CLARA RESOURCES AUSTRALIA LTD — M&A Activity 2012

Nov 12, 2012

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ASX Announcement

13 November 2012

Independent Expert’s Report

Merger with Taronga Mines Limited

Attached is the Independent Expert’s Report which accompanied the dispatch of the EGM materials yesterday by the Company.

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On behalf of the Board KM Schlobohm Company Secretary

AusNiCo Limited Level 27, 111 Eagle Street, Brisbane, Qld 4000 (GPO Box 5261) Phone: 07 3303 0611, Fax: 07‐3303 0681, Web: www.ausnico.com.au

AUSNICO LIMITED Independent Expert’s Report

9 November 2012

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TABLE OF CONTENTS

FINANCIAL SERVICES GUIDE ................................................................................................ III	FINANCIAL SERVICES GUIDE ................................................................................................ III
GLOSSARY .................................................................................................................... VI
1.0	INTRODUCTION ..................................................................................................... 1
2.0	SUMMARY OF OPINION ............................................................................................ 3
3.0	OVERVIEW OF THE PROPOSED TRANSACTION................................................................ 7
4.0	SCOPE OF THE REPORT & METHODOLOGY FOR ASSESSMENT ........................................... 10
5.0	OVERVIEW OF AUSNICO .......................................................................................... 14
6.0	OVERVIEW OF TARONGA ......................................................................................... 24
7.0	OVERVIEW OF THE COMBINED ENTITY ........................................................................ 31
8.0	VALUATION OF AUSNICO ........................................................................................ 34
9.0	VALUATION OF THE COMBINED ENTITY ...................................................................... 39
10.0	FAIRNESS OF THE PROPOSED TRANSACTION ................................................................ 44
11.0	REASONABLENESS OF THE PROPOSED TRANSACTION ..................................................... 46
12.0	SOURCES OF INFORMATION ..................................................................................... 50
13.0	INDEMNITIES, REPRESENTATIONS & WARRANTIES ......................................................... 51
14.0	EXPERIENCE, DISCLAIMERS AND QUALIFICATIONS ......................................................... 52
APPENDIX A – INDUSTRY INFORMATION ................................................................................ 53
APPENDIX B – COMMON VALUATION METHODOLOGIES .............................................................. 59
APPENDIX C – CONTROL PREMIUM RESEARCH ......................................................................... 61
APPENDIX D - TECHNICAL REVIEW AND VALUATION REPORT...................................................... 63

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Financial Services Guide

The Financial Services Guide (‘FSG’) is provided to comply with the legal requirements imposed by the Corporations Act 2001 and includes important information regarding the general financial product advice contained in this report (‘this Report’). The FSG also includes general information about BDO Corporate Finance (QLD) Ltd (‘BDO CFQ’ or ‘we’, ‘us’ or ‘our’), including the financial services we are authorised to provide, our remuneration and our dispute resolution.

BDO CFQ holds an Australian Financial Services Licence to provide the following services:

• a) Financial product advice in relation to deposit and payment products (limited to basic deposit products and deposit products other than basic deposit products), securities, derivatives, managed investments schemes, superannuation, and government debentures, stocks and bonds; and

• b) Arranging to deal in financial products mentioned in a) above, with the exception of derivatives.

General Financial Product Advice

The following report sets out what is described as general financial product advice. This Report does not consider personal objectives, individual financial position or needs and therefore does not represent personal financial product advice. Consequently any person using this Report must consider their own objectives, financial situation and needs. They may wish to obtain professional advice to assist in this assessment.

The Assignment

BDO Corporate Finance (QLD) Ltd ABN 54 010 185 725, Australian Financial Services Licence No. 245513 has been engaged to provide general financial product advice in the form of a report in relation to a financial product. Specifically, BDO CFQ has been engaged to provide an independent expert’s report to the shareholders of AusNiCo Limited (‘AusNiCo’ or ‘the Company’) in relation to the proposed takeover of AusNiCo by Taronga Mines Limited (‘Taronga’) (‘the Proposed Transaction’). This Report has been prepared to provide information to non-associated AusNiCo shareholders prior to voting on Resolution 1 (Approval of Change of Scale of Activities) and Resolution 2 (Approval of Acquisition of Taronga Shares held by Interests Associated with Mr Nicholas Mather) at AusNiCo’s Extraordinary General Meeting (‘the Proposed Resolutions’).

Further details relating to the Proposed Transaction are set out in Section 3.0 of this Report. The scope of this Report is set out in detail in Section 4.0 of the Report. This Report provides an opinion as to whether or not the Proposed Transaction is ‘fair’ and ‘reasonable’ to the non-associated shareholders of AusNiCo.

This Report cannot be relied upon for any purpose other than the purpose mentioned above and cannot be relied upon by any person or entity other than those mentioned above, unless we have provided our express consent in writing to do so. A shareholder’s decision to vote for or against the Proposed Resolutions is likely to be influenced by the shareholder’s particular circumstances, for example, the shareholder’s taxation considerations and risk profile. Each shareholder should obtain their own professional advice in relation to their own circumstances.

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Fees, commissions and other benefits we may receive

We charge a fee for providing reports. The fees are negotiated with the party who engages us to provide a report. We estimate that our fees for the preparation of this Report will be approximately $40,000 plus GST. Fees are usually charged as a fixed amount or on an hourly basis depending on the terms of the agreement with the engaging party. Our fees for this Report are not contingent on the outcome of any of the matters to which the Report relates. Our fees do not include fees payable to other experts engaged to provide specialist services and reports which may have been considered in this Report.

Except for the fees referred to above, neither BDO CFQ, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the Report.

Directors of BDO CFQ may receive a share in the profits of BDO Group Holdings (QLD) Pty Ltd, a parent entity of BDO CFQ. All directors and employees of BDO Group Holdings (QLD) Pty Ltd and its subsidiaries (including BDO CFQ) are entitled to receive a salary. Where a director of BDO CFQ is a shareholder of BDO Group Holdings (QLD) Pty Ltd, the person is entitled to share in the profits of BDO Group Holdings (QLD) Pty Ltd.

Associations and relationships

From time to time BDO CFQ or its related entities may provide professional services to issuers of financial products in the ordinary course of its business. These services may include audit, tax and business advisory services. BDO CFQ has not provided any services to AusNiCo in the past two years. We note that BDO Audit Pty Ltd, a related entity to BDO CFQ, provides audit services to AusNiCo.

BDO CFQ is not an associate of AusNiCo. The signatory to the Report does not hold any shares in AusNiCo and no such shares have ever been held by the signatory.

To prepare our reports, including this Report, we may use researched information provided by research facilities to which we subscribe or which is publicly available. Reference has been made to the sources of information in the Report, where applicable. Research fees are not included in the fee details provided in the Report.

Complaints

We are members of the Financial Ombudsman Service. Any complaint about our service should be in writing and sent to BDO Corporate Finance (QLD) Ltd, GPO Box 457, Brisbane QLD 4001.

We will endeavour to resolve the complaint quickly and fairly. If the complaint cannot be satisfactorily resolved within 45 days of written notification, there is a right to lodge a complaint with the Financial Ombudsman Service. They can be contacted on 1300 780 808. This service is provided free of charge.

If the complaint involves ethical conduct, a complaint may be lodged in writing with the Institute of Chartered Accountants, Queensland Branch, GPO Box 2054, Brisbane QLD 4001. The Australian Securities and Investment Commission (‘ASIC’) also has an Infoline on 1300 300 630 which can be used to make a complaint and obtain information about investor rights.

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Contact Details

BDO Corporate Finance (QLD) Ltd

Location Address: Postal Address:	Location Address: Postal Address:
Level 18 300 Queen Street BRISBANE QLD 4000 Phone: (07) 3237 5999	GPO Box 457 BRISBANE QLD 4001 Email: cf.brisbane@bdo.com.au
Fax: (07) 3221 9227

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Glossary

Reference	Definition
ABV	Asset based valuation
ASIC	Australian Securities and Investment Commission
ASX	Australian Securities Exchange
AusNiCo	AusNiCo Limited
BDO CFQ	BDO Corporate Finance(QLD)Ltd
BHC	Base holding cost
Bidder's Statement,the	The Bidder's Statementprepared byAusNiCo
CEO	Chief Executive Officer
CME	Capitalisation of maintainable earnings
Combined Entity, the	The post transaction entity which will hold the assets of both AusNiCo and Taronga
Company,the	AusNiCo Limited
Corporations Act, the	The Corporations Act 2001
DCF	Discounted cash flow
DGR	DGR Global Limited
EL	Exploration License
EPMA	Exploration Permit for Minerals Application
FSG	Financial Services Guide
HRL	HRLtesting Pty Ltd
JORC Code	The Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves(2004)
MBV	Market based valuation
Newmont	Newmont Limited
Notice of Meeting, the	The Notice of Meeting in relation to the Proposed Transaction prepared by AusNiCo
Performance Shares, the	The performance shares proposed to be issued to Mr Peter Williams under the Proposed Transaction
Proposed Transaction, the	AusNiCo's proposal to acquire 100% of the issued share capital of Taronga
Report,this	This independent expert's reportprepared for AusNiCo Limited dated 9 November 2012
Resolution 1	Resolution 1 - Approval of Change of Scale of Activities to be voted on by AusNiCo shareholders at AusNiCo’s Extraordinary General Meeting
Resolution 2	Resolution 2 - Approval of Acquisition of Taronga Shares held by Interests Associated with Mr Nicholas Mather to be voted on by AusNiCo shareholders at AusNiCo’s ExtraordinaryGeneral Meeting
RG 111	Regulatory Guide 111: Content of Expert Reports
RGs	The regulatory guides published by the Australian Securities and Investment Commission
Taronga	Taronga Mines Limited
VALMIN Code	The Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports(2005)
We, us or our	BDO Corporate Finance (QLD) Ltd
Xstract	Xstract MiningConsultants
YTC	YTC Resources Limited

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Level 18, 300 Queen St Brisbane QLD 4000 GPO Box 457, Brisbane QLD 4001 Australia

Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au

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The Shareholders C/- The Directors AusNiCo Limited Level 11, 1 Eagle Street BRISBANE QLD 4000

9 November 2012

Dear Shareholders,

Independent Expert’s Report

1.0 Introduction

BDO Corporate Finance (QLD) Limited (‘BDO CFQ’) has been engaged by the directors of AusNiCo Limited (‘AusNiCo’ or ‘the Company’) to prepare an independent expert’s report (‘this Report’) to the shareholders of AusNiCo in relation to the proposed takeover of Taronga Mines Limited (‘Taronga’) by AusNiCo (‘the Proposed Transaction’).

Broadly, the Proposed Transaction involves the issue of five ordinary shares in AusNiCo for every one ordinary share in Taronga. If the Proposed Transaction proceeds, AusNiCo shareholders will hold approximately 33.46% of the total issued ordinary share capital in the post transaction entity (‘the Combined Entity’) and Taronga shareholders will hold the remaining 66.54% immediately following the Proposed Transaction.

This Report has been prepared to provide information to non-associated AusNiCo shareholders prior to voting on Resolution 1 - Approval of Change of Scale of Activities (‘Resolution 1’) and Resolution 2 - Approval of Acquisition of Taronga Shares held by Interests Associated with Mr Nicholas Mather (‘Resolution 2’) at AusNiCo’s Extraordinary General Meeting (‘the Proposed Resolutions’). Apart from the purpose stated directly above, this Report cannot be used or relied on for any other purpose or by any other person or entity.

Given that the Proposed Resolutions relate to the Proposed Transaction, in this Report BDO CFQ has expressed an opinion as to whether the Proposed Transaction is ‘fair’ and ‘reasonable’ to the nonassociated AusNiCo shareholders. We note that the Proposed Transaction can only proceed if AusNiCo shareholder approval is obtained at the Company’s Extraordinary General meeting for all of the resolutions sought, including the Proposed Resolutions. We note that the Proposed Transaction may not proceed for a number of reasons including, but not limited to, AusNiCo and Taronga not satisfying the conditions precedent to the Proposed Transaction or the non-acceptance of the Proposed Transaction by Taronga shareholders.

A more detailed discussion of the Proposed Transaction is set out in Section 3.0 of this Report. The scope of this Report and the basis for assessing the Proposed Transaction is set out in detail in Section 4.0 of this Report.

BDO Corporate Finance (QLD) Ltd ABN 54 010 185 725 AFS Licence No. 245513 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (QLD) Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

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This Report should be read in full, including the assumptions underpinning our work, together with the other information provided to AusNiCo shareholders in conjunction with this Report, including the Notice of Extraordinary Meeting prepared by AusNiCo (‘the Notice of Meeting’) and the Bidder’s Statement prepared by AusNiCo (‘the Bidder’s Statement’).

This Report does not address circumstances specific to individual AusNiCo shareholders. An AusNiCo shareholder’s decision to vote for or against the Proposed Resolutions is likely to be influenced by their own particular circumstances including, for example, their taxation considerations and risk profile. AusNiCo shareholders should obtain their own professional advice in relation to their own circumstances.

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2.0 Summary of Opinion

This Report has been prepared to provide information to non-associated AusNiCo shareholders prior to voting on the Proposed Resolutions. Given that the Proposed Resolutions relate to the Proposed Transaction, in this Report BDO CFQ has expressed an opinion as to whether the Proposed Transaction is ‘fair’ and ‘reasonable’ to the non-associated AusNiCo shareholders.

This section is a summary of our opinion only and cannot substitute for a complete reading of this Report. Our assessment of the Proposed Transaction is set out in detail in Sections 10.0 and 11.0 of this Report.

2.1 Fairness of the Proposed Transaction

This section provides a summary of our assessment of the fairness of the Proposed Transaction. A more detailed assessment of the fairness of the Proposed Transaction is set out in Section 10.0 of this Report.

To assess whether the Proposed Transaction is ‘fair’ to the non-associated AusNiCo shareholders we:

• Calculated the value of an AusNiCo share immediately prior to the Proposed Transaction; and

• Compared it to the value of a share in the Combined Entity immediately following the Proposed Transaction, assuming that the Proposed Transaction is implemented.

Table 2.1 below summarises our assessment of the fairness of the Proposed Transaction.

Table 2.1: Fairness of the Proposed Transaction

Reference	Value Range
AusNiCo share prior to the Proposed Transaction Section 8.0	$0.0152 - $0.0220
Combined Entityshare after the Proposed Transaction Section 9.0	$0.0153 - $0.0268

Source: BDO CFQ analysis

Figure 2.1 below illustrates the value adopted for a share in AusNiCo prior to the Proposed Transaction and for a share in the Combined Entity following the Proposed Transaction for the purpose of assessing the fairness of the Proposed Transaction.

Figure 2.1: Fairness of the Proposed Transaction

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AusNiCo
Combined Entity
$0.0100 $0.0150 $0.0200 $0.0250 $0.0300
Share Price ($)
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Source: BDO CFQ analysis

Table 2.1 and Figure 2.1 above show that the value of a share in AusNiCo prior to the Proposed Transaction falls within the value range determined for a share in the Combined Entity immediately following the Proposed Transaction.

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After considering the information and the methodology summarised above, and set out in further detail in the balance of this Report, it is our view that the Proposed Transaction is fair to the non-associated AusNiCo shareholders as at the date of this Report.

2.2 Reasonableness of the Proposed Transaction

This section provides a summary of our assessment of the reasonableness of the Proposed Transaction. A more detailed assessment of the reasonableness of the Proposed Transaction is set out in Section 11.0 of this Report.

We note that, in accordance with Regulatory Guide 111: Content of Expert Reports, a transaction is considered reasonable if it is fair. Notwithstanding this, we have also considered the reasonableness of the Proposed Transaction having regard to other significant factors to which AusNiCo shareholders may consider prior to voting for or against the Proposed Resolutions. This assessment includes comparing the likely advantages and disadvantages of the Proposed Transaction with the position of AusNiCo shareholders if the Proposed Transaction does not proceed.

Table 2.2 below summarises the potential advantages to the non-associated AusNiCo shareholders in the event that the Proposed Transaction proceeds. The potential advantages of the Proposed Transaction are discussed in further detail in Section 11.1 of this Report.

Table 2.2: Advantages of the Proposed Transaction

Advantage	Explanation
Larger and more diversified operations	The Combined Entity will be significantly larger than AusNiCo prior to the Proposed Transaction. AusNiCo shareholders will hold an interest in a minerals exploration company which has a more diversified project portfolio targeting a broader range of minerals.
Exposure to the potential upside in Taronga’s future earnings	Taronga has completed a more comprehensive level of assessment on its tenement areas and the Taronga Tin Project is currently considered to be in a more advanced stage of development relative to AusNiCo’s projects (i.e. ready to commence pre-feasibility studies subject to capital requirements). Following the Proposed Transaction, AusNiCo shareholders will be exposed to the potential upside which may be achieved from the development of Taronga’s project portfolio.
Management expertise	It is proposed that several Taronga directors and Mr Peter Williams will be appointed as directors and executive management of the Combined Entity. This will provide the Combined Entity with access to additional management expertise and may assist the company to accelerate the development of its project portfolio.
In line with AusNiCo business strategy	AusNiCo has announced to the ASX its intention to identify and review opportunities for diversification and growth while preserving cash reserves. The Proposed Transaction is in line with this business strategy.

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Advantage	Explanation
Scrip offer rather than cash	If the Proposed Transaction is approved, AusNiCo will issue shares to Taronga shareholders as consideration for their shares in Taronga. If AusNiCo was to make an equivalent cash takeover offer for Taronga, the Company would be required to raise funds from the capital markets which could dilute AusNiCo shareholders more heavily when compared to the scrip offer. If AusNiCo was to raise cash from the equity markets, we would expect that the shares offered under any capital raising would be at a discount to the recent trading price of AusNiCo shares (e.g. one week VWAP and three month VWAP prior to 30 October 2012 of $0.0200 and $0.0179 respectively). We note for example that the equity placements completed by AusNiCo in 2011 were completed at an average discount of approximately 5.3% relative to the one month VWAP prior to the offer. In addition, AusNiCo would incur transaction costs which may be in the order of 5% to 10% of the capital amount raised. In our view, raising capital at recent AusNiCo share prices would be more dilutive then issuing scrip at $0.0152 to $0.0220 (the range we have adopted to assess the Proposed Transaction).
Cost synergies	In our view, it is likely that the Proposed Transaction will result in opportunities for cost synergies to be achieved. These synergies include, but are not limited to, lower corporate overheads achieved by eliminating duplicated roles at AusNiCo and Taronga.
Improved position in capital markets	Following the Proposed Transaction, AusNiCo shareholders will hold an interest in a larger company which may have the ability to raise additional capital on more favourable terms relative to terms currently available to AusNiCo. This may assist to reduce the financing risk associated with exploring and developing AusNiCo’s and Taronga’s tenement areas.

Source: BDO CFQ analysis

Table 2.3 below summarises the potential disadvantages to the non-associated AusNiCo shareholders in the event that the Proposed Transaction proceeds. The potential disadvantages of the Proposed Transaction are discussed in further detail in Section 11.2 of this Report.

Table 2.3: Disadvantages of the Proposed Transaction

Disadvantage	Explanation
Reduced exposure to potential upside in AusNiCo’s future earnings	AusNiCo shareholders currently hold a collective interest of 100% of the issued share capital in AusNiCo. If the Proposed Transaction is approved, existing AusNiCo shareholders will hold a collective interest of approximately 33.46% of the Combined Entity’s shares while the current Taronga shareholders will hold a collective interest of approximately 66.54%. The dilution of AusNiCo shareholders summarised above would reduce their exposure to any potential future upside which may be realised from AusNiCo’s tenements in the event that AusNiCo is able to develop its tenements into mining operations.
The Combined Entity may target different metals relative to AusNiCo	AusNiCo is an exploration company with a primary focus on nickel. The Combined Entity will have a broader portfolio of projects which target minerals other than nickel (primarily tin). AusNiCo shareholders will hold an interest in the Combined Entity which will have an exposure to different commodity markets relative to AusNiCo prior to the Proposed Transaction.
Intentions of the board of the Combined Entity may be different to the intentions of the current board of AusNiCo	The board of directors of the Combined Entity will comprise of four existing directors from AusNiCo and two directors from Taronga. The expertise, skill set and operational objectives of the Combined Entity’s board may be different from AusNiCo’s prior to the Proposed Transaction which may be viewed as a disadvantage bysome AusNiCo shareholders.

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Disadvantage	Explanation
No escrow restrictions	The shares issued to Taronga shareholders under the Proposed Transaction will not be subject to escrow restrictions. The current Taronga shareholders, or equally the current AusNiCo shareholders, who do not wish to hold shares in the Combined Entity may wish to sell their Combined Entity shares which may have a material adverse effect on the share price.

Source: BDO CFQ analysis

After considering the information and the methodology summarised above, and set out in further detail in the balance of this Report, it is our view that the Proposed Transaction is reasonable to the nonassociated AusNiCo shareholders as at the date of this Report.

Notwithstanding our view that the Proposed Transaction is fair and reasonable to AusNiCo shareholders as at the date of this Report, we strongly recommend that AusNiCo shareholders also have regard to the other considerations set out in Section 2.3 below.

2.3 Other Considerations

Before forming a view on the Proposed Transaction, we strongly recommend that AusNiCo shareholders:

• Consult their own professional advisers;

• Carefully read all relevant documentation provided to them including this Report, the Notice of Meeting and the Bidder’s Statement; and

• Consider their specific circumstances.

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3.0 Overview of the Proposed Transaction

This section sets out an overview of the Proposed Transaction and is structured as follows:

• Section 3.1 provides a description of the Parties involved in the Proposed Transaction;

• Section 3.2 provides a description of the Proposed Transaction;

• Section 3.3 sets out the conditions of the Proposed Transaction; and

• Section 3.4 discusses the strategic rationale for the Proposed Transaction.

3.1 Parties involved in the Proposed Transaction

3.1.1 AusNiCo

AusNiCo is an Australian-based exploration company which was incorporated on 1 December 2006 as a wholly owned subsidiary of DGR Global Limited (‘DGR’). AusNiCo was listed on the ASX on 21 October 2010 under the symbol ANW. The Company is focussed on the discovery and development of nickel-cobalt mineral deposits primarily located in southeast Queensland.

3.1.2 Taronga

Taronga is an unlisted Australian public company which is focussed on the exploration and development of a portfolio of tin exploration projects in New South Wales. Taronga’s most advanced project is the Taronga Tin Project (formerly the ‘Newmont Joint Venture’), which it acquired in 2008. Taronga’s other project is the Torrington/Pound Flat project which is located adjacent to the Taronga Tin Project.

3.2 Description of the Proposed Transaction

On 1 November 2012, AusNiCo announced that it had entered into a Merger Implementation Agreement with Taronga in which AusNiCo will acquire 100% of the outstanding equity capital in Taronga. Under the Proposed Transaction, AusNiCo will issue five ordinary shares in AusNiCo for every one ordinary share in Taronga. The shares issued by AusNiCo under the Proposed Transaction will rank equal in all respects to the current outstanding share capital of AusNiCo and will be quoted on the ASX.

Under the Proposed Transaction, holders of options in Taronga will have their options cancelled and AusNiCo will issue five options in AusNiCo for every one option outstanding in Taronga. The AusNiCo options issued to Taronga option holders under the Proposed Transaction will have an exercise price of $0.04 and an expiry date of 30 June 2015.

Under the Proposed Transaction Mr Peter Williams will be issued with 8,919,593 performance shares in the Combined Entity (‘the Performance Shares’). Each of the Performance Shares will convert to one ordinary share in the Combined Entity upon achievement of the following performance milestones:

• 2,973,200 Performance Shares will convert if Mr Peter Williams maintains employment with the Combined Entity for a 12 month period following the completion of the Proposed Transaction; and

• 5,946,393 Performance Shares will convert if the Combined Entity finalises a pre-feasibility study in respect of the tenements EL6839, EL7348, EL7800 and EL7801 within 3 years from the completion of the Proposed Transaction.

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Immediately following the Proposed Transaction, Taronga shareholders will hold a collective interest of approximately 66.54% of the issued ordinary share capital in the Combined Entity (excluding options and the Performance Shares). Table 3.1 below shows the ordinary share structure of the Combined Entity following the Proposed Transaction.

Table 3.1: Combined Entity Share Structure

	Number of Shares %
Outstanding in AusNiCo Issued to Taronga shareholders under the Proposed Transaction	144,994,142 33.46% 288,400,010 66.54%
Combined Entity (post Proposed Transaction)	433,394,152 100.00%

Source: AusNiCo Bidder’s Statement

Note: Figures presented in Table 3.1 assume the acquisition of 100% of the issued capital in Taronga by AusNiCo.

3.3 Conditions of the Proposed Transaction

In order for the Proposed Transaction to proceed, the following conditions precedent must be satisfied:

• All necessary regulatory approvals in relation to the Proposed Transaction are granted on an unconditional basis;

• There are no regulatory actions taken between the date of announcement and completion of the Proposed Transaction which have, or may have, an adverse effect on AusNiCo, Taronga or the Proposed Transaction (including in relation to Taronga’s tenements);

• Approval of all of the resolutions sought, including the Proposed Resolutions, at the Company’s Extraordinary General Meeting by a simple majority of the non-associated AusNiCo shareholders;

• Written confirmation from AusNiCo that is has completed and is satisfied with its due diligence investigations;

• Written confirmation from Taronga that is has completed and is satisfied with its due diligence investigations;

• There are no material adverse changes in respect of AusNiCo or Taronga prior to the completion of the Proposed Transaction;

• There are no prescribed occurrences, as defined in sections 652C(1) or 652C(2) of the Corporations Act 2001, in respect of AusNiCo or Taronga prior to completion of the Proposed Transaction;

• The execution by AusNiCo and Taronga, and each of the Taronga option holders of the Option Cancellation and Replacement Deed and the issue of options in AusNiCo under the Option Cancellation and Replacement Deed to Taronga option holders;

• At the end of the offer period at least 90% of Taronga shareholders must have accepted the offer such that upon completion of the Proposed Transaction AusNiCo has a relevant interest in Taronga of at least 90%;

• Prior to completion of the Proposed Transaction, neither AusNiCo nor Taronga may undertake any material mergers, acquisitions, disposals or new commitments other than those directly related with the Proposed Transaction; and

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• No change of control or other rights under certain agreements in Taronga prior to the completion of the Proposed Transaction.

3.4 Strategic Rationale of the Proposed Transaction

The directors of AusNiCo believe that the Proposed Transaction provides further opportunity for growth and the ability to expand the Company’s operations into alternative mineral targets. Specifically, we have been advised that the Proposed Transaction may provide the following strategic benefits:

• The exposure to an advanced-stage tin project which has had significant previous exploration and drilling programs completed over the deposit;

• The exposure to additional commodities (primarily tin) not currently targeted by AusNiCo, which the Board believes has robust supply and demand fundamentals compared to other base metals;

• The addition of a well-credentialed management and exploration team lead by Mr Peter Williams, who will become the Chief Executive Officer of the Combined Entity; and

• The combination of Taronga’s exploration and production assets with AusNiCo’s portfolio of exploration projects is expected to enhance the ability of the Combined Entity to accelerate commercialisation of its assets.

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4.0 Scope of the Report & Methodology for Assessment

4.1 Scope of the Report

An independent expert in certain circumstances must be appointed to meet the requirements set out in the Corporations Act 2001 (‘the Corporations Act’), the regulatory guides (‘RGs’) published by the Australian Securities and Investments Commission (‘ASIC’) and in some cases the listing requirements of the stock exchanges on which the company is listed. We have summarised the requirements of the Corporations Act and the ASX listing requirements in Sections 4.1.1 and 4.1.2 below respectively. We have summarised the guidance provided by the RGs in Section 4.2 below.

This Report has been prepared to provide information to non-associated AusNiCo shareholders prior to voting on Resolution 1 (Approval of Change of Scale of Activities) and Resolution 2 (Approval of Acquisition of Taronga Shares held by Interests Associated with Mr Nicholas Mather) at AusNiCo’s Extraordinary General Meeting (‘the Proposed Resolutions’). Apart from the purpose stated directly above, this Report cannot be used or relied on for any other purpose or by any other person or entity. A copy of this Report will accompany the Notice of Extraordinary General Meeting and Explanatory Memorandum which will be sent to AusNiCo shareholders by the Company.

This Report is general financial product advice only and has been prepared without taking into account the objectives, risk profile, financial situation or needs of individual AusNiCo shareholders. Therefore, before acting in relation to their investment, AusNiCo shareholders should consider the appropriateness of the advice having regard to their objectives, financial situation and needs (including their individual taxation consequences). Shareholders should read the Notice of Extraordinary General Meeting and Explanatory Memorandum in full.

This Report does not address circumstances specific to individual AusNiCo shareholders. An AusNiCo shareholder’s decision to vote for or against the Proposed Resolutions is likely to be influenced by their own particular circumstances including, for example, their taxation considerations and risk profile. AusNiCo shareholders should obtain their own professional advice in relation to their own circumstances prior to deciding whether to vote for or against the Proposed Resolutions.

4.1.1 Requirements of the Corporations Act

Resolution 2 sought by AusNiCo at the Company’s Extraordinary General Meeting relates to the issue of AusNiCo shares to Samuel Holdings Pty Ltd, which is an entity associated with Mr Nicholas Mather (a director of both AusNiCo and Taronga). Pursuant to section 228(2) of the Corporations Act, a director of a public company is a related party of the company. Samuel Holdings Pty Ltd is considered to be a related party under section 228(4) of the Corporations Act.

Section 2E of the Corporations Act prohibits a company from giving a financial benefit to related parties unless:

• the financial benefit falls within the exceptions set out in Chapter 2E of the Corporations Act; or

• prior shareholder approval is obtained for the giving of the financial benefit.

We note that the financial benefit being provided to Samuel Holdings Pty Ltd does not fall within the exceptions set out in Chapter 2E of the Corporations Act. Accordingly, AusNiCo is required to obtain the approval of the Company’s shareholders before the Resolution 2 can be implemented.

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Section 2E of the Corporations Act does not specifically require that an independent expert’s report be provided to AusNiCo Shareholders in relation to the Resolution 2. Although not specifically required by the Corporations Act, we note that RG 111 recommends that a company commission an independent expert’s report for transactions involving a related party.

While this Report is not required to be provided for the purpose of complying with any specific provision of Section 2E of the Corporations Act, we have been requested by the directors of AusNiCo to prepare this Report to accompany the Notice of Meeting to be provided to AusNiCo shareholders in accordance with the recommendations of RG 111.

4.1.2 ASX Listing Requirements

This section considers the requirements of the following ASX Listing Rules:

• ASX Listing Rule 10.1 of Chapter 10: Transactions with persons in a position of influence;

• ASX Listing Rule 10.11 of Chapter 10: Transactions with persons in a position of influence; and

• ASX Listing Rule 11.1 of Chapter 11: Significant transactions.

ASX Listing Rule 10.1

ASX Listing Rule 10.1 states that an entity must ensure that neither it, nor any of its child entities, acquires a substantial asset from, or disposes of a substantial asset to, a substantial holder without the approval of holders of the entity’s ordinary securities.

ASX Listing Rule 10.2 defines an asset as ‘substantial’ if its value, or the value of the consideration for it, is greater than 5% of the equity interests of the entity as set out in the latest accounts given to ASX under the listing rules. As AusNiCo will acquire from Samuel Holdings Pty Ltd Taronga shares which may have a value which represents more than 5% of the total value of the equity interests of AusNiCo (as disclosed by AusNiCo in the Company’s 2012 financial accounts), Samuel Holdings Pty Ltd’s Taronga shares are deemed to be a ‘substantial asset’ of AusNiCo under the definitions provided in ASX Listing Rule 10.2.

Having regard to the above, Resolution 2 relates to the approval of the acquisition of a substantial asset from a related party. AusNiCo is therefore required to obtain the approval of holders of AusNiCo’s ordinary securities whose votes are not to be disregarded under ASX Listing Rule 10.1. AusNiCo must also include a report from an independent expert on Resolution 2 in the Notice of Meeting to be sent to AusNiCo shareholders under ASX Listing Rule 10.10. This Report has been prepared to assist AusNiCo to comply with the requirement under ASX Listing Rule 10.10 to provide an independent expert’s report to the shareholders of AusNiCo in relation to Resolution 2.

ASX Listing Rule 10.11

ASX Listing Rule 10.11 states that, unless one of the exceptions under Listing Rule 10.12 applies, an entity must not issue or agree to issue equity securities to a related party without the approval of holders of ordinary securities. In accordance with Listing Rule 10.11, AusNiCo must obtain shareholder approval for the issue of the AusNiCo options to be issued to Mr Nicholas Mather, Mr John Bovard and Mr Richard Willson who all are considered to be related parties under section 228 of the Corporations Act.

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We note that this Report is not required under, and has not been prepared for complying with, ASX Listing Rule 10.11.

ASX Listing Rule 11.1

ASX Listing Rule 11.1 states that where an entity proposes to make a significant change, either directly or indirectly, to the nature or scale of its activities, it must provide full details to ASX as soon as practicable. ASX Listing Rule 11.1.2 states that if ASX requires, the entity must get the approval of holders of its ordinary securities and must comply with any requirements of ASX in relation to the Notice of Meeting.

We understand that the ASX has informed AusNiCo of the requirement of the Company to gain shareholder approval for Resolution 1 in accordance with Listing Rule 11.1. We also understand that the ASX has instructed AusNiCo that an independent experts report would need to be commissioned in relation to Resolution 1 and that it must accompany the Notice of Meeting.

This Report has been prepared in accordance with the instructions from ASX to comply with ASX Listing Rule 11.1.

4.2 Assessment Methodology

We have referred to and considered Regulatory Guide 111: Content of Expert Reports (‘RG 111’) when determining the appropriate assessment methodology to adopt in this Report. RG 111 provides guidance in relation to independent expert’s reports in a range of circumstances, including those where the expert is required to provide an opinion on whether a transaction is ‘fair’ and ‘reasonable’ to shareholders.

RG 111 states that the independent expert’s report should explain the particulars of how the transaction was examined and evaluated as well as the results of the examination and evaluation. The report should provide an opinion by the expert stating whether or not, in the opinion of the expert, the proposal is ‘fair’ and ‘reasonable’. RG 111 also provides guidance on common valuation methodologies as well as other matters which should be considered by an expert when completing a valuation.

To meet the ASIC requirements, an expert seeking to determine whether a proposal is ‘fair’ and ‘reasonable’ should complete the steps set out below.

4.2.1 Step 1 – Assessment of Fairness

In our view, to assess whether the Proposed Transaction is ‘fair’ it is appropriate to:

(a) Determine the value of a share in AusNiCo immediately prior to the Proposed Transaction; and

• (b) Compare the value determined in (a) above with the value of a share in the Combined Entity immediately following the Proposed Transaction.

Under RG 111 the Proposed Transaction will be considered ‘fair’ to AusNiCo shareholders if the value of a share in the Combined Entity determined in (b) above is equal to or greater than the value of a share in AusNiCo determined in (a) above.

In our view, it is appropriate to assess the Proposed Transaction by comparing the value of a share in AusNiCo on a minority interest basis with the value of a share in the Combined Entity on a minority interest basis. We note that no individual shareholder is acquiring or increasing a controlling stake in AusNiCo under the Proposed Transaction.

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4.2.2 Step 2 – Assessment of Reasonableness

To assess whether the Proposed Transaction is ‘reasonable’ it is appropriate to examine other significant factors to which AusNiCo shareholders may give consideration prior to decide whether to vote for or against the Proposed Transaction. This evaluation may involve comparing the likely advantages and disadvantages of approving the Proposed Transaction with the position of an AusNiCo shareholder if the Proposed Transaction is not approved, as well as a consideration of other significant factors.

4.2.3 Step 3 – Expert’s Opinion

Upon completion of steps 1 and 2 above it may be possible to conclude whether the Proposed Transaction is ‘fair’ and/or ‘reasonable’ to AusNiCo shareholders. We note that under RG 111, the Proposed Transaction is considered to be ‘reasonable’ if it is ‘fair’. It may also be possible to conclude that the Proposed Transaction is ‘reasonable’ if there are sufficient valid reasons for the approval, notwithstanding that the Proposed Transaction may not be ‘fair’ to AusNiCo shareholders.

This Report will conclude by providing our opinion as to whether the Proposed Transaction is ‘fair’ and ‘reasonable’. While all relevant issues must be considered prior to forming an overall opinion, we will assess the fairness and reasonableness issues separately for clarity.

In this Report we have not provided any taxation, legal or other advice in relation to the Proposed Transaction. Other advisers have provided advice in relation to those matters to AusNiCo in relation to the Proposed Transaction.

In the process of assessing the Proposed Transaction, we have relied on certain economic, market and other conditions prevailing as at the date of this Report. We note that changes in these conditions may have a material impact in the results presented in this Report. BDO CFQ is not responsible for updating this Report in the event that these circumstances change.

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5.0 Overview of AusNiCo

5.1 Company Description

5.1.1 Overview

AusNiCo is an Australian-based exploration company focussed on the discovery and development of nickelcobalt mineral deposits located in southeast Queensland and Tasmania. AusNiCo was incorporated on 1 December 2006 as a wholly owned subsidiary of DGR Global Limited (‘DGR’) before listing on the ASX on 21 October 2010 under the symbol ANW.

5.1.2 Projects

AusNiCo holds a 100% interest in mineral tenements in southeast Queensland and North Western Tasmania covering more than 500 square kilometres with nickel-cobalt potential. Table 5.1 below sets out a summary of the main exploration permits held by AusNiCo.

Table 5.1: AusNiCo Exploration Licenses

License Holder Licence	Granted	Expires	Area(km2)
AusNiCo Limited EPM19366	9 Aug2012	8 Aug2015	301.84
AusNiCo Limited EPMA17768	Application		157.75
AusNiCo Limited EL50/2011	21 May2012	20 May2017	64.25

Source: Technical Expert’s Report

With reference to the mineral tenements set out in table 5.1 we have provided a summary of AusNiCo’s key operations below.

Kilkivan

AusNiCo holds a 100% interest in Kilkivan Project (‘EPM19366’) which covers an area of approximately 302 square kilometres and is located on the Black Snake Plateau 30 kilometres south of Kilkivan in south east Queensland. EPM19366 was granted in August 2012 and replaces six previous EPMs held over the area. Extensive mapping, soil sampling, rock chip samples and drilling have been undertaken in the project areas by DGR (formerly D’Aguilar Limited), the original parent company of AusNiCo.

AusNiCo has carried out limited test work on four samples from a drill core at Mount Cobalt. The test work was conducted at the HRL testing Pty Ltd laboratory (‘HRL’) in Brisbane in order to test the leaching characteristics of the altered, nickel mineralised zone. As at the date of this Report there is no mineral resource delineated.

For a more detailed analysis of the Kilkivan Project refer to the technical expert’s report attached as Appendix D to this Report.

Marlborough

The Marlborough North Project area is located approximately 70 kilometres north west of Rockhampton near the town of Marlborough in central Queensland. AusNiCo holds a 100% interest in the Exploration Permit for Minerals Application (‘EPMA’) 17768. AusNiCo is yet to meet its native title notification requirements for the granting of EPM17768.

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AusNiCo intends to conduct preliminary field work with a view to developing a comprehensive work program to be undertaken in due course. Soil and rock sampling and mapping of the central serpentinite body will be conducted to generate anomalous areas to define potential drill targets going forward.

For a more detailed analysis of the Marlborough North Project refer to the technical expert’s report attached as Appendix D to this Report.

Heazlewood

AusNiCo owns a 100% interest in Exploration Licence (‘EL’) 50/2011. EL50/2011 is located approximately 25 kilometres west of Waratah and the Mount Bischoff tin deposit in the north west region of Tasmania. Although there has been considerable exploration in the area, several prospective targets remain untested. AusNiCo intends to design an exploration program to follow-up previously reported historic results by third party exploration programs, and to exploit the prospective, under-explored areas of the tenement.

For a more detailed analysis of the Heazlewood Project refer to the technical expert’s report attached as Appendix D to this Report.

5.2 Executive Management and Board of Directors

Table 5.2 below summarises the names and position titles of the executive management and board of directors of AusNiCo prior to the Proposed Transaction.

Table 5.2: AusNiCo Executive Management and Board of Directors

Name	Position Title
Mr Brian Moller	Non-Executive Chairman
Mr Nicholas Mather	Non-Executive Director
Mr Ben Harrison	Non-Executive Director
Mr John Downie	Chief Executive Officer and Managing Director
Mr PriyJayasuria	Chief Financial Officer
Mr Karl Schlobohm	Company Secretary
Mr John Roiko	Exploration Manager

Source: AusNiCo company website (www.ausnico.com.au)

5.3 Equity Structure

As at 17 September 2012, AusNiCo had the following securities on issue:

• 144,994,142 fully paid ordinary shares; and

• 22,000,000 unlisted options exercisable at $0.30 on or before 19 November 2013.

5.3.1 Top Ten Shareholders

Table 5.3 below summarises the ownership interest of the top ten shareholders of AusNiCo as at 16 October 2012. Table 5.3 does not consider the changes in shareholdings arising from the Proposed Transaction.

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Table 5.3: Top Ten Shareholders of AusNiCo as at 16 October 2012

Shareholder	Shares Held OwnershipInterest
1. DGR Global Limited	59,776,500 41.23%
2. Bizzell Capital Partners PtyLtd	7,616,667 5.25%
3. HSBC Custody Nominees (Australia) Ltd	6,047,978 4.17%
4. Woodlands Asset Management PtyLtd	4,700,000 3.24%
5. Indium Investments Pty Ltd	4,000,000 2.76%
6. Ballarat Ceramic Industries PtyLtd	3,750,000 2.59%
7. Tenstar Trading Limited	3,700,000 2.55%
8. CF2 PtyLtd	3,600,000 2.48%
9. Justevian Pty Ltd	2,800,000 1.93%
10. Mr J Herrmann & Mrs P Herrmann	2,200,000 1.52%
Other	46,802,997 32.28%
Total	144,994,142 100.00%

Source: AusNiCo share registry as at 16 October 2012

5.4 Trading of AusNiCo Shares

This section sets out an analysis of the share market performance of AusNiCo by considering the following:

• The recent volume weighted average price (‘VWAP’) and daily volume of AusNiCo shares traded on the ASX over the 12 month period prior to 31 October 2012; and

• The liquidity of AusNiCo shares traded on the ASX over the 12 month period prior to 31 October 2012.

5.4.1 AusNiCo Share Price

Figure 5.1 below shows the daily VWAP and volume of AusNiCo shares traded on the ASX over the period from 1 November 2011 to 31 October 2012. We note that the last trade which occurred in AusNiCo shares prior to the date of this Report was 30 October 2012.

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Figure 5.1: Daily VWAP and Volume of AusNiCo Shares

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----- Start of picture text -----

$0.0450 900,000
(a)
$0.0400 800,000
(c)
$0.0350 700,000
(d)
(b)
$0.0300 600,000
$0.0250 500,000
(e)
$0.0200 400,000
$0.0150 300,000
$0.0100 200,000
$0.0050 100,000
$0.0000 0
Daily Volume Daily VWAP
Daily VWAP ($) Daily Volume
----- End of picture text -----

Source: Bloomberg as at 5 November 2012

Over the period graphed above, AusNiCo’s daily VWAP shows a period low of $0.0157 on 31 August 2012 and a period high of $0.0400 on 29 March 2012.

In addition to the VWAP and volume data of AusNiCo shown above we have provided additional information to assist readers to understand the possible reasons for movements in AusNiCo’s share price over the period analysed. Table 5.4 below summarises price sensitive announcements made by AusNiCo to the ASX over the period from 1 November 2011 to 31 October 2012. We note that the announcements summarised below correspond to those displayed in Figure 5.1 above.

Table 5.4: AusNiCo ASX Announcements

Date	Announcement
(a) 16 December 2011	AusNiCo announced the drill results from its exploration program in the Black Snake Plateau Region at Pembroke. The announcement stated “results of the drilling campaign are encouraging and contribute to an increase in the area of Ag-Cu-Au mineralisation at the Peak and Pembroke prospects.”
(b) 31 January 2012	AusNiCo released its quarterly activities and cash flow reports for the three month period ended 31 December 2011. Highlights for the quarter included the completion of a 1,287 metre drilling campaign in the Black Snake Plateau Region, the successful application for the Ni-(Au-PGE) prospective Heazlewood River tenement and the submission of access agreements for Mt Slopea.
(c) 23 February 2012	AusNiCo released its half year report for the six months ended 31 December 2012. AusNiCo reported a net loss for the period of $856,284.

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Date	Announcement
(d) 23 April 2012	AusNiCo released its quarterly activities and cash flow reports for the three month period ended 31 March 2012. Highlights for the quarter included the amalgamation of the many Black Snake tenements into a single Kaldanga tenement, the finding that the Haezlewood River tenements have several untested prospective targets and that the results from deep drilling at Falcon Mineral’s Saxby Project (which is adjacent to AusNiCo’s tenements) were encouraging. AusNiCo also indicated they were looking to further diversifytheir operations.
(e) 30 July 2012	AusNiCo released its quarterly activities report for the three months ended 30 June 2012. Highlights for the quarter included the Company’s endeavours to identify opportunities for diversification and growth, the introduction of aggressive cost cutting programs to preserve cash and the formal granting of the Heazlewood River tenement.

Source: AusNiCo ASX Announcements

Table 5.5 below summarises the VWAP of AusNiCo shares traded on the ASX for specified periods prior to 31 October 2012.

Table 5.5: AusNiCo’s VWAP for Specified Periods prior to 31 October 2012

Period Prior to 31 October 2012	VWAP($)
1 week	$0.0200
1 month	$0.0200
3 months	$0.0179
6 months	$0.0240
9 months	$0.0280
12 months	$0.0286

Source: Bloomberg as at 5 November 2012

The information presented in Table 5.5 above is shown graphically in Figure 5.2 below.

Figure 5.2: AusNiCo’s VWAP for Specified Periods prior to 31 October 2012

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----- Start of picture text -----

$0.030 $0.0286
$0.0280
$0.025 $0.0240
$0.0200 $0.0200
$0.020
$0.0179
$0.015
$0.010
$0.005
$0.000
1 Week 1 Month 3 Months 6 Months 9 Months 12 Months
VWAP ($)
----- End of picture text -----

Source: Bloomberg as at 5 November 2012

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5.4.2 Liquidity of AusNiCo Shares

The rate at which equity instruments are traded is generally referred to as the ‘liquidity’ of the equity instruments. Changes in liquidity may impact the price of equity instruments, particularly depending on the number of equity instruments required to be bought and/or sold and the time period over which the equity instrument holder needs to buy and/or sell those equity instruments.

Table 5.6 below summarises the monthly liquidity of AusNiCo shares from November 2011 to October 2012. We have summarised the liquidity of AusNiCo by considering the following:

• The volume of AusNiCo shares traded per month;

• The total value of trades in AusNiCo shares per month;

• The number of trades in AusNiCo share per month;

• The number of shares traded per month as a percentage of the total shares outstanding in AusNiCo at the end of each month; and

• The volume weighted average price of AusNiCo shares per month.

Table 5.6: Liquidity of AusNiCo Shares

Month	Volume	Turnover ($) Trades	Shares Outstanding (m) Volume per Shares Outstanding	Monthly VWAP
October 2012	155,163	3,103 3	144.994 0.11%	$0.0200
September 2012	301,200	5,494 3	144.994 0.21%	$0.0182
August 2012	415,900	7,634 8	144.994 0.29%	$0.0184
July2012	241,000	5,321 6	144.994 0.17%	$0.0221
June 2012	1,953,089	48,246 17	144.994 1.35%	$0.0247
May2012	1,083,858	29,855 13	144.994 0.75%	$0.0275
April 2012	807,082	25,934 16	144.994 0.56%	$0.0321
March 2012	1,006,800	38,143 17	144.508 0.70%	$0.0379
February2012	1,331,700	41,084 14	144.508 0.92%	$0.0309
January2012	100,000	3,100 3	143.897 0.07%	$0.0310
December 2011	26,000	1,040 2	143.897 0.02%	$0.0400
November 2011	261,667	10,467 7	143.897 0.18%	$0.0400
Total	7,683,459	219,419 109	144.639 5.31%	$0.0286

Source: Bloomberg as at 5 November 2012

Assuming a weighted average number of 144.63 million AusNiCo shares on issue, approximately 5.31% of total shares on issue were traded over the twelve month period to 31 October 2012. In our view, this indicates that AusNiCo shares display a low level of liquidity.

5.5 Historical Financial Information

This section sets out the historical financial information of AusNiCo. As this Report contains only summarised financial information we recommend that any users of this Report read and understand the additional notes and financial information contained in the full financial statements of AusNiCo.

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AusNiCo’s financial statements for the years ended 30 June 2011 and 2012 were audited by BDO Audit Pty Ltd. BDO CFQ has not performed an audit or review of any type on the historical financial information of AusNiCo. We make no statement as to the accuracy of the information provided however we have no reason to believe that the information is false or misleading.

5.5.1 Comprehensive Income

Table 5.7 below summarises AusNiCo’s statement of comprehensive income for the years ended 30 June 2010, 2011 and 2012.

Table 5.7: AusNiCo Statement of Comprehensive Income

	Year Ended 30 June 2010 Audited ($)	Year Ended 30 June 2011 Audited ($)	Year Ended 30 June 2012 Audited ($)
Revenue	-	77,606	39,856
Other income	-	-	496,499
Total revenue and other income	-	77,606	536,355
Administration and consultingexpenses	(85,192)	(521,714)	(516,354)
Depreciation	(8,065)	(12,896)	(16,275)
Employee benefits expense	-	(267,231)	(50,926)
Exploration costs written-off	(27,759)	(102,209)	(791,346)
Legal expenses	(4,022)	(28,824)	(16,871)
Share basedpayments expense	-	(328,787)	-
Profit/(loss)before income tax	(125,038)	(1,184,055)	(855,417)
Income tax expense	-	-	-
Profit/(loss)after income tax	(125,038)	(1,184,055)	(855,417)

Source: AusNiCo Annual Report for the years ended 30 June 2011 and 2012

Having regard to the comprehensive income of AusNiCo summarised above we note the following:

• AusNiCo’s revenues earned in 2011 and 2012 primarily relates to interest earned on cash holdings;

• Other income in 2012 relates to a research and development concession from the Australian Tax Office;

• Share based payments in 2011 related to the issue of 3,100,000 AusNiCo options to the directors and employees of the Company. We note that all of these options expired out of the money on 31 July 2012; and

• AusNiCo has reported a net loss after tax in each of the past three years.

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5.5.2 Financial Position

Table 5.8 below summarises AusNiCo’s statement of financial position as at 30 June 2010, 2011 and 2012.

Table 5.8: AusNiCo Statement of Financial Position

	As at 30 June 2010 Audited ($)	As at 30 June 2011 Audited ($)	As at 30 June 2012 Audited ($)
Current Assets
Cash and cash equivalents	82	978,921	1,114,439
Trade and other receivables	11,718	79,244	15,288
Other current assets	81,469	-	-
Total current assets	93,269	1,058,165	1,129,727
Non-Current Assets
Other financial assets	34,152	95,402	151,252
Property, plant and equipment	18,718	45,454	29,179
Exploration and evaluation assets	3,242,851	4,833,141	4,795,862
Total non-current assets	3,295,721	4,973,997	4,976,293
Total assets	3,388,990	6,032,162	6,106,020
Current Liabilities
Trade and otherpayables	679,989	580,883	86,604
Provisions	-	17,935	3,738
Other financial liabilities	5,460	6,340	7,022
Total current liabilities	685,449	605,158	97,364
Non-Current Liabilities
Other financial liabilities	-	27,272	20,250
Total non-current liabilities	-	27,272	20,250
Total liabilities	685,449	632,430	117,614
Net assets	2,703,541	5,399,732	5,988,406
Equity
Issued capital	2,220,001	5,771,460	7,215,551
Reserves	2,083,268	2,412,055	2,412,055
Accumulated losses	(1,599,728)	(2,783,783)	(3,639,200)
Total equity	2,703,541	5,399,732	5,988,406

Source: AusNiCo Annual Report for the years ended 30 June 2011 and 2012

Having regard to the financial position of AusNiCo summarised above we note the following:

• AusNiCo’s cash balance increased in both 2011 and 2012 as a result of the issue of shares in each of the respective years as well as the receipt of a research and development concession in 2012;

• Trade and other receivables related primarily to GST refundable;

• AusNiCo repaid a significant portion of its trade and other payables in 2012 using its existing cash balance and the proceeds from the issue of shares; and

• AusNiCo’s net asset position has improved in each of the past three years. As at 30 June 2012, AusNiCo has net assets of approximately $5.99 million.

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5.5.3 Cash Flows

Table 5.9 below summarises AusNiCo’s statement of cash flows for the years ended 30 June 2010, 2011 and 2012.

Table 5.9: AusNiCo Statement of Cash Flows

	Year Ended 30 June 2010 Audited ($)	Year Ended 30 June 2011 Audited ($)	Year Ended 30 June 2012 Audited ($)
Cash flows from operatingactivities
Receipts in the ordinarycourse of business	-	3,145	4,306
Receipt of research and development concession	-	-	496,499
Payments to suppliers and employees	(179,084)	(767,973)	(508,363)
Interest received	-	70,742	35,550
Net cash flows from operatingactivities	(179,084)	(694,086)	27,992
Cash flow from investingactivities
Payments for securitydeposits	(2,538)	(61,250)	(55,850)
Purchase ofproperty, plant and equipment	-	(2,611)	-
Payments for exploration and evaluation assets	(211,562)	(1,266,658)	(1,116,643)
Net cash flows from investingactivities	(214,100)	(1,330,519)	(1,172,493)
Cash flows from financingactivities
Proceeds from the issue of shares	-	4,000,000	1,400,000
Transaction costs on the issue of shares	-	(448,541)	(110,484)
Proceeds from borrowings	384,025	144,637	-
Repayment of borrowings	-	(683,783)	-
Payment on leases	(15,450)	(8,869)	(9,497)
Net cash flows from financingactivities	368,575	3,003,444	1,280,019
Net increase/(decrease) in cash and cash equivalents	(24,609)	978,839	135,518
Cash and cash equivalents at the beginningof theyear	24,691	82	978,921
Cash and cash equivalents at the end of theyear	82	978,921	1,114,439

Source: AusNiCo Annual Report for the years ended 30 June 2011 and 2012

Having regard to the cash flows of AusNiCo summarised above we note the following:

• AusNiCo reported negative net cash flows from operating activities in 2010 and 2011. In 2012 AusNiCo reported positive net cash flows from operations as a result of the receipt of a research and development concession and lower operational payments to suppliers and employees;

• AusNiCo capitalised approximately $1.27 million in 2011 and $1.12 million in 2012 of exploration and evaluation expenses;

• Proceeds from the issue of shares in 2011 relates to 20,000,000 shares issued at $0.20 per share pursuant to the initial public offer of the Company’s shares on the ASX.

• Proceeds from the issue of shares in 2012 relates to the following share issues:

• On 20 September 2011, 16,000,000 $0.05 ordinary shares were issued pursuant to a private placement;

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• On 20 October 2011, 3,500,000 $0.04 ordinary shares were issued pursuant to a share purchase plan;

• On 9 November 2011, 11,500,000 $0.04 ordinary shares were issued pursuant to a share purchase plan.

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6.0 Overview of Taronga

6.1 Company Description

6.1.1 Overview

Taronga is an unlisted Australian public company which is focussed on the exploration and development of a portfolio of tin exploration projects in New South Wales. Taronga operates two wholly owned subsidiaries, Ten Star Mining Pty Ltd (‘Ten Star’) and New England Tin Pty Ltd (‘New England’). Ten Star currently holds one Exploration License (‘EL’) whilst New England Tin Pty Ltd does not hold any exploration licenses. Figure 6.1 below sets out the corporate structure of Taronga Mines Group.

Figure 6.1: Corporate Structure of Taronga Mines Limited

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----- Start of picture text -----

Taronga Mines Limited
100% 100%
Ten Star Mining Pty Ltd New England Tin Pty Ltd
----- End of picture text -----

Source: Taronga Annual Report for the year ended 30 June 2012

6.1.2 Projects

Taronga’s most advanced project is the Taronga Tin Project (formerly the ‘Newmont Joint Venture’), which it acquired in 2008. Taronga’s other project, the Torrington/Pound Flat project, is located adjacent to the Taronga Tin Project. The Torrington and Pond Flats projects were acquired in 2010 after an agreement was reached with YTC Resources Limited (‘YTC’) to acquire total ownership of the exploration licences. Figure 6.2 below shows the location of the Taronga projects.

Figure 6.2: Taronga Tin Project Location Map

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Source: Taronga company website (www.tarongamines.com.au)

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Table 6.1 and Figure 6.3 below set out the exploration licenses and their respective locations held by Taronga Mines and its fully owned subsidiaries.

Table 6.1: Taronga Exploration Licenses

License Holder Licence	Granted	Expires	Area(km2)
Taronga Mines Limited EL7801 Pound Flat	4 Jul 2011	4 Jul 2013	101.5
Taronga Mines Limited EL7800 Torrignton	4 Jul 2011	4 Jul 2013	200.3
Taronga Mines Limited EL7348 Taronga	29 April 2009	29 May2013	47.8
Ten Star Mining EL6839 Emmaville	24 Jul 2007	24 July2013	17.9

Source: Technical Expert’s Report prepared by Xstract dated 9 November 2012

With reference to Table 6.1 we note the following:

• Taronga and its wholly owned subsidiaries hold a 100% interest in all four exploration licenses set out in Table 6.1;

• Tenements EL7800 and EL7801 were granted to Taronga on 4 July 2011. These exploration licenses cover the former EL6839, EL6392, EL6690 and EL7280 sites previously held by YTC;

• New England Tin does not hold any exploration licences.

Figure 6.3: Exploration License Locations

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Source: Taronga company website (www.tarongamines.com.au)

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Taronga Tin Project

Taronga acquired the Taronga Tin Project (EL7348 and EL6839) in 2008 from Ten Start Mining and New England Tin. The Taronga tin deposit is one of the largest undeveloped hard-rock tin deposits in the world. It ranks as the second largest tin deposit in Australia, on the basis of published information about mineral resources and previous estimates of mineralisation.[1]

The Taronga deposit covers an area of 65.7 km[2] . The Taronga deposit was extensively explored between 1978 and 1983 by Newmont on behalf of its joint venture partners. The feasibility study undertaken by Newmont included 357 drill holes aggregating 33,350m with bulk sampling of 3,000 tonnes.

Exploration work completed to date has not yet delineated a mineral resource according to the guidelines of the JORC code (2004). We understand that the project still requires further systematic drilling in order to define a mineral inventory capable of supporting an operation going forward.

For a more detailed analysis of the Taronga projects please see the technical report attached as Appendix D to this Report.

Torrington / Pound Flat Project

Taronga acquired the exploration licenses EL6839, EL6392, EL6690 (Torrington) and EL7280 (Pound Flat) from ASX-listed YTC in 2010. The licenses cover an area of 301.8 km[2 ] and are now covered by EL7800 and EL7801. Both the Torrington and Pound Flat deposits were initially drilled by Newmont as part of the Newmont Joint Venture operation and have had very limited drilling activity since. In line with the Taronga Tin Project, exploration work completed to date has not yet delineated a mineral resource according to the guidelines of the JORC code (2004) and both deposits require further significant exploration to define a mineral inventory capable of supporting an operation going forward.

For a more detailed analysis of the Taronga projects please see the technical report attached as Appendix D to this Report.

6.2 Executive Management and Board of Directors

Table 6.2 below summarises the names and position titles of the executive management and board of directors of Taronga prior to the Proposed Transaction.

Table 6.2: Taronga Executive Management and Board of Directors

Name	Position Title
Mr William Ryan	Chairman
Mr Nicholas Mather	Non-Executive Director
Dr Teunis Kwak	Non-Executive Director
Mr John Bovard	Non-Executive Director
Mr Richard Willson	Non-Executive Director
Mr Peter Williams	Chief Executive Officer
Mrs Melanie Leydin	Chief Financial Officer
Mr Bruce Pertzel	Consulting Geologist

Source: Taronga company website (www.tarongamines.com.au)

1 Taronga company website (www.tarongamines.com.au)

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6.3 Equity Structure

As at 30 June 2012, Taronga had the following securities on issue:

• 57,680,002 fully paid ordinary shares;

• 7,600,000 options issued under the employee share option plan with an exercise price of $0.20 and an expiry date of 30 June 2015; and

• 5,500,000 options issued to YTC Resources Limited as per the exploration licence acquisition agreements with an exercise price of $0.20 and an expiry date of 30 June 2014.

6.3.1 Top Ten Shareholders

Table 6.3 below summarises the ownership interest of the top ten shareholders of Taronga as at 5 November 2012. Table 6.3 does not consider the changes in shareholdings arising from the Proposed Transaction.

Table 6.3: Top Ten Shareholders of Taronga as at 5 November 2012

Shareholder	Shares Held OwnershipInterest
1. Tenstar Trading Limited	16,194,255 28.08%
2. YTC Resources Limited	13,640,000 23.65%
3. Samuel Holdings Pty Ltd	7,173,388 12.44%
4. Pine Mountain PtyLtd	3,700,000 6.41%
5. Rytech Pty Ltd	2,400,000 4.16%
6. Ekco investments PtyLtd	1,350,000 2.34%
7. HG Corporate Consulting Pty Ltd	1,018,742 1.77%
8. Kingslane PtyLtd	1,000,000 1.73%
9. MDP Pty Ltd	1,000,000 1.73%
10. Brian Lionel Roach	897,542 1.56%
Other	9,306,075 16.13%
Total	57,680,002 100.00%

Source: Taronga Share Registry as at 5 November 2012

6.4 Trading of Taronga Shares

Table 6.4 below summarises recent transactions in Taronga shares.

Table 6.4: Major Transactions in Taronga shares

Date	Number of Shares	Price
5 November 2012	3,700,000	$0.12
1 May2012	200,000	$0.10
29 February 2012	9,613,334	$0.10
30 July2011	12,400,000	$0.20(a)

Source: Taronga Annual Report 2012 and share sale information

(a) Issued as part consideration for the acquisition of the YTC tenements. Taronga also issued 5.5 million options to YTC as part consideration.

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6.5 Historical Financial Information

This section sets out the historical financial information of Taronga. As this Report contains only summarised financial information we recommend that any users of this Report read and understand the additional notes and financial information contained in the full financial statements of Taronga.

Taronga’s financial statements for the years ended 30 June 2010, 2011 and 2012 were audited by William Buck Audit Pty Ltd. BDO CFQ has not performed an audit or review of any type on the historical financial information of Taronga. We make no statement as to the accuracy of the information provided however we have no reason to believe that the information is false or misleading.

6.5.1 Comprehensive Income

Table 6.5 below summarises Taronga’s consolidated statement of comprehensive income for the years ended 30 June 2010, 2011 and 2012.

Table 6.5: Taronga Consolidated Statement of Comprehensive Income

	Year Ended 30 June 2010 Audited ($)	Year Ended 30 June 2011 Audited ($) Year Ended 30 June 2012 Audited ($)
Revenue	6,638	7,092 8,379
Corporate expenses	(17,946)	(121,865) (188,136)
Administration expenses	(15,649)	(32,084) (41,650)
Employee benefits expense	-	- (8,596)
Depreciation & amortisation expense	-	- (226)
Share basedpayments	-	(228,640) (60,160)
Exploration costs written-off	-	(78,435) -
IPO costs written-off	-	- (303,485)
Profit/(loss)before income tax	(26,957)	(453,932) (593,874)
Income tax expense	-	- -
Profit/(loss)after income tax	(26,957)	(453,932) (593,874)

Source: Taronga Annual Report for the years ended 30 June 2011 and 2012

Having regard to the comprehensive income of Taronga summarised above we note the following:

• Taronga’s revenues earned in 2011 and 2012 primarily relate to interest earned on cash holdings;

• In the 12 months to 30 June 2012, $303,485 of expenses was written off relating to a proposed listing of Taronga on the ASX that did not proceed;

• In the 12 months to 30 June 2011, $228,640 was expensed in relation to the value of share based payments issued to the directors of Taronga;

• In the 12 months to 30 June 2012, $60,160 was expensed following the cancellation of prior options on issue and the re-issue of new options; and

• Taronga has reported a net loss after tax in each of the past three years.

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6.5.2 Financial Position

Table 6.6 below summarises Taronga’s consolidated statement of financial position as at 30 June 2010, 2011 and 2012.

Table 6.6: Taronga Consolidated Statement of Financial Position

	As at 30 June 2010 Audited ($)	As at 30 June 2011 Audited ($) As at 30 June 2012 Audited ($)
Current Assets
Cash and cash equivalents	140,003	87,067 278,419
Trade and other receivables	2,447	11,974 56,545
Other	-	262,914 -
Total current assets	142,450	361,995 334,964
Non-Current Assets
Property, plant & equipment	-	- 2,030
Exploration & evaluation	1,286,746	1,548,952 4,887,799
Other non-current assets	70,059	70,059 60,059
Total non-current assets	1,356,805	1,619,011 4,949,888
Total assets	1,499,255	1,980,966 5,284,852
Current Liabilities
Trade and otherpayables	19,529	226,532 71,847
Total current liabilities	19,529	226,532 71,847
Total liabilities	19,529	226,532 71,847
Net assets	1,479,726	1,754,434 5,213,005
Equity
Issued capital	2,585,390	3,085,390 6,452,875
Reserves	-	228,640 913,600
Accumulated losses	(1,105,664)	(1,559,596) (2,153,470)
Total equity	1,479,726	1,754,434 5,213,005

Source: Taronga Annual Report for the years ended 30 June 2011 and 2012

Having regard to the financial position of Taronga summarised above we note the following:

• Cash and cash equivalents increased in the 12 months to 30 June 2012 from $87,067 to $278,419 due to the issue of ordinary shares;

• Other current assets decreased to nil in the 12 months to 30 June 2012 due predominantly to the write off of prepaid IPO costs;

• Exploration and evaluation increased in the 12 months to 30 June 2012 from $1.55 million to $4.89 million due to the acquisition of exploration licenses from YTC; and

• Issued capital increased in the 12 months to 30 June 2012 from $3.09 million to $6.45 million due predominantly to the issue of 12.4 million ordinary shares and 5.5 million options relating to the acquisition of the YTC tenements.

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6.5.3 Cash Flows

Table 6.7 below summarises Taronga’s consolidated statement of cash flows for the years ended 30 June 2010, 2011 and 2012.

Table 6.7: Taronga Consolidated Statement of Cash Flows

	Year Ended 30 June 2010 Audited ($)	Year Ended 30 June 2011 Audited ($) Year Ended 30 June 2012 Audited ($)
Cash flows from operatingactivities
Interest received	6,598	7,092 8,379
Payments to suppliers and employees	(35,484)	(109,294) (499,016)
Net cash flows from operatingactivities	(28,886)	(102,202) (490,637)
Cash flows from investingactivities
Payments forproperty, plant & equipment	-	- (2,256)
Payments for exploration expenditure	(74,227)	(340,641) (213,240)
Refund of securitydeposits	-	- 10,000
Net cash flows from investingactivities	(74,227)	(340,641) (205,496)
Cash flows from financingactivities
Proceeds from issue of equitysecurities	-	500,000 961,333
Payments for share issue costs	-	(110,093) (73,848)
Net cash flows from financingactivities	-	389,907 887,485
Net increase/(decrease)in cash and cash equivalents	(103,113)	(52,936) 191,352
Cash and cash equivalents at the beginningof theyear	243,116	140,003 87,067
Cash and cash equivalents at the end of theyear	140,003	87,067 278,419

Source: Taronga Annual Report for the years ended 30 June 2011 and 2012

Having regard to the cash flows of Taronga summarised above we note the following:

• Net cash flows were negative in 2010 and 2011. In 2012 Taronga recorded a net increase in cash flows associated with the issue of equity securities;

• Proceeds from issue of share capital was $0.5 million in January 2011 and $0.96 million in February 2012 related to shares issued; and

• Taronga capitalised approximately $0.34 million in 2011 and $0.21 million in 2012 of exploration and evaluation expenses.

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7.0 Overview of the Combined Entity

7.1 Summary of the Combined Entity

Following the Proposed Transaction, the Combined Entity will be an Australian listed minerals exploration company with a primary focus on tin and nickel. The Combined Entity will hold all of the exploration assets previously held by AusNiCo and Taronga as discussed in Sections 5.1 and 6.1 of this Report.

We understand that the Combined Entity’s intentions after the Proposed Transaction include the following:

• Seek to raise money through a private placement or through the offer of shares to existing shareholders in order to continue with the Combined Entity’s exploration activities;

• Undertake a six to nine month exploration and test work program on the Taronga Tin Project with the objective of defining a JORC compliant resource, identifying grade and recovery upside and evaluating the potential for the recovery of by-product metal credits;

• Amalgamate the administrative functions of AusNiCo and Taronga. AusNiCo intends to reduce the relative corporate overhead costs of the Combined Entity by eliminating the duplication of roles such as finance and accounting, company secretarial, risk management and planning and control; and

• Complete a detailed review of the operations and assets of Taronga to optimise the Combined Entity’s asset portfolio and operational/financial performance. We understand that following the operational review, the Combined Entity may modify or sell some of AusNiCo’s or Taronga’s existing projects or activities.

7.2 Company Structure

Figure 7.1 below summarises the ownership structure of the Combined Entity following the Proposed Transaction.

Figure 7.1: Combined Entity Structure

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----- Start of picture text -----

AusNiCo Shareholders Taronga Shareholders
33.46% 66.54%
AusNiCo Limited
(The Combined Entity)
100%
Taronga Mines Limited
----- End of picture text -----

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7.3 Executive Management and Board of Directors

Following the Proposed Transaction, the Combined Entity will comprise of four existing directors from AusNiCo and two directors from Taronga. Table 7.1 below summarises the proposed board of directors and executive management of the Combined Entity following the Proposed Transaction.

Table 7.1: Combined Entity Board of Directors and Executive Management

Name	Position
Mr Richard Willson	Non-Executive Director
Mr John Bovard	Non-Executive Director
Mr Brian Moller	Non-Executive Director
Mr Ben Harrison	Non-Executive Director
Mr Nicholas Mather	Non-Executive Director
Mr John Downie	Non-Executive Director
Mr Peter Williams	Chief Executive Officer

Source: Notice of Meeting

7.4 Equity Structure

Following the Proposed Transaction, the Combined Entity will have the following securities on issue (assuming 100% acquisition of Taronga shares):

• 433,394,152 fully paid ordinary shares;

• 22,000,000 options exercisable at $0.30 on or before 19 November 2013. We note that these options represent the options which were outstanding in AusNiCo prior to the Proposed Transaction;

• 65,500,000 options exercisable at $0.038 on or before 30 June 2015. We note that these options represent the Combined Entity options which will be issued to Taronga option holders under the Proposed Transaction; and

• 8,919,593 Performance Shares with conversion terms as summarised in Section 3.2 of this Report.

7.4.1 Top Ten Shareholders

Table 7.2 below summarises the ownership interest of the top ten shareholders of the Combined Entity immediately following the Proposed Transaction (assuming 100% acquisition of Taronga shares).

Table 7.2: Top Ten Shareholders of the Combined Entity

Shareholder	Shares Held OwnershipInterest
1. Tenstar Trading Limited	84,671,275 19.54%
2. YTC Resources Limited	68,200,000 15.74%
3. Samuel Holdings Pty Ltd	35,866,940 8.28%
4. Pine Mountain PtyLtd	18,500,000 4.26%
5. Rytech Pty Ltd	12,000,000 2.77%
6. Ekco Investments PtyLtd	6,750,000 1.56%
7. HSBC Custody Nominees (Australia) Limited	6,047,978 1.40%
8. HG Corporate ConsultingPtyLtd	5,093,710 1.18%

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Shareholder	Shares Held OwnershipInterest
9. Kingslane Pty Ltd	5,000,000 1.15%
10. MDP PtyLtd	5,000,000 1.15%
Other	186,264,249 42.97%
Total	433,394,152 100.00%

Source: BDO CFQ analysis

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8.0 Valuation of AusNiCo

This section sets out our valuation of AusNiCo shares prior to the Proposed Transaction and is structured as follows:

• Section 8.1 sets out our view of the most appropriate methodology to value each AusNiCo share;

• Section 8.2 sets out our calculation of the value of each AusNiCo share using the asset based valuation methodology;

• Section 8.3 sets out our calculation of the value of each AusNiCo share using the market based valuation methodology; and

• Section 8.4 sets out our view on the most appropriate value per AusNiCo share prior to the Proposed Transaction to adopt for the purpose of assessing the fairness of the Proposed Transaction.

8.1 Valuation Approach

Table 8.1 below summarises our view of the most appropriate valuation methodology to apply when calculating the value of AusNiCo shares. A summary of each of the valuation methodologies listed in Table 8.1 is contained in Appendix B of this Report.

Table 8.1: Common Valuation Methodologies

Methodology Appropriate?	Explanation
Discounted cash flow (‘DCF’) �	The DCF methodology relies on projections which predict the future cash flows of a company. Due to the nature and stage of development of AusNiCo’s projects, in our view, future cash flows of AusNiCo cannot be determined with the appropriate level of certainty or accuracy at the current time. In our view, the DCF methodology is not appropriate for calculating the value of AusNiCo shares.
Capitalisation of maintainable earnings (‘CME’) �	The current business activities of AusNiCo do not generate an earnings stream at the current time and it is expected that earnings will not be generated in the short term. AusNiCo does not generate and report maintainable earnings suitable for use in a CME valuation of the Company’s shares.
Asset based valuation (‘ABV’) �	The assets and liabilities of AusNiCo can be identified and their values determined. We have been provided with AusNiCo’s unaudited balance sheet as at 30 September 2012 along with valuations of AusNiCo’s tenements prepared by Xstract Mining Consultants as at 9 November 2012. In our view, the most appropriate methodology to adopt for the purpose of calculating the value of AusNiCo shares is the ABV methodology.

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Methodology Appropriate?

Explanation

Market based valuation (‘MBV’) Secondary

It is possible to complete a market based valuation of a company when there is a readily observable market for the trading of the company’s shares. AusNiCo’s shares are listed on the ASX and it is possible to observe the market price of trades in AusNiCo shares. We note that AusNiCo shares display relatively low levels of liquidity and as such it is our view that the prices implied by trades in AusNiCo shares should be treated with caution. In our view, it is more appropriate to rely on the ABV of AusNiCo shares as a primary methodology and utilise values derived from the share trading history of AusNiCo to refine the valuation range determined bythe technical valuer.

Source: BDO CFQ analysis

For the purpose of determining a value of AusNiCo in this Report we have adopted the ABV as a primary methodology and the MBV as a secondary methodology. Sections 8.2 and 8.3 below summarise our ABV and MBV of AusNiCo respectively.

8.2 Asset Based Valuation of AusNiCo

8.2.1 Value of AusNiCo’s Tenements

We are not geologists or valuers of mining tenements. We have relied on the services of a specialist, Xstract Mining Consultants (‘Xstract’), to determine the fair value of AusNiCo’s tenements. In a report dated 9 November 2012 and addressed to the directors of BDO CFQ, Xstract set out a valuation of AusNiCo’s tenements. In our view it is appropriate for us to rely on the work completed by Xstract as it is a specialist firm capable of completing this valuation work and understands the purpose of the valuation set out in this Report.

In the valuation report relating to AusNiCo’s tenements, Xstract state that its report has been prepared in accordance with the following:

• The Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (2005) (‘VALMIN Code’); and

• The Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2004) (‘JORC Code’).

In order to determine a fair market value for AusNiCo’s tenements, Xstract had regard to the following two valuation methodologies:

• The comparable transaction method – the comparable transaction method involves the analysis of 100% equity acquisitions of projects similar in nature, time and circumstances to establish a range of values that the market is willing to pay for a project. The transactions deemed to be analogous to the mineral asset being valued are used to determine a unit price for the asset being valued (e.g. $/km[2] ); and

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• The geoscientific rating method – the geoscientific rating method involves the application of multipliers to an intrinsic value of a project. The intrinsic value is referred to as the base holding cost (‘BHC’), which represents the average cost to identify, apply for, and retain a base unit area of title. To determine a value for each property the valuer considers four key attributes (off-property, onproperty, anomaly and geological) which either enhance or downgrade the BHC for each property.

A more detailed description of the valuation methods adopted by Xstract is provided in Appendix C of Xstract’s independent valuation report. The Xstract valuation report is included as Appendix D to this Report.

Table 8.2 below summarises Xstract’s valuation of AusNiCo’s tenements.

Table 8.2: Xstract Valuation of AusNiCo’s Tenements

Valuation Method	Low ($)	Preferred ($)	High ($)
Comparable transaction method	1,700,000	2,800,000	3,800,000
Geoscientic rating method	2,800,000	4,400,000	6,500,000
Totalpreferred value	2,300,000	3,600,000	5,200,000

Source: Xstract Valuation Report dated 9 November 2012

Having regard to the valuation of AusNiCo’s tenements summarised in Table 8.2 above, for the purpose of the valuation work set out in this Report we have adopted a valuation range of $2.3 million to $5.2 million for AusNiCo’s tenements.

8.2.2 Asset Based Value of AusNiCo on a Controlling Interest Basis

In our view it is appropriate to apply an asset based valuation methodology to determine the value of AusNiCo. The key elements of our asset based valuation methodology can be broadly summarised as:

• The value of AusNiCo’s tenements as set out in Section 8.2.1 above; and

• The approximate cash balance of AusNiCo as at 31 October 2012 of $870,000 adjusted for transaction costs of $243,000.

The net value of the remaining of AusNiCo’s assets and liabilities is not material to our valuation and has not specifically been included in our calculation.

Table 8.3 below summarises the net asset value of AusNiCo on a controlling interest basis as at the date of this Report.

Table 8.3: Asset Based Valuation of AusNiCo on a Controlling Interest Basis

	Low	Preferred	High
Value of AusNiCo tenements Value of cash	$2,300,000 $627,000	3,600,000 $627,000	$5,200,000 $627,000
Asset based value of AusNiCo	$2,927,000	$4,227,000	$5,827,000
Number of AusNiCo shares on issue	144,994,142	144,994,142	144,994,142
Valueper AusNiCo share	$0.0202	$0.0291	$0.0402

Source: Xstract Valuation Report dated 9 November 2012 and AusNiCo cash balance as at 31 October 2012 Note: We have not included the AusNiCo options outstanding as their value is not material to this assessment.

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In our view, the net asset value of AusNiCo is within the range of $2.93 million and $5.83 million on a controlling interest basis as at the date of this Report. This equates to a value per AusNiCo share within the range of $0.0202 to $0.0402 on a controlling interest basis.

8.2.3 Asset Based Value of AusNiCo on a Minority Interest Basis

The value of AusNiCo determined in Section 8.2.2 above is calculated on a controlling interest basis. In our view, it is appropriate to assess the Proposed Transaction by comparing the value of a share in AusNiCo on a minority interest basis with the value of a share in the Combined Entity on a minority interest basis. The reason for this is that no person is acquiring or increasing a controlling stake in AusNiCo.

A controlling interest in a company is generally regarded as being more valuable than that of a minority interest as it may provide the owner with the following:

• Control over the operating and financial decisions of the company;

• The right to set the strategic direction of the company;

• Control over the buying, selling and use of the company’s assets; and

• Control over appointment of staff and setting of financial policies.

The increase in value for a controlling interest is often observed where an acquirer launches a takeover bid, or some other mechanism for control, for another company. Empirical research suggests that control premiums are typically within the range of 25% to 40% which is consistent with recent transactions in Australia (refer to Appendix C for control premium research). We note that a control premium of 25% to 40% implies a minority discount in the range of 20% to 29%.

For the purpose of the analysis set out in this Report, it is our view that it is appropriate to adopt a minority discount for AusNiCo of 24.5%, being the mid-point of the range determined above. A minority discount of 24.5% is consistent with the minority discount applied to the valuation of the Combined Entity set out in Section 9.0 below. For completeness, we note that the opinions set out in this Report would remain unchanged if we had adopted a minority discount of either 20% or 29% for our analysis.

Table 8.4 below summarises the value per AusNiCo share on a minority interest basis as at the date of this Report.

Table 8.4: Value per AusNiCo Share on a Minority Interest Basis

	Low	Preferred	High
AusNiCo share on a controllinginterest basis	$0.0202	$0.0291	$0.0402
Minority discount	24.5%	24.5%	24.5%
AusNiCo share on a minorityinterest basis	$0.0152	$0.0220	$0.0303

Source: BDO CFQ analysis

In our view, based on the ABV methodology the value per AusNiCo share is within the range of $0.0152 to $0.0303 on a minority interest basis.

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8.3 Market Based Valuation of AusNiCo

This section sets out the market based valuation of AusNiCo. In order to complete the market based valuation of AusNiCo we have had regard to the trading prices and liquidity of AusNiCo shares on the ASX over the period from 1 November 2011 to 31 October 2012. Section 5.4 of this Report sets out information in relation to the trading of AusNiCo shares on the ASX.

Having regard to the information set out in Section 5.4 of this Report, it is our view that the value of each AusNiCo is within the range of $0.0179 and $0.0200 on a minority interest basis. The value range of $0.0179 to $0.0200 represents the values of the three month and one week VWAP of AusNiCo shares prior to 31 October 2012 (refer to Table 5.5). We note that the value per AusNiCo share determined using the MBV methodology is within the low and preferred values per AusNiCo share based on the ABV methodology.

For completeness, we note that caution should be exercised when utilising this valuation methodology given our view that trading in AusNiCo shares is relatively illiquid (refer to Section 5.4.2).

8.4 Value of a share in AusNiCo prior to the Proposed Transaction

In our view, for the purpose of our assessment of the Proposed Transaction it is appropriate to adopt a value in the range of $0.0165 to $0.0233 per AusNiCo share on a minority interest basis. We note that this valuation range is based on the low and preferred values determined using the ABV methodology respectively (refer to Section 8.2 above). Our view was formed having regard to a range of matters including:

• The value of AusNiCo determined using the MBV methodology of $0.0179 to $0.0200 which is consistent with the value range adopted;

• AusNiCo’s share price has declined over the 12 month period prior to 31 October 2012. Trades in AusNiCo shares in the three month period prior to the 31 October 2012 have been within the daily VWAP range of $0.0157 to $0.0200. The last date at which AusNiCo shares traded above $0.0220 (the high end of the value range adopted) was 3 July 2012, more than 4 months prior to the date of this Report;

• We understand that AusNiCo’s projects have not returned drilling results in line with initial targets. We have been instructed that AusNiCo is not currently undertaking drilling programs at its projects and that there has been minimal exploration activity on AusNiCo’s projects since 1 January 2012;

• AusNiCo Directors and management have decided it is preferable to identify and review opportunities for growth and diversification rather than focus exclusively on further drilling programs at AusNiCo's projects; and

• We understand that if the Proposed Transaction is not approved, AusNiCo has cash reserves to continue to fund operations until June 2013. In order to continue operating beyond this point in time AusNiCo would be required to raise capital or complete an alternative transaction. In our view, in the absence of any material changes to progress there is significant uncertainty as to whether AusNiCo would be able to raise sufficient capital and any capital raised may be at a significant discount to current market prices.

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9.0 Valuation of the Combined Entity

This section sets out our valuation of a share in the Combined Entity immediately following the Proposed Transaction and is structured as follows:

• Section 9.1 sets out our view of the most appropriate methodology to apply to value the Combined Entity; and

• Section 9.2 sets out our calculation of the value of a share in the Combined Entity assuming that the Proposed Transaction is approved.

9.1 Valuation Approach

In our view, the ABV methodology is the most appropriate methodology to apply in order to calculate the value of shares in the Combined Entity immediately following the Proposed Transaction, assuming that the Proposed Transaction is approved and implemented. In our view, it is not appropriate to apply the DCF or CME valuation methodologies to determine a value of the Combined Entity for the following reasons:

• The DCF methodology relies on projections which predict the future cash flows of a company. Due to the nature and stage of development of both AusNiCo’s and Taronga’s projects, in our view, future cash flows of the Combined Entity cannot be determined with the appropriate level of certainty or accuracy at the current time. The DCF methodology is not appropriate for calculating the value of the Combined Entity’s shares; and

• The business activities of AusNiCo and Taronga do not generate an earnings stream at the current time and it is expected that earnings will not be generated in the short term following the Proposed Transaction. Neither AusNiCo nor Taronga generate and report maintainable earnings suitable for use in a CME valuation of the Combined Entity’s shares.

To determine a value for the Combined Entity, in our view it is appropriate to add the value of AusNiCo’s and Taronga’s tenements as determined by the technical expert, Xstract, and make adjustments for other assets and liabilities expected to be held by the Combined Entity immediately following the Proposed Transaction.

9.2 Value of AusNiCo’s Tenements

As discussed in Section 8.4 above, it is our view that the appropriate value to adopt for AusNiCo’s tenements for the purpose of this Report is within the low to preferred range determined by the ABV valuation. For the purpose of determining the value of the Combined Entity, we have adopted a value for AusNiCo’s tenements within the range of $2.3 million to $3.6 million on a controlling interest basis.

9.3 Value of Taronga’s Tenements

In order to determine the value of Taronga’s tenements, we have relied on the services of Xstract, a specialist asset valuer. In a report dated 9 November 2012 and addressed to the directors of BDO CFQ, Xstract set out a valuation of Taronga’s tenements. In our view it is appropriate for us to rely on the work completed by Xstract as they are a specialist firm capable of completing this valuation work and understand the purpose of the valuation set out in this Report.

In the valuation report relating to Taronga’s tenements, Xstract state that its report has been prepared in accordance with the VALMIN Code and the JORC Code.

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In order to determine a fair market value for Taronga’s tenements, Xstract had regard to the following valuation methodologies:

• The comparable transaction method – the comparable transaction method involves the analysis of 100% equity acquisitions of projects similar in nature, time and circumstances to establish a range of values that the market is willing to pay for a project. The transactions deemed to be analogous to the mineral asset being valued are used to determine a unit price for the asset being valued (e.g. $/tonne and $/km[2] ); and

• The geoscientific rating method – the geoscientific rating method involves the application of multipliers to an intrinsic value of a project. The intrinsic value is referred to as the base holding cost (‘BHC’), which represents the average cost to identify, apply for, and retain a base unit area of title. To determine a value for each property the valuer considers four key attributes (off-property, onproperty, anomaly and geological) which either enhance or downgrade the BHC for each property.

Table 9.1 below summarises Xstract’s valuation of Taronga’s tenements. The full Xstract valuation report is included as Appendix D of this Report.

Table 9.1: Xstract Valuation of Taronga’s Tenements

Valuation Method	Low ($)	Preferred ($)	High ($)
Comparable transaction method	3,400,000	8,500,000	18,200,000
Geoscientic rating method	5,300,000	7,700,000	10,700,000
Value adopted	4,400,000	8,100,000	14,500,000

Source: Xstract Valuation Report dated 9 November 2012

Having regard to the valuation of Taronga’s tenements summarised in Table 9.1 above, for the purpose of the valuation work set out in this Report we have adopted a valuation range of between $4.4 million and $14.5 million for Taronga’s tenements on a controlling interest basis.

We note that the value of Taronga’s tenements implies a value per Taronga share within the range of $0.0745 to $0.2279 on a controlling interest basis.[2] Applying a minority discount of 24.5% (refer to section 8.2.3 above) implies a value per Taronga share within the range of $0.0562 to $0.1720 on a minority interest basis.

We note that the value range of Taronga determined above is wide. We have also considered other information in relation to significant trades in Taronga shares to determine an appropriate value to adopt for Taronga’s tenements for the purposes of the analysis set out in this Report. Information in relation to significant trades in Taronga shares is set out in Section 6.4 of this Report and generally indicates that shares have been trading in the range of $0.10 to $0.12 per share.

Having regard to the information regarding significant share trades, in our view it is appropriate to narrow the range adopted by the technical valuer by adding $2.0 million to the low value and subtracting $2.0 million from the high value. This results in a value range for Taronga’s tenements in the range of $6.4 million to $12.5 million. This value range implies a value for Taronga shares within the range of $0.0799 to $0.1497 on a minority interest basis.

2 For the purposes of our assessment we have assumed a cash balance of nil for Taronga based on Taronga’s cash balance as at 31 October 2012 of approximately $165,000 adjusted for transaction costs.

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9.4 Value of the Combined Entity

9.4.1 Value of the Combined Entity on a Controlling Interest Basis

To determine a value for the Combined Entity we have added the value of AusNiCo’s and Taronga’s tenements as determined by Xstract and summarised above, and made adjustments for other assets and liabilities expected to be held by the Combined Entity immediately following the Proposed Transaction.

Table 9.2 below summarises our valuation of the Combined Entity immediately following the Proposed Transaction on a controlling interest basis.

Table 9.2: Value of the Combined Entity on a Controlling Interest Basis

	Low	High
AusNiCo tenement value Taronga tenement value Cash (AusNiCo $627,000 Taronga $nil)	$2,300,000 $6,400,000 $627,000	$3,600,000 $12,500,000 $627,000
Value of the Combined Entity	$9,327,000	$16,727,000

Source: Xstract Valuation Report dated 9 November 2012 and AusNiCo Bidder’s Statement

Based on the information set out in Table 9.2 above, it is our view that the value of the Combined Entity immediately following the Proposed Transaction is within the range of approximately $9.33 million and $16.73 million on a controlling interest basis.

Immediately following the Proposed Transaction, the Combined Entity will have the following securities on issue:

• 433,394,152 ordinary shares;

• 22,000,000 options exercisable at $0.30 on or before 19 November 2013. We note that these options represent the options which were outstanding in AusNiCo prior to the Proposed Transaction;

• 65,500,000 options exercisable at $0.04 on or before 30 June 2015. We note that these options represent the Combined Entity options which will be issued to Taronga option holders under the Proposed Transaction; and

• 8,919,593 Performance Shares with conversion terms as summarised in Section 3.2 of this Report.

We note that following the completion of the Proposed Transaction, the Combined Entity will seek to raise capital either through a private placement or through the offer of shares to existing shareholders. The price at which the Combined Entity will seek to raise capital and the number of shares to be issued is not known as at the date of this Report. Our analysis in this section does not consider the impact of any potential capital raising.

The value of the Combined Entity calculated in Table 9.2 includes the value of all securities summarised above. We have determined the value of each class of security based on various valuation methodologies.

The valuation methodology adopted to value the options for the purpose of this Report is the BlackScholes formula. The inputs adopted to calculate the value of the options using the Black-Scholes formula are summarised in Table 9.3 below.

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Table 9.3: Inputs adopted for the Black-Scholes Formula

Tranche A	Tranche B Description
Number of options 22,000,000	65,500,000 As per the option issue terms.
Exerciseprice $0.300	$0.04 Asper the option issue terms.
Expiry date 19 Nov 2013	30 June 2015 As per the option issue terms.
Risk-free rate 2.70%	2.50% We adopted the approximate yield on Commonwealth Government debt securities of 1 year and 2 year terms for the Tranche A and Tranche B options respectively.
Volatility 75%	75% We have had regard to the volatility of a number of listed comparable companies which explore tin and nickel tenements. The comparable companies identified exhibited volatilities in the range of approximately 50% to 110%. In our view, a volatility of 75% is appropriate to adopt for the Combined Entity.
Dividend yield 0.0%	0.0% We are instructed that the Combined Entity is not expected topaya dividend over the term of the options.

Source: Options terms and Bloomberg as at 1 November 2012

We understand that under the Proposed Transaction, the Performance Shares will be issued to Mr Peter Williams (the proposed CEO of the Combined Entity) with the following vesting conditions:

• 2,973,200 Performance Shares will convert if Mr Peter Williams maintains employment with the Combined Entity for a 12 month period following the completion of the Proposed Transaction. We understand that it is likely that this performance condition will be met. On this basis, it is our view that it is appropriate to adopt a probability of vesting of 100% in the circumstances; and

• 5,946,393 Performance Shares will convert if the Combined Entity finalises a pre-feasibility study in respect of the tenements EL6839, EL7348, EL7800 and EL7801 within 3 years from the completion of the Proposed Transaction. We understand that while at the current time it is not certain that this vesting condition will be met, it is more likely rather than less likely. On this basis, it is our view that it is appropriate to adopt a probability of vesting of 75% in the circumstances.

We have determined the value per Performance Share by multiplying the share price of the Combined Entity by our view on the probability that the Performance Shares will vest.

Table 9.4 below summarises the value of each security class which will be outstanding in the Combined Entity following the Proposed Transaction. As the value of the options and the value per share are dependent on each other, we have used an iterative process to solve for both. We note that the value per security summarised in Table 9.4 are stated on a controlling interest basis.

Table 9.4: Value per Security in the Combined Entity on a Controlling Interest Basis

	Low	High
Ordinary shares	$0.0202	$0.0355
Tranche A options(a)	$0.0000	$0.0001
Tranche B options	$0.0064	$0.0164
2,973,200 Performance shares	$0.0202	$0.0355
5,946,393 Performance shares	$0.0152	$0.0266

Source: BDO CFQ analysis

(a) The Tranche A options are significantly out of the money as at the date of this Report.

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Having regard to Table 9.4 above, we have determined that the value of a share in the Combined Entity is within the range of $0.0202 to $0.0355 on a controlling interest basis.

9.4.2 Value of the Combined Entity on a Minority Interest Basis

The value of a share in the Combined Entity immediately following the Proposed Transaction calculated above has been determined on a controlling interest basis. In our view it is appropriate to apply a minority discount to the value determined above to calculate a minority interest value. As discussed in Section 8.3 of this Report, in our view it is appropriate to adopt a minority discount of 24.5% for the purpose of the assessing the Proposed Transaction.

Table 9.5 below summarises our valuation of a share in the Combined Entity immediately following the Proposed Transaction on a minority interest basis.

Table 9.5: Value of the Combined Entity on a Minority Interest Basis

	Low	High
Value of a controllinginterest basis	$0.0202	$0.0355
Minority discount	24.5%	24.5%
Value on a minorityinterest basis	$0.0153	$0.0268

Source: BDO CFQ analysis

Having regard to the information summarised in Table 9.5 above, in our view the value of a share in the Combined Entity immediately following the Proposed Transaction is within the range of $0.0153 to $0.0268 on a minority interest basis.

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10.0 Fairness of the Proposed Transaction

This Report has been prepared to provide information to non-associated AusNiCo shareholders prior to voting on the Proposed Resolutions. Given that the Proposed Resolutions relate to the Proposed Transaction, in this Report BDO CFQ has expressed an opinion as to whether the Proposed Transaction is ‘fair’ and ‘reasonable’ to the non-associated AusNiCo shareholders.

This section sets out our opinion on the fairness of the Proposed Transaction. This section is set out as follows:

• Section 10.1 considers the value that we have adopted for a share in AusNiCo for the purpose of assessing the Proposed Transaction;

• Section 10.2 considers the value that we have adopted for a share in the Combined Entity for the purpose of assessing the Proposed Transaction; and

• Section 10.3 sets out our assessment of the fairness of the Proposed Transaction based on a comparison of the above.

10.1 Value of a Share in AusNiCo prior to the Proposed Transaction

For the purpose of assessing the Proposed Transaction, in our view it is appropriate to adopt a value in the range of $0.0152 to $0.0220 per AusNiCo share on a minority interest basis. Our valuation of AusNiCo shares is set out in detail in Section 8.0 of this Report.

10.2 Value of a Share in the Combined Entity following the Proposed Transaction

For the purpose of assessing the Proposed Transaction, in our view it is appropriate to adopt a value in the range of $0.0153 to $0.0268 per share in the Combined Entity on a minority interest basis. Our valuation of the Combined Entity is set out in detail in Section 9.0 of this Report.

10.3 Assessment of the Fairness of the Proposed Transaction

To assess the fairness of the Proposed Transaction it is necessary to compare the value of each AusNiCo share prior to the Proposed Transaction to the value of a share in the Combined Entity following the Proposed Transaction. Table 10.1 below summarises this comparison.

Table 10.1: Assessment of the Fairness of the Proposed Transaction

	Low Value	High Value
Value of an AusNiCo share	$0.0152	$0.0220
Value of a Combined Entityshare	$0.0153	$0.0268

Source: BDO CFQ analysis

Figure 10.1 below illustrates our assessment of the fairness of the Proposed Transaction.

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Figure 10.1: Fairness of the Proposed Transaction

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----- Start of picture text -----

AusNiCo
Combined Entity
$0.0100 $0.0150 $0.0200 $0.0250 $0.0300
Share Price ($)
----- End of picture text -----

Source: BDO CFQ analysis

Figure 10.1 above shows that the value of a share in the Combined Entity following the Proposed Transaction is consistent with the value of a share in AusNiCo prior to the Proposed Transaction. The value range adopted for AusNiCo falls within the value range adopted for the Combined Entity. Having regard to the above analysis, it is our view that the Proposed Transaction is fair to the non-associated AusNiCo shareholders as at the date of this Report.

AusNiCo shareholders should refer to Section 11.0 of this Report which sets out additional issues for consideration prior to deciding whether to vote for or against the Proposed Transaction.

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11.0 Reasonableness of the Proposed Transaction

This Report has been prepared to provide information to non-associated AusNiCo shareholders prior to voting on the Proposed Resolutions. Given that the Proposed Resolutions relate to the Proposed Transaction, in this Report BDO CFQ has expressed an opinion as to whether the Proposed Transaction is ‘fair’ and ‘reasonable’ to the non-associated AusNiCo shareholders.

This section sets out our opinion on the reasonableness of the Proposed Transaction. This section is set out as follows:

• Section 11.1 outlines the potential advantages of the Proposed Transaction to AusNiCo shareholders in the event that the Proposed Transaction proceeds;

• Section 11.2 outlines the potential disadvantages of the Proposed Transaction to AusNiCo shareholders in the event that the Proposed Transaction proceeds;

• Section 11.3 considers the position of AusNiCo shareholders in the event that the Proposed Transaction does not proceed; and

• Section 11.4 provides our assessment of the reasonableness of the Proposed Transaction.

11.1 Advantages of the Proposed Transaction

Table 11.1 below outlines the potential advantages to AusNiCo shareholders in the event that the Proposed Transaction proceeds. We note that the conditions precedent to the Proposed Transaction are such that the Proposed Transaction can only proceed if shareholder approval is obtained for all resolutions, including the Proposed Resolutions, at the Company’s Extraordinary General Meeting (unless this condition precedent is waived).

For completeness we note that the potential advantages set out in Table 11.1 below can only arise if the Proposed Resolutions are approved (unless this condition precedent is waived).

Table 11.1: Advantages of the Proposed Transaction

Advantage	Explanation
Larger and more diversified operations	The Combined Entity will be significantly larger than AusNiCo prior to the Proposed Transaction. AusNiCo shareholders will hold an interest in a minerals exploration company which has a more diversified project portfolio targeting a broader range of minerals.
Exposure to the potential upside in Taronga’s future earnings	Taronga has completed a more comprehensive level of assessment on its tenement areas and the Taronga Tin Project is currently considered to be in a more advanced stage of development relative to AusNiCo’s projects (i.e. ready to commence pre-feasibility studies subject to capital requirements). Following the Proposed Transaction, AusNiCo shareholders will be exposed to the potential upside which may be achieved from the development of Taronga’s project portfolio.
Management expertise	It is proposed that several Taronga directors and Mr Peter Williams will be appointed as directors and executive management of the Combined Entity. This will provide the Combined Entity with access to additional management expertise and may assist the company to accelerate the development of its project portfolio.
In line with AusNiCo business strategy	AusNiCo has announced to the ASX its intention to identify and review opportunities for diversification and growth while preserving cash reserves. The Proposed Transaction is in line with this business strategy.

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Advantage	Explanation
Scrip offer rather than cash	If the Proposed Transaction is approved, AusNiCo will issue shares to Taronga shareholders as consideration for their shares in Taronga. If AusNiCo was to make an equivalent cash takeover offer for Taronga, the Company would be required to raise funds from the capital markets which could dilute AusNiCo shareholders more heavily when compared to the scrip offer. If AusNiCo was to raise cash from the equity markets, we would expect that the shares offered under any capital raising would be at a discount to the recent trading price of AusNiCo shares (e.g. one week VWAP and three month VWAP prior to 30 October 2012 of $0.0200 and $0.0179 respectively). We note for example that the equity placements completed by AusNiCo in 2011 were completed at an average discount of approximately 5.3% relative to the one month VWAP prior to the offer. In addition, AusNiCo would incur transaction costs which may be in the order of 5% to 10% of the capital amount raised. In our view, raising capital at recent AusNiCo share prices would be more dilutive then issuing scrip at $0.0152 to $0.0220 (the range we have adopted to assess the Proposed Transaction).
Cost synergies	In our view, it is likely that the Proposed Transaction will result in opportunities for cost synergies to be achieved. These synergies include, but are not limited to, lower corporate overheads achieved by eliminating duplicated roles at AusNiCo and Taronga.
Improved position in capital markets	Following the Proposed Transaction, AusNiCo shareholders will hold an interest in a larger company which may have the ability to raise additional capital on more favourable terms relative to terms currently available to AusNiCo. This may assist to reduce the financing risk associated with exploring and developing AusNiCo’s and Taronga’s tenement areas.

Source: BDO CFQ analysis

11.2 Disadvantages of the Proposed Transaction

Table 11.2 below outlines the potential disadvantages to AusNiCo shareholders in the event that the Proposed Transaction proceeds. We note that the conditions precedent to the Proposed Transaction are such that the Proposed Transaction can only proceed if shareholder approval is obtained for all resolutions, including the Proposed Resolutions, at the Company’s Extraordinary General Meeting (unless this condition precedent is waived).

For completeness we note that the potential disadvantages set out in Table 11.2 below can only arise if the Proposed Resolutions are approved (unless this condition precedent is waived).

Table 11.2: Disadvantages of the Proposed Transaction

Disadvantage	Explanation
Reduced exposure to potential upside in AusNiCo’s future earnings	AusNiCo shareholders currently hold a collective interest of 100% of the issued share capital in AusNiCo. If the Proposed Transaction is approved, existing AusNiCo shareholders will hold a collective interest of approximately 33.46% of the Combined Entity’s shares while the current Taronga shareholders will hold a collective interest of approximately 66.54%. The dilution of AusNiCo shareholders summarised above would reduce their exposure to any potential future upside which may be realised from AusNiCo’s tenements in the event that AusNiCo is able to develop its tenements into mining operations.
The Combined Entity may target different metals relative to AusNiCo	AusNiCo is an exploration company with a primary focus on nickel. The Combined Entity will have a broader portfolio of projects which target minerals other than nickel (primarily tin). AusNiCo shareholders will hold an interest in the Combined Entity which will have an exposure to different commodity markets relative to AusNiCo prior to the Proposed Transaction.

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Disadvantage	Explanation
Intentions of the board of the Combined Entity may be different to the intentions of the current board of AusNiCo	The board of directors of the Combined Entity will comprise of four existing directors from AusNiCo and two directors from Taronga. The expertise, skill set and operational objectives of the Combined Entity’s board may be different from AusNiCo’s prior to the Proposed Transaction which may be viewed as a disadvantage bysome AusNiCo shareholders.
No escrow restrictions	The shares issued to Taronga shareholders under the Proposed Transaction will not be subject to escrow restrictions. The current Taronga shareholders, or equally the current AusNiCo shareholders, who do not wish to hold shares in the Combined Entity may wish to sell their Combined Entity shares which may have a material adverse effect on the share price.

Source: BDO CFQ analysis

11.3 Position of AusNiCo Shareholder if the Proposed Transaction does not proceed

Table 11.3 below summarises the possible impacts on AusNiCo shareholders in the event that the Proposed Transaction does not proceed. We note that the Proposed Transaction may not proceed for a number of reasons including, but not limited to, AusNiCo and Taronga not satisfying the conditions precedent to the Proposed Transaction or the non-acceptance of the Proposed Transaction by Taronga shareholders. We reiterate that the approval of the Proposed Resolutions is a condition precedent and unless this condition is waived the Proposed Transaction will not proceed.

Table 11.3: Position of AusNiCo Shareholders if the Proposed Transaction does not proceed

Position	Potential Impact on AusNiCo Shareholders
AusNiCo shares will not be issued to Taronga shareholders	If the Proposed Transaction is not approved then Taronga shareholders will not be issued with AusNiCo shares.
AusNiCo shareholders will continue to hold AusNiCo shares	If the Proposed Transaction is not approved, AusNiCo shareholders will continue to collectively hold 100% of the shares in AusNiCo and will be exposed to any potential upside or downside risk associated with the future operating activities and earnings of the Company. AusNiCo shareholders will receive any benefits or losses that may arise from AusNiCo’s operations and future endeavours.
No guarantee that AusNiCo will become profitable or progress its projects	There is no guarantee that AusNiCo will successfully develop any of its projects at any time in the future or that it will become profitable. Accordingly, if the Proposed Transaction is not approved there is no guarantee that the value of an investment in AusNiCo will increase at anytime in the future.
No change in personnel	If the Proposed Transaction is not approved, the board of directors of AusNiCo will remain unchanged and the Company will continue to pursue its current stated objectives.
Effect on AusNiCo share price in the event that the Proposed Transaction does notproceed	In the event that the Proposed Transaction does not proceed, the share price of AusNiCo may differ materially from the share price following the announcement of the Proposed Transaction.
Non-recoverable costs	AusNiCo will incur approximately $230,000 of costs irrespective of whether or not the Proposed Transaction is approved. AusNiCo will not be able to recover the costs that is has incurred in relation to the Proposed Transaction in the event that it does not proceed.
AusNiCo would be required to identify an alternative entity to complete a transaction with	AusNiCo has announced to the ASX its intention to identify and review opportunities for diversification and growth while preserving cash reserves. If the Proposed Transaction does not proceed then AusNiCo would be required to identify an alternative entity to complete a transaction with. It is unknown whether such a party would be forthcoming on equivalent or better terms to those envisaged under the Proposed Transaction.

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Position

Potential Impact on AusNiCo Shareholders

AusNiCo would be required to raise additional capital

Based on a modest cash burn profile, in the absence of completing a capital raising or alternative transaction, AusNiCo will exhaust its current funds in June 2013. If the Proposed Transaction is not approved, AusNiCo will be required to complete a capital raising or alternative transaction prior to June 2013 to continue operating as a going concern. It is likely that any capital raised would be offered at a discount to the prices at which AusNiCo shares are trading at the time of the capital raising and would result in the dilution in the ownership interest of AusNiCo shareholders. For completeness, we note that it is likely that the Combined Entity will also be required to complete a capital raising within a similar timeframe.

Source: BDO CFQ analysis

11.4 Reasonableness of the Proposed Transaction

In our opinion, after considering all of the issues set out in this Report, it is our view that in the absence of any other information, the Proposed Transaction is reasonable to the non-associated AusNiCo shareholders as at the date of this Report.

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12.0 Sources of Information

This Report is based on information from sources including the following:

• AusNiCo annual report for the year ended 30 June 2012;

• AusNiCo annual report for the year ended 30 June 2011;

• AusNiCo management accounts for the period ended 30 September 2012;

• AusNiCo’s ASX announcements;

• AusNiCo company website (www.ausnico.com.au);

• Taronga annual report for the year ended 30 June 2012;

• Taronga annual report for the year ended 30 June 2011;

• Taronga management accounts for the period ended 30 September 2012;

• Taronga’s ASX announcements;

• Taronga company website (www.tarongamines.com.au);

• AusNiCo and Taronga Merger Implementation Agreement;

• Bidder’s Statement prepared by AusNiCo;

• Notice of Extraordinary General Meeting and Explanatory Memorandum prepared by AusNiCo;

• Technical expert’s report prepared by Xstract Mining Consultants dated 9 November 2012;

• Publicly available information from sources including ASX, Bloomberg, CapitalIQ, Mergermarket, industry websites, the Australian Bureau of Statistics and the Australian Department of Foreign Affairs and Trade; and

• Meetings and correspondence with AusNiCo’s advisers on the Proposed Transaction (including various other documents provided by the management and directors of AusNiCo).

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13.0 Indemnities, Representations & Warranties

AusNiCo has agreed to our usual terms of engagement in addition to the indemnities and representations set out below.

13.1 Indemnities

In connection with BDO CFQ’s engagement to prepare this Report, AusNiCo agrees to indemnify and hold harmless BDO CFQ, BDO (QLD) or any of the partners, directors, agents or associates (together 'BDO Persons'), to the full extent lawful, from and against all losses, claims, damages, liabilities and expenses incurred by them. AusNiCo will not be responsible, however, to the extent to which such losses, claims, damages, liabilities or expenses result from the negligent acts or omissions or wilful misconduct of any BDO Persons.

AusNiCo agrees to indemnify BDO Persons in respect of all costs, expenses, fees of separate legal counsel or any other experts in connection with investigating, preparing or defending any action or claim made against BDO Persons, including claims relating to or in connection with information provided to or which should have been provided to BDO CFQ by AusNiCo (including but not limited to the directors and advisers of AusNiCo) as part of this engagement.

AusNiCo has acknowledged that the engagement of BDO CFQ is as an independent contractor and not in any other capacity including a fiduciary capacity.

13.2 Representations & Warranties

AusNiCo recognises and confirms that, in preparing this Report, except to the extent to which it is unreasonable to do so, BDO Persons will be using and relying on publicly available information and on data, material and other information furnished to BDO Persons by AusNiCo, its management, and other parties, and may assume and rely upon the accuracy and completeness of, and is not assuming any responsibility for independent verification of, such publicly available information and the other information so furnished.

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14.0 Experience, Disclaimers and Qualifications

BDO CFQ has extensive experience in the provision of corporate finance advice, including takeovers, valuations and acquisitions. BDO CFQ holds a Financial Services Licence issued by ASIC for preparing expert reports pursuant to the Listing Rules of the ASX and the Corporations Act.

BDO CFQ and its related parties in Australia have a wide range of experience in transactions involving the advising, auditing or expert reporting on companies that have operations domestically and in foreign jurisdictions. BDO in Queensland and in Australia is a national association of separate partnerships and entities and is a member of the international BDO network of individual firms.

Steven Sorbello has prepared this Report with the assistance of staff members. Mr Sorbello is a director of BDO CFQ and has extensive experience in corporate advice and the provision of valuation and business services to a diverse range of clients, including large private, public and listed companies, financial institutions and professional organisations.

BDO CFQ has been engaged to provide an independent expert’s report to the shareholders of AusNiCo Limited in relation to the proposed takeover of AusNiCo by Taronga Mines Limited. This Report has been prepared to provide information to non-associated AusNiCo shareholders prior to voting on the Proposed Resolutions. Apart from such use, neither the whole nor any part of this Report, nor any reference thereto may be included in or with, or attached to any document, circular, resolution, statement, or letter without the prior written consent of BDO CFQ.

BDO CFQ takes no responsibility for the contents of other documents supplied in conjunction with this Report. BDO CFQ has not audited or reviewed the information and explanations supplied to us, nor has it conducted anything in the nature of an audit or a review of any of the entities mentioned in this Report. However we have no reason to believe that any of the information or explanations so supplied are false or that material information has been withheld.

Any forecast information which has been referred to in this Report has been prepared by the relevant entity and is generally based upon best estimate assumptions about events and management actions, which may or may not occur. Accordingly, BDO CFQ cannot provide any assurance that any forecast is representative of results or outcomes that will actually be achieved.

With respect to any taxation implications of the Proposed Transaction, it is strongly recommended that AusNiCo shareholders obtain their own taxation advice, tailored to their own particular circumstances.

The statements and opinions included in this Report are given in good faith and in the belief that they are not false, misleading or incomplete. This Report is current as at 9 November 2012.

BDO Corporate Finance (QLD) Ltd

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Steven Sorbello Director

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Appendix A – Industry Information[1]

Appendix A of this Report is set out as follows:

• Section A.1 provides an overview of the Australian mineral exploration industry;

• Section A.2 sets out an overview of the nickel industry; and

• Section A.3 sets out an overview of the tin industry.

This summary is not intended to be a comprehensive analysis of the abovementioned industries. The information presented in this appendix has been compiled from a range of publicly available sources.

We have not commissioned the reports referred to in this appendix and have not independently verified any of the information. We recommend that AusNiCo shareholders refer to the original source of the information listed in this appendix, and any other information they believe appropriate, for a more comprehensive analysis. This appendix should be referred to as a broad guide only.

A.1 Minerals Exploration in Australia Industry Overview

This section sets out a brief summary of the minerals exploration industry in Australia.

A.1.1 Background

Mining exploration firms in Australia are involved in the discovery and development of ore bodies for future production and export.

Exploration companies in Australia compete to obtain retention and exploration leases over areas of land considered to be prospective. Once an exploration lease is obtained by a company, the holder may carry out exploration and other activities that may be necessary for defining and producing the resource.

Mineral exploration is generally regarded as a risky undertaking and as a speculative investment by prospective lenders and shareholders. This is due to approximately 0.1% of mineral ore bodies discovered being developed into mining operations.

Approximately 69% of total exploration activity in Australia during FY2012 related to the exploration of existing ore deposits and focused on proving a known deposit already classified as an inferred mineral resource. Exploration of existing deposits is considered less risky as mineral ore bodies have already been identified. The remaining exploration activity relates to identifying new deposits. New deposits are defined as previously unknown mineralisation or known mineralisation that has not yet had sufficient exploration to be classified as an inferred mineral resource.

1 Information in this appendix was sourced from the Australian Bureau of Statistics, Geoscience Australia: Australian Mineral Exploration Review 2011, Macquarie Commodities Research Commodities Compendium, 18 September 2012, BNP Paribus Metals Market Comment, 27 July 2012, Rio Tinto: Economic outlook and commodity prices, 29 June 2012 and other publicly available information.

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A.1.2 Exploration Expenditure

The level of exploration of different minerals and ore bodies in Australia is primarily driven by the level of demand for minerals. Expenditure of mineral exploration companies is influenced by the level of metal and minerals prices demanded by the market and spending on mineral exploration generally follows trends in mineral prices.

Advances in mineral extraction technologies also influence the level of spending on mineral exploration by Australian companies. The availability of newer extraction and processing technologies allow ore bodies that were previously considered to be economically unviable to be brought into production. Advances in technology allow a greater number of ore bodies to be explored for potentially viable mining operations.

Government policy changes may also affect the level of exploration for specific mineral types.

Australian mineral exploration expenditure, excluding petroleum, in 2011-2012 was approximately $4.0 billion, 34% more than the total exploration expenditure of approximately $3.0 billion during 2010-2011. The increase in minerals exploration expenditure was supported by relatively high commodity prices, expected future costs of exploration and development and Australian government policy setting. Notwithstanding short term volatility in commodity prices, minerals exploration expenditure is expected to remain high, at least in the medium term, as the long term outlook for commodities prices continues to be positive. This is despite short term volatility currently being experienced in commodity markets.

Figure A.1 below sets out the annual expenditure of Australian companies on mineral exploration (excluding petroleum) from financial years 1989 to 2012.

Figure A.1: Annual Australian Mineral Exploration Expenditure (excluding petroleum)

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----- Start of picture text -----

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
Australian Mineral Exploration Expenditure (excluding petroleum)
)
Annual Expenditure (A$ million
----- End of picture text -----

Source: Australian Bureau of Statistics

Figure A.2 below sets out the percentage of total exploration expenditure in Australia for different resource types during financial year 2012.

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Figure A.2: Exploration Expenditure in Australia by Resource Type

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Source: Australian Bureau of Statistics

A.2 Nickel Industry Overview

This section sets out a brief summary of the nickel industry.

A.2.1 Uses of Nickel

Nickel is mined predominately for use in the manufacturing of stainless steel. Stainless steel manufacturing accounts for approximately 65% of the consumption of nickel worldwide. Other uses for nickel are mainly in producing non-steel products such as anodes, nickel salts, catalysts for the chemical industry and non-ferrous alloys.

A.2.2 Nickel Production

Nickel is mined in two different geological states, nickel sulphide and nickel laterite. Nickel laterite is chiefly mined in new nickel mines within Australia. Nickel laterite requires significantly different processing to nickel sulphide as the laterite ore is harder to extract than the sulphide ore. Most of the laterite projects incorporate processing facilities, such as chemical leaching, solvent extraction and electrowinning as well as the mines. Approximately 80% of the nickel ore mined in Australia is from sulphide ore operations.

A.2.3 Australia’s Nickel Resources and Production

Australia has the world’s most significant share of economic resources of nickel with around 24 million tonnes, representing 35% of the world economic resources. Western Australia holds approximately 90% of the total Australian economic resources, with New South Wales holding 5%, Queensland holding 4% and Tasmania holding less than 1%.

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Australia currently produces around 165,000 tonnes of nickel, all of which is from Western Australia. Australia’s current production levels make it the fourth largest nickel producer in the world following Russia, Indonesia and Canada. Australian’s total nickel production attracts export earnings of around $3.2 billion.

A.2.4 Global Nickel Industry

The global nickel industry’s overall performance is dependent on the nickel price (denominated in USD), exchange rates, nickel output and the overall supply and demand for the metal. While the global nickel market remained tight in the first half of 2011, it became oversupplied during the first half of 2012 due to a ramp up in non-Chinese greenfield projects and steady growth in Chinese production. According to the Macquarie Commodities Research Commodities Compendium (‘Macquarie Commodities Compendium’) dated 18 September 2012, during 2011 world output of nickel grew by approximately 12% year-on-year to just over 1.6 Mt. World output of nickel is forecast to grow by between 5% and 8% per annum from 2012 to 2014, before moderating to low single-digit growth from 2015 to 2017.

Figure A.3 below shows the actual year-on-year growth in nickel production from 2005 to 2011 and the forecast year-on-year growth to 2017, as set out in the Macquarie Commodities Compendium.

Figure A.3: Year-on-Year Growth in Global Nickel Production

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----- Start of picture text -----

180
26
160
140
76
120
100
80
138 62 114
60
99 96 69
40 81
65
20 36 38
15 14
0 -8 0 -10 -5
-20
-37
-40
-102
-60
-80
-100
-120
2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F 2017F
China Rest of World Total
Nickel
tonnes
'000
----- End of picture text -----

Source: Macquarie Commodities Compendium dated 18 September 2012

Figure A.4 below shows the fluctuations in the nickel price over the period from 1 January 2005 to 12 October 2012. Strong growth in demand for stainless steel from large emerging nations such as China and India as well as developed economies such as the US propelled the demand for and price of nickel up in 2006-2007. However, the economic downturn throughout 2008-2009 saw demand decline which led to prices decreasing substantially over this period. An improved global economy and the corresponding increase in demand for nickel resulted in price appreciation during 2010-2011. However, growth in supply to a point that it exceeded consumption led to a decline in the nickel price during the second half of 2011 and 2012.

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Figure A.4: Historical Nickel Price

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----- Start of picture text -----

$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$-
Nickel Price (USD/t)
----- End of picture text -----

Source: Bloomberg as at 15 October 2012

A.3 Tin Industry Overview

This section sets out a brief summary of the tin industry.

A.3.1 Uses of Tin

Approximately half of the world’s tin production is used in solders, with around 25% used in electroplating for corrosion resistance in cans and containers. Smaller amounts of tin are used in alloys, electrical components and construction.

A.3.2 Australia’s Tin Resources and Production

The world's economic resources of tin total approximately seven million tonnes, of which Australia has approximately 1.3%. The major players in the global tin market are China, Indonesia and Peru. Australia’s current tin production is less than 6,000 tonnes which accounts for approximately 2% of the world’s total output. Australia’s production ranks seventh globally. More than 85% of Australia's economic tin resources are located at the Renison Bell deposit in Tasmania with Queensland holding a significant portion of the remainder.

A.3.3 Global Tin Industry

The global tin industry’s overall performance is dependent on the tin price (denominated in USD), exchange rates, tin production and the overall supply and demand for the metal. From a fundamental perspective, the market for tin is tight, primarily as a result of supply-side challenges rather than increases in demand. In particular, recent data relating to the demand for tin suggests that tin use has declined in recent months.

The world’s two largest tin producers, China and Indonesia, have presented supply-side constraints for the commodity. China’s tin production has been running below previous peaks over recent months, partly as a result of pollution related incidents in early 2012. Indonesia’s Ministry of Trade has approved 10% less tin exports in the eight months to August, as compared to the corresponding period in 2011.

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According to the Macquarie Commodities Compendium and BNP Paribus, the outlook for tin demand is positive to steady following a sharp decline in the first quarter of 2012. According to BNP Paribus demand is forecast to rise 1% in 2012 and 2.5% in 2013 in line with an improvement in conditions in China and a revival of Japanese and European markets. There is also expected to be ongoing supply constraints with limited additional tin mine output growth. The likely closure of the world’s largest tin mine, Minsur’s 30,000tpa San Rafael tin mine in Peru as well as violence in tin-rich DR Congo and the recent nationalisation of the Colquiri mine in Bolivia may all hamper efforts to meet the forecast modest demand growth.

Figure A.5 below shows the fluctuation in the tin price over the period from 1 January 2005 to 12 October 2012. The price of tin increased from 2006 to 2008 as tin stocks fell to low levels relative to consumption and demand for the metal increased with global economic growth. Demand for the commodity decreased throughout 2008 as a result of the global economic slowdown, and the corresponding decline in demand for semi-conductors used in the electronics manufacturing industry, which led to a decline in the price of tin. Demand for tin increased as the global economy recovered in 2009 while supply-side challenges remained, resulting in an increase in price through to 2011. The price of tin has displayed a downward trend throughout 2011 and 2012 as the demand for semiconductors has declined amid continued economic uncertainty.

Figure A.5: Historical Tin Price

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$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$-
Tin Price (USD/t)
----- End of picture text -----

Source: Bloomberg as at 15 October 2012

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Appendix B – Common Valuation Methodologies

A ‘fair market value’ is often defined as the price that reflects a sales price negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller, with both parties at arm’s length. The valuation work set out in this Report assumes this relationship.

There are a number of methodologies available to value an entity at fair market value. In preparing this Report, we have considered, amongst other metrics, the valuation methodologies recommended by ASIC in RG 111: Content of Expert Reports. The methodologies include those mentioned directly below.

B.1 Discounted Future Cash Flows

The DCF approach calculates the value of an entity by adding all of its future net cash flows discounted to their present value at an appropriate discount rate. The discount rate is usually calculated to represent the rate of return that investors might expect from their capital contribution, given the riskiness of the future cash flows and the cost of financing using debt instruments.

In addition to the periodic cash flows, a terminal value is included in the cash flow to represent the value of the entity at the end of the cash flow period. This amount is also discounted to its present value. The DCF approach is usually appropriate when:

• An entity does not have consistent historical earnings but is identified as being of value because of its capacity to generate future earnings; and

• Future cash flow forecasts can be made with a reasonable degree of certainty over a sufficiently long period of time.

Any surplus assets, along with other necessary valuation adjustments, are added to the DCF calculation to calculate the total entity value.

B.2 Capitalisation of Future Maintainable Earnings

The CME approach involves identifying a maintainable earnings stream for an entity and multiplying this earnings stream by an appropriate capitalisation multiple. Any surplus assets, along with other necessary valuation adjustments, are added to the CME calculation to calculate the total entity value.

The maintainable earnings estimate may require normalisation adjustments for non-commercial, abnormal or extraordinary events.

The capitalisation multiple typically reflects issues such as business outlook, investor expectations, prevailing interest rates, quality of management, business risk and any forecast growth not already included in the maintainable earnings calculation. While this approach also relies to some degree on the availability of market data, the multiple is an alternative way of stating the expected return on an asset.

The CME approach is generally most appropriate where an entity has historical earnings and/or a defined forecast or budget. Further, a CME is usually considered appropriate when relevant comparable information is available.

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B.3 Asset Based Valuation

Asset based valuations are used to estimate the market value of an entity based on the realisable value of its identifiable net assets. The ABV approach ignores the possibility that an entity’s value could exceed the realisable value of its net assets, however when used in conjunction with other methods which determine the value of an entity to be greater than the realisable value of its net assets, it is also possible to arrive at a reliable estimate of the value of goodwill.

The ABV approach is most appropriate where the assets of an entity can be identified and it is possible, with a reasonable degree of accuracy, to determine the fair value of those identifiable assets.

B.4 Market Based Valuation

Market based valuations relate to the valuation of an entity where its shares are traded on an exchange. The range of share prices observed may constitute the market value of the shares where sufficient volumes of shares are traded and the shares are traded over a sufficiently long period of time. Share market prices usually reflect the prices paid for parcels of shares not offering control to the purchaser.

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Appendix C – Control Premium Research

A controlling interest in a company is generally regarded as being more valuable than a minority interest as it provides the owner with:

• Control over the operating and financial decisions of the company;

• The right to set the strategic direction of the company;

• Control over the buying, selling and use of the company’s assets; and

• Control over appointment of staff and setting financial policies.

The increase in value for a controlling interest is often observed where an acquirer launches a takeover bid, or some other mechanism for control, for another company. For the purposes of our research on control premiums set out below, we have defined a controlling interest to be an interest where the acquirer gains a shareholding of greater than 50% in the target company.

To form our view on an appropriate control premium to adopt for the analysis set out in this Report, we have considered information which includes the following:

• Recent independent expert’s reports opining on transactions in the Australian minerals exploration industry; and

• Control premiums implied by recent transactions completed in the Australian minerals exploration industry, sourced from CapitalIQ, Bloomberg and Mergermarket.

Table C.1 below provides a summary of our research results.

Table C.1: Control Premiums Observed

Source	Control Premium Range	Control Premium Based on
Comparable IERs (6 IERs reviewed)	5% – 35%	N/A
Capital IQ Comparable Transactions (Australia only)	24% (median)	1 day share price prior to transaction
(20 transactions)	33% (median)	1 week share price prior to transaction
	25% (median)	1 month share price prior to transaction
Bloomberg Comparable Transactions (Australia only) (8 transactions)	60% (median)	20 day average trading price prior to transaction
MergerMarket Comparable Transactions(Australia only)	32% (average)	1 day share price prior to transaction
(~100 transactions)	43% (average)	1 month share price prior to transaction

Source: Comparable IERs, CapitalIQ, Bloomberg and Mergermarket

Having regard to Table C.1 above, we note that there is a wide range of observed control premiums based on recent transactions in the Australian minerals exploration industry. Control premiums may be impacted by a range of factors, including the following:

• Specific acquirer premium and/or special value that may be valuable to the acquirer;

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• Level of ownership in the target company already held by the acquirer;

• Market speculation about any impending transactions involving the target and/or the sector that the target belongs to;

• The presence of competing bids; and

• General market sentiment and economic factors.

For the purpose of the analysis set out in this Report, based on our research it is our view that it is appropriate to adopt a control premium in the range of 25% to 40%. We note that a control premium of 20% to 40% implies a minority discount in the range of 20% to 29% (being the inverse of the control premium).

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Appendix D - Technical Review and Valuation Report

63

Taronga Mines/AusNiCo Independent Valuation

Prepared for: AusNiCo Limited November 2012

XstractGroup.com

Xstract - Excellence from the outset

GEOLOGY GEOTECHNICAL MINING PROCESSING VALUATION/RISK TECHNOLOGIES ENVIRONMENT TRAINING

Project Manager:

Shaun Barry BSc (Hons), MSc (Mineral Economics) MAusIMM Senior Consultant – Corporate Advisory Xstract Mining Consultants, Brisbane

Contributing authors:

S Mujdrica[1]

Peer review of technical work by:

J McKibben[2]

Report reviewed by:

R Jasen[3]

Xstract Mining Consultants Pty Ltd has prepared this report on behalf of AusNiCo Limited. Public disclosure, publication, or presentation of any information contained in this document must be accompanied by written consent from Xstract Mining Consultants Pty Ltd.

© Xstract Mining Consultants Pty Ltd 9/11/2012

Document information:

Project reference: P1797 Reporting standard/s JORC Code 2004, VALMIN Code 2005 Effective date: November 2012 Status: Published File: P1797_Taronga-AusNiCo_20121109

1 General Manager & Principal Consultant – Geology, Xstract Mining Consultants, Brisbane

2 General Manager & Principal Consultant – Corporate Advisory, Xstract Mining Consultants, Brisbane

3 Technical Editor, Xstract Mining Consultants, Brisbane

Xstract Mining Consultants Pty Ltd

ABN: 62 129 791 279

Internet www.XstractGroup.com enquiries@xstractgroup.com

Brisbane Level 20, 333 Ann Street P: +61 (7) 3221 2366 F: +61 (7) 3221 2235 M: PO Box 10312 Adelaide Street, Brisbane QLD 4000 Australia

Perth Level 1, 1110 Hay Street, West Perth P: +61 (8) 9327 9500 F: +61 (8) 9481 8700 M: PO Box 847, West Perth WA 6872 Australia

Taronga Mines/AusNiCo | Contents

Contents

1	Executive summary ______________ 5	Executive summary ______________ 5	Executive summary ______________ 5
2	Introduction ______________ 7
	2.1	Scope	7
	2.2	Reporting standard	7
	2.3	Data sources	7
	2.4	Reliance on other experts	8
	2.5	Competent Persons and Experts statement	8
3	Taronga Mines Limited ____________ 9
	3.1	Location, access and infrastructure	9
	3.2	Ownership, status and agreements	9
	3.3	Geology	11
	3.4	Exploration history	15
	3.5	Previous estimates	16
	3.6	Mining	18
	3.7	Mineral processing	18
	3.8	Other relevant data and information	19
	3.9	Key risks and opportunities	20
	3.10	Valuation	20
	3.11	Valuation summary of Taronga	25
4	AusNiCo Limited __________		26
	4.1	Ownership, status and agreements	26
	4.2	Kilkivan Project	26
	4.3	Marlborough	31
	4.4	Heazlewood River	33
	4.5	Market conditions	36
	4.6	Key risks and opportunities	38
	4.7	Valuation	38
	4.8	Valuation summary of AusNiCo	42
5	Valuation Discussion_____________		43
	5.1	Valuation range	43
	5.2	Valuation risks	44
	5.3	Valuation summary	45
6	Declaration ______________		46
	6.1	Independence, disclaimer and warranty	46
	6.2	Qualifications and experience	47

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Preamble

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AusNiCo Limited | Contents

7 References ______________	48
Tables
Table 1.1: Current valuation opinion	6
Table 3.1: Exploration tenement held by Taronga	11
Table 3.2: Area of the YTC Resources tenements	24
Table 3.3: Summary of the Geoscientific Rating Value for the tenements of the Taronga Project	25
Table 3.4: Valuation summary of the Taronga tin exploration assets	25
Table 4.1: Exploration tenements held by AusNiCo	26
Table 4.2: Summary of Nickel Exploration Project transactions	40
Table 4.3: Valuation summary of AusNiCo Nickel exploration assets	41
Table 4.4: Summary valuation of the AusNiCo Nickel Exploration tenements	41
Table 4.5: Valuation summary of the AusNiCo’s Nickel Exploration assets	42
Table 5.1: General guide regarding confidence for target and Resource/Reserve Estimates	43
Table 5.2: Valuation summary of Taronga and AusNiCo Exploration assets	45
Figures
Figure 3.1: Location of Taronga Project	9
Figure 3.2: Location of Exploration Licences	10
Figure 3.3: Geological setting of the Taronga Project	11
Figure 3.4: Schematic mineralisation model	13
Figure 3.5: Mineralisation zones	14
Figure 3.6: London Metal Exchange spot tin price	19
Figure 3.7: Comparable tin market transactions	22
Figure 3.8: YTC Resources Exploration tenements sold to Taronga Mines	23
Figure 4.1: Geology of the Black Snake Project area	27
Figure 4.2: Conceptual geological model of the mineralisation style at Kilkivan	28
Figure 4.3: Location of the Marlborough North Project area	31
Figure 4.4: Location of Exploration Tenement EL50/2011	33
Figure 4.5: Exploration targets of the Heazelwood Project (EL50/2011)	35
Figure 4.6: London Metal Exchange spot nickel price	36
Figure 4.7: Nickel demand	37
Figure 5.1: Uncertainty by advancing exploration stage	43

Appendices

Appendix A: Geoscientific rating of the Taronga tenements

Appendix B: Geoscientifc rating of the AusNiCo tenements

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Preamble

ii

Taronga Mines/AusNiCo | Contents

Appendix C: Valuation approaches and methods

Key abbreviations

% AUD AusIMM AusNiCo BDO BHC BHP CIMVAL Company Cu DCF EL Eluvial EM EPM EV EZ FMV g GPNL HOB HPAL HRL I.P. Icon IER IME INCO JORC Code Kidman km km2 kt LME m

Percent Australian dollars Australasian Institute of Mining and Metallurgy AusNiCo Limited BDO Corporate Finance (QLD) Ltd Base holding cost The Broken Hill Proprietary Company Limited Canadian 2003 Edition of the Standards and Guidelines for Valuation of Mineral Properties AusNiCo Limited Copper Discounted cash flow Exploration Licence Referring to decomposed rock debris not far removed from the place of formation, which may contain a valuable constituent mineral as a residue. Electromagnetic Exploration Permit for Minerals Expected values Electrolytic Zinc Company of Australia Limited Fair market value Gram(s) Gladstone Pacific Nickel Limited Home of Bullion High pressure acid leaching HRLtesting Pty Ltd laboratory Induced Polarisation Icon Resources Limited Independent Experts’ Report Integrated mine evaluation International Nickel Australia Limited 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves Kidman Resources Ltd Kilometre Square kilometre area Kilotonnes London Metal Exchange Metres

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Preamble

iii

AusNiCo Limited | Contents

M MAP MEE Metal X Mineralurgy MNPL Mt Mtpa Newmont Ni NPI NPV oz Palaeozoic Permian PFS Pioneer ppm Pt RC ROA SAMVAL Sn Straits t Taronga tpa TV United Reefs USD VALMIN Code VMS Xstract YTC

Million Modern asset pricing Multiples of exploration expenditure Metals X Limited Mineralurgy Pty Ltd Marlborough Nickel Pty Ltd Million tonnes Million tonnes per annum Newmont Mining Pty Ltd Nickel Nickel pig iron Net present value Troy ounce(s) The Palaeozoic Era spans 322 million years, beginning with the Cambrian period 570 million years ago, and finishing with the end of the Permian period 248 million years ago The Permian is a geologic period which extends from 299 to 251Ma (Million years ago). It is the last period of the Paleozoic Era, following the Carboniferous Period and preceding the Triassic Period of the Mesozoic Era. Pre-Feasibility Study Pioneer Resources Limited Parts per million Platinum Reverse circulation Real options analysis 2008 Edition of The South African Code for the Reporting of Mineral Asset Valuation Tin Straits Resources Limited Tonne(s) Taronga Mines Limited Tonnes per annum Target Value United Reefs NL US dollars 2005 edition of the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports Volcanic massive sulphide Xstract Mining Consultants Pty Ltd YTC Resources Limited

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Preamble

iv

Taronga Mines/AusNiCo | Executive summary

1 Executive summary

At the request of BDO Corporate Finance (QLD) Ltd (“BDO”), Xstract Mining Consultants Pty Ltd (“Xstract”) has prepared an Independent Valuation Report of the exploration assets held by Taronga Mines Limited (“Taronga”) and AusNiCo Limited (“AusNiCo”). Xstract understands that this report is to be used by BDO as part of an Independent Experts Report relating to a proposed transaction between Taronga and AusNiCo.

Taronga holds a 100% interest in four exploration licences (EL6839, EL7348, EL7800 and EL7801) situated in northern New South Wales. These tenements cover a total area of approximately 367.5 km[2] and lie near the town of Emmaville in a historic tin producing region. Based on a historic estimate and the depth potential to the tin mineralised system, Taronga considers there is potential for an Exploration Target[4] ranging in size from 30 to 50 Mt at grades of between 0.15 to 0.25% Sn at the Taronga Project.

AusNiCo’s mineral assets comprise a 100% interest in three nickel exploration projects,

namely:

• Kilkivan Project (Exploration Permit for Minerals (“EPM”) 19366) situated in southeastern Queensland

• Marlborough Project (EPM application 17768) situated in central Queensland near the town of Marlborough

• Heazelwood Project (Exploration Licence (“EL”) 50/2011) situated in northwestern Tasmania.

The projects held by both companies are at early to advanced stage of assessment and all require further systematic exploration (including geological mapping, trenching, geophysical surveying, and bulk geochemical sampling) to define a mineral inventory capable of supporting a mining operation. While exploration results reported to date have provided positive indications for the presence of tin and nickel mineralisation, further drilling, metallurgical test work and techno-economic studies are required to confirm the continuity, grade and economic viability of the defined mineralised zones.

In valuing Taronga and AusNiCo’s assets, Xstract has considered the recent market for tin and nickel, as well as the implications for exploration projects targeting these commodities.

Given the early to advanced exploration status of Taronga and AusNico’s assets, Xstract has adopted valuation methodologies from the Cost and Market Approaches. In selecting its overall valuation range and preferred value for Taronga’s tin assets, Xstract has considered recent market transactions and the geoscientific rating approach. Equal weighting has been given to the results derived using these methods in selecting our preferred value and likely valuation range.

In Xstract’s opinion, the current market would pay in the range AUD4.4 M to AUD14.5 M for the Taronga Tin Project, with a preferred value of AUD8.1 M. This results in an implied value of AUD22,040/km[2] for the project which is consistent with the recent market for advanced staged exploration projects targeting hard rock tin mineralisation in Australia.

Furthermore, Xstract considers the current market would pay in the range AUD2.3 M to AUD5.2 M for a 100% interest in AusNiCo’s nickel projects, with a preferred value of

4 The Exploration Target is based upon a historic estimate supported by a pre-feasibility study, that included 33,350m of drilling and bulk sampling and which demonstrated three major zones of mineralisation to a depth 200m and strike length of up to 650m. It is the view of Taronga’s Competent Person that the Taronga Tin Project is significantly more advanced than an Exploration Target, but is limited within the framework of the VALMIN Code. Further information can be found in the Taronga Mines Ltd Target Statement dated November 2102 or at http://digsopen.minerals.nsw.gov.au/, Report GS1984/35].There has been insufficient recent exploration to define a Mineral Resource. It remains uncertain if further exploration will result in the determination of a Mineral Resource.

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Independent Valuation

5

AusNiCo Limited | Executive summary

AUD3.6 M. This results in an implied preferred value of AUD6,870/km[2] for AusNiCo assets which is consistent with the recent market for early stage exploration projects targeting nickel sulphide mineralisation in Australia.

The table below summarises Xstract’s current valuation opinion of the exploration assets of Taronga and AusNiCo.

Table 1.1: Current valuation opinion

Assets	Low(AUD M)	High (AUD M)	Preferred(AUD M)
Total Taronga (tin)	4.4	14.5	8.1
Total AusNiCo (nickel)	2.3	5.2	3.6

All valuations are expressed in Australian dollars (“AUD”) unless otherwise specified and the effective date for this valuation is 9 November 2012.

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November 2012

6

Taronga Mines/AusNiCo | Introduction

2 Introduction

At BDO’s request, Xstract has prepared an Independent Valuation Report on the exploration assets of Taronga and AusNiCo. Xstract understands that this report will be included as an Appendix to BDO’s Independent Experts’ Report relating to a proposed transaction between Taronga and AusNiCo.

Taronga’s tin assets comprise a 100% interest in four exploration licences situated in northern New South Wales.

AusNiCo’s nickel assets comprise a 100% interest in a single granted EPM and EPM application in Queensland, as well as a granted EL in Tasmania.

2.1 Scope

The purpose of Xstract’s report is to provide an independent valuation of all exploration assets held by AusNiCo and Taronga, as well as an opinion regarding the development and exploration potential of the Projects. Xstract’s report will provide a reference for BDO’s Independent Experts Report. Xstract’s technical evaluation is based on all available information as at the Valuation Date, this being the 9 November 2012.

Xstract’s focus is limited to providing a brief, yet critical, technical overview of Taronga and

AusNiCo’s exploration projects, including:

• Approvals and licenses

• Geology and exploration including resource estimates (if warranted)

• Progress and status of exploration projects

• Xstract’s opinion of the fair market value based on appropriate valuation methods.

This scope of work specifically excludes any work in relation to assessment of the fairness and reasonableness of the proposed transaction.

2.2 Reporting standard

This report has been prepared in accordance with the following codes:

• The 2005 edition of the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (“VALMIN Code”)

• The 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”).

For the purposes of this report, value is defined as fair market value, being the amount for which a mineral asset should change hands between a willing buyer and a willing seller in an arm’s length transaction where each party is assumed to have acted knowledgeably, prudently and without compulsion.

2.3 Data sources

In developing our assumptions for this report, Xstract has relied upon information provided by Taronga and AusNiCo, information available in the public domain and technical information made available from Xstract’s Brisbane office. Key sources are outlined in this report and all data included in the preparation of this report has been detailed in the references section. In the execution of its mandate, Xstract has reviewed all relevant pertinent technical and corporate information made available by the management of Taronga

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and AusNiCo, which has been accepted in good faith as being true, accurate and complete, after having made due enquiry.

2.4 Reliance on other experts

Xstract has not relied on any third party opinion in compiling this report. The technical personnel responsible for compiling this report are based entirely in Xstract’s Brisbane office. Xstract’s Brisbane office has previously undertaken a technical review of the Taronga Project on behalf of Taronga. To maximise independence, no Xstract personnel previously engaged by Taronga were involved in the compilation of this valuation report. However, Xstract has held discussions with personnel in its Brisbane office to facilitate an understanding of the project.

For the technical assessment outlined in this report, none of the Xstract personnel involved in the valuation undertook a site visit to the assessed projects. However, Xstract has a good in-house understanding of the region having completed previous studies on other third party held projects. Xstract has no reason to question the validity of the technical information supplied. Furthermore, the Taronga project is at an early-stage of exploration evaluation and little perceived benefit is anticipated from an inspection of these projects.

2.5 Competent Persons and Experts statement

The information in this report that relates to Exploration Results and Mineral Resources is based on compiled information, which has been reviewed by Mr Stefan Mujdrica. Mr Mujdrica is a full time employee of Xstract and a Member of the Australasian Institute of Mining and Metallurgy (“AusIMM”) and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as Competent Persons as defined in the JORC Code (2004).

The information in this report that relates to the value of the Taronga and AusNiCo mineral assets is based on information compiled by Mr Shaun Barry who is a Member of the AusIMM. Mr Barry is a Senior Consultant at Xstract and has sufficient assessment and valuation experience which is relevant to the activity which he is undertaking to qualify as an Expert as defined in the VALMIN Code (2005).

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3 Taronga Mines Limited

3.1 Location, access and infrastructure

The Taronga Project is located in the Grampian Ranges near Emmaville in northeastern New South Wales. The site is 360 km south from Brisbane and 670 km north from Sydney. The nearest main population centres include Emmaville, Glen Innes, Inverell and Tenterfield. These centres are all connected via sealed roads. The region is served by a major north-south railway line with rail heads at the village of Deepwater, 27 km east of Emmaville and at Glen Innes and Tenterfield. Both Glen Innes and Tenterfield have airports.

Figure 3.1: Location of Taronga Project

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Source: Taronga Mines Limited

Topographic relief within the project area ranges from undulating to hilly. Vegetation cover ranges from lightly wooded to open grasslands, particularly in the valleys of the major creeks. Parts of the Gap Ridge and Tent Hill are densely wooded with secondary growth.

The principal land use is agriculture mainly in the form of sheep farming.

3.2 Ownership, status and agreements

Taronga’s mineral assets comprise four exploration licences (“EL”) with a combined area of approximately 367.5 km[2] as listed in Table 3.1. In 2010, Taronga reached an agreement with YTC Resources Limited (“YTC”) to acquire a 100% interest the Torrington and Pond Flats Projects, adjacent to the Taronga Project.

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Taronga subsequently consolidated three tenements (ELs6389, 6392 and 6690) into a single licence (EL7800), which was granted to Taronga on 4 July 2011. In addition, Taronga applied for, and was subsequently granted, tenure over EL7801 (previously YTC’s EL7280) and EL7348 on 4 July 2011 and 23 January 2012, respectively.

Taronga’s EL6839 is held by its wholly owned subsidiary, Ten Star Mining Pty Ltd. This licence was renewed in 2011 and is now due to expire on 24 July 2013.

Figure 3.2: Location of Exploration Licences

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Source: Taronga Mines Limited

Exploration Commitments for each tenement listed in Table 3.1 assumes two years tenure until date of expiry.

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Table 3.1: Exploration tenement held by Taronga

				Area	Bond	Rental	Expenditure
	Ownership	Granted	Expired	**(km2) **	(AUD)	(AUD)	Commitments (AUD)
EL6839	Ten Star Mining Pty Ltd	24 July	24 July	17.9	10,000	460	79,000
		2007	2013
EL7348	Taronga Mines Ltd	29 April	29 May	47.8	50,000	4,000	92,000
		2009	2013
EL7800	Taronga Mines Ltd	4 July	4 July	200.3	50,000	4,186	107,000
		2011	2013
EL7801	Taronga Mines Ltd	4 July	4 July	101.5	50,000	2,206	74,000
		2011	2013

3.3 Geology

3.3.1 Setting

The Taronga Project occurs within a sequence of Permian-age sedimentary and volcanic units which have been intruded by multiple igneous bodies (Figure 3.3).

Figure 3.3: Geological setting of the Taronga Project

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Early Permian

The basement unit in the region is the Grampian Formation, which consists of an Early Permian-age deep marine flysch sequence of interbedded siltstones, sandstones and greywackes, exhibiting well-developed, graded bedding and soft sediment deformation structures. The flysch sequence is locally termed the Taronga Siltstone and is the main host to the known tin mineralisation.

Approaching the top of the siltstone, several major lenses of matrix-supported slump conglomeratic units interfinger with the siltstone. The conglomerate contains angular to wellrounded clasts of sediment, volcanic and granitic composition and shallow marine fossils. The conglomerates appear to be derived from the west. The tectonic uplift responsible for the conglomerates also invoked a minor phase of basic volcanism culminating in several small flows of pillow lavas, which are usually confined to the conglomerate horizons.

The uppermost unit of the Grampian Formation is a shallow-marine, massive, fossiliferous mudstone. This formation is conformably overlain by a thick sequence of predominantly terrestrial acid volcanic units called the Emmaville Volcanics. These volcanic units consist of a monotonous sequence of acid to intermediate flows and pyroclastics with minor interbedded tuffaceous sediments and conglomerates toward the base. The deposition of the volcanic pile was followed by gentle folding and a short period of erosion.

Middle Permian

Unconformably overlying the Grampian Formation and the Emmaville Volcanics is a second period of volcanism, which can be conveniently broken into three units.

The basal unit, which is unnamed, is lithologically identical to the Emmaville Volcanics and is restricted to an area south of the Mole Granite up to the Ottery Mine. Overlying this unit is the Tent Hill Porphyrite, an andesitic agglomerate approximately 100 m thick, which is in turn overlain by the Dundee Rhyodacite Porphyrite. This porphyrite is an ash-fall or ash-flow tuff that outcrops over an area of approximately 600 km[2] .

Late Permian

The Late Permian was a period of significant igneous intrusion with associated mineralising events. The oldest intrusive is the Taylor's Adamellite which outcrops in a series of stocks and dykes, the largest extending over 12 km in length with a maximum width of 200 m. The intrusive varies in composition from adamellite to diorite-granodiorite.

The largest and youngest intrusive body is the Mole Granite, a coarse-grained leucocratic granite which is interpreted to be the source of all tin-tungsten-molybdenum mineralisation in the Taronga region.

The Mole Granite is presently exposed at the surface over an area of 800 km[2] beginning 7 km north of Taronga and extends under shallow cover over a large area (including beneath the Taronga Project area). The emplacement of this lower level of granite has had a major structural impact on the overlying sediments, which host the Taronga mineralisation.

Post Permian

Since the intrusion of the Mole Granite, the region has undergone continuous erosion except for the Tertiary period when much of the area was covered by basaltic lava flows, creating the present day Emmaville Deep Leads.

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3.3.2 Deformation and alteration

Prior to intrusion of the Mole Granite, the region had suffered only minor deformation creating long wavelength, low amplitude folds in the Early Permian units.

The major geological feature is a large pericline or dome which trends northeast and is approximately centred on Taronga. A series of cross folds was created by this doming, producing areas of complex double folding.

Coincident with the doming was the hornfelsing of the overlying sediments and the creation of the sheeted jointing, which hosts the mineralisation. Though both the north and south zones of mineralisation at Taronga occur near the axial plane of a major fold it is unlikely that the jointing is related to folding as no other sheeted vein prospect so far investigated occurs in a fold situation.

The mechanics behind the formation of sheeted jointing have not yet been defined.

Post-mineralisation deformation has been restricted to minor faulting, most likely related to contraction of doming after cooling of the intrusive.

3.3.3 Mineralisation

The Taronga deposit is considered to represent a sheeted-vein tin deposit associated with an intrusive body at depth, as illustrated in Figure 3.4. Tin mineralisation occurs as cassiterite within a sheeted vein system hosted within a metamorphosed siltstone sequence, which has been gently folded due to minor regional deformation. The mineralisation lies on a large dome-like structure which is interpreted to have formed due to post-intrusion folding.

Figure 3.4: Schematic mineralisation model

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Source: Taronga Mines Limited

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The cassiterite-bearing sheeted veins are crossed by later quartz veins. These veins are of a stockwork nature and contain associated metals such as tungsten, molybdenum (in the form of Wolframite and molybdenite respectively) and bismuth. Strong phyllic alteration of the host sediments occurs at the margins of these veins and in a discreet zone in the northwestern portion of the Southern Zone of tin mineralisation.

Figure 3.5: Mineralisation zones

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Source: Taronga Mines Limited

The Taronga tin deposit is divided into two major zones referred to as the Northern and the Southern Zones.

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In the Northern Zone, cassiterite occurs within a complex series of subjacent veins swars in two locations over combined widths ranging between 10 and 80 m and extending over a strike length of between 600 to 650 m.

In the Southern Zone, mineralisation occurs in four main vein swarms with individual widths ranging between eight and 10 metres and extending over a strike length of between 150 to 550 m.

Tin occurs as cassiterite predominantly in small vein fillings along joints and also in minor fracture3s in the silicified host siltstone. The cassiterite is associated with sulphides, predominantly arsenopyrite. It has a relatively coarse grain size of between 0.1 and 3.0 mm. There is a greater proportion of coarse cassiterite in the Southern Zone. Both zones have a sphalerite rich halo. Sulphides comprise 5 to 8% of the total mineral assemblage and consist of (in descending order of abundance) arsenopyrite, Chalcopyrite, covellite, chalcocite, sphalerite and galena, with traces of molybdenite and bismuth.

3.4 Exploration history

The presence of tin in the Grampian Range has been recognised since 1890 with the area intermittently assessed since that time by various companies.

On two separate occasions, The Broken Hill Proprietary Company Limited (“BHP”) held title to the area covering the Taronga deposits. In 1933, BHP developed a 90 m exploration adit into the central portion of the Northern Zone. Sampled material was crushed in Curnow's battery at Torrington and subsequently assayed an average grade of 0.254% Sn. Chip sampling of the adit returned an average grade of 0.15% Sn over an 85 m interval. Grades from a crushed bulk sample were unable to be reconciled with chip sampling in the adit and the property was subsequently relinquished.

BHP returned to the area in 1958 and excavated 11 costeans totalling 1,200 m in length, cross-cutting the dominant northeast trending stockwork system. Assay results from these samples were similar to those from the adit, however check assays indicated unreliable results. Subsequent vertical percussion drillholes in 1964 tested depth to 60 m. This work failed to accurately test the stockwork as most of the veins are steeply dipping. It was also reported that not all of the cassiterite (a mineral containing tin) in drill cuttings was lifted to the surface because a low air pressure rig was used.

Results from this early BHP drilling in both Northern and Southern Zones showed values ranging from 0.11 to 0.39% Sn over downhole intervals ranging from 6.1 to 30.5 m in length. Following this limited drilling program, BHP relinquished title to the area for the second time.

The area was subsequently held under licence by Australian Geophysical Pty Ltd in the mid1960s. They carried out diamond drilling between 1966 and 1968 to test Induced Polarisation (“I.P.”) geophysical anomalies to the east of the Southern Zone. Results were inconsistent and Australian Geophysical relinquished title to the area.

The Taronga deposit was extensively explored between 1978 and 1983 by Newmont Holdings Pty Ltd on behalf of a Joint Venture group comprising Newmont Holdings Pty Ltd (40%), ICI Australia Operations Pty Ltd (40%), Endeavour Resources Limited (15%) and Pelsart Resources N.L. (5%). A total of 33,350 m in 357 drill holes (178 diamond core and 179 RC holes) were completed. Newmont completed a detailed Pre-Feasibility Study (“PFS”) on the Taronga deposit between 1982 and 1983. In June 1983, Newmont recommended the development of the Taronga deposit be delayed until tin prices improved. The prevailing tin price in 1983 was around USD12,000 tonne. The property was relinquished in 1984.

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Kratos Exploration Pty Ltd held tenure under EL2527 between 1983 and 1986, over an area southwest of Torrington. Geological mapping and alluvial sampling took place in Lottery Creek and mineralisation was detected, however volumes were considered insufficient for exploitation.

Big Sky Holdings explored the area in the mid to late 2000s and changed its name to YTC in January 2007. In October 2010, YTC announced an agreement to sell its interests in the Torrington and Pond Flats tin tenements (EL6990, EL7280, EL6389 and EL6392) in return for shares and options in Taronga Mines Limited.

From YTC’s exploration work in EL6389, EL6392 and EL6690, there is potential for a large area of sheeted greisen veining with associated tin-anomalous geochemistry referred to as the ‘East Grampians Zone’. The East Grampians Zone was first described by Electrolytic Zinc Company of Australia Limited (“EZ”) following work during the period 1982 to 1984. The McDonalds Zone, Big Plant Zone and Emerald Zone are also considered highly prospective (Figure 3.5).

Extensive desk-top review of historic data was conducted by YTC up to 2011, including drill data, geochemical sampling, geophysical surveys and past mines of Harts, Dutchmans and Curnows mine areas. Costeans were sampled to test the surface expression of some lodes and digitised along with historic data to produce three dimensional models of mineralisation areas. Further geophysical surveys (ground based gravity and dipole-dipole induced polarisation), rock chip and soil sampling was also completed.

Following the purchase of EL6389, EL6392 and EL6690 from YTC, Taronga subsequently consolidated these tenements into EL7800, which was granted in July 2011.

EL7280 over the Pound Flat area was acquired by Stannum Pty Ltd, a wholly owned subsidiary of YTC on 30 January 2010 for a period of two years. Following the purchase of this tenement by Taronga, EL7801 over pegged EL7280. YTC’s exploration consisted of data review and digitising of historic data, land owner liaison, check sampling to confirm historic results and sampling of oversize dump material from previous dredging. Work by YTC indicates that previous exploration results appear reliable. A moderate-sized elluvial tin occurrence is present. This would include reprocessing of existing dump, and possibly tailing material. Crushing appears not to be required for processing but it is recommended that oversized material would be stockpiled for re-evaluation at a later date. Deeper RC and diamond drilling shows that a low-grade sheeted vein system is present containing tin, silver, and zinc. Potential remains for higher-grade tin, tungsten, silver, and base metals (Cu, Pb, Zn) greisen material at depth closer to the postulated granite margin.

Upon acquisition of the project, Taronga also completed historic data reviews and geophysical surveys over tenements EL7348 and EL6839.

3.5 Previous estimates

Exploration work completed by YTC and Taronga has not yet delineated a Mineral Resource according to the guidelines of the JORC Code (2004).

As part of a PFS completed by Newmont in 1982, a tonnage of cassiterite mineralised material of low tin grade was estimated for the North Zone and South Zone. This historic estimate pertains to mineralisation located on the current tenement EL7348 which was defined and classified in accordance with industry standard practices (i.e. grade and tonnage) of the time, but does not currently meet the minimum guidelines of the 2004 JORC Code. As a result, public reporting of this estimate is prohibited.

The Northern and Southern Zones are separated by 500 m of complexly folded and faulted conglomeratic mudstone, metamorphosed basalt and chert unit.

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The mineralisation extends from surface down to approximately 150 m below surface. The Southern Zone comprises of four main vein swarms, designated:

• Hillside Zone measuring 10 m wide by 550 m strike length

• Hillside Extended Zone measuring 10 m wide by 150 m strike length

• Payback Zone measuring 8 m wide by 350 m strike length

• Payback Extended Zone measuring 8 m wide by 350 m strike length

The Northern Zone comprises of a complex series of subjacent vein swarms frequently arranged in a right lateral en-echelon pattern. The principal vein swarms recognised are:

• Adit East and Adit West have a combined width of 80 m by 650 m strike length

• Adit West Extended measuring 10 m wide by 600 m strike length

During the period February 1979 to September 1981, 357 exploration and delineation holes were drilled in Northern and Southern Zones totalling 33,350 m. Drilling commenced on lines spread 100 m apart along strike and was progressively closed in to a 50 by 50 m pattern, with 25 m infill drilling in areas of structural complexity. Holes were generally drilled at about 50° to the vertical in both the north westerly and south easterly directions.

Samples from percussion cuttings were collected each metre and placed in 20 litre metal pails with lids, for transfer to the sample preparation shed. Sample preparation included sieving crushing and splitting before being sent to the laboratory for assay. Diamond drill hole cores where split in half. One half was retained for record and the other half was sampled at 1 m intervals, bagged and despatched for assay. All percussion and diamond core assaying was carried out by Analabs in Perth.

The assay procedure used by Analabs was subjected to four stages of checks over three years until 1981. In Newmont’s assessment, these assay checks showed Analabs procedures to be satisfactory and it had sufficient in-built checks to ensure quality is consistently maintained. At the same time, it was recognised that superior techniques existed, but they were not practical for commercial processing of large quantities of samples.

Specific gravity measurements, essential for accurate tonnage estimation, were initially based on percentage core recovery and core weight over a 1 m interval but this was found to be too inaccurate due to changes in volume. The method was replaced by measuring the length and diameter of the core billet and then weighing it. Gross variations in calculated specific gravities due to measuring errors prompted a change to volume measurement by water displacement.

An assumed estimation density of 2.70 t/m[3] was used for waste and 2.80 t/m[3] for mineralisation using an assumed 0.10% Sn cut-off grade as an ore:waste criterion.

Drill holes were used to compile cross-sections generally spaced 50 m apart, but closed to 25 m in structurally complex areas. Geological interpretation of the cross-sections enabled a 0.1% Sn boundary to be drawn which represented the assumed economic cut-off grade, separating waste from ore. This interpretation was then transposed to bench plans spaced 50 m apart to construct a three-dimensional model of the mineralised zones as defined by the 0.1% Sn cut-off. The three-dimensional model was then further detailed by closing the bench plan intervals down to 10 m. A block model was then compiled using blocks 21 m long by 7 m wide by 10 m high block size for Northern Zone and a 25 m by 5 m by 7 m block for Southern Zone.

Geostatistical methods were used to estimate the grades in each block. Semi-variograms were compiled separately for each zone sub-section and drill hole type. The semi-variogram software was provided by the Imperial College of London, which was also responsible for interpretation of the data. Analysis concluded that there was no significant difference between the various sets of data so information for the three drill hole types and zones was

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combined to produce a single semi-variogram for the Northern and Southern Zones. The semi-variograms gave the assay variance versus distance relationship between pairs of assays and established the range of influence to be used in subsequent Kriging.

Having satisfied the various checks and sensitivity tests Kriging commenced. The process assigned block grades by weighting individual assays according to their three-dimensional spatial position and also by taking account of each assay value with respect to the overall distribution of values. Having satisfied all of the various checking procedures, a block inventory provided the drill defined geostatistical geological estimate in the form of a gradetonnage relationship.

Since the exploration work completed by Newmont in the early 1980s, additional geophysical information, including detailed gravity and magnetic geophysical data has become available. Also, recent explorers have a far better understanding of the Taronga vein-style mineralisation following comparison with similar deposits elsewhere. The Taronga mineralisation is now interpreted to represent the stringer zone associated with veining located mainly above a granitic pluton. This suggests that the tin mineralised system may extend at depth with improved tin grades. Limited information from one deep drill hole located tin mineralisation at the contact with the granite intrusive as well as veins and vein zones 3 to 5 m wide include a one metre intersection grading 1.6% Sn.

Based on the historic estimate and the depth potential to the tin mineralised system, Taronga considers there is potential for an Exploration Target[5] ranging in size from 30 to 50 Mt at grades of between 0.15 to 0.25% Sn at the Taronga Project.

3.6 Mining

The 1982 PFS envisaged an open cut mining operation delivering 3.0 Mtpa ore with a further 0.7 Mtpa of sub-marginal ore to a processing plant over a 13-year mine life. An open-cut strip ratio of 2:1 with a two-year construction and 11 years of steady state operation was proposed. Mill recoveries of between 60% and 69% expected over the lif of the operation. The process plant was planned to produce 3,500 tpa contained Sn. Saleable concentrate grade of 55% Sn and 10% moisture.

No further work has been conducted since this time. The capital and operating cost structure and realised pricing are now out of date and as such, Xstract considers that further studies are required to comment meaningfully on the project economics.

3.7 Mineral processing

Comprehensive test work and flowsheet design was conducted as part of the 1982 PFS with 67% tin recovery.

Mineralurgy Pty Ltd (“Mineralurgy”) was commissioned by Taronga in June 2012 to conduct a test work program and review the metallurgical test work previously conducted. Mineralurgy concluded that developments in mineral processing technology such as high pressure grinding rolls, fine screening and high gravity centrifugal separators for fines treatment could significantly increase tin recovery at Taronga.

5 The Exploration Target is based upon a historic estimate supported by a pre-feasibility study, that included 33,350m of drilling and bulk sampling and which demonstrated three major zones of mineralisation to a depth 200m and strike length of up to 650m. It is the view of Taronga’s Competent Person that the Taronga Tin Project is significantly more advanced than an Exploration Target, bu t is limited within the framework of the VALMIN Code. Further information can be found in the Taronga Mines Ltd Target Statement dated November 2102 or at http://digsopen.minerals.nsw.gov.au/, Report GS1984/35].There has been insufficient recent explorat ion to define a Mineral Resource. It remains uncertain if further exploration will result in the determination of a Mineral Resource.

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3.8 Other relevant data and information

3.8.1 Environmental and social considerations

The Torrington State Conservation Area extends partially over EL7800 (Figure 3.2). Previous exploration by YTC was reportedly hampered by the Department of Environment, Climate Change and Water in the Torrington State Conservation Area. This may pose a risk for future mine development in the area.

3.8.2 Market conditions

Price

The tin market is notoriously illiquid compared to other base metals, as such, the tin price is typically more volatile than other base metals. The tin price has declined approximately 42% from its most recent peak in April 2011, from over USD32,300/t to an August average of USD18,675/t. September saw a recovery with the price average USD20,771/t.

Figure 3.6: London Metal Exchange spot tin price

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Source:

Demand and supply

Xstract has considered recent analysis by BNP Paribas outlining the future fundamentals for tin (BNP Paribas, October 2012). World base metals demand is forecast to decline in 2012. Global tin demand declined by about 0.5% in 2011, as other base metals growth slowed to 6% on average. Tin demand is forecast to fall by as much as 4% in 2012, whereas the other base metals should manage demand growth of close to 4%.

The tin price has held up remarkably well in 2012, largely as a result of supply constraints. World tin mine output is expected to decline by 7% to its lowest level since 2003 and to 15% below the 2005 peak.

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The net effect of large downward revisions to both supply and demand is that a minor deficit remains forecast for tin in 2012.

Outlook

Given the deficit and Chinese stockpiling, the decline in reported inventories so far in 2012, estimated at 7 kt, has been rather modest. Unreported consumer stocks in the West have been drawn down to very low levels. They expect yet another deficit in 2013 (downside risks to supply and demand forecasts broadly offset one another), so the tin market could become genuinely tight in 2013. Tightness could be alleviated by Chinese de-stocking, but the LME/Shanghai-Changjiang price differential still does not favour exporting.

The recent Economic Consensus forecast for the tin price of 20 market analysts is USD22,276/t in 2013, marginally higher than the current price around USD20,000/t. The forecast real long-term average is USD17,256/t.

3.9 Key risks and opportunities

Risks that may be considered include:

• The Torrington State Conservation area is an environmentally sensitive area and needs to be considered when development of a potential mine takes place.

• Delineating a resource of sufficient grade to support an economic mining venture. In Xstract’s opinion, the Taronga Project is comparatively low grade compared to other Australian tin occurrences.

• Tin price volatility increases the economic risk of operations.

An opportunity for the Taronga Project is that extensive metallurgical test work recently conducted indicates that improved recoveries (greater than 67%) is likely using new technology that was not previously available when the PFS was completed by Newmont in 1982.

3.10 Valuation

3.10.1 Xstract’s technique

In estimating the current value of Taronga’s tin assets, Xstract has considered various valuation methods within the context of the 2005 VALMIN Code. When valuing an exploration or mining project, Xstract is attempting to determine a value that reflects the potential of the project to yield an Ore Reserve from which a future income stream may ultimately be derived. At the same time, Xstract is cognisant of what the project is deemed to be worth by the market and actual transactions taking place to ensure that the value estimates are realistic.

Of the three main valuation approaches (income, market, and cost) Xstract has used both market and cost methodologies as set out in Appendix C.

Xstract considers the Taronga Project may be classified as an advanced stage exploration project. The income approach was deemed inappropriate given the uncertainty associated with the historical tonnage and grade estimate, the conceptual mine plans outlined in the 1983 PFS and previous cost estimates are now out-dated.

The comparable transaction method (or market approach) is considered appropriate as there is a relatively transparent and liquid market for early to advance stage tin exploration projects in Australia. While each project differs in its underlying characteristics (such as geology, location, quality, etc.), these factors may be subjectively assessed by experienced practitioners to determine a likely valuation range.

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The cost-based approach is also used for exploration projects and requires meaningful past and future committed exploration costs to be assessed in valuing exploration projects. While extensive exploration expenditure has previously taken place in the past at Taronga, the link between past exploration expenditure and current market value remains tenuous, as expenditure can both add value (through positive exploration results) and detract from value (poor exploration results). In order to overcome these deficiencies, Xstract typically uses the Geoscientific Rating method to provide a measure of project value.

The effective date for the valuation of Taronga’s tin assets is 31 October 2012.

3.10.2 Comparable market transactions (market approach)

Taronga Mine (EL7348)

In valuing EL7348, Xstract has conducted an analysis of recent comparable market transactions and joint venture terms involving Australian tin resource projects to establish the recent multiples paid within the market for in-situ tin equivalent tonnages (Figure 3.7).

Between 2009 and 2012, the implied value per equivalent in-situ tin resource tonne ranged from AUD82/t Sn to AUD546/t Sn with a median of AUD243/t Sn and comprised tin properties of various qualities and at varying stages of development. These transactions include:

• In November 2011, Stellar Resources Limited issues 43,528,743 new shares to Gippsland in consideration for the acquisition of Gippslands 40% free carried interest in the Heemskirk Tin Project in Tasmania. Gippsland retains a sliding scale royalty of 1 or 2% based on tin price. At the time of the transaction, the project had a Indicated and Inferred Resource of 4,36 Mt at 1.1% tin (48,960 t tin in-situ).

• In June 2012, Malachite Resources Limited executed an option agreement with Mancala Resources Pty Ltd, granting the latter a six-month option to carry out evaluation of the Conrad Project, in northern New South Wales. Upon exercise of the option, Mancala has the right to earn a 50% interest in the project by funding and completing a BFS, which is expected to cost AUD5M, within a 2 year period. Upon completing a BFS, Mancala has the right to earn an additional 10% of the Conrad project by arranging project financing acceptable to Malachite Resources. At the time of the transaction, the project had an Indicated and Inferred Resources of 3.59Mt at 83.2g/t and 0.18% tin along with associated lead, zinc and indium.

• In March 2010, Metals X Limited (“Metal X”) completed the sale of a 50% interest in its Tasmanian tin assets for AUD50 M and the formation of a 50/50 Joint Venture with YT Parksong Australia Holding Pty Ltd. The key assets include:

• The Renison Bell mine

• The Renison tin concentrator operating at an annualised production rate of 8,000 t of tin metal in concentrates

• The Mount Bischoff tin project

• The Renison expansion project, Rentails.

• In February 2011, Monto Minerals Limited acquired a 100% interest in the Baal Gammon mine from Conquest Mining Limited for AUD1.5 M cash, 300 M shares 150 M options and a further AUD1.5M payment on decision to mine Baal Gammon in Queensland. At the time of the transaction, the project had an Indicated and Inferred Resource of 10,504 t tin, 42,960 t copper and 4,991,519 oz silver in-situ (5.48 Mt at 0.8% copper, 0.2% tin and 29g/t silver).

• In February 2009, Icon Resources Limited (“Icon”) issued a three-year term Convertible Note to Metals X for a sum of AUD3.75 M at a coupon rate of 7.5% for the purchase of Collingwood mine, which would provide a suitable plant for the re-

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development of Icon’s Mt Carbine Tungsten Project in Queensland. Metals X was to take a placement of five million shares at five cents per share in Icon. By 30 July 2009, the conditions for the sale were not met and subsequently discussions with other parties for the sale of the Collingwood mine and plant commenced.

Figure 3.7: Comparable tin market transactions

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In assessing these transactions, Xstract notes that none are directly comparable to the Taronga Project given that:

• Different metal concentrations occur in each project

• Project locations have different established infrastructure

• Some projects may be purchased for a strategic intent and the buyer would be willing to pay a premium

• Exploration is at different levels of advancement.

In considering the value likely to be attributed by the market to EL7348, Xstract considers the Heemskirk and Conrad projects most comparable. On this basis, Xstract considers the market is likely to pay in the range AUD50/t and AUD150/t for an in-situ tin Resource depending on the grade and resource classification of the defined mineralisation.

Importantly, while Taronga’s EL7348 is at an advanced stage of exploration, no Mineral Resource estimate (in accordance with the 2004 JORC Code) has yet been prepared. Currently, Taronga considers there is potential for an Exploration Target[6] of between 30 to 50 Mt at grades of between 0.15 to 0.25% Sn at the Taronga Project.

In order to account for the lower confidence associated with the Exploration Target, Xstract has elected to apply a 20% discount to the end-members of its range. Xstract has then assigned its preferred value within this range. On this basis, Xstract’s preferred value for a

6 The Exploration Target is based upon a historic estimate supported by a pre-feasibility study, that included 33,350m of drilling and bulk sampling and which demonstrated three major zones of mineralisation to a depth 200m and strike length of up to 650m. It is the view of Taronga’s Competent Person that the Taronga Tin Project is significantly more advanced than an Exploration Target, bu t is limited within the framework of the VALMIN Code. Further information can be found in the Taronga Mines Ltd Target Statement dated November 2102 or at http://digsopen.minerals.nsw.gov.au/, Report GS1984/35].There has been insufficient recent explorat ion to define a Mineral Resource. It remains uncertain if further exploration will result in the determination of a Mineral Resource.

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100% interest in Taronga’s Exploration Target (the main value centre within EL7348) is AUD5.4 M in the range AUD1.8 M to AUD15.0 M.

Other Taronga tenements (EL6839, EL7800 & EL7801)

In October 2010, YTC sold its Torrington and Pond Flats tin tenements to Taronga (Figure 3.8). These tenements comprised EL6690 (100%), EL6392 (100%), EL7280 (100%) and EL6389 (70%) for the consideration of 11 million fully paid ordinary shares at AUD0.20 each and 5.5 million options to acquire shares in Taronga for a total consideration of AUD3.1 M.

Figure 3.8: YTC Resources Exploration tenements sold to Taronga Mines

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Source: YTC Resources Exploration Report for EL7280

The total area of the YTC tenements listed in Table 3.2 was approximately 331 km[2] . The implied attributable value for the YTC tenements is AUD9,612/km[2] .

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Based on the unit value of AUD9,612/km[2] implied by the purchase of YTC’s assets, applied to Taronga’s current EL6839, EL7800 and EL7801 (with a combined area of 319.7 km[2] ) the estimated value is AUD3.1 M. Xstract considers this as the preferred value for EL6839, EL7800 and EL7801, given that this transaction was completed.

Table 3.2: Area of the YTC Resources tenements

					Attributable
		Total Area	Attributable
Tenements	Interest	(km2)	**Area (km2) **		Value **(AUD/km2) **
EL6389	70%	27		19
EL6690	100%	119		119
EL6392	100%	98		98
EL7280	100%	87		87
Total		331		323	9,612

As further support, Xstract notes that exploration tenements in Australia with no stated JORC Code compliant Resources typically trade in the range AUD1,000 to AUD5,000/km[2] for early stage assets and between AUD5,000 to AUD10,000/km[2] (or more) for more advanced or strategically located exploration projects. Two recent market transactions that fall within these ranges include:

• In November 2012, YTC erned an initial 70% interest in the Doradilla Project (EL6258) from Straits Resources Limited (“Straits”) through funding AUD1.5 M exploration followed by a further issue of YTC shares to Straits to the value of AUD250,000. The tenement covers 236.5km[2] which implied a value for the transaction at AUD7,400/km[2] . The project lies approximately 50 km south east of Bourke, in New South Wales. It contains known tin-skarn mineralisation.

• In October 2011, Consolidated Tin Mines Limited (“CSD”) acquired a 100% interest in the Jeannie River Tin Project from Friends Exploration Pty Limited with the issue of 750,000 fully paid CSD shares (estimated value of AUD45,000). The project covers an area of 21 km[2] which implies a value of AUD2,143/km[2] and is situated 321 km north of CSD’s Mt Garnet Project, near Cairns in northern Queensland. At the time of the transaction, the company stated an Inferred JORC Code compliant Resource of 2.24 Mt at 0.6%Sn. In Xstract’s view, this transaction has been discounted as it is small tonnage and at a significant distance from the main Mt Garnet project.

On this basis, Xstract considers the market would pay in the range AUD5,000 to AUD10,000/km[2] for the other Taronga tenements. As such, Xstract expects the market would pay between AUD1.6 M and AUD3.2 M, with a preferred value of AUD3.1 M for a 100% interest in the Taronga tenements EL6839, EL7800 and EL7801.

3.10.3 Geoscientific rating (Kilburn method)

As further validation, Xstract has estimated the value of a 100% interest in the Taronga Project using the geoscientific rating method. This method uses a base holding cost (“BHC”) for New South Wales of AUD435/km[2] and applying off property, on property, other anomalies and geological multiplier factors as shown in Appendix A.

In determining the Market Value, Xstract applied a market multiplier factor of 0.8. Xstract considers it is appropriate to apply a market discount factor given the weak prevailing economic conditions and volatile market for tin.

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Table 3.3 summarises Xstract’s market value for a 100% interest in the Taronga Project using the geoscientific rating method. The preferred value of AUD7.7 M lies within the range of between AUD5.3 M and AUD10.7 M.

Table 3.3: Summary of the Geoscientific Rating Value for the tenements of the Taronga Project

	Total technical value (AUD '000) Market Discount Total FMV (AUD '000)
Low	6,596.6 0.80 5,277
High	13,328.3 0.80 10,663
Preferred	9,663.9 0.80 7,731

3.11 Valuation summary of Taronga

Table 3.4 summarises Xstract’s valuation range and preferred value for the Taronga Project as determined using comparable market transactions and the Geoscientific Rating valuation methods.

Xstract has elected to give equal weighting to the market and geoscientific rating methods to select its valuation range and preferred value overall. In Xstract’s opinion, the current market is likely to pay in the range of AUD4.4 M and AUD14.5 M, with a preferred value of AUD8.1 M. This results in an implied preferred value of AUD22,040/km[2] for the combined package of Taronga tin assets.

Securities held against the tenements of Taronga (Table 3.1) amount to a total of AUD160,000 and do not materially change Xstract’s value range and preferred value.

Table 3.4: Valuation summary of the Taronga tin exploration assets

	Low	High	Preferred
Valuation Methods
	(AUD M)	(AUD M)	(AUD M)
Comparable Market	3.4	18.2	8.5
Taronga Mine (EL7348)	1.8	15.0	5.4
Exploration (EL7800, 7801 & 6839)	1.6	3.2	3.1
Geoscientific Rating	5.3	10.7	7.7
Total Value	4.4	14.5	8.1

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4 AusNiCo Limited

In 2006, D’Aguilar Gold Limited formed the subsidiary AusNiCo following encouraging drill results at its Black Snake and Mount Cobalt tenements. The nickel-cobalt exploration areas were transferred to AusNiCo in 2007. AusNiCo subsequently listed on the Australian Securities Exchange in 2010 as a minerals exploration company focused on the discovery and economic development of large scale nickel projects.

4.1 Ownership, status and agreements

AusNiCo holds a 100% interest in EPM19366 (Kilkivan Project) and application EPMA177768 (Marlborough Project) in Queensland, as well as EL50/2011 (Heazelwood Project) in northwest Tasmania (Table 4.1). In total, these projects cover a combined area of 524 km[2] which is considered by AusNiCo to be prospective for nickel sulphide mineralisation.

Exploration Commitments for each tenement listed in Table 4.1 assumes two years tenure until date of expiry

Table 4.1: Exploration tenements held by AusNiCo

		Grant		Area	Bond	Annual	Expenditure
Project		ed	Expired	**(km2) **	(AUD)	Rental (AUD)	Commitments (AUD M)
Kilkivan	EPM19366	9 Aug	8 Aug	301.84	2,500	13,140	0.37
		2012	2015
Marlborough	EPMA17768	Applica		157.75	2,500	6,570	5.68
		tion
Heazlewood	EL50/2011	21 May	20 May	64.25	16,000	1,906	1.26
River		2012	2017

4.2 Kilkivan Project

4.2.1 Location and access

AusNiCo’s Kilkivan Project tenements are all located in the mountainous terrain of southeastern Queensland with the town of Kilkivan situated in the northern end of the project area. The Wide Bay Highway connects Kilkivan to the Bruce Highway, 36 km to the west. The town of Gympie is approximately 50 km to the southeast of Kilkivan by sealed road. Access to the tenements, stretching southeast of Kilkivan up to 60 km, is mostly via unsealed roads.

4.2.2 Geology

Setting

The project area extends over the Kilkivan-Black Snake-Widgee–Kandanga-Mooroorerai Fold Belt (Figure 4.1). The area consists of continuous outcrop of Palaeozoic-age rocks extending southeast from Kilkivan for about 60 km. Rocks in this area include phyllites, schist, greenstone, amphibolite, serpentinite, minor limestone and marble, slate, mudstone,

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chert, and jasper. These Palaeozoic rocks have been folded along north to northwest axes and dips are mainly to the west.

Ultrabasic rocks are the most extensive rocks in the main areas of interest with outcrop extending over approximately 400 km[2] . They are mostly comprised of variably serpentinised peridotite, probably hartzburgite. Surrounding the ultrabasic rocks is melange, consisting of a variably foliated framework of pebble to cobble sized, sub-angular to sub-rounded fragments of serpentinite and lesser mafic greenschist, in a fine-grained serpentinite matrix. Geological mapping by the State geological survey shows these ultrabasic rocks as being emplaced along a thrust fault, however the outcrop patterns and associated skarns suggest that they are intrusive bodies of Permian to early Triassic age, and are coeval with layered gabbros and olivine-rich volcanics.

The peridotites intrude or are structurally juxtaposed on a weakly calcareous mudstonevolcanic sequence, and have garnet-pyroxene skarns and jasperoid alteration zones about their contacts.

Figure 4.1: Geology of the Black Snake Project area

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The Black Snake Porphyry is an intermediate feldspar porphyry stock spatially associated with the base- and precious-metal mineralisation in the Black Snake Project area. Numerous

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high-grade copper-silver-gold mines were worked around the beginning of the last century and include Shamrock, Mount Coora, Mount Clara, Peak, Mariners, Copper Lode and Pembroke. Many other porphyritic intrusive bodies crop out in the mining fields of the district.

Mineralisation

In the Black Snake district, there are two main styles of mineralisation; a nickel-cobalt association and a gold-copper-silver association. AusNiCo considers the nickel-cobalt association at Pembroke is possibly associated with the more magnesian-rich ultramafic rocks. At Kandanga, tholeiites theoretically can contribute as a source of copper and PGMs making the nickel zone more polymetallic than that at Pembroke where the copper and PGMs are not so elevated. Therefore, the Kandanga area has more potential for Aguablancastyle deposits than the Black Snake area which is more likely to host an Avebury style deposit, (Levy, I 2004). However, it is observed that considerable copper mineralisation exists at Pembroke above the nickel-cobalt mineralisation. The association between the nickelcobalt mineralisation and the copper-gold mineralisation is unknown but may be merely spatial at Pembroke.

The nearby granitoid batholith (Station Creek adamellite) is interpreted to provide mineralising fluids rich in silver, gold and boron, creating a polymetallic mineral system within the adamellite, the serpentinite and surrounding metasediments. AusNiCo’s tenure position in the Black Snake district is a favourable situation for the discovery of nickel sulphide deposits and associated higher level oxide nickel and cobalt deposits.

Figure 4.2 below highlights the conceptual model and displays the location of the associated two main types of alteration and the secondary copper-silver deposit type in relation to the conceptual model being considered by AusNiCo:

• Mount Cobalt nickel hydrothermally altered (oxide) deposit

• The Pembroke nickel-cobalt sulphide deposit

• The Silver Valley copper-silver deposit type.

Figure 4.2: Conceptual geological model of the mineralisation style at Kilkivan

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Source: AusNiCo Limited

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The alteration zoning (clay altered higher level versus sulphide zones) reportedly produces two styles, which if proven to be economic, will require two separate metallurgical recovery processes. Any potential sulphide deposit discovered has the advantage of well-developed flotation processes whereby the hydrothermally altered oxide deposits will require the development of leaching techniques, which are generally much more expensive and require considerably more capital than flotation recovery techniques.

In order to cover the cost of an economic process to treat any hydrothermal oxide clay alteration, a larger, richer deposit will be required compared to a sulphide deposit.

4.2.3 History

Mining in the region dates back to the late 1800s with more modern exploration techniques used from the 1960s looking for nickel, porphyry copper and epithermal gold.

Gold was first discovered in 1852 at Black Snake and was followed by an alluvial gold discovery at West Coast Creek, southeast of Kilkivan in 1867. The most important discovery period was between 1867 and 1874 when the main gold, copper, mercury and cobalt deposits were found (J H Brooks et al, 1974) on the Black Snake Plateau, only 3 km south of the Mt Cobalt Prospect.

As alluvial gold mining declined, prospecting and mining moved to the Black Snake and Kilkivan areas during the 1860s and 1870s. The most important gold mine was Shamrock on the Black Snake Plateau, which commenced operations in the mid-1860s and continued sporadically to 1907 and reopened between 1943 and 1948.

Other gold mines in the area include the Rise and Shine, Long Tunnel Mountain, Yorkey’s Surprise and Gold Top.

Brooks et al record a total of 20,534 oz gold and 17,102 ounces silver production from the Kilkivan and surrounding areas up to 1972.

At the Shamrock Mine between 1990 and 1993, United Reefs NL (“United Reefs”), extracted a further 9,408 oz gold in three open pit campaigns: approximately 97,000 t at a grade of 3.0 g/t gold.

The Tableland Gold Mine, just north of Shamrock was a small open pit which produced 5016 ounces of gold at a grade of 4.2 g/t gold in a year to April 2000.

At the Manumbar Gold Mine (32 km south of the Shamrock mine), 293,400 t of ore were mined from three pits and trucked to the Shamrock treatment plant between 1994 and 1999. Approximately 49,000 oz of gold were recovered at a grade of 5.2 g/t gold. The previous miner reported that an Indicated Resource of 39,400 t grading 7 g/t gold remains immediately below the floor of the East Pit. (Davis, L, 2008).

Copper

Copper mining commenced seven to eight miles southeast of Kilkivan at the Mount Coora, Mount Clara and Peak Copper Mines during 1872 but closed a few years later. Other copper mines in the region include the Mudlo, Lug-e-nor and Knight of Gwyn mines. Most mines closed due to the complexities of the ore and unsustainable costs but some were re-opened and mined sporadically in later years.

Brooks (1974) records a total of 819.4 t copper to 1972.

Mercury

Following the discovery of mercury in 1872, some 35 deposits were located in a belt extending south southeast from the Coast Range, northwest of Kilkivan to the western margins of the Black Snake Plateau. Mining was mostly sporadic from 1886 and the last

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reported mining was in 1945. Approximately 33,600 pounds of mercury was produced from the area (Brooks et al, 1974).

Cobalt

The Mount Cobalt Lode was discovered in the early 1870s and is located eight miles southsoutheast of Kilkivan. Production commenced in 1886 and further production was recorded in 1903 although the size of the mine development indicates a much greater tonnage than the four tons at 4% cobalt recorded (Brooks et al, 1972).

Other Minerals

Minor tonnages of manganese ore, talc and magnesite have also been recorded from the Kilkivan area in addition to construction stone, gravel and sands.

4.2.4 Recent exploration

Exploration method

Extensive geological mapping, soil and rock chip sampling and drilling have previously taken place over the project areas. These programmes were primarily conducted by D’Aguilar, the parent company to AusNiCo.

In April 2007, a helicopter-borne electromagnetic-magnetic geophysical survey (VTEM) was flown over the Mount Cobalt and Mount Widgee Project areas by Geotech Airborne Ltd.

In 2011, an I.P. survey was conducted by GeoDiscovery Group Pty Ltd over the Pembroke and Mount Cobalt areas. The aim of this survey was to map potential target zones, either with similar electrical signatures as to that recorded in the primary upper mineralised zone or other anomalous regions. A number of potential targets were identified.

Metallurgical testing

AusNiCo has carried out limited testwork on four samples from drill core at Mount Cobalt at the HRLtesting Pty Ltd laboratory (“HRL”) in Brisbane in order to test the leaching characteristics of the altered, nickel mineralised zone. HRL is not a quality accredited organisation but are listed as a research agency for the purposes of government finding/research grants.

The HRL work concluded that the oxide samples are potentially heap-leachable at acceptable recoveries with sulphuric acid but at a relatively high acid consumption. Further work on column testing is recommended to confirm heap leach variables such as kinetics, agglomeration requirements and permeability.

HRL proprietary hydrometallurgical test work has reported even higher nickel and cobalt extractions than the HRL work.

4.2.5 Previous estimates

At this stage there is no Mineral Resource delineated. However, there are numerous conceptual targets and geophysical and geochemical anomalies warranting further exploration. As such, Xstract considers EPM19366 represents an an advanced stage exploration play.

4.2.6 Environmental and social considerations

The Oakview and Wrattens State Forests are situated in the area and will need to be considered if developing a mine in the region.

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Xstract is not aware of any native title claim in the area.

4.3 Marlborough

4.3.1 Location and access

AusNiCo’s Marlborough North Project area is located approximately 70 km northwest of Rockhampton near the town of Marlborough in central Queensland (Figure 4.3). The Bruce Highway and the Northern Railway pass through the area allowing easy access to the tenements EPM17721, EPM17722 and EPM17768.

Marlborough Nickel Pty Ltd (“MNPL”), a wholly owned subsidiary of Gladstone Pacific Nickel Limited (“GPNL”), owns 12 mining leases and several exploration permits over lateritic nickel/cobalt deposits immediately southeast of EPM17768.

GPNL has proposed the construction of a nickel mine and beneficiation plant to concentrate ores at Marlborough, and a large nickel/cobalt refinery at Gladstone. The proposed refinery is a modern, ‘fourth generation’ high pressure acid leaching (“HPAL”) facility. Provision for importation and refining of additional high grade laterite ores from the South West Pacific through the existing and planned future facilities, available at the deep water port of Gladstone, are included in GPNL’s plans which has an unknown start date.

Figure 4.3: Location of the Marlborough North Project area

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4.3.2 Geology

Setting

The Marlborough Project is situated in the Marlborough Block comprising Permian basaltic volcanics in faulted contact with Neoproterozoic to Lower Palaeozoic serpentinised ultramafics intruded by Permian gabbroic and granodiorite bodies. The ultramafic belt extends into a larger mass in the south and southeast.

The Marlborough nickel-cobalt deposits are associated with one of the larger ultramafic complexes along the northern section of the Yarrol Fault Zone. These deposits are fault

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bounded by moderate to steeply dipping sediments, most of which are schistose metamorphic derivatives of quartz-rich clastic and calcareous varieties.

The main constituent of the ultramafic is harzburgite. The smaller lenses and the margins of the larger lenses of the harzburgite are usually serpentinised. The morphology of the ultramafic has been moulded by a combination of structural events involving block and strike-slip faulting, intrusion of granitic domes and basin-scale flexing. Two predominantly northwest striking bodies occur, with the western intrusive being the larger of the two. It is separated from the eastern body by a fault-bounded corridor of metasediments several kilometers wide. The southern boundary of the ultramafic is extensively stoped by granite and block-faulted, with east-trending structures down-throwing younger acid intrusives against older clastic metasediments. The general body of evidence suggests that the southern limit of the Marlborough ultramafic lies along a broad east-trending zone of structural and igneous activity.

The laterite-hosted nickel deposits mainly occur as positive topographic features. They are interpreted to be the remnants of a former extensive weathering blanket. The deposits cover only a relatively small percentage of the ultramafic bodies and are oriented principally on a northwest trend along the western margin of the western ultramafic body.

Mineralisation

Previous exploration defined large strong nickel-zinc anomalies. Exploration for nickel laterites by International Nickel Australia Limited during the 1960s and 1970s identified a 100 km[2] area of greater than 3,000 ppm nickel in stream sediments (Queensland Exploration Geochemistry Database, 2008). A strong north easterly trend of zinc anomalism was superimposed over the nickel anomaly, suggesting the presence of multi-element hydrothermal sulphide mineralisation in the unweathered bedrock. The zinc–nickel trend is parallel to the trends of Cretaceous aged intrusives that have deformed the ultrabasic units.

The Marlborough laterite nickel–cobalt deposits in the region support the potential of the high background nickel values associated with ultrabasic units and serpentinites in the region. Therefore, the the AusNiCo Kilkivan mineralisation model may be applied to the area in the vicinity of Permo-Triassic and Cretaceous granitic and intermediate intrusions present in the Marlborough area.

4.3.3 History

Extensive historic exploration has identified significant lateritic nickel, magnesite and subordinate chromite and chrysoprase deposits in the area.

BHP actively explored the Princhester Serpentinite to the south of Marlborough during the period 1964 to 1973 resulting in the discovery of a number of lateritic nickel deposits and numerous small podiform chromite occurrences. BHP and joint venture partner, International Nickel Austalia Limited (“INCO”), drilled 3,000 rotary holes for a cumulative 100,000 m. Marlborough Nickel Project Ltd acquired the properties in 1996 and subsequently drilled another 58,000 m of combined RC, diamond and bucket rig holes. The current owner is Gladstone Pacific Nickel Ltd. The project extends over approximately 850 km[2] and comprises 10 near-surface laterite nickel deposits over a total strike length of 40 km. Nickel is reported to occur as a 10 to 20 m thick blanket with cobalt mineralisation towards the top of the nickel zone.

Chromite exploration has similarly been undertaken since the mid-1960s. Most of the discoveries occur as small podiform deposits within the ultramafic unit.

Australian Magnesium Corporation’s world class Kunwarara Magnesite Deposit is situated 8 km east of EPM 17722. The deposit occurs in a shallow freshwater sedimentary basin in

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which extensive flat lying sheets of loosely consolidated sediments were deposited during the Tertiary and Quaternary. Sheet-like magnesite deposits were developed within the upper portions of these sediments due to weathering and erosion of nearby serpentinite and subsequent enrichment through diagenesis.

4.3.4 Exploration

Once AusNiCo has met its native title notification requirements for granting of EPM17768, it intends to conduct preliminary field work with a view to developing a comprehensive work program to be undertaken in due course. Soil and rock sampling and mapping of the central serpentinite body will conducted to generated anomalous areas to define potential drill targets.

4.3.5 Environmental and social considerations

Xstract is not aware of any environmentally sensitive areas and native title claims in the Marlborough Project area that may hamper the development of a mining project.

4.4 Heazlewood River

4.4.1 Location and access

AusNiCo’s EL50/2011 is located about 25 km west of Waratah and the Mt Bischoff tin deposit in northwest Tasmania. Access to the tenement can be gained via the sealed Waratah Road, which joins the north-south Murchison Highway to the east. The largest population centre is the town of Burnie approximately 70 km north of Waratah on the coast where there are port facilities and an airport linking the region to Melbourne.

Figure 4.4: Location of Exploration Tenement EL50/2011

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4.4.2 Geology

Setting

The Heazlewood River Project overlies a mafic-ultramafic complex occurring within the Cambrian volcano-sedimentary Dundas Trough of western Tasmania. The complex is generally dominant in olivine and orthopyroxene cumulates with locally abundant gabbroic dykes and sills and an association between the cumulates and boninite and low titaniumbearing tholeiitic basalts. These complexes are interpreted to have formed in an island-arc environment.

Three suites of dykes have been recognized within the cumulates and are generally less than a metre thick and tabular. Dykes are common in the eastern cumulates and intrude the Gabbro, Cuadreys and Brassey Hill sequences in the western section. Lithologies include fine-grained gabbronorite; medium grained leucogabbronorite and anorthosite; and coarse-grained to pegmatitic gabbronorite and plagioclase pyroxenite.

Two district volcanic suites within the Heazlewood River Complex comprise low titaniumbearing tholeiites and high-magnesia andesite analogous to boninite lavas. Contacts between the volcanic and cumulates are probably faulted.

Heazlewood River Complex can be divided into two lithological and geochemically distinct regions.

Region A – encompasses the Nineteen Mile Creek-Fentons-Warners Creek area and covers the western and northern parts of the complex. Chromite-rich dunite predominates in this area with minor coarse-grained pyroxenite. North-south trending chromitite bodies associated with coarse-grained pyroxenite pods occur at Fentons grid and contain platinum values of 0.89g/t.

Anomalous platinum group element (“PGE”) associations within Region A were further divided into:

• Group A1 – Os, Ir, Ru, Pt associated with Cr-rich dunites.

• Group A2 – Pt, Ru, Rh associated with pegmatitic pyroxenites containing chromitite rich layers and interlayered with harzburgite/dunite units.

Region B – covers the Burgess Hill, Brassey Hill and Gabbro Hill areas in the central part of the complex. The rocks in this region comprise mixed lithology peridotites which are commonly plagioclase bearing. Chromitite rich zones are hosted in serpentised harzburgite and coarse grained orthopyroxenite.

• Group B1 – Pt, Pd (+/- Cu). May be associated with Brassey Hill harzburgites and/or dolerites and chromitites on Brassey and Burgess Hills.

• Group B2 – Pt, Pd (+/- Ru) (+/- Ni). May be associated with harzburgites on Brassey Hill and includes the Lord Brassey heazlewoodite deposit.

Mineralisation

Past exploration work over the project area has reported nickel sulphide breccia at Fenton’s Knob containing up to 1.4% Ni (Avebury Style), surface rock chip values up to 18.3 g/t Au, 15% Pb, 8% Cu and 4.7% Ni and costeans at Fenton’s prospect returned up to 6 m at 6.7 ppm Pt and 9 m at 4.0 ppm Pt.

Although there has been considerable exploration in the area, several prospective targets remain untested in particular the Brassey North area which has several soil geochemistry anomalies grading from >3,000 ppm and up to 5,600 ppm Ni over a 1 km strike length.

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Figure 4.5: Exploration targets of the Heazelwood Project (EL50/2011)

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Source: AusNiCo Limited

4.4.3 History

Tin mining has been carried out in the northwest Tasmania since the discovery of alluvial tin in 1890.

Lyell Mining and Railway Company acquired control of the lease in 1965, where Renison Tin Mine is currently situated and commenced mining. At its peak, Renison was one of the largest underground mines in the world producing around 850,000 tpa of ore and 8,000 to 9,000 tpa of tin in concentrate.

Approximately 70 km north of Renison mine is the Mt Bischoff open pit mine. Mt Bischoff is a significant deposit in its own right having produced in excess of 55,000t of tin metal since the late 1800s.

Several companies have explored the area in search of PGEs and nickel mineralisation since the 1960s. The most significant work was conducted by AMAX who explored the area for PGE and nickel mineralisation in the late 1960s. Metals Exploration Ltd also explored for PGE and nickel mineralisation in the late 1980s and Bass Metals who held the ground for nickel-skarn type mineralisation analogous to the Avebury system.

The Avebury nickel mine in western Tasmania was discovered by Allegiance Mining NL in January 1998, and was subsequently taken over by Zinifex Limited (now OZ Minerals Limited) for more than AUD840 million in 2008.

Mineralisation was first discovered in the Heazlewood area in the 1890s, when nickel mineralisation was discovered at the Lord Brassey nickel mine. Other known prospects include several copper and lead-zinc prospects, as well as numerous alluvial and hard rock osmiridium workings. The Heazlewood Complex supported the world’s largest supplier of

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osmiridium during the early 1900s with recorded production from the entire field of 15,526 oz.

4.4.4 Exploration

The tenement was granted in May 2012. AusNiCo intends to design an exploration program to follow‐up previously reported historic results by third party exploration programs, and to ‐ exploit the prospective, under explored areas of the tenement.

4.4.5 Environmental and social considerations

The western part of EL50/2011 lies in the Savage River Reserve. The Savage River runs north, through the western boundary of the tenement.

The Upper Arthur River has been severely affected by historical acid mine drainage emanating from the former Mount Bischoff tin mining operations at Waratah. Mineral Resources Tasmania is planning a rehabilitation program at Mt Bischoff, which will be funded by RiverWorks Tasmania. RiverWorks is a Commonwealth program administered in Tasmania by the Department of Primary Industries, Water and Environment on behalf of the Natural Heritage Trust.

4.5 Market conditions

4.5.1 Price

Nickel prices fell sharply in 2011 from USD28,246/t in February to USD17,876/t in November despite a fall in the London Metal Exchange (“LME”) stocks (Figure 4.6). After a brief rally, averaging USD20,394/t in the month of February 2012, the nickel price continued its downward move to an August 2012 average of USD15,704/t. In the last two months, the nickel price has seen a reversal.

Figure 4.6: London Metal Exchange spot nickel price

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Source: www.indexmundi.com

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4.5.2 Demand and Supply

Approximately 60% of nickel is used in the manufacture of stainless steel (Figure 4.7).

There have been sharp cuts in stainless steel output in the European market and China. Global stainless steel production remains slow. However, BNP Paribas believe there is a reasonable chance of a pick-up in Q4 2012.

Europe, which accounts for an unusually high proportion of nickel demand (up to 25%), looks set to remain depressed, while Chinese demand is unlikely to return to anything like former growth rates. BNP Paribas expect global nickel demand to rise by no more than 7.5% in 2013.

The negative case for nickel has always been built more on the supply side. However, although the list of new mines remains intimidating, operational setbacks have multiplied to the extent that the 14 plants highlight may produce 60 kt less nickel in 2012 than considered possible 12 months ago.

There remain risks that production from new mines will fall short of analysts’ projections in 2013/14 as all nickel producers are confronted by the depressed price. Latest Wood Mackenzie data suggests that up to 30% of the industry is now cash negative.

Figure 4.7: Nickel demand

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4.5.3 Outlook

BNP Paribas believes the nickel price is close to bottoming out due to several reasons. First, despite the market’s apparent indifference, the setbacks at new plants will curb supply surpluses in 2012 and 2013. Second, the price has been cutting ever deeper into the cost curve, with the Chinese nickel pig iron (“NPI”) industry particularly exposed. Third, NPI producers are also confronted by other problems. Fourth, although nickel demand has been weak in the third quarter for cyclical as well as seasonal reasons, it should be firmer at least on the latter front in Q4 2012.

Despite an outlook of improving fundamentals, the nickel price may struggle to participate fully in any sector-wide rally in the final months of 2012. The recent Consensus Economics forecast, that polled 25 market analysts, estimated an average nickel price of USD18,785/t in 2013. The forecast real long-term average is USD20,093/t.

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4.6 Key risks and opportunities

A number of environmentally sensitive areas and past acid water drainage problems near the Heazelwood project area will need to be considered if developing mine on the AusNiCo project.

Both the Kilkivan and Heazlewood projects are situated in well know mining districts and with defined exploration target close to well-established infrastructure. Marlborough requires further exploration to identified targets in a known nickel laterite province close to the existing GPNL nickel project.

4.7 Valuation

4.7.1 Xstract’s technique

In estimating the current value of AusNiCo’s nickel assets, Xstract has considered various valuation methods within the context of the 2005 VALMIN Code. When valuing an exploration or mining project, Xstract is attempting to determine a value that reflects the potential of the project to yield an Ore Reserve from which a future income stream may ultimately be derived. At the same time, Xstract must also be cognisant of what the project is deemed to be worth by the market and actual transactions taking place to ensure that the value estimates are realistic. Arriving at the value estimate is somewhat complex as there is no single mineral asset valuation method, which is appropriate for all circumstances.

In Xstract view, the Marlborough and Heazlewood projects represent early stage, while Kilkivan is considered an advance stage nickel exploration project. As there are no stated JORC Code compliant Mineral Resources and Ore Reserves or conceptual mine plans, there are significant uncertainties associated with the likelihood and timing of any future cash flows and Xstract considers the income based approach (Discounted Cash Flow) to be inappropriate.

The comparable transaction method (or real estate approach) is considered appropriate as there is a relatively transparent and liquid market for early to advance stage nickel exploration projects in Australia. While each project differs in its underlying characteristics (such as geology, location, quality, etc.), these factors may be subjectively assessed by experienced practitioners to determine a likely valuation range and associated preferred value within this range. Naturally, this range and the preferred value should be validated through the use of other secondary methods.

The cost-based approach is generally used for early stage exploration projects and requires meaningful past and future committed exploration costs to be assessed in valuing exploration projects. While extensive exploration expenditure has taken place in the past at AusNiCo projects, the link between direct exploration expenditure and current market value remains tenuous, as expenditure can both add value (through positive exploration results) and detract from value (poor exploration results). In order to overcome these deficiencies, Xstract typically uses the Geoscientific Rating method as it provides a measure (albeit subjective) as to whether such expenditures are likely to result in positive exploration results and ultimately an uplift in project value. For these reasons, Xstract has used the Geoscientific Rating method to crosscheck the value implied by comparable market transactions.

The effective date for the valuation is 31 October 2012.

4.7.2 Comparable Market Transaction

Xstract has elected to value the project tenements using multiples implied by recent transactions for nickel exploration projects in Australia. Xstract’s analysis identified four

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transactions that had a unit value range from AUD13,258/km[2] to AUD43,393/km[2] . The transactions are summarised in Table 4.2 and the details include:

• July 2012, Pioneer Resources Limited (“Pioneer”) purchased from Blair Nickel Mine Pty Ltd, 100% interests of the Golden Ridge Project for a cash consideration of AUD700,000. Pioneer will also replace existing performance bonds with a value of AUD207,000 and assume an existing gold royalty. The Golden Ridge Project, which is located 28 km southeast of Kalgoorlie and 30 km north of Kambalda, provides a portfolio of advanced gold and nickel sulphide targets, many with mineralised drill holes that are ready for follow-up drilling. The project is 120 km[2] in area and, more importantly, includes 82 km[2] of granted mining leases that is the non-operational Blair Nickel Mine. Mineralisation is known to extend below the Blair Nickel Mine and nickel sulphides have also been intersected in drilling at Marshall, Blair South, Duplex Hill and Anomalies 11 and 14 Prospects. At the time of the transaction the project had a resource of 1,999 t contained nickel.

• April 2012, Kidman Resources Ltd (“Kidman”) acquired a 100% interest in the advanced and historically high-grade ‘Home of Bullion’ (“HOB”) volcanic massive sulphide (“VMS”) copper and base metals deposits near Barrow Creek in the Northern Territory. The acquisition was completed for a total cost of AUD2.5 M, comprising AUD1.5 M in cash and AUD1 M in Kidman ordinary shares. The HOB project lies 350 km northeast of Alice Springs and 200 km south of Tenant Creek and is accessible via a track 30 km east of the Stuart Highway. The Darwin to Adelaide railway line is 10 km east of HOB. A natural gas supply is within 50 kms and an allweather airstrip is available 25 km away at Barrow Creek. The deposit, mined briefly in the 1950s, is a high-grade VMS style deposit. The deposit contains two known copper lenses/lodes. Prospect D is a Copper/ Nickel/ Silver prospect that lies 30 km north of HOB and just 4 km east of the Stuart Hwy. Best historic borehole intercepts include:

o 6.8 m @ 1.24% Cu, 0.27% Ni, 5.2g/t Ag (borehole BCD-001 from 133.8 m) o 5.1 m @ 1.32% Cu, 0.36% Ni, 3.8g/t Ag (borehole BCD-004 from 191.9 m).

January 2011, Red October Resources Limited renegotiated its Pardoo JV Agreement with Segue Resources Limited. Under the revised agreement, Red October can earn an initial 30% interest by spending a minimum of AUD1 M on the project within two years from the date of its re-instatement to trade on the ASX. After the initial 30% interest a further 20% can be earned by spending a further AUD2 M within four years. The Pardoo Project consists of four granted exploration licenses; E45/1866, E45/2146, E45/3383 and E45/3464, in the Pilbara Mineral Field. The project is situated 10 km northeast of the town Goldworthy, 90 km east of Port Headland. These tenements cover approximately 161.2 km[2] and has a number of identified targets. The Pardoo Project straddles the boundary between the East Pilbara GraniteGreenstone Terrane and the Central Pilbara Tectonic Zone, marked in this region by the Pardoo fault, which is part of the De Grey Structural Zone. At the time of the transaction the project had in-situ Resources that included cobalt (15,000 t), copper (65,000 t) and nickel (150,000 t).

• October 2012, Pioneer acquired a 75% interest in the Fairwater Project from National Minerals Limited for AUD40,000 cash, 11.5 million shares and 45 million options. The project has significant nickel and gold targets already identified through geochemical geophysical surveys. The project is situated in the Albany-Fraser Mineral Province, Western Australia.

• October 2012, RAM Resources Limited agreed to acquire 100% interest in three tenements of the Fraser Range Project from Regency Mines Australia Pty Limited. The total consideration of AUD2.76 M included shares and cash. The tenements cover an area of 271 km[2] in the Albany-Fraser orogeny and has a number of

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prospective targets. The Fraser Range Project is at an advanced exploration stage with no delineated resources. The implied unit value on a 100% equity basis is AUD8,321/km[2] .

• January 2012, Mincor Resources NL entered into an acquisition agreement with Jupiter Mines Limited for 100% of an exploration licence for AUD0.2 M. The project is prospective for nickel and gold covering an area of 56.4 km[2] . Assuming the terms of the agreement where met the implied unit value on a 100% equity basis is AUD3,546/km[2] .

• April 2011, BHP Billiton entered into a farm-in agreement with St George Mining Limited to earn an initial interest of 51% of nickel rights on the East Laverton Project by way of an option (AUD0.6 M) over two years and AUD3.0 M exploration expenditure over three years. The project is prospective for nickel over an area of 1,810 km[2] . The implied unit value of the transaction on a 100% equity basis is AUD3,900/km[2] .

Table 4.2: Summary of Nickel Exploration Project transactions

				Unit Value
Announcement Date	Project	Buyer	Area **(km2) **	100% basis
				**(AUD/km2) **
11-Jan-12	Kambalda	Mincor Resources NL	56	3,546
6-Apr-11	East Laverton	BHP Billiton	1,810	3,900
29-Oct-12	Fraser Range	RAM Resources Ltd	271	8,321
10-Jul-12	Blair South Nickel Deposit	Pioneer Resources Ltd	120	13,258
26-Apr-12	Barrow Creek Copper/Nickel	Kidman Resources Ltd	137	18,248
10-Jan-11	Pardoo Nickel/Copper	Red October Resources Ltd	161	37,221
9-Oct-12	Fairwater Nickel/Gold	Pioneer Resources Ltd	338	43,393

Xstract’s analysis suggests that advanced-stage, nickel exploration projects that have stated resources may attract market values in the range AUD10,000 to AUD40,000/km[2] , depending on the level of exploration and prospectivity of the tenements. In Xstract’s opinion, early stage and advanced exploration projects that have no stated JORC Code compliant Resources typically attract only 20% of this value implying a range of AUD2,000/km[2] to AUD8,000/km[2] . The transactions involving the Kambalda, East Laverton and Fraser Range projects broadly fall in this range and are more comparable with the AusNiCo exploration assets.

In Xstract’s opinion, the market is likely to pay between AUD4,000/km[2] to AUD8,000/km[2] for the Kilkivan Project that has numerous well-defined targets and a well understood geological model, but no stated JORC Code compliant Resource.

Xstract’s view is that the Marlborough exploration licence application is an early stage project with few targets. On this basis, Xstract considers the market would pay in the range of AUD2,000/km[2] and AUD6,000/km[2] .

The recently granted tenement EL50/2011 (Heazlewood) in Tasmania is an early stage exploration project with several defined targets. Xstract considers the market is likely to pay between AUD3,000/km[2] and AUD7,000/km[2] .

Table 4.3 summarises the value of each tenement held by AusNiCo. Xstract’s view is that the market is likely to pay between AUD1.7 M and AUD3.8 M for AusNiCo’s exploration assets, with a preferred value of AUD2.8 M.

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Table 4.3: Valuation summary of AusNiCo Nickel exploration assets

Project		Unit Value **(AUD/km2) **	**Area (km2) **	Value (AUD M)
	Low	4,000		1.21
KilkivanEPM19366	High	8,000	301.84	2.41
	Preferred	6,000		1.81
	Low	2,000		0.32
Marlborough EPMA17768	High	6,000	157.75	0.95
	Preferred	4,000		0.63
	Low	3,000		0.19
Heazlewood
EL50/2011	High	7,000	64.25	0.45
	Preferred	5,000		0.32
	Low			1.72
Total	High		523.84	3.81
	Preferred			2.76

4.7.3 Geoscientific Rating (Kilburn Method)

To support its valuation using comparable transaction, Xstract has also estimated the value using the Geoscientific Rating method from a base holding cost (“BHC”) of AUD435/km[2] and applying off property, on property, other anomalies and geological multiplier factors as shown in Appendix C.

Xstract’s geoscientific rating of the exploration potential of each tenement held by AusNico is detailed in Appendix B.

Xtract has applied a 20% discount to the Marlborough tenement application as it has not yet been granted.

Nickel market fundamentals are currently not favourable as discussed in section 4.5, and as such, Xstract has applied a discount of 30% to all the AusNiCo tenements.

In summary (Table 4.4), Xstract considers the value of AusNiCo’s tenements using the geosientific rating method being between AUD2.8 M and AUD6.5 M, with a preferred value of AUD4.4 M. Xstract’s preferred value implies a value of AUD8,479/km[2] .

Table 4.4: Summary valuation of the AusNiCo Nickel Exploration tenements

	Total technical value (AUD '000) Market discount Total FMV (AUD '000) Area (km2) Implied value (AUD/km2)
Low	4,073 0.7 2,818.7 523.84 5,381
High	9,519 0.7 6,548.2 523.84 12,500
Preferred	6,426 0.7 4,441.6 523.84 8,479

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4.8 Valuation summary of AusNiCo

In determining the value of AusNiCo’s nickel assets, Xstract considers the Comparable Market and Geoscientific Rating methods to be equally reliable and has applied equal weighting to these two methods. In Xstract’s opinion, the market would be likely to pay between AUD2.3 M and AUD5.2 M, with a preferred value of AUD3.6 M (implied value of AUD6,870/km[2] ). Securities held against these tenement (Table 4.1) amount to a total of AUD32,000 and do not materially change Xstract’s value range and preferred value.

Table 4.5: Valuation summary of the AusNiCo’s Nickel Exploration assets

Valuation Methods	Low (AUD M)	High (AUD M)	Preferred (AUD M)
Comparable Market	1.7	3.8	2.8
Geoscientific Rating	2.8	6.5	4.4
Total Preferred Value	2.3	5.2	3.6

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5 Valuation Discussion

5.1 Valuation range

In assigning its valuation range and preferred value, Xstract is mindful that the valuation range is indicative of the uncertainty associated with early stage exploration assets.

The wide range in value is driven by the confidence limits placed around the size and quality of the exploration targets assumed to occur within each project area. Typically, this means that as exploration progresses and a prospect moves from an early to advanced stage prospect, through Inferred, Indicated or Measured Resource categories to Ore Reserve status, there is greater confidence around the likely size and quality of the contained mineral and its potential to be extracted profitably. Table 5.1 presents a general guide of the confidence in targets, resource and reserve estimates, and hence value, referred to in the mining industry (Bouchard, 2001; Snowden et al., 2002; Mackenzie and Cusworth, 2007; Macfarlane, 2007).

Table 5.1: General guide regarding confidence for target and Resource/Reserve Estimates

Classification	Estimate range (90% Confidence Limit)
Proven/Probable Reserves	±5 to 10%
Measured Resources	±10 to 20%
Indicated Resources	±30 to 50%
Inferred Resources	±50 to 100%
Exploration target	+100%

This level of uncertainty with advancing project stages is illustrated in Figure 5.1 with the Taronga and AusNiCo project stages shaded in orange.

Figure 5.1: Uncertainty by advancing exploration stage

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----- Start of picture text -----

Positive
Negative
Exploration Areas ExplorationAdvanced Resource & Reserve Development Project Operating Mine
Project Stages
Level of Uncertainity
----- End of picture text -----

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Estimate confidence of plus or minus 60% to 100% or more are not uncommon for exploration targets and are within acceptable bounds given the level of uncertainty associated with early stage exploration assets. By applying narrower confidence ranges, one is actually implying a greater degree of certainty regarding these assets than may be the case in reality.

All of Taronga and AusNiCo tenements are exploration assets in the early to advanced stages of assessment. Therefore, there are significant uncertainties around their attributes. This results in a wide valuation range. Where possible, Xstract has endeavoured to narrow its valuation range. In recognising this wide range, Xstract has also indicated a preferred value for each tenement.

5.2 Valuation risks

Xstract is conscious of the risks associated with valuing early stage assets, which impacts on the valuation range. In defining its valuation range, Xstract notes that there are always inherent risks involved when deriving any arm’s length valuation for exploration properties given the level of uncertainty present for each of the variables that impact on prospects and their valuation. These factors can ultimately result in significant differences in valuations over time. The key risks include but are not limited to the following:

5.2.1 Exploration and resource risk

The business of exploration, project development and production is by nature high risk. The exploration potential of tenements where resources are not yet defined may vary considerably as further exploration is undertaken.

The exploration for and production of tin and nickel deposits involves various operating hazards including, but not limited to, adverse weather conditions, shortages or delays in the availability of drilling rigs, or other critical equipment or personnel.

Mineral Resources prepared under the 2004 edition of the JORC Code are best estimates based on individual judgement and reliance upon knowledge and experience using industry standards and the available database. Although the current estimates are appropriate at this time they may change over time as more information comes to hand.

5.2.2 Mining and production risk

The projects discussed in this report are at a relatively early stage of evaluation. Forecasting cash flows for the Taronga and AusNiCo assets is less certain and therefore more risky than for projects in production, development or with a feasibility study completed.

The successful development of a mining operation is dependent upon geological interpretation to define mineable blocks and an appropriate schedule to meet expected sales volumes. Actual minerals mined may be different in quality and tonnage that current estimates and the overburden ratios and geological mining conditions anticipated may prove to be different. Operating costs can be adversely affected by disruptions due to geological conditions, equipment failure or industrial disputes. Development of a new mining operation is dependent upon the provision of rail for transport and port facilities for international shipping while an adequate supply of water is also important.

5.2.3 Environmental risk

Environmental conditions will be attached to future mining and exploration tenements which if not deemed compliant by the relevant authorities could result in the forfeiture of these rights. Substantial costs can be encountered for environmental rehabilitation, damage, control and losses, which can vary over the life of the mining operation. Conditions attached to the

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mining and exploration rights may also vary over the life of the project and in response to any change in the size or type of operation that cannot be anticipated at this time.

5.2.4 Financing

Further funds may be required to further explore and develop the projects. Failure to obtain sufficient financing for the projects may result in a delay or indefinite postponement of exploration and development on the properties or even a loss of a property interest. Additional financing may not be available when needed or, if available, the terms of such financing might not be favourable to the Company.

5.2.5 Native Title and land access

Mining title has not been granted on some of the tenements discussed in this report. Native title claims and heritage issues may arise in the future and thus delay the development of any future mining operation and/or production from areas where freehold land or mining leases have not been obtained. These issues are likely to be addressed in future should the future exploration be successful and warrant the conversion of exploration permits to mining leases.

5.3 Valuation summary

Xstract’s opinion of the current market value of the tin and nickel exploration assets are summarised in Table 5.2. In valuing Taronga and AusNiCo’s assets, Xstract has considered the recent market for tin and nickel, as well as the implications for exploration projects targeting these commodities.

Given the early to advanced exploration status of Taronga and AusNico’s assets, Xstract has adopted valuation methodologies from the Cost and Market Approaches. In selecting its overall valuation range and preferred value for Taronga’s tin assets, Xstract has considered recent market transactions and the geoscientific rating approach. Equal weighting has been given to the results derived using these methods in selecting our preferred value and likely valuation range.

In Xstract’s opinion, the current market would pay in the range AUD4.4 M to AUD14.5 M for the Taronga Tin Project, with a preferred value of AUD8.1 M. This results in an implied value of AUD22,040/km[2] for the project which is consistent with the recent market for advanced staged exploration projects targeting hard rock tin mineralisation in Australia.

Furthermore, Xstract considers the current market would pay in the range AUD2.3 M to AUD5.2 M for a 100% interest in AusNiCo’s nickel projects, with a preferred value of AUD3.6 M. This results in an implied preferred value of AUD6,870/km[2] for AusNiCo assets which is consistent with the recent market for early stage exploration projects targeting nickel sulphide mineralisation in Australia.

Table 5.2: Valuation summary of Taronga and AusNiCo Exploration assets

Assets	Low (AUD M)	High (AUD M)	Preferred (AUD M)
Total Taronga (tin)	4.4	14.5	8.1
Total AusNiCo (nickel)	2.3	5.2	3.6

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6 Declaration

6.1 Independence, disclaimer and warranty

Xstract is an independent mining consultancy. Xstract confirms its independence for the purpose of the Australian Securities and Investment Commission’s Regulatory Guide 112 – Independence of experts (ASIC, 2011). Xstract was commissioned by BDO on a fee for service basis according to Xstract’s standard schedule of rates. Xstract’s fee is not contingent on the outcome of its valuation or the success or failure for the transaction for which the report was prepared. None of Xstract’s consultants or their immediate families involved in the preparation of this valuation report have (or had) a pecuniary or beneficial interest in Taronga and AusNiCo prior to or during the preparation of this report.

Xstract has made due enquiries to the Queensland Department of Mines and Energy, New South Wales Division of Resources and Energy and Tasmania Department of Infrastructure, Energy and Resources in order to validate information provided by Taronga and AusNiCo. However, Xstract is not qualified to express legal opinion and has not sought any independent legal opinion on the ownership rights and obligations relating to the respective mineral assets under licence or any other fiscal or legal agreements that Taronga and AusNiCo may have with any third party in relation to the Taronga, Kilkivan, Marlborough and Heazelwood projects.

A draft version of this report was provided to the directors of Taronga and AusNiCo for comment in respect of omissions and factual accuracy. Taronga and AusNiCo has represented in writing to Xstract that full disclosure has been made of all material information and that to the best of its knowledge and understanding, such information is complete, accurate and true.

As recommended in Section 39 of the VALMIN Code, Taronga and AusNiCo has provided Xstract with an indemnity under which Xstract is to be compensated for any liability and/or any additional work or expenditure resulting from any additional work required which:

• results from Xstract’s reliance on information provided by Taronga and AusNiCo and/or Independent consultants that is materially inaccurate or incomplete, or

• relates to any consequential extension of workload through queries, questions or public hearings arising from this report

This report may contain or refer to forward-looking information based on current expectations, including, but not limited to timing of mineral resource estimates, future exploration or project development programs and the impact of these events on the Taronga, Kilkivan, Marlborough and Heazelwood projects. Forward-looking information is subject to significant risks and uncertainties, as actual results may differ materially from forecasted results. Forward-looking information is provided as of the date hereof and Xstract assumes no responsibility to update or revise them to reflect new events or circumstances.

The conclusions expressed in this valuation report are appropriate as at 31/10/2012. The valuation is only appropriate for this date and may change in time in response to variations in economic, market, legal or political factors, in addition to ongoing exploration results. All monetary values outlined in this report are expressed in Australian dollars (“AUD”) unless otherwise stated. Xstract’s services exclude any commentary on the fairness or reasonableness of any consideration in relation to the sale of Taronga and AusNiCo.

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6.2 Qualifications and experience

Shaun Barry | Senior Consultant | Corporate Advisory

Shaun has a commercial and geological background with over 20 years of experience in sales, marketing, commodity analysis, equity analysis, strategy development, and geology gained in platinum group metals, gold, coal, base metals, bauxite, and alumina. As a corporate consultant, he specialises in mineral asset valuations, market reviews of mineral commodities, and country reviews. Shaun also specialises in corporate strategy development that supports the preparation of Mineral Expert Reports for equity transactions and Independent Technical Reports for project finance and mineral asset valuations.

Shaun holds a Master of Science in Mineral Economics, a Bachelor of Science with Honours in Geology and a Diploma in Investment Management. He is a Member of the Australasian Institute of Mining and Metallurgy.

Stefan Mujdrica | General Manager & Principal Consultant | Geology & Technologies

With over 20 years’ industry experience, Stefan’s career has spanned from exploration to mining geology in a number of managerial roles and various locations. Stefan’s expertise includes technical reviews, due diligence, sampling and reconciliation, short-term grade control strategies, resource estimation, database/computer management, feasibility studies, geostatistics, risk assessment through conditional simulation, and mentoring and training. His experience covers a range of commodities in a variety of locations and settings.

Stefan holds a Master of Science in Exploration Geology, a Bachelor of Applied Science in Geology, is a Microsoft Certified Systems Engineer and a Chartered Professional Member of the Australasian Institute of Mining and Metallurgy.

Jeames McKibben | General Manager & Principal Consultant | Corporate Advisory

During more than 19 years in the mining industry, Jeames has served in a diverse range of roles including corporate consultant, project manager, geologist and analyst. He has a strong record in project due diligence, independent technical review, valuation, deposit evaluation and the promotion of best practice strategies in the workplace. Jeames has assisted numerous mineral companies, and financial and legal institutions in securing regulatory approvals for IPOs and other secondary filings on a range of international exchanges.

As a corporate consultant, he specialises in valuations and Mineral Expert Reports for equity transactions and Independent Technical Reports in support of project finance. Other mandates include technical due diligence in support of information memoranda, divestments, acquisitions and mergers, pre-feasibility studies and independent Competent Persons’ Reports.

Jeames holds a Master of Business Administration and a Bachelor of Science with First Class Honours, is a Member of the Australian Institute of Geoscientists and the Australasian Institute of Mining and Metallurgy, and was recently appointed to a joint AusIMM/AIG Committee to review the VALMIN Code.

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7 References

ASIC. Regulatory Guide 112: Independence of Experts. 2011. http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rg112300332011.pdf/$file/rg112-30032011.pdf (accessed August 10, 2011).

• Bell, J A, A A Ghandar, and P Guj. “Using Neural-Networks to Estimate the Value of Exploration Projects in Sage and Mature Jurisdictions.” In prep.

• CIMVAL. “Standards and Guidelines for Valuation of Mineral Properties.” The CIMVAL Committee of the Canadian Institute of Mining, Metallurgy and Petroleum. 2003. http://www.cim.org/committees/CIMVal_Final_Standards.pdf (accessed February 9, 2011).

• Dimitrakopoulos, R G, and S A Sabour. “Evaluating Mine Plans under Uncertainty: Can the Real Options Make a Difference?” Resources Policy , 2007: 1-10.

• Etheridge, M A. “The Black Art of Valuing Mineral Properties.” Mineral Asset Reporting and Valuation Seminar. Perth, 2009.

• Goria, S. “Evaluation d'un Project Minier: Approche Bayésienne et Options Réelles. PhD Thesis.” 2004. http://www.cerna.ensmp.fr/Documents/SG-These.pdf (accessed March 4, 2011).

• Goulevitch, J, and G S Eupene. “Geoscience Rating for Valuation of Exploration Properties - Applicability of the Kilburn Method in Australia and Examples of its Use.” In VALMIN '94: Mineral Valuation Methodologies 1994 , 175-190. Sydney: The Australasian Institute of Mining and Metallurgy and the Mineral Industry Consultants Association, 1994.

• Grant , R. “The Comparable Sales (Real Estate) Method of Valuation.” In VALMIN ‘94: Mineral Valuation Methodologies 1994 , 155-165. Sydney: The Australasian Institute of Mining and Metallurgy and the Mineral Industry Consultants Association, 1994.

• Guj, P, and R Garzon. “Modern Asset Pricing - A Valuable Real Option Complement to Discounted Cash Flow Modelling of Mining Projects.” Project Evaluation Conference Proceedings. Australian Institute of Mining and Metallurgy, 2007. 113-120.

• Kilburn, L C. “Valuation of Mineral Properties which do not Contain Exploitable Reserves.” CIM Bulletin , 1990: 90-93.

• Kreuzer, O P, M A Etheridge, P Guj, M E McMahon, and D J Holden. “Linking Mineral Deposit Models to Quantitative Risk Analysis and Decision Making in Exploration.” Economic Geology , 2008: 829-850.

• Martinez, L. “Why Accounting for Uncertainty and Risk can Improve Final Decision Making in Strategic Open Pit Mine Evaluation.” Proceedings of the Project Evaluation Conference. The Australasian Institute of Mining and Metallurgy, 2008. 113-122.

• McCarthy, J, and P Monkhouse. “To Open or not to Open – Or what to do with a Closed Copper Mine.” Journal of Applied Corporate Finance 15, no. 2 (2002): 63-73.

• Nicholas, G D, S J Coward, M Armstrong, and A Galli. “Integrated Mine Evaluation - Implications for Mine Management.” International Mine Management Conference. Melbourne: The Australasian Institute of Mining and Metallurgy, 2005. 69-80.

• O’Connor, C, and D McMahon. “A Producing Miner’s View of DCF Methods in Mineral Valuation.” In VALMIN ‘94: Mineral Valuation Methodologies 1994 , 75-80. Sydney: The Australasian Institute of Mining and Metallurgy, 1994.

• Onley, P G. “Multiples of Exploration Expenditure as a Basis for Mineral Valuation.” In VALMIN ‘94: Mineral Valuation Methodologies 1994 , 191-197. Sydney: The Australasian Institute of Mining and Metallurgy and the Mineral Industry Consultants Association, 1994.

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• Samis, M, D Laughton, and R Poulin. “Risk Discounting: The Fundamental Difference between the Real Option and Risk Discounting: The Fundamental Difference between the Real Option and.” KMC Working Paper 2003-1. 2003. http://digilander.libero.it/sergio.vergalli/pdf/30.pdf (accessed March 22, 2012).

• SAMVAL. “The South African Code for the Reoprting of Mineral Asset Valuation.” The Southern African Institute of Mining and Metallurgy and the Geological Society of South Africa. 2008. http://www.samcode.co.za (accessed August 28, 2009).

• Spence, K N. “An Overview of Valuation of Mineral Properties.” China Mining Conference. Beijing, 2007.

• Tversky, A, and D Kahneman. “Judgement Under Uncertainty: Heuristics and Biases.” Science 185, no. 4157 (1974): 1124-1131.

• VALMIN. “Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports.” The Australasian Institute of Mining and Metallurgy. 2005. http://www.ausimm.com.au/content/docs/valmin_2005.pdf (accessed March 22, 2012).

• Weaver, W, and S Michelson. “A Practical Tool to Assist in Analyzing Risk Associated with Income Capitalization Approach Valuation or Investment Analysis.” The Appraisal Journal , 2003: 335344.

• YTC Resources Ltd, Exploration Licence 6389 Torrington JV, Final Report, 8/3/2005 to 7/3/2011

• YTC Resources Ltd, Exploration Licence 6690 Torrington 2, Final Report, 20/12/2006 to 19/12/2010

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Appendix A: Geoscientific rating of the Taronga tenements

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		EL6839			EL7349			EL7800			EL7801
	Low	High	Prefer	Low	High	Prefer	Low	High	Prefer	Low	High	Prefer
BAC (AUD/km2)	435	435	435	435	435	435	435	435	435	435	435	435
Off Property	2.5	3.0	2.8	2.5	3.0	2.8	2.5	3.0	2.8	2.5	3.0	2.8
On Property s	1.5	2.0	1.6	2.5	3.0	2.7	2.5	3.0	2.7	1.5	2.0	1.6
Anomaly	1.0	1.5	1.3	3.0	3.5	3.4	3.0	3.5	3.4	2.0	2.5	2.3
Geological	1.0	1.5	1.3	3.0	3.5	3.2	3.0	3.5	3.2	1.5	2.0	1.6
Technical Value (AUD/km2)	1,631	5,873	3,293	24,469	47,959	35,780	24,469	47,959	35,780	4,894	13,050	7,172
Area of EPM (km2)	17.9	17.9	17.9	47.8	47.8	47.8	200.3	200.3	200.3	101.5	101.5	101.5
Technical Value (AUD '000)	29.2	105.1	59.0	1,169.6	2,292.4	1,710.3	4,901.1	9,606.1	7,166.7	496.7	1,324.6	727.9
Market	0.8	0.8	0.8	0.8	0.8	0.8	0.8	0.8	0.8	0.8	0.8	0.8
FMV (AUD '000)	23.4	84.1	47.2	935.7	1833.9	1368.2	3920.9	7684.9	5733.4	397.4	1059.7	582.3

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Appendix B: Geoscientifc rating of the AusNiCo tenements

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		EMP19366		EMPA17768	EMPA17768	EMPA17768		EL50/2011
	Low	High	Prefer	Low	High	Prefer	Low	High	Prefer
BAC (AUD/km2)	435	435	435	435	435	435	435	435	435
Off Property	2.0	2.5	2.3	1.5	2.0	1.7	2.0	2.5	2.3
On Property s	2.0	2.5	2.3	1.5	2.0	1.7	2.0	2.5	2.3
Anomaly	2.5	3.0	2.7	1.5	2.0	1.7	2.0	2.5	2.4
Geological	2.5	3.0	2.7	1.0	1.5	1.2	2.5	3.0	2.7
Technical Value (AUD/km2)	10,875	24,469	16,775	1,468	5,220	2,565	8,700	20,391	14,911
Area of EPM (km2)	302	302	302	158	158	158	64	64	64
Technical Value (AUD '000)	3,282	7,386	5,063	232	823	405	559	1,310	958
Application	1.0	1.0	1.0	0.8	0.8	0.8	1.0	1.0	1.0
Market	0.7	0.7	0.7	0.7	0.7	0.7	0.7	0.7	0.7
FMV (AUD '000)	2,298	5,170	3,544	130	461	227	391	917	671

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Appendix C: Valuation approaches and methods

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Valuation considerations

This valuation has been prepared in accordance with the VALMIN code, in order to ensure compliance with the Australian Stock Exchange’s listing rules and Australian Corporations Law. The VALMIN Code classifies mineral assets according to their maturity. The term mineral asset refers to all property held for the purpose of near term or eventual mineral extraction, including but not limited to:

• real property

• intellectual property

• tenements, plant, equipment and associated infrastructure.

Most mineral assets can be classified as outlined in the table below.

Table C.1: Mineral asset classification

Project	Criterion
development stage
Exploration areas	Mineralisation may or may not have been defined, but where a Mineral Resource
	has not been identified.
Advanced exploration	Considerable exploration has been undertaken and specific targets identified.
areas	Sufficient work has been completed on at least one prospect to provide a good
	geological understanding and encouragement that further work is likely to result
	in the determination of a Mineral Resource.
Pre-development/	Mineral Resources and/or Ore Reserves have been identified estimated. A
resource	positive development decision has not been made. This includes properties
	where a development decision has been negative and properties are either on
	care and maintenance or held on retention titles.
Development	Committed to production but not yet commissioned or not initially operating at
	design levels.
Operating	Mineral properties, in particular mines and processing plants, which have been
	fully commissioned and are in production.

Source: (VALMIN 2005)

The VALMIN Code defines value as the FMV of a mineral asset (2005). FMV is the amount of money or the cash equivalent that a willing buyer and seller would exchange on the valuation date in an arm’s length transaction (VALMIN 2005). Each party is assumed to have acted knowledgeably, and without compulsion. In essence, FMV is comprised of:

• Underlying or ‘technical value’, which is an assessment of a mineral asset’s future economic benefit under a set of assumptions, excluding any premium or discount for market, strategic, or other considerations

• Market component, which is a premium relating to market, strategic or other considerations, which can be either positive, negative, or zero.

The market value should include all material information to the asset. For projects with extensive technical detail, the valuer determines materiality of information based on whether its inclusion would result in the valuation reaching a different conclusion.

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Mineral assets are generally valued based on approaches that assess income, cost, and the open market. As the VALMIN Code is not prescriptive in this regard, the 2008 Edition of The South African Code for the Reporting of Mineral Asset Valuation (“SAMVAL”) and the Canadian 2003 Edition of the Standards and Guidelines for Valuation of Mineral Properties (“CIMVAL”) provide insight into applicable approaches, as shown in the table below.

Table C.2: Valuation approaches for different types of mineral assets

	Project development stage
Approach
	Exploration Resource Development Operating
Income	No Rarely Yes Yes
Cost	Yes Rarely No No
Market	Yes Yes Yes Yes

Source: (CIMVAL 2003)

Income-based approach

The income-based approach assumes that a valuer can model the future economic returns of a mineral asset based on the information available at the valuation date (SAMVAL 2008). The income-based approach is best suited for the valuation of individual assets for which a large amount of technical data has already been collected or can be estimated. This approach generally involves the construction of a discounted cash flow (“DCF”) model based on a project development concept and may include sophisticated risk analysis and simulation.

Despite its sophistication, the income-based approach has limitations in that it:

• may not fully reflect the market value

• relies on a number of subjective inputs (e.g. the appropriate discount rate)

• excludes assets without considerable technical detail, such as in scoping and prefeasibility studies.

Discounted cash flow analysis

A DCF analysis estimates the value of a project as if it were being developed under the prevailing economic conditions.

Once a Mineral Resource has been assessed for its mining potential by considering revenues and operating costs, the economically viable component of the resource becomes the Ore Reserve. When this is scheduled for mining, and the capital costs and tax regime are considered, the net present value (“NPV”) of the project is established by discounting future annual cash flows at an appropriate rate. The resulting ‘classical’ NPV has several deficiencies based on the method’s assumption that once commissioned, the course of action is irreversible, and that the prevailing economic conditions will eventuate as predicted.

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Modern asset pricing

To counter some of the uncertainties associated with a DCF analysis, modern asset pricing (“MAP”) may be used (Guj and Garzon 2007). MAP involves de-risking the project as much as possible to allow for a lower time discount in a DCF analysis. The de-risked NPV provides an insight into the minimum technical value of a project, thereby possibly setting the lower limit of a valuation range. While MAP is of practical use in conjunction with DCF, it may not always be enacted in reality.

Monto Carlo simulation

While a DCF model is initially deterministic, a Monte Carlo simulation dynamically extends the DCF model by modifying key variable assumptions through numerous iterations (Weaver and Michelson 2003). These assumptions are typically varied within a discrete range, such as ± 20%. The resultant simulation presents a normal distribution of possible NPV outcomes for the variable ranges selected turning the analysis into a probabilistic analysis. A Monte Carlo simulation is a more realistic representation of the potential value of a project. However, given the uncertainties associated with key variables, the method’s accuracy is limited to the validity of the input variable ranges (such as changes in commodity prices, CapEx and OpEx).

Integrated project evaluation

Integrated mine evaluation (“IME”) is another probabilistic approach applied to DCF that analyses possible quality and quantity variability through conditional simulations to determine its impact on a cash flow analysis (Nicholas, et al. 2005). The strength of the IME approach is that it may determine the monetary consequence of bias in the base case model used in original DCF/Monte Carlo simulation. The primary limitation of the IME is its reliance on access to the original technical information used to generate a resource model, which may not always be readily available, such as in hostile acquisitions, and obviously, is best applied to developed assets.

Real options analysis

Real options analysis (“ROA”) captures the ‘what if ’ value associated with a project. While a single scenario DCF analysis typically set out the most likely scenario, it assumes that a project will proceed exactly as planned.

However, time and circumstance ensure that even the best-laid plans are rarely carried out as envisaged (Dimitrakopoulos and Sabour 2007). This is as the management of a project will always maximise opportunity, and minimise losses (Goria 2004). In part, this may be why ‘multiples’ of a technical value may be paid by the market, but by using ROA the project specific qualities are used to calculate this market premium (Samis, Laughton and Poulin 2003).

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For example, a DCF based valuation is constrained to a narrow range of physical parameters, such as a mine design that extracts only the ‘high-grade’ portion of a deposit. However, when the spot price exceeds that used in designing the mine, the ‘low-grade’ or narrower portion of a deposit may become economically viable.

This ‘real option’ to expand production in order to extract the low-grade portions of a deposit can be treated as a financial option. In addition to mine expansion, other potential ROA scenarios include the ability to contract, maintain, abandon or acquire operations (McCarthy and Monkhouse 2002). The strength of the ROA is that it takes the information contained within a Monte Carlo simulation, and allows the valuer to rapidly quantify the market premium/multiple commanded by the market without the need for arbitrary assumptions.

Risk adjusted target valuation method

The basis of valuation is the need for commercial definition of a mineral resource, as a mineral resource in of itself does not deliver cash and has no immediate earning potential. However, they do have the potential to generate value and are associated with an expectation of achieving that value.

In the case of a mineral resource, that value is the expected NPV that is to be delivered at the commencement of mining and generation of cash flow. Typically, the valuer creates a threshold or range of NPV that meets the company’s minimum financial criteria, appropriate to the deposit style being developed. As the term ‘NPV’ implies that a DCF valuation method has been used, Xstract chooses to refer to the final value as the Target Value (“TV”).

In applying TVs, it is important to consider several factors. Firstly, targets with large TVs will be difficult to find, so the probability of finding such deposits will be lower. Lower TVs, such as near-mine resources for mill feed, will have much higher probabilities of success. Similarly, in areas of deep cover, TVs can be reduced to account for the increased capital expenditure (capex) that would be required to develop the project. Once established, the risk adjusted valuation method works back from this TV value.

The basis for the Geological Risk Method is a simple formula (shown below) that is applied to each exploration stage, starting from the chosen TV value for an operating mine and discounting through the main Exploration Stages backwards to the defined current Stage, to give a current value.

A schematic diagram of the methodology is shown below .

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After Lord et al., 2001

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Market-based approach

The market-based approach uses the transaction prices of projects in similar geographical, geopolitical, and geological environments to derive a market value using a process similar to that in the real estate industry (CIMVAL 2003). The market-based approach may use the assumption either of joint venture terms or outright acquisitions, and can be presented in range of unitised values including on a dollar per ounce or tonne of contained metal/mineral; dollar per square kilometre; or as a percentage of the prevailing commodity price.

In Xstract’s opinion, a market-based approach is well suited to establishing a likely value for base metal deposits and exploration projects, as it inherently takes into account all value drivers.

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By undertaking a qualitative analysis of comparable transactions, it is possible to develop a ‘gut feel’ for likely market price responses to varying levels of equity interest. Further its simplicity provides an in-built ‘reality check’, which helps to ensure that the science of the methodology does not dominate the assessment (O’Connor and McMahon 1994). Notwithstanding this, the market-based approach relies on a number of assumptions and often

lack true comparability with the assets being valued. Indeed, the intuitive approach is limited by the variability of values obtained across a range of investments, which makes it difficult to consistently decipher the value of control premia or any other aspect that contributes to the value of a project. Furthermore, these approaches are often weakened by their reliance on heuristics – the ‘gut feel’ mental short-cuts that a valuer undertakes during qualitative analysis of incomplete datasets (Tversky and Kahneman 1974). Heuristics can introduce serious bias. However, in despite its well-documented shortcomings, there is significant merit in using market-based benchmarks for valuations (Grant 1994).

Comparable transactions method

The comparable market value approach is an adaptation of the common real estate method to valuation. For the purposes of mineral asset valuation, a valuer compiles and analyses 100% equity acquisitions of projects of similar nature, time and circumstance with a view to establishing a range of values that the market is likely to pay for a project. The comparable transactions method:

• implies a market premium or discount for the prevailing sovereign risk

• captures market sentiment for specific commodities or locations

• accounts for intangible aspects of a transaction (i.e. intellectual property (“IP”)).

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The transactions deemed to be analogous to the mineral asset being valued are used to determine a unit price (e.g. AUD/km[2] or AUD/oz gold) for the asset being valued.

While this method is used widely in the minerals industry, it contains a number of weaknesses that may undermine the accuracy of this method. Firstly, there is an intricate value dynamic between the quantity (size) and quality (grade or prospectivity) of deposits that may result in the exclusion of a large number of comparable transactions. Further, the disclosed price of an asset may not necessarily equate to the value of the tenement, as the calculated value may have been influenced by factors such as the arrangement of debt financing, marketing rights, contingent payments, and future royalties. Finally, this method is largely retrospective and may not take into account anticipated or recent commodity or other variable value drivers.

Joint venture terms method

The joint venture terms method, a variation of the comparable market value method, attempts to account for the ownership premium attributed by the market. This technique involves transactions where only partial ownership of a project is acquired. It is widely recognised that the market will attribute a sliding-scale premium in accordance with the level of ownership acquired. For example, a joint venture agreement for a 51% interest in a project may attract a market value significantly above that for an identical project in which a 49% interest is acquired. The joint venture terms method provides the valuer with a larger acquisitions dataset than the comparable market value method, and consequently these approaches are often used simultaneously in mineral asset valuations.

Yardstick method

The yardstick method typically entails expressing the unitised sales price as a percentage of the prevailing commodity price (e.g. gold price/AUD/oz Au). Proponents of the yardstick method believe that it is a better reflection of the market dynamics, which are assumed to be reflected entirely by the commodity price. Xstract consider that the use of a commodity price as a reference point implies it is a principal value driver, which is not necessarily true. This position is taken as gold is often used as a store of value when the markets are risk averse, and like exploration projects, a high-risk gold project may have a price behaviour disproportionate to the rest of the market. Furthermore, commodity prices are highly volatile and therefore the yardstick method does not reflect the notion that deposit values change over time.

Cost-based approach

The cost-based approach is based on the notion that a return is expected from an investment. This approach can be both retrospective and forward looking. By taking the position of the vendor who is likely to seek re-imbursement of sunk costs with a risk premium, a possible market position may be determined. By analysing the future costs associated with a project, and the anticipated risk-adjusted returns, the acquiring party’s view of value may be quantified. The three common cost-based methods are based on expected values (“EV”), multiples of exploration expenditure (“MEE”), and geoscience rating criteria.

Expected values method

The EV method uses probability theory to quantify an exploration project’s value by determining the likely ‘pay-off ’ for each step in the exploration process. The EV is the sum of the probabilities of each possible outcome, multiplied by the outcome value (or pay-off), less the implementation costs at each stage (Kreuzer, et al. 2008).

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A valuer can form an opinion on whether the proposed exploration budget for a project is prudent and warranted, as unlike the coin tossing game, exploration is not mutually exclusive and collectively exhaustive (i.e. each exploration program changes the probability of successfully finding a deposit).

As an exploration program is a staged process, wherein the most cost effective techniques typically precede more expensive but often more definitive exploration techniques a tree-diagram can be

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constructed of possible outcomes, their payoffs, and associated costs.

The EV method’s strengths lie in its transparency and ability to replicate exactly how an exploration manager would intuitively assess the value of a project. The main drawback of the EV method is that it is not always possible to confidently gauge the value of a discovery, especially in areas where there has previously been little mining activity. Furthermore, the technical value determined by the EV method may not reflect market value due to among other things, supply and demand forces.

Multiple of exploration expenditure method

The MEE method is largely based on vendor psychology. It assumes that, where possible, vendors will seek a return on sunk investments and as a result, multipliers are used to estimate the possible market value (Onley 1994). Some valuers may also include warranted future expenditure in the calculations, thereby taking into account some of the acquirer’s position. The process of establishing the replacement/retrospective value is relatively intuitive, however the potential future value of a project based on existing expenditure is somewhat ambiguous. As a consequence, the MEE method is considered by some Australian practitioners as a method of last resort (Etheridge 2009), yet appears to be more accepted by Canadian practitioners (Spence 2007).

The main considerations in determining the appropriate MEE multipliers are shown in the figure below (after (Bell, Ghandar and Guj In prep.)).

Table C.3: Vendor and acquirer considerations in the replacement valuation process

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The main considerations in determining the appropriate MEE multipliers are shown in the table below.

Table C.4: Typical adjustment factors

Factor	Definition
0.5	Previous exploration indicates that the area has limited potential for a major discovery
1.0	Existing data is sufficient to warrant further exploration
1.5	Have direct evidence of an interesting target. Further work is warranted to evaluate the target.
2.0	A drill target has been defined by existing geological, geochemical, and /or geophysical data
2.5	Exploration is well advanced and limited infill drilling is likely to define a Mineral Resource.
3.0	A substantial Mineral Resource has been defined. Further information is likely to increase the
	size and quality of the resource.

Replacement value

The replacement value +EV method is a discrete way of calculating the historical and warranted future expenditure used in the MEE method. While the shortcomings of the MEE method are well known, the replacement value of the historical records is an important value driver as it reflects the vendors desire to recover sunken funds with an appropriate rate of return. Likewise, the replacement cost is of interest to the acquirer

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as without access to the existing data there is an additional time and monetary cost incurred. For example, in jurisdictions where free-market forces are not at play, the historical records may be acquired through a separate transaction to the mineral asset, demonstrating that it is a form of tangible IP. If treated as IP, which is not freely available in the public domain, then the acquirer may undertake an EV analysis of the project without the historical records, and weigh that up with the benefit of purchasing the IP. In this way, replacement +EV method partially takes into account why a project may attract a purchase price above its technical value in a similar way to how deposits may trade above their NPV. Xstract considers the replacement +EV method to be a useful tool in gauging a projects technical value.

It is important to note that this method does not take into account all market value drivers, including but not restricted to the supply/demand for similar projects.

Geoscientific rating

The geoscientific rating or Kilburn method, is an attempt by the valuer to quantify the various technical aspects of a property through applying multipliers to a base or intrinsic value (Goulevitch and Eupene 1994) (Kilburn 1990). This intrinsic value is known as the base

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holding cost (“BHC”), which represents “the average cost to identify, apply for, and retain a base unit of area of title.”

To arrive at a value for each property, the valuer considers four key attributes, which either enhance or downgrade the BHC of each property. The technical factors considered are the:

• Off-property factor – nearby properties containing physical indications of favourable mining conditions such as old workings and/or mines

• On-property factor – the property hosts favourable mining indications such as historic workings or mines. Importantly any mineralisation capable of supporting a Mineral Resource estimate, compliant according to the guidelines of the JORC Code, will be assessed using other valuation methods

• Anomaly factor – assesses the degree of exploration completed over the property and the number of resultant mineralised targets identified

• the Geological factor – assesses the area covered by and degree of exposure of favourable rock types and/or structures (if this is related to the mineralisation style being assessed) within the property.

These attributes are given incremental, fractional, or integer ratings to arrive at a series of multiplier factors. These multipliers are then applied sequentially to the BHC to estimate the technical value of the mineral property. This is adjusted for local market conditions to determine the FMV of the project as at the effective valuation date. Xstract’s multipliers or ratings and the criteria for rating selection are summarised in the table below.

Table C.5: Geoscience rating criteria

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The strength of the geoscientific method is that it makes an attempt to implement a systematic system. While it does require a subjective assessment of the various multipliers, it also demands a degree of detached rigor to account for the key factors that can be reasonably considered to impact on the exploration potential of a property.

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Independent Valuation

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