz @ 2.1 g/t 0.37Moz @ 20.6 g/t 0.92Moz @ 21.4 g/t Interest 95% 100% 50% 100% 2010E output* 97,000oz 24,000oz -

*Attributable; Source: Company data, Ambrian estimates

0.47 0.17 162 55

It will have been a testing 2010 as management struggled with low ore grade, (attributable production guided to 110,000oz), higher-than-expected unit cash costs (US$760/oz) and irregular international gold sales that restricted US$ cashflow and thus delayed the expansion programme. Our forecast loss is all due to forex losses (see interims). 2011 should see improvements as cash cost drops to US$600/oz as production from the Increible-6 and SREP projects starts to make its mark, lifting Rusoros attributable production to ~188,000oz. The US$250m expansion, new +5Mtpa primary crusher, will see Chocos gold production rise to above 500,000oz from 2014 and push costs towards, potentially below, US$400/oz. The US$30m Convertible Buy-back (10 June 2011) will likely need to be restructured if Rusoro is to start and complete its planned expansion programme by 2013, as cashflow generation will be insufficient to cover the buy-back for a further 12 months. Being the Venezuelan Governments partner of choice (since 2008) puts the company on a relatively stronger footing than in-country peers.

529.8 691

Share Price Performance (C$)

0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 Feb 10 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10

Recommendation: BUY; Target Price of C$0.60

Production/grade and cash flow issues have resulted in us subjectively reducing our NAV multiple to 0.5x (previously 0.75x). Despite this and using a US$1,100/oz LT gold price our price target was marginally trimmed from C$0.69 to C$0.60. A stable, sustainable production profile would significantly lift this price target as we lift our NPV multiple. Next price driver will be the FY10 results 30 April 2011 Financial Forecasts
Yr to Dec (US$m) Gold Prod (000oz) Sales EBITDA Attributable income EPS (C) P/E (x) EV/EBITDA (x)
Source: Company data, Ambrian estimates

Source: Bloomberg

11E 150 72 22 (16.3) (3.1) 5.3

12E 110 152 24 (88) (16.8) 4.8x

13E 188 237 125 77 14.6 1.5x 0.9x

14E 317 368 209 122 23.3 0.9x 0.5x

15E 492 515 294 158 30.1 0.7x 0.4x

Ambrian acts as Agency Broker to this company

Adam Kiley
+44 (0)20 7634 4777 [email protected]

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Selected Gold Equities 3 February 2011

Asset Summary
Project Equity Comment PRODUCTION Choco 10 Isidora 95% 50% Plant expansion to >500,000oz pa by 4Q13, with long-term feed from both the Choco (8.3Moz M&I) and nearby Increible-6 (1.6Moz M&I) projects Small, short-life, high-grade producing mine - 50/50 JV with the government DEVELOPMENT/EXPLORATION SREP (San Rafael/El Placer) 100% Underground mine in construction, the ramp intersected reef in 1Q10, plan to start ramp up to 85,000oz pa from 2H11

Source: Company data; Ambrian

Key Assets Overview

Location Map

Choco 10 (95%) This is the companys flagship orebody and consists of a series of interrelated orebodies that stretch over 3km long by 1km wide. It is 8km from the Increible-6 project and 5km from the Isidora mine. The current 43-101-compliant resource is 8.3Moz M&I, plus 2.8Moz inferred. Mining is carried out by a contractor, which provides Rusoro with a cost effective means of earth moving. The plant has a 2Mtpa nameplate capacity, but throughput has varied from 2.4Mtpa fresh ore to 3.0Mtpa for the more friable oxide ore. This currently gives Choco 10 an effective 175,000oz capacity, after taking into account the capacity that will be taken up by processing Isidora and the SREP ore, for the next two years. In May 2009 the company completed a scoping study that concluded that the optimal configuration/scalability to exploit Rusoros orebodies would be to expand the plant by replacing/upgrading the primary crusher to +5Mtpa capacity crusher (generally allocated to the harder ore type) and adding extra CIL tanks, to increase total gold production potential to average ~550,000oz pa. The total expansion capex was estimated at US$250m (including contingencies and working capital) and was originally due to be completed around the same time as the resource upgrade in mid-2010. But it appears US$ cashflow issues (delayed international gold sales) slowed progress and it is now expected to be completed in 2H11 as international gold sales settle into a more regular pattern. The US$ raised from the gold sales will reduce currency exposure and can be used to settle imports for the expansion, leaving the domestic gold sales to cover other operational costs (labour, power, etc). Choco mills production performance during 2010 has struggled with rapidly declining grade (1Q 2.2 g/t vs. 3Q 1.2 g/t). Guidance for FY10 is 110,000oz, which might imply the grade for 4Q should start to show signs of a turnaround. We have modelled Choco 10 on the expectation of head grade recovering to the norm of 2.5 g/t in late 2011, along with increasing throughput, potentially reaching ~7Mtpa (~5Mtpa primary & ~2Mtpa secondary) in FY14 secondary crusher usually allocated to treat the softer oxidised ore type.

Source: Rusoro

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Selected Gold Equities 3 February 2011

Choco 10 Open Pit

Source: Company

Increible-6 (100%) Essentially a satellite of Choco, this project hosts four main gold zones within a 4km x 1.0km shear zone. Resources are 1.6Moz indicated and 1.1Moz inferred. The Increible-6 mineral rights are for 20 years, with extensions up to 40 years. The final exploitation permit was received in November 2010, nearly a year later than planned. Production is now expected to start lifting Chocos throughput in late 1Q11, and the oxidised ore should help to reduce unit costs significantly as the oxide ore can be processed quicker and cheaper than the fresh ore from the Choco 10 pit. If the Choco plant is treating a 50:50 mix, the unit costs should realistically bring down the costs seen in 2010 (some US$760/oz) by at least 20%, dropping them to managements expectations for Choco of around US$600/oz during 2011. We have modelled Rusoro using the parameters outlined in the Preliminary Feasibility Study for the US$250m expansion at Choco 10/Increible-6, which was completed last year. This was based on 7Mtpa of production, which would see average life-of-mine (LOM) production rate rising to 550,000oz pa (possible peak of +700,000oz in Year 10), at an average cash cost of US$331/oz over a 12-year LOM. Isidora (50%) Commenced production in 2005 and recommenced underground production after a three-month shutdown with change of ownership in 2008. The project is an important example of a Mixed Enterprise (50:50) JV with the Venezuelan Government, highlighting Rusoro as a partner of choice. The downside of this is the mine probably carries a slightly higher fixed overhead than would normally be expected. From the acquisition of the mine until 2010 ore was delivered to the Choco 10 mill (10km away), subsequently the ore is being processed at the La Camorra mill (112km away) owned by the 50:50 joint venture. As at December

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Selected Gold Equities 3 February 2011

SREP underground modelling

2009 the project had only 185,085oz reserves, 334,000oz M&I resources and 45,000oz inferred resources. A major drill programme underway should increase this and the Twin Shear Zone has an additional 480,000oz inferred resources. FY10 proved somewhat troublesome, with low gold sales affecting cash and stopping for a safety-related review in light of the Chilean underground accident, which reduced tonnes mined. We have remodelled FY10 production at ~24,000oz pa. Management expects +35,000oz pa output for the rest of its short life, 3.5 years of reserves (but extensions can be expected), with a capacity of 250-300tpd of ore and a head grade running at 18 g/t (generally little dilution from this underground operation) the mine has the potential to produce up to 50,000oz pa. San Rafael-El Placer SREP (95%) This is located in the El Dorado District, where Rusoro also has mineral titles to the Emilia, Emilia 2 and Ceiba prospects. Past production was processed at the Emilia mill. SREP has indicated resources of 0.39Moz, plus inferred resources of 0.52Moz and a further 0.04Moz in the Days Vein, averaging some 21 g/t. The Alvarez ramp into the San Rafael and El Placer orebodies was completed in 1Q10. Completion of the Pre-feasibility Study followed in 2Q10. The mine consists of some 12 steeply dipping quartz veins, which should be capable of a six-year mine life, but extensions are expected. The mine has been modelled as per the PFS, with an average output of +60,000oz pa, from a 10 g/t head grade, potentially peaking around 70,000oz pa by 2014. SREPs total cash cost has been modelled, averaging just over US$400/oz, higher than the PFSs US$342/oz, to produce an NPV of US$68m at a 20% discount rate. Development work in the mineralised zone started in 2Q10 and has been processed at the Choco mill in order to monitor continuity of the ore. We await the next quarterly results for details. Valle Hondo and Yuruan Exploration Projects (100%) Valle Hondo is located 40km east of the Emilia mill. Drilling programmes were completed with the object of expanding and upgrading the Apanao Zone resource, which is currently 0.1Moz indicated and 1.34Moz inferred. The scoping study is to be updated. Yuruan is the regional base for operations in the Km88 District. Resource updates for Valle Hondo, Yuruan and Ceiba are due in 2H11.

Source: Rusoro

Convertible Loan
Rusoro unlikely to have the cashflow to buy back the convertible on or before 10 June 2011 and fund its expansion plans In June 2008 Rusoro raised a US$80m convertible loan, exchangeable at US$1.07/C$1.25 per share June 2010 (the syndicate is comprised of Petropavlovsk, Blackrock, GLG, Lansdowne Partners and Endeavour). Rusoro guaranteed the loan, secured against the underlying assets, with the exception of Isidora. By July 2010 the company had bought back US$50m of the convertible, settled the accrued outstanding interest and was left with an outstanding restructured balance of US$30m, repayable on or before 10 June 2011. Interest remains at 10% pa, payable quarterly, and the conversion price on the restructured Reduced Principal was adjusted to C$0.40/share. Our modelling suggests the company cannot afford to buy back this loan on 10 June 2011 and finance the expansion to +500,000oz by 2013. Failure to carry out the expansion is not an option as it virtually doubles its value. So, Rusoro is faced with restructuring/replacing the loan for a further 12 months to get over the capex peak spend during 2011-2012.

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Selected Gold Equities 3 February 2011

Venezuelan Exchange Controls & Gold Export Rules

New export rules more helpful to cashflow management New gold export rules were introduced in August 2010 and allow gold companies to sell 50% of their gold at the (international) spot rate and 50% to the CBV (Central Bank of Venezuela) through a discount/parallel currency mechanism that now effectively reduces the previous blended discount received from ~22% to ~9%. The new rules replace the previous split of 30% spot, 60% CBV and 10% domestic, which produced an overall blended discount of ~22% to the prevailing international spot gold price. In the case of Isidora JV, the mining company is permitted to sell 50% internationally, 25% to CBV and 25% domestically ( priced at the parallel exchange rate of VEF5.3 vs. the now official pegged VEF4.3/US$). In essence, the international sales are there to facilitate capex import requirements and the domestic sales cover the domestic costs; the new rules have improved the overall economics for Rusoro. For selling gold on the international market companies now require an export license, which Rusoro received on 1 November 2010.

Investment Case and Opinion

Political ties Managements strong governmental ties in a country where mining licences are difficult to come by is a critical factor. In this regard, the recent granting of an exploitation permit for Increible-6 is extremely important, when both Gold Reserve and Crystallex have been unable to gain similar permits for their own projects. Exchange Controls & Export Rules These add an extra dimension of risk. Chocos recently granted export licence is another hurdle crossed and we think the share price should improve, all things being equal, as Chocos production ramps up. Underlying growth Looking beyond the above hurdles, which clearly weigh on the share price, Rusoros fundamentals look extremely good. The company has demonstrated its technical ability to operate in-country since it acquired each of its assets. Beyond current production the biggest driver will be to demonstrate a successful ramp-up at Choco 10 (fed by Increible-6 6 & SREP), which is drawing from a substantial (17.5Moz) gold resource base, which still has potential to grow. Target price reduced to C$0.60 from C$0.69

Recommendation BUY; Target Price C$0.60

We have modelled Rusoro on a DCF basis, modelling the post-tax FCF for Choco, Isidora and the SREP projects. Chocos production is modelled on the basis that the first step is to achieve a relatively stable 225-250,000oz and then expanding to +500,000oz pa during 2013, for a very conservative all-in capex of US$250m (including contingency and working capital). We have assumed the convertible debt is restructured/replaced for a further 12 months as the expansion to +500,000oz remains key to unlocking value; the alternative could be to replace it with new equity.

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Selected Gold Equities 3 February 2011

Operational and Financial Forecasts Yr to Dec Total gold produced (000oz) Attributable profit (US$m) Benchmark gold pri (US$/oz) Blended cash cost (US$/oz) EBITDA (US$m) Capex (US$m) Tax (US$m) Group FCF (US$m)~ 09A 150 (16.3) 974 393 22 7 (0.6) (20.9) 10E 110 (88) 1,227 760 24 16 (4) 25 11E 188 77 1,395 538 125 81 40 (3) 12E 317 122 1,288 468 209 123 64 16 13E 492 158 1,163 429 294 86 84 114 14E 571 155 1,044 391 306 11 83 210

Note: FCF defined as cashflow from operations after total capex (SIB + Expansion); Source: Ambrian estimates

Fair Value Calculation NPV (US$m) 792 12 65 (150) (28) 8 698 NPV (x) 0.5 0.5 0.25 0.5 1.0 1.0 1.0 NAV/sh (C$) 0.74 0.01 0.03 (0.14) (0.05) 0.01 0.60

We have raised the long-term benchmark gold price we use to US$1,100/oz (previously US$950/oz) and modelled the gold price received as being on a 50-25-25 split for international/state/domestic sales. Like all our other emerging market gold producers, we discount cashflows by our standard 10% rate, despite instinctively thinking Venezuela warrants a higher discount; this we deal with in the NPV multiple, which we have dropped to 0.5x given the grade and cashflow challenges that has led to the delay to the expansion projects. When quantifying the NAV premium, perception is everything; peers in Africa/Russia trade on >1.5x NAV, but here we have cut our applied NPV ratio from 0.75x to a very conservative 0.5x NAV for Choco and Isidora and apply a 0.25x to SREP, until mining commences and reaches steady-state. The net result of the higher long-term gold price and more conservative NAV ratio is to reduce our target price to C$0.60 from C$0.69. But the fair value table alongside illustrates how sensitive our Price Target might be to any changes in the somewhat subjective NPV multiple used in this particular instance and if the company could demonstrate steady progress in the ramping up of the production profile and the valuation/price target would lift to C$0.91/share on an NPV multiple of 0.75x.
Modelled Production Profile

Choco Isidora SREP Head office Net debt Cash Total

Source: Ambrian

Source: Ambrian estimates

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Selected Gold Equities 3 February 2011

Notes

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Notes

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Selected Gold Equities 3 February 2011

Research Peter Davey Gurpreet Gujral Duncan Hughes Adam Kiley Nick Mellor Werner Riding Sales Team Charles Bendon Jonnie Cox Sims Farr Tommy Horton Caspar Shand Kydd Trading Cliff Banyard Lee Hunter Darren Knight David Mackay Nick Screech Operations Mike Dack

+44 +44 +44 +44 +44 +44 +44 +44 +44 +44 +44 +44 +44 +44 +44 +44

(0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20 (0)20

7634 4764 7634 4771 7634 4775 7634 4777 7634 4762 7634 4772 7634 7634 7634 7634 7634 4736 4763 4739 4738 4735

7634 4742 7634 4753 7634 4752 7634 4751 7634 4741

+44 (0)20 7634 4734

Company Address Ambrian Partners Limited Old Change House 128 Queen Victoria Street London EC4V 4BJ Telephone Website
Emails

+44 (0)20 7634 4700 www.ambrian.com

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Ambrian Partners Limited is authorised and regulated by the Financial Services Authority for the conduct of Investment Business in the UK and is a Member of the London Stock Exchange. Ambrian Partners Limited is registered in England and Wales no. 4236075. Registered office Old Change House, 128 Queen Victoria Street, London EC4V 4BJ. Phone +44 (0)20 7634 4700 Fax: +44 (0)20 7634 4701 Email: [email protected] For the purposes of the regulatory requirements in relation to the management of Conflicts of Interest, Ambrian publishes this document as non-independent research which is a Marketing Communication under the FSA Conduct of Business rules. It has not been prepared in accordance with the regulatory rules relating to independent research, nor is it subject to the prohibition on dealing ahead of the dissemination of investment research. Please refer to the Compliance Department for a summary of our conflicts of Interest Policy and Procedures. The information and opinions in this report were prepared by Ambrian Partners Limited "Ambrian". It has been approved for publication and distribution in the UK by Ambrian which is regulated by the Financial Services Authority (FSA) for the conduct of Investment Business in the UK and is a member of the London Stock Exchange. The information and opinions contained herein have been obtained from public sources and are believed by Ambrian to be reliable, but we make no representation as to the accuracy or completeness of such information. The analyst principally responsible for the preparation of this report receives compensa tion that is based upon, among other factors, Ambrians overall investment banking revenue. However, such analysts have not received, and will not receive, compensation that is directly based upon one or more specific investment banking activities or transactions. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Ambrian and are subject to change without notice. Ambrian has no obligation to update, modify or amend this report or to otherwise notify the reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. Prices and availability of financial instruments are also subject to change without notice. This report is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. Ambrian may engage in securities transactions in a manner inconsistent with this report, and with respect to the securities covered by this report, may buy from and sell to customers on either an agency, a principal investment, or market making basis. Disclosures of conflicts of interest, if any, are disclosed at the beginning of this report, or are available from the Compliance Officer. On the date of this report Ambrian, persons connected with it and their respective directors may have a long or short position in any of the investments mentioned in this report and may purchase and/or sell the investments at any time in the open market as an agent. Additionally, Ambrian within the previous twelve months may have acted as an investment banker or may have provided significant advice or investment services to the companies or in relation to the investment(s) mentioned in this report. When we comment on AIM and Plus Market listed shares, customers should be aware that because the rules for these markets are less demanding than for those of the Official List of the London Stock Exchange the risks are higher. The report is confidential and is submitted to selected recipients only. It may not be reproduced in whole or in part to any other person. Ambrian and /or persons connected with it may effect or have effected transactions in the investments referred to in the material contained in this report. This report is prepared for professional clients and is not intended for retail clients in the UK as defined by the FSA rules and should not be passed on to such persons. Any U.S. person receiving this report and wishing to effect a transaction in any security discussed herein, must do so though a U.S. registered broker dealer.

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