geopacific resources (gpr) buy share price: a$0 · 16 november 2017 2 analysis source: petracapital...
TRANSCRIPT
16 November 2017
We recently visited GPR’s Woodlark Gold Project
(WGP), located on Woodlark Island in the Milne Bay
province of PNG. GPR’s technical team have had a
busy year on site, with extensive validation of existing
data, over 23,000m of new drilling for resource,
reserve and metallurgical purposes and various
studies to feed into an updated DFS. This work is
suggesting Woodlark will be a large tonnage, low
strip ratio, long life (>10yrs) deposit which will
provide a robust foundation for the development of a
straightforward gold operation. Importantly, the
project is fully permitted, with the location of
Woodlark allowing for a unique set of circumstances
including easy access & logistics, supportive locals,
flat topography & abundant road-building materials
(coronus); these features should allow a rapid, low-
risk & cost-effective build process to be implemented.
We expect construction to commence in 2H CY18,
with first gold in 2H CY19. Maintain BUY with
unchanged price target of A$0.10/sh (1xP/NPV15).
Woodlark is being rapidly de-risked
• Extensive review & validation of all historical data
including reinterpretation of geology & integration of
best-practice methods of data capture and QAQC
• Robust understanding of geology, structure and
mineralisation, bulking-out the deposits will ensure low-
risk, low strip ratio pit designs & long mine life
• Recent drilling focused on infill, extensional and
compliance holes to extend mineralisation & meet
JORC 2012 requirements; aiming to create large, high
confidence pits with high proportion of Measured &
Indicated to drive maximum conversion into reserves
• Additional metallurgical drilling completed
• Updated resource & reserve in Q1 CY18, with DFS
likely to be completed around mid CY18
• Significant exploration upside to add mine life
Fully permitted, easy access will allow a quick build
• Woodlark resides on a fully permitted mining lease
• Easy deep water access, allowing delivery of
large/bulk items eg. bulk fuel deliveries etc
• Potential to pre-fabricate processing plant offsite,
allowing large sections to be delivered to site and
reassembled; would see a quick & low risk build period
Price target (1xP/PNV) unchanged at $0.10/sh, BUY
• We are yet to make changes to our dev’t or operating
assumptions which include a $150m capex for
104kozpa over 11yrs at 5.2:1 strip & A$950/oz AISC
Company Data
Shares – ordinary (M) 1,802
Market capitalisation ($M) A$48.7
12 month low/high ($) $0.022 / $0.046
Average monthly turnover ($M) $0.5m
GICS Industry Diversified metals & mining
Financial Summary (fully diluted/normalised)
Year end June 2016A 2017F 2018F 2019F 2020F
Revenue ($M) 0.1 0.0 0.0 62.5 140.2
Costs ($M) 1.9 2.0 3.5 30.3 66.6
EBITDA ($M) -1.9 -2.0 -3.5 32.1 73.6
NPAT ($M) -4.1 -1.8 -3.1 18.3 35.8
EPS (¢ps) -0.4 -0.1 -0.2 1.1 2.2
PER (x) na na na 692.9 95.3
Cashflow ($M) na na na 2.4 1.2
CFPS (¢ps) -3.5 -4.0 -3.1 29.2 59.0
PCFPS (x) -0.3 -0.2 -0.2 1.8 3.6
Enterprise Value ($M) na na na 1.5 0.8
EV / EBITDA (x) 20 25 76 142 91
Dividends (¢ps) -10.5 -12.6 -21.6 4.4 1.2
Yield (%) 0.0 0.0 0.0 0.0 0.0
GPR – performance over one year
Disclosure and Disclaimer
This report must be read with the disclosure and disclaimer on the final page of this document. Petra Capital Pty Ltd acted as sole lead manager and bookrunner for GPR’s placement of $15m at A$0.043/share on 18 August 2016, for which a fee was received.
Geopacific Resources (GPR) BUY Share Price: A$0.027
Woodlark site visit - proving up a robust gold project Target Price: A$0.10
Brett McKay
+61 2 9239 9605
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
2
Analysis
Source: Petra Capital
Geopacific Resources Share Price ($) 0.027
(GPR) Iss. Shares (current) (M) 1152.3
Iss. Shares (diluted) (M) 1735.3
7-Nov-17 Unlisted Options (M) 0.0
Year End 31 Dec A$ Mkt Cap. ($M) 31.1
PROFIT & LOSS 2015A 2016A 2017F 2018F 2019F 2020F RESOURCES INVENTORY 2015A 2016A 2017F 2018F 2019F 2020F
Sales Revenue $M 0.0 0.0 0.0 0.0 62.5 140.2 Mining Inventory
Other Income $M 0.1 0.1 0.0 0.0 0.0 0.0 Tonnes Mt 0.0 0.0 19.0 19 18 16
Operating Costs $M 1.9 1.9 2.0 3.5 30.3 66.6 Grade g/t 0.0 0.0 2.0 2.0 2.00 2.00
Exploration $M 0.0 0.0 0.0 0.0 0.0 0.0 Contained Gold oz 0 0 0 1,221,728 1,170,287 1,054,544
Other $M 0.0 0.0 0.0 0.0 0.0 0.0 Resources
EBITDA $M (1.9) (1.9) (2.0) (3.5) 32.1 73.6 Tonnes Mt 0.0 0.0 45 45 44 43
Dep. & Amort. $M 0.1 0.1 0.0 0.0 3.0 15.7 Grade g/t 0.0 0.0 1.5 1.5 1.5 1.5
EBIT $M (2.0) (1.9) (2.0) (3.5) 29.2 57.9 Contained Gold oz 0 0 0 2,174,998 2,123,557 2,007,814
Net Interest $M 0.0 0.0 (0.2) (0.4) 3.0 6.7
Pre-Tax Profit $M (2.0) (1.9) (1.8) (3.1) 26.2 51.2 PRODUCTION (100%)
Tax $M 0.0 2.2 0.0 0.0 7.9 15.3 Ore Milled Mt 0.00 0.00 0.00 0.00 0.8 1.8
Minorities $M 0.0 0.0 0.0 0.0 0.0 0.0 Grade g/t 0.0 0.0 0.0 0.0 2.0 2.0
Net Profit $M (2.0) (4.1) (1.8) (3.1) 18.3 35.8 Recovery % 0% 0% 0% 0% 90% 90%
Abnormal $M 0.0 0.0 0.0 0.0 0.0 0.0 Gold Produced oz 0 0 0 0 46,297 104,168
Reported Profit $M (2.0) (4.1) (1.8) (3.1) 18.3 35.8
Dividends Paid $M 0.0 0.0 0.0 0.0 0.0 0.0 REVENUE (attributable)
Adjustments $M 0.0 0.0 0.0 0.0 0.0 0.0 Woodlark $M 0.0 0.0 0.0 0.0 62.5 140.2
Retained Earnings $M (14.0) (18.2) (19.9) (23.0) (4.7) 31.1 Other $M 0.0 0.0 0.0 0.0 0.0 0.0
CASH FLOW Total $M 0.0 0.0 0.0 0.0 62.5 140.2
Revenue $M 0.0 0.0 0.0 0.0 62.5 140.2
Costs $M (1.7) (3.6) (2.0) (3.5) (30.3) (66.6) COSTS (attributable)
Net Interest $M 0.0 0.1 0.2 0.4 (3.0) (6.7) Cash costs A$/oz 0 0 0 0 724 757
Tax Paid $M 0.0 0.0 (2.2) 0.0 0.0 (7.9) All in sustaining costs A$/oz 0 0 0 0 800 825
Gross Cash Flow $M (1.7) (3.5) (4.0) (3.1) 29.2 59.0 Cash costs US$/oz 0 0 0 0 543 560
Net Capex $M (0.0) (0.0) 0.0 (69.3) (90.7) (2.8) All in sustaining costs US$/oz 0 0 0 0 600 610
Exploration $M (10.8) (12.1) (8.0) (8.0) (5.0) (5.0) Cash costs $M 0.0 0.0 0.0 0.0 26.8 63.1
Dividends $M 0.0 0.0 0.0 0.0 0.0 0.0 Other/corporate $M 0.0 2.0 2.0 4 4 4
Other $M (5.0) 0.0 0.0 0.0 0.0 0.0 Total $M 0.0 2.0 2.0 3.5 30.3 66.6
Free Cashflow $M (17.5) (15.7) (12.0) (80.4) (66.5) 51.2
Equity Issues $M 25.4 14.6 20.0 30.0 0.0 0.0 CAPEX (attributable)
Net Borrowings $M (0.1) 0.0 0.0 50.0 50.0 (20.0) Woodlark $M 0.0 0.0 0.0 69.3 90.7 2.8
Net Investments $M 0.0 0.0 0.0 0.0 0.0 0.0 Other $M 0.0 0.0 0.0 0.0 0.0 0.0
Surplus Cash Flow $M 7.8 (1.1) 8.0 (0.4) (16.5) 31.2 Total $M 0.0 0.0 0.0 69.3 90.7 2.8
BALANCE SHEET
Cash $M 12.6 11.5 19.5 19.1 2.5 33.8 DEPRECIATION (attributable)
Other Current $M 0.8 2.3 0.0 0.0 0.0 0.0 Woodlark $M 0.0 0.0 0.0 0.0 3.0 15.7
Total Current $M 13.3 13.7 19.5 19.1 2.5 33.8 Other $M 0.0 0.0 0.0 0.0 0.0 0.0
Fixed Assets $M 0.2 0.1 0.1 69.4 157.1 144.2 Total $M 0.0 0.0 0.0 0.0 3.0 15.7
Exploration $M 26.2 33.2 41.2 49.2 54.2 59.2
Intangibles $M 0.0 0.0 0.0 0.0 0.0 0.0 EBITDA (attributable)
Other $M 8.6 13.7 13.7 13.7 13.7 13.7 Woodlark $M 0.0 -2.0 -2.0 -3.5 32.1 73.6
Total NC Assets $M 34.9 47.0 55.0 132.3 225.0 217.1 Other (incl. writedowns) $M 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL ASSETS $M 48.2 60.7 74.5 151.4 227.6 250.9 Total $M 0.0 -2.0 -2.0 -3.5 32.1 73.6
Total Debt $M 0.0 0.0 0.0 50.0 100.0 80.0
Current Liab $M 1.1 0.6 (1.6) (1.6) 6.2 13.7 HEDGING (attributable)
Non Current Liab $M 0.0 2.2 0.3 0.3 0.3 0.3 Gold hedged oz 0 0 0 0 0 0
TOTAL LIAB $M 1.1 2.8 (1.3) 48.7 106.5 94.0 Hedged price US$/oz 0 0 0 0 0 0
NET ASSETS $M 47.1 57.9 75.8 102.7 121.1 156.9 Hedged price A$/oz 0 0 0 0 0 0
SH/HLDRS FUNDS $M 47.1 57.6 75.8 102.7 121.1 156.9 Sales hedged % 0% 0% 0% 0% 0% 0%
RATIO ANALYSIS Ave. deliverable price US$/oz 1160 1247 1264 1280 1265 1245
EPS ¢ (0.3) (0.4) (0.1) (0.2) 1.1 2.2 Ave. deliverable price A$/oz 1,541 1,677 1,648 1,684 1,687 1,682
PER x na na na na 2.4 1.2
EPS Growth % >100 >100 (70.4) 75.7 692.9 95.3 ASSUMPTIONS
EBITDA per share ¢ -0.2 -0.2 -0.1 -0.2 1.9 4.5 Exchange Rate A$/US$ 0.75 0.74 0.77 0.76 0.75 0.74
EBITDA Multiple x -11.4 -16.7 -22.3 -12.7 1.4 0.6 Gold Price US$/oz 1160 1247 1264 1280 1265 1245
EV/EBITDA x -4.7 -10.5 -12.6 -21.6 4.4 1.2 Gold Price A$/oz 1541 1677 1648 1684 1687 1682
CFPS ¢ (0.2) (0.3) (0.2) (0.2) 1.8 3.6 Silver price US$oz 15.71 17.09 18.41 20.00 20.00 20.00
PCFR x na na na na 1.5 0.8 90 day Bank Bills % 2.26 2.14 2.09 2.09 2.09 2.09
DPS ¢ 0.0 0.0 0.0 0.0 0.0 0.0 10 Yr Bond rate % 2.71 2.38 2.78 2.78 2.78 2.78
Yield % 0.0 0.0 0.0 0.0 0.0 0.0 Interest Rate Charged % 6.00 6.00 6.78 6.78 6.78 6.78
Franking % 0 0 0 0 0 0
Payout Ratio % 0% 0% 0% 0% 0% 0%
Gearing D/E % na na na 30.1 80.5 29.5
Interest Cover x 0.0 0.0 8.4 8.6 9.8 8.6 VALUATION (fully diluted) at 15% discount rate A$M A$ps
EBITDA Margin % na na na na 51.5 52.5 Woodlark (80%) 118.8 0.07$
EBIT Margin % na na na na 46.7 41.3 Exploration 40.0 0.02$
Return On Assets % (4.1) (3.2) (2.7) (2.3) 12.8 23.1 Corporate / Other (14) (0.01)$
Return On Equity % (4.2) (7.2) (2.3) (3.0) 15.2 22.8 Net Cash (Debt) 19.5 0.01$
Eff Tax rate % 0 30 30 30 30 30 Total 164.2 0.10$
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
3
Site visit to Woodlark builds confidence in the project
We recently visited the Woodlark Gold Project (WGP), located on Woodlark Island approximately
600km east of Port Moresby in the Milne Bay Province of Papua New Guinea (Figure 1). WGP is a
unique project which can be fast-tracked into production, given it is fully permitted, has been
extensively drilled and studied and offers easy logistics owing to its favourable location.
GPR has completed over 23,000m of drilling on top of the 275,000m achieved prior to its
involvement. Extensive development studies and testwork has also been conducted previously, with
the GPR team in the final stages of reviewing, validating and, in some cases, completing additional
work to ensure the project is well understood, fully derisked and ready to build.
Figure 1: Location of Woodlark Island
Source: Company reports, Petra Capital
Recent work aiming to de-risk the project so it’s ready to build
Since becoming involved in Woodlark in late 2016, GPR has undertaken extensive work programs
aimed at de-risking the various aspects of the project to ensure it is ready to build. This has been
driven by the GPR management team who are experienced in building mining operations,
particularly in remote locations. They require a high degree of certainty in all aspects of a project
before they feel comfortable moving the project into the construction phase.
Areas of focus have included:
• geology and mineralisation, including growing the orebodies along strike and at depth
• ore body optimisation to ensure a robust resource & reserve
• metallurgy
• geotechnical
• mine design, optimisation & scheduling
• processing plant design
• social engagement & acceptance at local, provincial & federal government levels
• access and logistics
With these work programs nearing completion and the data being used in resource/reserve updates
and further studies relating to the DFS, fieldwork will soon turn exploration, including following up on
an extensive number of targets largely generated by previous owners of the project.
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
4
Geology, mineralisation & resource/reserves
The WGP is currently focused on three main orebodies located within 5-10km of each other, being
Kulumadau, Busai and Woodlark King which are all located in the granted mining lease (Figure 2).
Around half of the 275,000m of drilling previously conducted at Woodlark has been into these three
deposits, with a resource of 2.1Moz and reserve of 766koz defined by Kula Gold in mid-late 2012.
GPR and its independent resource consultants have thoroughly reviewed all previous drilling to
determine how much of this data can be used in updated resource calculations in accordance with
the JORC 2012 requirements. As part of this validation process, a number of drill holes were
removed from the database and/or are in the process of being re-drilled by GPR for confirmatory
purposes. This drilling is expected to being completed in the coming weeks and will then allow
finalisation of resource calculations with updated reserves soon thereafter.
We anticipate the resource and reserve to be announced in Q1 CY18. The high density of drilling
and extensive data validation undertaken by GPR should allow a high proportion of resources to
report in the Measured and Indicated categories, thus allowing for a high conversion into reserves.
Figure 2: Location of key deposits, infrastructure selected previous exploration results
Source: Company reports, Petra Capital
Both the Kulumadau and Busai deposits are hosted by volcanic and volcaniclastic rocks which have
been subjected to multiple phases of structural deformation as part of a once-active volcanic
complex. Consequently, low sulphidation epithermal mineralisation is largely contained within host
rocks that are extremely sheared and brecciated (Figures 3 & 4). There is a general association
between breccia intensity and better grade mineralisation, however this is not always the case.
Further, areas of base metal sulphide development also tend to host higher grade gold
mineralisation. Gold tends to reside in the finer grained matrix of the breccias, rather than within the
larger breccia clasts.
Brecciation is more intense within the Kulumadau deposit, with gold mineralisation hosted in a
complex structural setting. Breccias are also well developed at Busai, although tends to be less
intense and form a more uniform broad zone of mineralisation. In an effort to better understand the
geology and host rocks to gold mineralisation at both Kulumadau and Busai, GPR has generated a
breccia scoring system. This system is used to categorise the various breccia types and has been
successful in identifying, tracing, extending and predicting breccia geometries and strike-
extensions. This has helped drilling successfully target gold mineralisation both along strike and
down dip, as evidenced by drill results announced by GPR over the last several months.
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
5
Figure 3: Brecciated core from Kulumadau Figure 4: Milled clasts in breccia at Kulumadau
Source: Petra Capital Source: Petra Capital
Orebody optimisation and implications for project design
The Kulumadau, Busai and Woodlark King deposits have now all been well drilled, with a sound
understanding of the geology and controls on mineralisation. Further, extensive metallurgical
testwork has been running in parallel with the drilling program, with this work helping to assess the
optimum cut-off grades for the resource calculations. The combination of these key elements is
allowing GPR to assess the best way of designing the project to complement the nature and grade
of mineralisation hosted in the three main deposits.
Given the structural complexity apparent at both Busai and Kulumadau, it’s likely that a staged,
large tonnage operation may be the optimal way to develop Woodlark. We believe this would de-
risk each orebody by bulking out the tonnes to lessen the emphasis and exposure to structural
controls and potential difficulties which might be expected when attempting to selectively mine
higher grade zones. Based on the cut-off grade for similar open pit, free-milling, lower grade
operations, eg. Simberi, we would expect resources at Kulumadau and Busai to have a cut-of grade
around 0.5g/t Au. Further, testwork is being conducted on mineralised material at lower grades to
determine if the physical properties are conducive to upgrading into a concentrate for CIL
processing through a secondary circuit. This testwork and evaluation is ongoing.
A larger tonnage deposit is therefore likely to be lower grade relative to previous resources and
reserves delivered for Woodlark. However, due to the deposit being ‘bulked-out’, the stripping ratio
is also likely to be materially lower, with this to largely drive better project economics. The
combination of bulk tonnages at low strip ratios means the open pits will be low risk and with a
longer mine life. We believe at a 2Mtpa operating rate, GPR will initially target in excess of 10 years
of mine life with exploration upside likely to extend mine life significantly, in our view.
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
6
Metallurgy
Gold mineralisation is typically found as fine free gold disseminations mainly within the fine grained
breccia matrix and within intensely altered volcanic host rocks. There is also a close association
between high grade gold and more abundant pyrite/base metal development throughout the
mineralised zones (Figure 5 & 6). Zones of intense quartz-carbonate veining also tend to host better
grades.
Metallurgical testwork has been conducted on ore from the three main deposits at WGP, with
around 30-35% gravity recoverable gold in combination with a standard CIL processing plant to
deliver an average gold recovery of 92%. Grind size is expected to be around p80 passing 106µm.
Additional metallurgical testwork has been requested by Lycopodium for metallurgical variability
studies as part of reserve calculations and the DFS. Drilling to generate drill core has been
completed, with samples sent to ALS in Perth for analysis.
The project is fully permitted at 1.8Mtpa ± 30%, with a nominal base case of around 2Mtpa likely, in
our view.
Figure 5: Pyrite/base metal mineralisation in breccia Figure 6: Quartz-carbonate veining at Busai
Source: Petra Capital Source: Petra Capital
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
7
Geotechnical and hydrological
As part of mine optimisation studies associated with reserve calculations and the DFS, the
geotechnical and hydrological aspects of the project have been reviewed and refined. This has
included analysis of previously designed open pit wall angles which were considered overly shallow
based on the strength of the surrounding wall rock. Further investigation and review is allowing
more realistic wall designs to be considered by GPR. This has included recognition of previous
geotechnical drill holes being positioned in zones of mineralisation rather than wall rocks, which
drove overly shallow wall angle designs and lifted the strip ratio. We expect GPR will be able to
steepen open pit wall angles which will lead to a lower stripping ratio.
Coronus material covers a moderate proportion of the overall resources at WGP, particularly at
Kulumadau East and Boscala. This material is free-digging and will be used extensively for civil
works around the project, particularly road building. GPR is also investigating if coronus building
blocks can be made on site, which could then be used for residential building construction on the
island.
All hydrological studies have been completed, with process water expected to be a combination of
pit dewatering and seawater, with seawater used predominantly to mix tailings to the required
density prior to disposal.
Permitting and social engagement
The WGP is fully permitted for the construction of a 1.8Mtpa (±30%) CIL gold project, associated
infrastructure and tailings disposal. This includes a 20 year mining lease with an updated condition
requiring the project to be built and commissioned by the end of CY19.
GPR has been actively engaging with the Woodlark community since becoming involved in the
project in late CY16. Woodlark Island is approximately 60km long and 20km wide and is currently
home to around 6,000 people according to most recent estimates. Around 2,000 people are
believed to reside in and around the main population centres near the airstrip on the south-eastern
end of the island, as well as numerous smaller villages scattered around the island, including a
larger one at Kulumadau. Given Woodlark is located 600km from Port Moresby and a long open-
ocean boat trip from the Provincial capital of Alotau, access to Woodlark for PNG nationals is
difficult. This has meant very few outside influences on the island, with little/no transient population,
no power, cars or health/social infrastructure. Basic supplies for the locals are barged from the
mainland on an ad-hoc basis.
GPR utilise a World War II airstrip on the south-eastern end of the island with charter flights taking
1.5 hours from Port Moresby. All bulk supplies for the camp and ongoing drilling program (eg. fuel,
drilling supplies, food etc) are barged in, with a 12m deep surveyed channel and existing dock
utilised for unloading. There is an existing 200,000L of fuel storage capacity at the port.
The camp is well established, with accommodation and messing for up to 80 people. Also at the
camp location are the core yard, core storage and geology offices; heavy vehicle workshop; offices
and satellite communication facilities (Figure 7). Over $150m has been spent at Woodlark prior to
GPR involvement, including the 275,000m of previous drilling.
GPR has found the local people to be widely accepting of the development of WGP, which was
consistent with our discussion with members of the community on the island. The project also has
Provincial and National Government support. The local community is keen to see employment
opportunities and the development of better health and social infrastructure.
As part of the construction process, GPR is required to relocated c.500 people in 171 houses
mainly from the Kulumadau village on the southern margin of the Kulumadau orebody. The formal
resettlement plan has already been agreed with the locals, with GPR currently budgeting US$7m.
The National Government has already agreed to take a 5% equity ownership stake in Woodlark,
with this to be gifted to the Milne Bay Province and the local Woodlark population. The PNG
Government will be required to pay 5% of sunk costs for this 5% share, with an ongoing
requirement to contribute to costs on a pro-rata basis from that point on.
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
8
Figure 7: Core yard, core storage and geology facilities at the Woodlark camp
Source: Petra Capital
Access, infrastructure and topography
Woodlark Island is located in Milne Bay, approximate 280km from the Provincial capital of Alotau
near the eastern tip of the PNG mainland (Figure 1). Outside of GPR’s transport arrangements,
there are no regular transport services accessing Woodlark from anywhere else in PNG. Essential
supplies, food etc for the local population is barged to the island on an as-needed basis. GPR
currently sources its camp and drilling supplies from the mainland via regular barge services.
Access is via a 12m deep surveyed channel into a protected harbour which has a small wharf
capable of supporting the loading/unloading of smaller cargoes.
The harbour and wide, deep water channel will be utilised as a key transport route for the project,
allowing delivery of largely pre-assembled infrastructure and mining/processing equipment to within
5km of the mine where a new wharf will be constructed (Figure 8). GPR envisages the construction
of the full processing plant in a location off the island (likely China), including all electrical wiring and
piping. It’s possible the plant could be completed to the point it can be switched on and tested prior
to being dismantled and transported to site in large sections via barge. Each section will then be
transported from the port around 5km to the location of the processing plant where it will be
reassembled and the electrical and piping simply ‘plugged in’. This will minimise the need to have
numerous trades’ people on site to construct & wire the plant and will also allow a rapid and low risk
build and commissioning process.
Woodlark Island features very minor topography, with the majority of the island quite flat. This
makes for easy road access around the project area. Roads construction will be well considered,
considering the 5m of rain which falls on the island per year; coronus forms a large part of the pre-
strip which will be used extensively for road construction.
GPR personnel currently access the site via 1.5hr flight a charter aircraft direct from Port Moresby.
There is a World War II airstrip on the south-eastern tip of the island; the strip was constructed from
local coronus material and remains in excellent condition (Figure 9). The drive from the airstrip to
the project site takes around 1 hour.
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
9
Figure 8: View from Kulumadau over protect bay and port facilities
Source: Company reports, Petra Capital
Figure 9: Airstrip on Woodlark Island
Source: Petra Capital
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
10
Drilling successfully extends mineralised zones at Kulumadau & Busai
Drilling undertaken by GPR has been successful in extending mineralisation along strike and at
depth at both Kulumadau and Busai. This will result in larger resources sitting in low risk, low strip
ratio, shallow pit shells (150-175m deep). Importantly, mineralisation remains open in most
directions, with the most compelling upside potential still to come from the ‘Boscala’ and ‘Village’
zones at Kulumadau (Figure 10). These two areas will remain the target of future drilling, given
Boscala was a recent blind discovery which extends the Kulumadau East orebody and remains
open to the north and at depth. The Village area also remains open after early GPR drilling hit 23m
at 4.8g/t which is yet to be follow up due to current access constraints due to the proximity to the
local village. Further extensive drilling will be conducted in these areas once the project moves into
the development phase.
Further, the higher grade core to the Kulumadau deposit remains open at depth, with widths and
grades potentially amenable to underground mining (Figure 11). Ground conditions will be a key
consideration when assessing this opportunity, particularly the mining method; however the weak
ground conditions are confined to the mineralised zones, with competent wall rocks potentially
making for favourable mining conditions.
Figure 10: Location of Boscala & Village areas Figure 11: Deeper hits at Kulumadau incl. 18m at
10.3g/t
Source: Company reports, Petra Capital Source: Company reports, Petra Capital
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
11
Exploration upside likely to be very significant, lead to longer mine life
Woodlark Island has amazing exploration upside, in our view. Given the priority has been
resource/reserve development and getting the project build-ready, GPR is yet to focus on areas
outside the three main gold deposits at Woodlark, despite the extensive number of targets which
warrant further investigation. With resource and metallurgical drilling now close to completion at
Kulumadau and Busai, GPR is starting to review, assess and prioritise exploration opportunities.
These targets are wide-ranging, consisting of early-stage geochemical and geophysical anomalies
through to prospects which have a number of good hits in historical wide-spaced and/or sporadic
drilling (Figure 12). Many of these targets are within close proximity to the proposed mill location
and have the potential, with further work, to be introduced into the mine plan to extend mine life.
Further, there is significant potential to make new gold discoveries under the 5-30m thick cover
(coronus) sequence, as was the case for Kulumadau East and Boscala. Coronus covers a large
part of Woodlark Island and masks the geochemical signature of underlying gold mineralisation. A
combination of geophysics, predictive geology and drilling will need to be employed to further
explore for additional mineralisation beneath the coronus. A key exploration target for GPR is the
5km long corridor between Busai and Kulumadau which is under coronus cover and recognised to
contain a significant regional structure which is likely to be controlling mineralisation. This corridor
has seen no effective drilling in the past.
Figure 12: Select regional exploration results
Source: Company reports
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
12
Conclusion
GPR has had a busy year since starting its aggressive drilling and evaluation campaign at
Woodlark in late 2016. After extensive technical review, GPR management are confident all
aspects of the project have been thoroughly considered, with work programs required for the DFS
nearing completion. The updated resource/reserve will likely form the basis to a low-risk mine
development which will see the Kulumadau and Busai deposits bulked-out to deliver significant,
free-milling tonnages at very low strip ratios to be exploited over a mine life in excess of 10 years.
With permitting in-hand, this would be a straightforward base case outcome, in our view.
In addition, exploration upside is significant at Woodlark and will likely drive a longer mine life.
Further drilling will likely grow known deposits, particularly at Kulumadau around the village area to
the south and Boscala to the north. Further, with numerous high quality exploration targets within
easy trucking distance to the processing plant, ongoing exploration success should continue
introducing additional ore sources to further extend mine life.
We are yet to make changes to our development or operating assumptions for Woodlark which
include $150m capex for 104kozpa Au over an 11yr mine life at 5.2:1 strip and A$950/oz AISC.
This generates a NPV of $0.10/sh using a 15% discount rate. We will review these assumptions
once the new resource and reserve is released.
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited
16 November 2017
Petra Capital Level 17, 14 Martin Place, Sydney NSW 2000
Director: George Marias +61 (0)2 9239 9601 [email protected]
Research (Resources): Brett McKay +61 (0)2 9239 9605 [email protected]
Research (Resources): Matthew Schembri +61 (0)2 9239 9630 [email protected]
Research (Industrials): Killian Murphy +61 (0)2 9239 9607 [email protected]
Research (Industrials): Daniel Porter +61 (0)2 9239 9625 [email protected]
Research (Industrials): James Lennon +61 (0)2 9239 9618 [email protected]
Research (Property): Jonathan Kriska +61 (0)2 9239 9633 [email protected]
Sales: Frank Barila +61 (0)2 9239 9603 [email protected]
Sales: Richard Macphillamy +61 (0)2 9239 9604 [email protected]
Sales: Vincent Pisani +61 (0)2 9239 9617 [email protected]
Sales: Colin Redmond +61 (0)2 9239 9613 [email protected]
Sales: Iain Gow +61 (0)2 9239 9608 [email protected]
Sales: Peter Veldhuizen +61 (0)2 9239 9609 [email protected]
Sales: Vince Barila +61 (0)2 9239 9627 [email protected]
Corporate (ECM): Conrad Anderson +61 (0)2 9239 9610 [email protected]
Administration: Krystle Garven +61 (0)2 9239 9635 [email protected]
Administration: Samantha Tingley +61 (0)2 9239 9636 [email protected]
Administration: Silvia Fratta Pasini +61 (0)2 9239 9621 [email protected]
Administration: Larissa Falvo +61 (0)2 9239 9611 [email protected]
Legal & Compliance: Stephen Newton +61 (0)2 9239 9612 [email protected]
Financials: Tony Christelis +61 (0)2 9239 9615 [email protected]
Disclosure
This document has been prepared in Australia by Petra Capital Pty Ltd which holds an Australian Financial Services License AFSL 317 944. Petra Capital Pty Ltd is an ASX Market Participant. Petra Capital Pty Ltd and its associates, officers, directors, employees and agents, from time to time, may receive brokerage, commissions, fees or other benefits or advantages, hold securities in companies researched by Petra Capital Pty Ltd and may trade in these securities either as principal or agent. . Petra Capital Pty Ltd acted as sole lead manager and bookrunner for GPR’s placement of $15m at A$0.043/share on 18 August 2016, for which a fee was received.
Disclaimer
The information or advice contained in this report has been obtained from sources that were accurate at the time of issue, however the information has not been independently verified and as such, Petra Capital Pty Ltd cannot warrant its accuracy or reliability. Persons relying on this information do so at their own risk. To the extent permitted by law, Petra Capital Pty Ltd disclaims all liability or responsibility for any direct or indirect loss or damage (including consequential loss or damage) caused by any error or omission within this report, or by persons relying on the contents of this report.
This report is published by Petra Capital Pty Ltd by way of general information or advice only. This report does not take into account specific investment needs or other considerations that may be pertinent to individual investors. Before making any investment decisions based on this report, parties should consider, with or without an investor adviser, whether any relevant part of this report is appropriate to their financial circumstances and investment objectives. Petra Capital Pty Ltd is a licensed institutional/wholesale stockbroking firm. The report is only intended for institutional and sophisticated clients to whom Petra Capital Pty Ltd has issued the report. Petra Capital Pty Ltd is not licensed to advise retail investors – retail investors should contact their own stockbroker or financial adviser/planner for advice.
Key Risks – Resources Companies under Coverage
Key risks in relation to the resources sector and the resources companies that are the subject of research by Petra Capital’s analysts include commodity price volatility, currency risk, technical/licencing/operational risks, litigation/political risk, development risk and sovereign risk for overseas assets, as well as feasibility, permitting and financing risks related to the development of growth projects.
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ABN 95 110 952 782 ACN 110 952 782
AFSL 317 944
This report is prepared solely for the use of Phoebe Lee of Geopacific Resources Limited