Initiation Report Marketing Communication (Connected

#VSA Capital acts as Corporate Broker to NQ Minerals. This research brochure is a MARKETING COMMUNICATION. It is not investment research and has not been prepared in accordance with legal requirements

designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of dissemination of investment research.

8 June 2020 METALS & MINING

Initiation Report Marketing Communication (Connected Research)

NQ Minerals# BBG Ticker: NQMI PZ, NQMLF US, NQMIY US Price: 8p Mkt Cap: £27.5m BUY

Year to December

Revenue (US$’000)

EBITDA (US$’000)

Net Income (US$’000)

EPS (US$)

DPS (GBp)

EV/Sales (x)

EV/EBITDA (x)

P/E (x)

Div Yield (%)

2018A 3,247 (13,266) (25,448) (0.07) - 10.6 neg neg -

2019F 30,406 (10,330) (26,514) (0.08) - 1.1 neg neg -

2020F 43,439 10,049 (5,137) (0.01) - 0.8 10.1 neg -

2021F 67,912 28,966 11,349 0.03 - 0.5 3.5 3.0 -

SOURCE: Company Data, VSA Capital Research.

Diversified & Producing with a Pathway to Profit

Profitable Tailings Operation

2019 marked the first full year of operations for NQ Minerals’ (NQMI) Hellyer Mine’s tailings retreatment project with quarterly production of lead and zinc concentrates rising from 4.7kt and 3kt in Q1 2019 to 8.2kt and 4.9kt respectively in Q4 2019 totalling 25kt and 15.6kt for FY 2019. Asset level operating profits totalled A$12.2m for FY 2019 and with strong production and improving product grades and output forecast in 2020F we expect a 61% and 52% increase in production to 40kt of lead conc. and 24kt of zinc conc. in 2020F. We therefore expect further increases in operational profitability translating to group EBITDA of £10m. Given the low cost nature of tailings operations we see the potential for strong cashflow generation over the remaining life of operation.

Corporate Restructuring to Unlock Value

Despite strong operational performance NQMI has yet to translate this into corresponding earnings performance at the group level and indeed in the share price, which is broadly unchanged YTD. We believe that corporate costs, largely associated with the cost of financing construction are holding back the share price. The company recently announced an intended refinancing with, Traxys Group, the company’s offtaker and a major European bank which could slash effective interest costs to LIBOR plus 5% against the expensive pre start up funding. With cashflow from the underlying operation then unlocked we see the potential for a significant rerating to more fairly reflect the profitability of the underlying operation and potential of the wider portfolio, in particular the Beaconsfield gold mine.

Rising Precious Metals Exposure

NQMI’s Hellyer lead and zinc concentrates have significant payable gold and silver content and by 2023F we estimate that annual contained production will be 10koz and 1.4mnoz respectively. This gives NQMI highly attractive exposure to precious metals price moves. Silver’s inclusion is of particular interest given its propensity to outperform gold during sustained precious metals market rallies. Furthermore, NQMI recently announced an upgraded resource at the Beaconsfield Gold Mine to 483koz Au at 10g/t Au and we anticipate that the underlying strong performance at Hellyer will give NQMI the flexibility to advance this near production, high grade asset which based on a peer group average EV/Resource multiple of US$84/oz implies a US$41m valuation.

Recommendation and Target Price

Our valuation produces a 12-month Target Price of 21p/sh, this implies 166% upside potential and we rate the stock a BUY.

Company Description

NQ Minerals is a London and US listed diversified mining company with primary operations in Tasmania, Australia

One Year Price Performance

Price % chg 1mn 3mn 12mn

6.7% 3.2% 34.2%

12mn high/low 9.5p/2.3p

SOURCE: Refinitiv, as of 5 June 2020 close.

Market: AQSE

Target price: 21p

Shares in issue 347m

Free float: 35%

Net Debt (Dec 2020F): £67m

Enterprise value: £95m

Major shareholders

Walter Doyle 30.7%

Alpha Prime Investment 8.9%

Jay Chen 8.9%

Oliver O’Donnell, CFA, Head of Research

+44 (0)20 3617 5180 | [email protected]

Paul Renken, Senior Geologist

+44 (0)20 3005 5011 | [email protected]

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(GBP/sh) (m shs)

mailto:[email protected]

mailto:[email protected]

- 2 -

Investment Case

NQ Mineral (NQMI PZ) is one of only a handful of London listed diversified miners with production from a Tier One

jurisdiction. Having successfully commissioned and ramped up the Hellyer tailings retreatment operation in Tasmania

during 2019 we believe that having demonstrated strong operational performance and profitability the company is now

well placed to complete a corporate turnaround starting with a refinancing of the debt used to fund construction. The

recently announced proposed refinancing, with the company’s offtaker Traxys and a leading European Natural Resources

Bank, will reduce corporate level costs dramatically freeing up cashflow for shareholders and reinvestment into the

company’s broader asset portfolio which includes the Beaconsfield Gold Mine, a previously mothballed high grade

operation which the company is acquiring out of administration for just A$2m.

The shares are broadly unchanged YTD, primarily held back by high debt and corporate costs. We believe that the

underlying assets given their low cost base and precious metals exposure, indicate significant potential for a rerating,

subject to a refinancing. We expect production of Hellyer’s key lead and zinc concentrate products to rise 61% and 52%

YoY in 2020F, whilst rising product quality will strengthen payability YoY while the strong contribution from gold and

silver credits will support margins, offsetting recent weak base metal price performance. Indeed, we expect gross

precious metal revenue, underpinned by our positive outlook on pricing, to rise from 30% in 2019F to 46% in 2021F of

the total with EBITDA rising from (£10m) to £29m over the same period transforming the company’s balance sheet

outlook with Net Debt/EBITDA falling to a manageable 2.2x. Given the strong underlying profitability of the Hellyer

operation we anticipate that a successful refinancing will enable the group to produce strong free cashflow of £25mpa

and free cashflow to equity of up to £10mpa by 2023F although the latter is based on our own repayment profile

assumptions. With strong cashflows from Hellyer, the group will be in a strong position to advance the development of

other assets such as Beaconsfield. With a plan to resolve the corporate level issues and unlock these cashflows we believe

that this will enable the shares to more fairly reflect the strong operational performance and attractive commodity

exposure given the strengthening macro backdrop for both gold and silver.

Operational and Financial Highlights, £’000

2018A 2019F 2020F 2021F 2022F 2023F

Lead Concentrate Output, kt 3,252 24,980 40,181 49,297 49,297 49,297

Zinc Concentrate Output, kt 2,064 15,646 23,717 29,760 29,760 29,760

Contained Gold, oz 642 5,173 8,213 10,126 10,126 10,126

Contained Silver, koz 93 711 1,134 1,396 1,396 1,396

Pyrite Concentrate, kt n/a 79,734 220,068 558,000 558,000 558,000

Revenue 3,247 30,406 43,439 67,912 83,788 84,244

EBITDA (13,266) (10,330) 10,049 28,966 39,563 40,636

Operating Profit (13,409) (12,755) 4,773 22,346 32,944 34,016

Net Income (25,448) (26,514) (5,137) 11,349 20,546 21,577

EPS (0.07) (0.08) (0.01) 0.03 0.00 0.00

P/E, x neg neg neg 3.0x 1.7x 1.6x

EV/EBITDA, x neg neg 10.1x 3.5x 2.6x 2.5x

Net debt / EBITDA, x neg neg 7.4x 2.2x 1.1x 0.7x

Capex (11,939) (1,498) (7,050) (3,525) (1,958) (7,050)

FCF (22,339) (5,125) 5,403 25,654 25,032 24,005

FCF Yield, % neg neg 16% 75% 73% 70%

FCFE (1,609) 794 (200) 7,347 10,130 9,503

FCFE Yield, % neg 2% neg 21% 30% 28%


- 3 -

Strong Operational Performance

NQMI had a strong first full year of operational performance having commenced the commissioning process in late 2018.

In that initial quarter NQMI achieved output of 4.0kt lead concentrate, 1.5kt zinc concentrate and 4.4kt of pyrite

concentrate achieving A$5.7m (£3.2m) in sales. By Q4 2019 NQMI had achieved a significant increase in output with

8.2kt of lead concentrate, 4.9kt zinc concentrate and 20.9kt of pyrite concentrate achieving A$15.5m in sales with full

year sales of A$53.9m. Furthermore, there has been no operational impact on production due to coronavirus unlike

many of NQMI’s peers and in fact output is expected to rise while stronger concentrate quality is due to enhance this

positive impact on earnings.

Asset Overview, Hellyer Tails Retreatment


With the plant currently running at c.950ktpa and due to reach 1.2mntpa by year end 2020, investors can now clearly

see that the NQMI operational team are optimising performance to exceed expectations against the forecast parameters

projected in the original project CPR, particularly in relation to grades and recoveries. Q1 2020 demonstrated recoveries

and grades in excess of the pre-production operational plan and consequently our estimates going forward reflect the

recent strong Q1 2020 performance, which based on our recent site visit we believe can be maintained. Although NQMI

have focused reporting on tonnes of concentrate until recently this understates the financial impact of rising production

due to rising contained and payable metal from stronger recoveries. We also highlight the stronger than planned

concentrate grades achieved. We believe that a 19% increase in 2020F throughput to 978kt will lead to a 43% increase

in revenue YoY to £43m due to the combination of these operating factors, while margins will further benefit due to the

proportion of fixed costs which do not rise with higher output.

Concentrate Parameters

CPR H1 2019 Actual Q1 2020 Actual

Pb Grade, % 37 36.9 37.4

Pb Recovery, % 47 33.2 48.0

Zn Grade, % 45 43.9 45.5

Zn Recovery, % 38 28.3 42.5


- 4 -

NQMI receives a flat US$25/t for its pyrite concentrate, meaning that the primary revenue drivers in terms of commodity

pricing are lead, zinc, gold and silver. Although the main drivers of revenue are indeed the base metals, the recent

pullback in industrial metal pricing and strength in precious metal pricing means that the contained credits for gold and

silver are likely to be increasingly important to the NQMI investment case. Their presence makes NQMI a serious gold

and silver producer with credits across lead and zinc concentrates equivalent to an estimated 3.6koz and 612koz

respectively in 2019. Overall we expect a c.60% increase in YoY gold and silver output in 2020F with a further increase

to 10kozpa and 1.4mnozpa from 2021F until 2028F. This makes NQMI one of only a handful of London listed shares

offering significant exposure to both gold and silver production and we believe this offers a major positive driver of

future earnings performance. Given the lack of producing precious metals companies listed in London, this is an

important part of the investment case, however, as a diversified producer with base metals output the company will be

strongly geared to a broad based commodity price recovery as after the GFC.

NQMI Production, kt Rising Recoveries


2019 marked a successful ramp up year for NQMI although what is most impressive is the outperformance against the

predevelopment plan and concentrate parameters. This incremental optimisation has a significant impact on margins

over the life of operations as the increase in payable metal arising from even small changes in recovery and grade

effectively drops straight through to the bottom line as the cost to produce the same tonne of concentrate with a higher

grade is the same but with a higher payable value. NQMI management are confident that they can maintain product

specification along the lines of the recent results and we therefore utilise these parameters going forward.

Inside the Hellyer Mill Hellyer Floatation

SOURCE: VSA Capital Research.

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Lead Zinc

- 5 -

In addition to strong recoveries arising from the optimisation of the process plant, we also expect NQMI to increase mill

throughput to Hellyer’s nameplate capacity of 1.2mntpa in 2021F from an expected throughput of c975kt in 2020 having

achieved around 820kt during 2019. We then expect this level of throughput to be maintained until the end of the

operation’s life which we currently model as the exhaustion of the tailings resource during 2028F (which is 9.5mnt plus

the non-JORC compliant resources which relate to the Fossey Pit mining during 2010-2012).

NQMI Quarterly Financial Performance, A$’000 NQMI Gross Revenue Breakdown, US$’000


The implied output in terms of contained lead and zinc is therefore 14.9kt and 10.7kt in 2020 which we expect to rise to

18.2kt and 13.4kt respectively once NQMI reaches the 1.2mnpta throughput run rate. Under pervious ownership one of

the reasons for the project being put on care and maintenance was poor recoveries; it is therefore crucial to recognise

the significance that NQMI has successfully achieved and now exceeded the operating parameters stated in the pre-

development plan needed to achieve economic returns. Management believe there are further opportunities to improve

these operating parameters in the future.

Strong Cash Flow Generation Potential

At the asset level, recent RNS’s have highlighted that NQMI achieved an operating profit of A$12.2m in 2019, impressive

for the ramp up phase of operations. Operating performance has been ahead of expectations and cost control at the

asset level has also been strong. Consequently, this combination implies stronger margins for NQMI and underpins our

outlook for rising cashflow generation. Due to the lack of actual mining, tailings operations are often low cost despite

the relatively lower grade of the ore, however, at Hellyer the combined lead and zinc grade is approximately 5% which

is comparable to the grades of new mining operations. Furthermore, the stable nature of grades means that costs are

more predictable and we anticipate NQMI will maintain its low cost base going forward, providing strong leverage to

rising metal prices.

With mineralised ore dredged and pumped from the tailings pond, the cost is primarily associated with processing and

the dredging costs are minimal. Current operations comprise dredging and slurry pumps that transport material to the

processing plant around 2km away. The dredging capability was enhanced in late 2019 with the addition of a second

high capacity mining dredge increasing mining capability from 100tph to 210tph. In the future hydraulic mining will be

incorporated into the tailing’s recovery using high pressure water to sweep residual tails that cannot be easily dredged

into position for subsequent pumping to the plant. Processing costs therefore account for the majority of the cost base

at around US$23mpa. Within the plant, the most significant costs are flotation reagents and labour. Located in Tasmania,

the operation benefits from low cost power due to the State’s local hydroelectric generation.

The other significant costs are logistics which at steady state total around US$11.5mpa in total although variable with

production. These costs include the trucking of concentrates to the port of Burnie, around 85km away, as well as storage

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Q1 2019 Q2 2019 Q3 2019 Q4 2019

Gross Revenue Gross Profit Operating Profit

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100,000

120,000

140,000

2018A 2019F 2020F 2021F 2022F

Lead Zinc Gold Silver Pyrite

- 6 -

and ship loading of concentrates at the port. In country costs are denominated in Australian dollars and are therefore

currently benefitting from some exchange rate weakness although logistics costs which relate to FOB to CIF are

denominated in US dollars. We understand that the alternative contract rates related to rail transport to the port were

higher than the chosen road haulage option.

Dredging the Tailings Pond

SOURCE: Company Data.

Consequently, with an expected stable cost base we expect strengthening asset level profitability YoY in 2020F and into

2021F. Furthermore, given our commodity price assumptions are conservative and reflect a COVID-19 related downturn

we believe this highlights the strength of the operating model. To date operational profitability has not been a concern

and we expect this strong performance to continue resulting in strong operating margins of over 40% over the life of

operation. This translates to up to £25mpa in FCF generation.

Capital expenditure is reasonably limited, in our view, with sustaining capital assumed to be around US$2mpa, and we expect around US$9m to be spent in 2020F and 2023F. These latter amounts relate to a need for additional tailings storage capacity for the processed tails. Based on local standards a wet tailings pond is required given the tailings mineralogy which must be stored underwater to prevent potential oxidisation and acid formation; there have been no concerns raised to date about the integrity of the existing tailings storage facilities. Consequently, we believe that the Hellyer project is one of low capital intensity which bodes well for future cash flow generation.

NQMI FCF and FCFE Generation, £’000


(30,000)

(20,000)

(10,000)

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10,000

20,000

30,000

2018A 2019F 2020F 2021F 2022F 2023F

FCFE FCF

- 7 -

The major caveat is clearly profitability at the corporate level which has been impacted by expensive project financing

which caused a blow up in SG&A in the early years of the project life. The company is, however, undertaking significant

steps to address this and free up that cashflow which we see as the key to realising value in the shares. Our analysis

suggests that group FCF will increase from £5mpa in 2020F and then continue at £25mpa from 2021F until the end of

operation. With cumulative FCF generation over the life of operation of £194m this enables debt to be fully repaid with

a significant proportion remaining for equity holders. Although the current operation life ends in 2028 this significant

cashflow enables NQMI to unlock the wider value of the asset portfolio. The potential from the wider asset base are

currently not reflected in the shares, however, after the corporate level turnaround we expect this to change.

We present two measures to demonstrate the improving outlook for NQMI cashflow generation, free cash flow and free

cash flow to equity which also reflects debt repayments. We believe that these demonstrate that the successful

execution of a corporate turnaround strategy will unlock significant value for shareholders and with strong cashflows

and significant further opportunities the company then has a base from which to grow.

Refinancing Unlocks Value

Funding for project construction in the natural resources space has been challenging for the past decade and with a 10

year finite life of operations traditional bank financing was not an option at the outset. However, it is a testament to

management that they successfully financed and executed the project commissioning. Now that the technical

parameters of the project have been proven and NQMI is outperforming its predicted pre development performance

expectations the company is in a strong position to refinance its debt.

There is little doubt that the profitability of the operation to date could support a low cost refinancing package which

would unlock significant value, in our view. This would enable a consolidation of the multiple short term instruments

which have relatively high coupons and other conditions into a lower cost facility with a repayment profile suited to the

cashflow outlook of the operation. The effective cost of interest in 2018F was 45% based on the outstanding debt drawn

down totalling £59.9m at December 2018. We note that Finance Costs on the P&L of £12.2m imply around 26% effective

interest, however, investors should note that a portion of SG&A charges also reflect financing costs included in the 45%

effective interest cost figure which explains why administrative charges are so high. This does make calculating a clean

EBITDA figure challenging, understating the asset level performance in recent periods. These charges relate to conditions

attached to short term lending and consequently these charges would not be repeated with a new facility. A new facility

replacing the existing instruments would as well as being significantly cheaper provide clarity and transparency as to

ongoing charges and, in our view, this will help the market fairly value the shares.

We believe that the announced facility proposed with Traxys of US$60m at 5% plus LIBOR would result in a reduction of

Finance Costs of c30% to £9.9m in the first year of the facility. We assume that the remaining outstanding debt not

covered by the US$60m would relate to the Audley Funding instrument which does not mature until 2022. We also

assume that not all of the US$60m would be used to pay back existing facilities but can be used to pay down additional

debt but to provide additional working capital. We calculate a weighted average effective interest rate of 14.5% until

2022F falling to 5% thereafter. Furthermore, with one off charges in SG&A not repeated, we believe that NQMI can

rapidly reduce its remaining administrative expenses to around £4mpa. This overall reduction in costs is key to unlocking

cashflow from the underlying profitable operation. This cashflow will enable NQMI to realise its broader plans in relation

to the wider asset portfolio such as Beaconsfield which currently receives no credit in the shares due to the uncertainties

over near term group profitability and cashflow. Our base case assumption is that such a refinancing agreement is

completed during 2020F and our estimates reflect our interpretation of the outcome which we will update as further

announcements are made.

- 8 -

Outstanding Debt

Facility Effective Interest Maturity Facility Amount Facility Drawn (Dec 2018)

Perennial Enterprise Pty Ltd 9% At Call as Required 482

Kiwoz Limited 4% Mar-19 2,225 2,299

Apex Capital Solutions Pty Ltd 11% Dec-19 278 278

CP Funding 1 Plc 2% Apr-19 250 250

Traxys Europe S.A 12% Apr-20 5,903 -

Kiwoz Limited 89% May-20 4,729 4,880

MCAF NQM Nominees Limited 81% May-20 3,616 3,748

Cato Henning Stonex 45% Jun-20 97 104

Darren Carter 38% Jun-20 834 894

RIVI Opportunity Fund 39% Jul-20 5,510 5,329

RC Advisors 98% Dec-20 7,871 7,871

Audley Funding 31% Feb-22 89,356 26,336

Traxys Europe S.A 12% Apr-20 1,968 7,368

Total 45% 59,839

Due 2020 30,194


Although there is no guidance as to a repayment profile we have assumed US$10mpa with a one year grace period to

H2 2021F; we highlight though that we are aware of recent Traxys structures which have taken the form of cash sweeps

as well as straight repayments. However, given the low cost base of NQMI’s Hellyer operation either would be suitable,

in our view. To highlight to shareholders that this strong free cash flow generation is not simply consumed by repaying

debt as is implied by the current enterprise value and market valuation we have presented free cash flow to equity also

which demonstrates £10mpa between 2021F-2028F. With the Traxys refinancing in place we believe that the cost

reduction combined with rising profitability at the operation results in a reduction in group net debt/EBITDA from 7.4x

to 2.2x which is eminently manageable and demonstrates that it is not the debt load itself is currently weakening NQMI.

Tier 1 Jurisdiction

As well as the tangible impact on the P&L arising from lower interest costs, refinancing will also reduce NQMI’s overall

cost of capital. Clearly whilst paying its current interest rates, NQMI has a high cost of capital, however, the Traxys facility

will enable the company to reduce this significantly.

Given that Hellyer is located in Tasmania, Australia the project is in one of the world’s leading jurisdictions for mi ning

investment. Indeed, we believe that NQMI is the only London listed precious metals producer operating in a top tier

jurisdiction with the majority of peers operating in Africa or Asia. Consequently with the issue of the cost of debt resolved

we believe that NQMI’s overall cost of capital should be reduced significantly and we use 7.9% for our valuation reflecting

the significant benefits associated with a top tier jurisdiction in terms of property rights, rule of law and ease of doing

business. Once the outstanding debt is fully paid off we believe there is scope for a further reduction in the group’s cost

of capital to 6.5% which would further support the valuation.

One other important aspect about Tasmania is that much of the island’s power is generated by renewables including

hydroelectric power significantly reducing NQMI’s carbon footprint and the companies ESG credentials.

Commodity Exposure; Leveraged to Precious Metals

Although the Hellyer project’s primary product are lead and zinc concentrates they contain significant gold and silver

credits. Previously around 70% of Hellyer’s revenues have been driven by lead , with the remainder from zinc, gold and

silver along with pyrite concentrate. The potential value arising from these by-products has largely been overlooked

given prevailing precious metals prices which have been range bound for much of the last seven years. However, the

- 9 -

past six months has seen a major breakout in precious metals pricing with gold up 11% YTD. Given the major shift in

commodity price performance over H1 2020 with lead prices down 11% YTD the weighting in terms of income generation

has somewhat shifted and means that we believe that precious metals are set to become increasingly important to

earnings and share price performance. Precious metal pricing will therefore provide support for margins in the near

term, however, a broad based rally of commodity prices as experienced after the GFC would provide strong tailwinds for

cashflow generation.

Revenue Excluding TCRCs, US$’000 Revenue Including TCRCs, US$’000


Producing an average of 8.2kozpa gold and 1.1mozpa silver based on our estimates over the Life of Mine, NQMI is a

serious precious metals producer and we believe that the lack of recent correlation in terms of share price performance

to precious metals pricing represents a significant opportunity for investors. We expect strong earnings performance

over the coming few years supported in large part by a strengthening backdrop for precious metals. The addition of

silver is particularly exciting, in our view, given the metal’s tendency to outperform gold in sustained precious metals

bull markets which we believe we are now entering. Indeed, in 2010 and 2011 when the gold price averaged US$1,226/oz

and US$1,573/oz respectively, the silver price averaged US$20/oz and US$35/oz over the same periods implying gold

silver ratios of 61.3 and 44.9. We therefore expect that in 2019F 30% of gross revenue will be derived from precious

metal output rising to over 45% by 2022F due to our commodity price outlook along with the increase in throughput and

grades at the Hellyer plant.

As well as the state royalty on revenue of 5%, NQMI is also subject to commercial streaming agreements which affect

around 10% of gold production and between 10-30% of silver production annually. However, this leaves substantial

scope for significant income generation. On this streamed portion NQMI receives a fixed price with the difference

reflected as an expense.

Hellyer Underground Potential

NQMI are exploring the potential to extend the useful life of the Hellyer plant given our estimates assume the current

tailings resource is exhausted at the end of 2028. This is important, in our view, as a longer term plan to maintain the

plant as a cashflow generating asset is key to the longer term success of NQMI and maintaining support for the share

price. The plant is in itself a valuable asset and given the geological prospectivity of Tasmania we are confident that

NQMI will be able to find a suitable way of prolonging the asset life and the Hellyer underground potential is a logical

starting point, in our view.

In January 2020, NQMI signed a deal with Bass Metals to acquire the underground mining lease at Hellyer. Underground

workings exist from mining conducted by Alberfoyle Resources and Western Metals between 1989 and 2000. The Fossey

deposit which extends down plunge from the Hellyer deposit was mined by Bass between 2010 and 2012. These periods

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- 10 -

are of course where the current tails originate from. The key addition to the current flowsheet would be crushing and

grinding which is not currently required for tails retreatment. Many of NQMI’s staff worked on the original underground

operations and are familiar with the geology and metallurgy of the ore.

The acquisition for 100% of the mining and exploration rights to the 1,695 hectare mining lease requires NQMI to pay

A$15k per month for 24 months and provide local minor logistics support to Bass for their continuing obligations on

nearby tenements. In addition NQMI took over security deposits totalling A$112k with the Tasmanian Government on

the Hellyer Mine’s license and surrounding Mt Block exploration license. In our view, NQMI has completed another low

cost acquisition which can be leveraged through its existing asset base.

Schematic of Historic Workings and Further Hellyer Underground Potential


The resource remains open at depth and NQMI intend to extend it with drilling beyond the existing network of workings.

At least nine targets have been identified close to the existing mine development works. Furthermore, at just 2km from

the Hellyer treatment plant, this an obvious option for extending the plant’s life. Proximity isn’t the overriding factor,

however, as drilling results demonstrate high grades which likely indicate attractive economic potential for further

mining. Highlights include:

• 20.4m at 16.3% Zn, 7.2% Pb, 104g/t Ag and 2.4g/t Au at the Fossey East orebody.

• 7.0m at 22.3% Zn, 9.9% Pb, 181g/t Ag and 3.4g/t Au at the new Mackay prospect discovery ad jacent to the Hellyer

orebody.

These drill results give a strong indication of the remaining potential and we expect the company, in due course, to

formally budget for exploration capital and map out a work programme. This will also have the added benefit of providing

catalysts for the share price. As the underground potential is derisked we believe that this will enable the value, which

perhaps can only be unlocked by NQMI as the owner’s of the plant, to be reflected in the share price.

- 11 -

Fossey Prospect Mckay Prospect


Beaconsfield Gold Mine

Further enhancing its credentials as a gold play, NQMI is undertaking the acquisition of the Beaconsfield Gold Mine for

A$2m. As a brownfield operation, this acquisition offers near term production potential with low technical and geological

risk as a brownfield operation. Again the asset is located in Tasmania so lacks jurisdiction risk. Furthermore, we see

significant exploration upside potential as well as a near-term pathway to production. Although the acquisition has not

been completed, our estimates suggest that NQMI has the funding to secure the transaction and we therefore believe

it is appropriate to include the asset within our valuation. We expect NQMI to put in place a programme to rapidly restart

production at the Beaconsfield gold mine further enhancing the company’s position as a precious metal’s producer.

Given NQMI’s successful restart at Hellyer we believe that management have strong credentials for an efficient restart

at Beaconsfield. Furthermore, NQMI staff have historically worked at Beaconsfield also and are extremely well placed

from this perspective.

Project Location within Tasmania Inset as Aerial Photograph


The Beaconsfield mine has a long track record of high grade gold production, however, the age of the underground

mining operation has meant that the existing underground mine access infrastructure needs upgrading. In 2012 the

operator at the time reasoned that in the face of falling gold prices, the capital expenditure to replace the existing shaft

- 12 -

infrastructure and upgrade an aging underground mining fleet could not be justified. However, the gold price backdrop

has changed substantially both in US dollar and A$ terms from around A$1,200/oz to above A$2,600/oz currently. At the

time the mine was producing around 50kozpa at a cash cost of A$1,050/oz.

NQMI recently announced a substantial resource upgrade and on the back of this and we see a number of areas for the

company to realise upside. In terms of exploration upside there are three areas of interest, in our view. Firstly, the

historic tailings contain additional ounces, estimated at 67koz from the first dam (TSF1). Secondly, the existing resource

is based on drilling between c415-1,500m below surface and remains open at depth. Perhaps the most interesting target

is the zone from surface to 415m; the modern operation (1999-2012) ignored this area of historic working, and before

this the original mining approach focused only on the highest grade quartz rock leaving a significant portion of the

mineralised sulphide ore in place. Drilling from surface would also enable NQMI to understand the potential for open

pit mining and the opportunity of fully exploiting the remaining near surface high grade zones.

In May 2020 NQMI announced the new resource and CPR for the mine of 483koz grading at over 10g/t. The resultant

resource is one of the highest-grade deposits globally and with a significant upgrade in tonnage NQMI are now

demonstrating that the resource also has expansion potential. Highlights from the drill programme which led to the

resource upgrade included 7m at 21.7g/t Au from 1,220m and 11m at 15g/t Au from 1,235m. The successful resource

upgrade adds momentum to NQMI’s efforts to expedite a restart of production.

Between 1877 and 1914 approximately 1.04mnt for 855koz (averaging 24g/t gold) were produced and between 1999-

2012, 2.72mnt for 920koz (averaging 10.5g/t gold) were produced. The strongly developed portion of the Tasmania reef

which hosts the gold mineralisation is around 450m long with an overall dip of 50-70˚ and has been intersected by

drillholes to a maximum depth of over 1,500m below sea level remaining open at depth. The average width of the reef

is between 2.7-5m approximately. Mining in the first phase of development to 1914 was halted by the start of WW1 and

water ingress, which although low relative to modern water flow rates could not be ameliorated by pumping techniques

available at the time. The geological potential of the project has therefore never been a hindering factor in terms of

maintaining production.

Cross Section Historic Workings


The mineralisation is hosted within two styles of mineralisation across veins and zones of stockwork. The first style is of

pyrite, arsenopyrite and chalcopyrite and is associated with laminated quartz vein material where grades have been

- 13 -

recorded as high as 3,000g/t Au. The second consists of pyrite, arsenopyrite, chalcopyrite, sphalerite and galena and

does not typically exhibit these exceptional grades.

Beaconsfield Gold Mine, April 2020 JORC 2012 Resource

Tonnes, kt Gold grade, Au g/t Contained metal, koz Au

Measured 485 11.4 177

Indicated 492 112 177

Inferred 477 8.4 129

Total 1,454 10.3 483


The updated resource is based on drilling results from 415m-1,500m below surface and remains open at depth. The area

of historical workings is not included within the current resource which starts at a depth of around 415m. This represents

a key area of potential near term upside for expanding the resource. Due to metallurgical processing techniques available

at the time, mining focused on the quartz rock leaving the high grade mineralised sulphide anchorite rock as anchor rock.

Management estimates that less than half of the mineralised ore in the mined portion from surface to 415m depth was

actually mined.

Cross Section April 2020 Resource (Resource Begins at 415m depth)


- 14 -

We therefore believe that a drilling programme to understand the grade of the remaining material in this near surface

zone offers an attractive opportunity to increase the economically mineable ounces. We highlight that the original mine

started as an underground operation and the near surface mineralisation was never fully exploited. Management

indicates that this ore would be suitable for free milling and extends to around 80m depth; this does of course need to

be confirmed by drilling, but in our view, represents a highly lucrative opportunity for NQMI. A high grade open pit would

likely be low cost and could substantially improve the overall economics of the project. The other easily accessible ore

is associated with the existing tailings dams as mentioned presenting further high margin ounces for early and rapid

cashflow generation.

The third avenue for exploration upside is depth extensions of the resource from c .1,500m. At the 2012 run rate of

c50kozpa the newly upgraded resource indicates a mine life of just under nine years. Demonstrating a mine life of over

ten years would help to gain attention from larger institutions and investors and we believe that this hurdle should be

relatively easily achieved. It would also help to strengthen the economics for the project restart given the initial capital

required to build a new 3.6km decline. This was the key capital allocation decision which, during the low gold price of

2012, prevented the mine from further operations. The mine shaft down to the 430m level, which had been used up

until 2012, was felt to be becoming unsuitable for continued safe mining, particularly given the rockfall which trapped

miners in 2006. The new decline would replace this shaft and connect the surface to the existing mine decline at the

430m level and will be capable of supporting modern mining equipment to enable efficient mining of this high grade

resource.

Our assumptions indicate strong profitability and FCF generation from the Hellyer tailings operation. This will give NQMI

the flexibility to finance a production restart as well as complete the initial acquisition. We see the completion of the

transaction and its development as a significant catalyst for the shares. Given that fully detailed engineering and

economic studies are yet to be completed we value the asset on an EV/Resource basis which based on our peer group

average indicates an implied value of US$84/oz and US$41m. Although this demonstrates significant upside against

NQMI’s purchase price it perhaps does not fairly reflect the fact that included in the acquisition is a 350ktpa plant which

will likely be relatively inexpensive to bring back into working order from current care and maintenance. The plant is the

only permitted gold processing plant in Tasmania and has a strong track record of achieving recoveries of over 90%. Our

recent site visit confirmed that the plant has a bio-oxidation circuit as well as a conventional milling and floatation circuit;

we note that some equipment has been sold over the past eight or so years such as the floatation circuit but these can

easily be replaced. Aside from equipment refurbishment the plant remains serviced with power and could therefore be

brought back into working order rapidly, in our view.

Entrance to Beaconsfield Gold Mine Beaconsfield Primary Milling Equipment

SOURCE: VSA Capital Research.

Following the successful resource upgrade of 44% in terms of contained ounces, NQMI has been progressing further due

diligence along with the Tasmanian Government and its own consultants to understand precisely the work required to

expedite a restart of production in terms of metallurgical, engineering, environmental and permitting requirements. We

- 15 -

therefore see a clear pathway developing in terms of development milestones that wil l provide catalysts for the share

price with value realised as the project is derisked.

In February 2020 NQMI agreed a staged acquisition of the Beaconsfield gold mine in Tasmania which is historically one

of the richest gold mines in Tasmania. The acquisition covered a 593 hectare mining lease, 350ktpa processing plant and

tailings dam. The terms of the binding sale agreement to purchase 100% interest in the Beaconsfield gold mine are a

non-refundable A$100,000 payment on signature, a refundable A$100,000 payment on exchange, a further A$800,000

on settlement at the end of June 2020 and the balance of A$1m to be paid by 31 December 2020 with interest accruing

at 10%pa from 1 July 2020. The total consideration is therefore A$2m. Completion of the transaction is conditional upon

regulatory approvals being obtained by June 2020 including Australian FIRB approvals.

Barnes Hill (Tasmania Energy Metals)

In June 2019, NQMI announced the strategic investment in a private Tasmanian mining company; Tasmania Energy

Metals (TEM). Within TEM are assets which would give NQMI additional exposure to nickel, cobalt, silver and gold known

as the Barnes Hill Nickel project. Given the sharp change in performance for industrial versus precious metal pricing in

the past few months we believe that the focus for NQMI is likely to be on the more precious metal geared assets within

the portfolio. A Pre-Feasibility Study is currently being conducted which will determine the merit of a 630ktpa facility

which would produce nickel ore and would also be able to process 240ktpa of the Hellyer pyrite concentrate for which

NQMI currently receives around US$25/t.

Processing this volume of pyrite concentrate to extract the contained gold and silver would see NQMI significantly

increase the value realised for this product given that it would potentially increase annual gold and silver output by

22.5kozpa and 456kozpa respectively. Although the economics of this are still to be determined it would clearly enhance

the company’s leverage to precious metals pricing. In late 2019, NQMI announced an increase in the resource estimate

at Barnes Hill demonstrating robust nickel and cobalt grades of 0.6% and 0.05% respectively. It is a lateritic type nickel-

cobalt project. The upgrade from 2019 to 2020 from 14mnt to 25mnt was largely due to a reduction in cut off grade to

0.25% Ni resulting in a reduction in the overall nickel grade from 0.75% Ni. This followed successful metallurgical test

results which indicated the potential for treating lower grade ore.

The updated flowsheet includes three stage leaching to enable treatment of the full laterite profile including limonite,

transitional, saprolite and saprock material. For the testwork TEM provided significant samples which totalled 518.5kg

confirming the potential for nickel and cobalt recoveries in excess of 90%.

Barnes Hill Nickel Cobalt Project Resource 2020

Tonnes, kt Ni, % Co, % MgO, % Fe2O3, % SiO2%

Indicated & Inferred 24,767 0.58 0.05 16.89 25.74 37.66


NQMI initial investment was made in June 2019 as a £150k convertible loan note with proceeds being utilised to fund

PFS work. The note is convertible for three years with no coupon and NQMI has the right to convert at any time.

Subsequently NQMI has entered into four convertible notes of £150k with TEM. Each with the same terms in terms of

conversion rights and term. Given the limited public valuation information as to how the conversion terms and pricing

we value this asset at book value. We recognise that as NQMI produces significant future cashflow at Hellyer the

development optionality will likely result in greater realisable value.

Exploration Licenses

In addition to the core assets for development NQMI also has exploration licenses in Queensland on the mainland of

Australia. The Ukalunda tenement in Queensland lies midway between the Lake Dalrymple/Burdekin Dam and the

historic Wirralie Gold mine which previously produced 1.1mnoz gold. The project area contains multiple shows of

mineralisation of similar characteristics to major deposits in the region.

- 16 -

The Square Post tenement lies close to the Flinders Highway, 10km East of Mingela and 50km South of Townsville.

Breccia and quartz veins hosting gold mineralisation have been identified with rock chip sample surveys carried out

previously demonstrating robust results.

Valuation

Our valuation of NQ Minerals (NQMI PZ) is based on a combination of a DCF valuation for the producing Hellyer

operation and EV/Resource peer valuation for the Beaconsfield gold mine. We believe that the strong operating

performance at Hellyer since commissioning which is driving increasing profitability is overshadowed by corporate level

debt costs and expensive short term funding instruments. Our analysis demonstrates that with a planned refinancing

the company could reduce the cost of these facilities which in combination with ongoing strong operating performance

would enable debt repayment with cashflow of up to £10mpa left to equity holders. Furthermore, with the corporate

issues resolved we believe that trading would more strongly correlate with the company’s commodity exposure and

operating performance.

Our sum of the parts target price for NQMI is 21p/sh. which implies 166% upside potential.

WACC Calculation

WACC calculation Target Debt to Asset Ratio 30%

Target Equity to Asset Ratio 70%

Risk Free Rate 2.0%

Base Premium for DM 4%

Beta 1.00

Country Specific Premium 0%

Liquidity Risk 1%

Corporate Governance 0%

Total Cost of Equity 7%

Cost of Debt Calculation

Cost of Debt 14%

Net Corp Tax Rate 30%

Cost of Debt (Net of Tax) 10.1%

WACC 7.9%


Our calculations yield a WACC of 7.9% for NQ Minerals. We calculate a 7% cost of equity which includes a risk premium

for liquidity given the current listing on the Aquis Exchange. Our cost of debt assumption is based on our assumption

that a refinancing takes place along the terms recently announced with US$60m at LIBOR plus 5%, this does not fully

repay NQMI’s outstanding debt and we believe that NQMI will continue to use Audley Funding’s facility with an effective

interest rate of 31%; we use a weighted average to arrive at a figure of 12.6%. Therefore, our NAV-based valuation

approach is based on a discount rate of 7.9% and we use a P/NAV multiple of 1.0x. We convert the USD based valuation

to GBP using 0.8.

- 17 -

We value the Beaconsfield gold mine based on a peer group EV/Resource average of US$84/oz which implies a valuation

of US$41m. We believe that little value is currently ascribed to this asset in the current share price and given the

acquisition price of A$2m this clearly gives shareholders significant potential for upside. Our peer group is made up of

similar projects, primarily in Australia or with London listings in developed markets which are close to production with a

particular focus on projects with high grades comparable to Beaconsfield. Bellevue Gold (BGL AU) stands out as a target

of what NQMI could achieve given the high grade historic mine on which BGL are leveraging their operations , similarly

Spectrum Metals (SPX AU) which has a high grade reserve from a discovery close to a historic mine is currently under

offer. These are the leaders within the peer group, however, with NQMI yet to complete the transaction we recognise

that there is still some risk and therefore we are comfortable with our valuation which clearly demonstrates sig nificant

upside whilst reflecting a more modest and conservative target. We also note valuations of local peers to NQMI;

Greatland Gold (GGPL LN) which has yet to declare a compliant resource but has the backing of Newcrest and a

significant position within Tasmania while Lefroy Exploration has also recently upgraded its gold inventory at its

Tasmanian project.

Becaonsfield Gold Mine Peer Group

Company Name Ticker Location Market Cap,

US$m EV,

US$M Tonnes,

kt Grade, g/t

Au Contained koz

Au EV/oz,

US$

Alliance Resources AGS.AX Aus 19 18 1,097 5.1 181 101

Bellevue Gold BGL.AX Aus 398 373 6,100 11.3 2,200 169

Calidus Resources CYL.AX Aus 74 70 21,200 1.8 1,248 56

GBM Resources GBZ.AX Aus 16 15 6,650 1.5 330 46

Genesis Minerals GMD.AX Aus 44 41 7,119 3.3 760 54

Middle Island Resources MDI.AX Aus 24 22 12,673 1.4 537 41

Musgrave minerals MGV.AX Aus 77 75 6,453 3.0 613 123

Orminex ONX.AX Aus 16 16 748 8.5 203 77

Pure Gold Mining PGM.V Can 379 340 9,076 8.7 2,530 134

Spectrum Metals SPX.AX Aus 190 188 799 13.8 432 436

Lefroy Exploration LEX.AX Aus 14 13 1,750 1.8 99 130

Weighted Average 84

Greatland Gold GGPL.L Aus 530 528 n/a

Beaconsfield Gold Mine 1,454 10.3 483


We value the convertible loan notes issued by TEM and held by NQMI at book value.

Valuation Summary

NAV, US$’000 Share, % P/NAV USD’000 £’000

Hellyer 134,491 100% 1.0x 134,491 107,592

Beaconsfield 40,653 32,523

Barnes Hill (TEM) 750 600

Fair EV 140,715

Net Debt (2020F) 67,037

Total Fair Equity Value 73,678

No. of Shares 346,752,991

12-mo Target Price, /sh. 21

Current Price, /sh. 8

Upside, % 166%


- 18 -

Risks

• Commodity Prices. The company is primarily exposed to lead, zinc, gold and silver prices and unexpected changes

to commodity prices are likely to affect our valuation and the ability to make ongoing debt repayments.

• Political Risk. Changes to the political regime and mining code in Australia would potentially alter the risk profile,

however, this is very low relative to other mining jurisdictions.

• Macro Risk. Unexpected moves in the USDAUD or USDGPB and higher than expected inflationary pressure might

significantly impact the company’s earnings.

• Operational Risk. The potential for delays and operating issues are an inherent industry risk.

- 19 -

Peer Group Comparison

EV/EBITDA, x P/E, x Dividend Yield, %

Ticker Location Commodity

Market Cap (USDm)

Enterprise Value (USDm) 2019 2020F 2021F 2019 2020F 2021F 2019 2020F 2021F

DM

Atalaya Mining ATYM LN Spain Cu 152 128 2.01 1.52 1.07 4.06 2.92 1.58 - - -

Boliden AB BOL SS Sweden Cu, Pb, Zn, Ag, Ni, Au 4,771 5,119 4.09 4.07 3.91 8.26 8.47 8.29 8.2% 6.2% 4.9%

Titan Mining TI CN USA Zn 19 8 0.08 0.09 0.48 n/a neg 6.20 - - -

EM

Antofagasta ANTO LN Chile Cu 9,151 9,832 4.09 5.26 4.14 18.45 24.67 18.21 2.8% 2.9% 2.5%

Griffin Mining GFM LN China Zn, Au 106 103 3.78 4.92 2.48 9.13 5.09 2.26 - 0.0% 1.5%

Hudbay Minerals HBM CN USA/ Peru Cu, Zn, Au, Ag 454 1,076 2.91 3.68 2.62 neg neg neg 1.1% 1.1% 1.1%

Kaz Minerals KAZ LN Kazakhstan Cu, Au 1,931 4,710 3.91 4.64 4.05 4.19 5.26 4.59 0.03 2.2% 2.0%

KGHM KGH PW Poland / Chile Cu, Au, Ag, Mo 2,802 4,558 3.65 4.40 4.14 5.63 10.93 6.21 0.0% 0.0% 2.5%

Lundin Mining LUN CN Global Cu, Au, Ag, Co, Zn, Pb 2,684 2,896 4.30 3.04 2.38 19.13 9.39 6.15 2.5% 2.7% 3.3%

Trevali TV CN Global Zn, Pb, Ag 46 95 1.03 1.29 1.26 neg 11.44 neg 10.4% 10.6% 11.0%

Central Asia Metals CAML LN# Kaz, N. Mac Cu, Zn, Pb 286 362 3.68 6.32 5.22 6.66 15.26 9.83 4.1% 4.1% 6.3%

NQ Minerals NQMI PZ# Tasmania, Aus. Pb, Zn, Ag, Au 34 118 neg 11.75 4.08 neg neg 3.02 - - -

SOURCE: Company Data, Bloomberg, VSA Capital Research . #Indicates House Stock

- 20 -

Asset Overview

Hellyer Mine

Asset Background

The Hellyer mine is located in North Western Tasmania 80km south of Burnie to the Southwest of Hobart. The license

area is located within forest reserve and farmland. There has been extensive mining in the area and NQMI’s primary

current focus is the reprocessing of the tailings dam from historic processing. The Hellyer deposit is a polymetallic

massive sulphide deposit which was exploited via underground mining between 1989-2000. The resource at Hellyer

remains open at depth with the remaining known resources underground at the adjacent Fossey deposit. During the

period of operations, tailings were deposited around 2km from the processing mill where they were covered with water

to prevent oxidation of the sulphide species present in the tails; these tailings form the current resource.

Hellyer Project Location

SOURCE: Company Data, VSA Capital estimates.

Between 1989 and 200 when underground mining was in operation the operators built a significant earth dammed

tailings deposit. Tails deposited in the early part of operations were higher in grade across the suite of commodities.

Therefore grades tend to increase with depth within the dam, which bodes well for NMQI operating performance as the

operation matures. An attempt to treat tailings between 2006-2008 was undertaken but operations were halted due to

weak commodity prices during the GFC. During this period c2mnt of tailings were reprocessed. Bass Metals mined the

Fossey underground deposit between 2010-2012 using the same tailings dam to deposit processed tails from their

operations providing additional material for future processing.

- 21 -

NQMI acquired 100% of the Hellyer Gold mine in June 2017, tailings and processing facilities. The Mining lease

CML103M/1987. The project was acquired for £22.1m (A$20m in cash with the remainder in shares equivalent 29.9%

stake in NQ.

Processing Plant

As part of the transaction NQMI acquired a fully operable fully automated 1.6mntpa flotation processing plant. The

flowsheet was designed and modified to produce three saleable products; lead concentrate, zinc concentrate and a gold

and silver pyrite concentrate. Low recoveries on tailings reprocessing under previous ownership led to poor performance

and much of the project restart has been based on optimising recoveries to economic levels. The project was designed

around assumed recoveries of 37% for lead, 45% for zinc and 46% for the pyrite concentrate.

The processing plant has a primary crushing circuit, SAG and ball mill and a flotation circuit with designed annual capacity

of 1.6mntpa ROM ore. Following a period of care and maintenance and the NQMI restart the throughput for tailings

reprocessing is currently 900ktpa, but the company intends to raise this to 1.2mntpa during 2020. While reprocessing

operations started using the ball mill in circuit this has since been stopped as it was not needed and this has saved on

cost. Mill feed is from a floating dredge and shore pumps that deliver tailings from the pond into the mill which is roughly

1km apart.

Tailings residue from the plant must be stored underwater to prevent oxidisation and acid formation. Much of the capital

requirements for the project are therefore associated with building suitable additional TSF capacity. The initial TSF dam

will store residue up until 2024 with a further dam required for the remainder of the operation’s life.

Ore Reserves and Mineral Resources

Hellyer Ore Reserves and Mineral Resources, November 2017

Grade

Contained Metal

Tonnage, mnt Zn, % Pb, % Ag g/t Au g/t Cu, % Zn, t Pb, t Ag, koz Au, koz Cu, t

Proven 2.05 3.31 3.35 94 2.63 0.21 67,900 68,700 6,212 173 4,300

Probable 5.99 2.29 2.95 93 2.55 0.18 137,200 176,700 17,941 491 10,800

Total 8.04 2.55 3.05 93 2.57 0.19 205,000 245,400 24,153 664 15,100

Tonnage, mnt Zn, % Pb, % Ag g/t Au g/t Cu, % Zn, t Pb, t Ag, koz Au, koz Cu, t

Measured 2.05 3.31 3.35 94 2.63 0.21 67,900 68,700 6,195 173 4,100

Indicated 5.99 2.29 2.95 93 2.55 0.18 137,200 176,700 17,910 491 10,800

Inferred 1.21 1.00 2.6 86 2.57 0.19 12,100 31,500 3,345,600 100 2,300

Total 9.25 2.35 2.99 92 2.57 0.19 217,400 276,600 27,360,300 764 17,600


The Ore Reserve relates specifically to the conversion of M&I resources of the Hellyer Tailings pro ject. The Mineral

resource dates to 2010 although subsequent operations by Bass Metals resulted in additional tailings deposits from the

processing of ore at the Fossey mine. Currently tailings from the Fossey reserve are unclassified as far as compliant

resources are concerned. However, in order to access the deeper compliant resources which form the Reserve, NQMI

must process the additional Fossey tailings, indicating a longer mine life than perhaps indicated by the compliant ore

reserve. NQMI have therefore rightly incorporated these tailings into their mining schedule.

- 22 -

Hellyer Underground Resource, September 2013, JORC 2004 Resource

Tonnes '000 zinc, % lead, % copper, % silver, g/t gold, g/t

Fossey and Fossey East

Measured 175 12.4 7 0.5 137 2.8

Indicated 200 11.1 6 0.5 94 1.8

Inferred 50 8.7 4.7 0.4 99 2.3

Total 425 11.4 6.3 0.5 112 2.3

Hellyer Indicated 640 6.8 4 0.4 83 1.3

Inferred 110 8.1 4.9 0 107 1.5

Total 750 7 4.1 0 87 1.3

Total 1,175 8.6 4.9 0.4 96 1.66


Beaconsfield Gold Mine, April 2020 JORC 2012 Resource

Tonnes, kt Gold grade, Au g/t Contained metal, koz Au

Measured 485 11.4 177

Indicated 492 112 177

Inferred 477 8.4 129

Total 1,454 10.3 483


Barnes Hill Nickel Cobalt Project Resource 2020

Tonnes, kt Ni, % Co, % MgO, % Fe2O3, % SiO2%

Indicated & Inferred 24,767 0.58 0.05 16.89 25.74 37.66


Financial Model Summary

Commodity Price Assumptions

Our commodity price assumptions reflect the weakness associated with the global economic shutdown and steps to

recovery. Although the initial shutdown of mines ex-China has given China chance to reduce inventories during Q2 2020

preventing a collapse in commodity prices production is now restarting which is likely to slow the overall inventory

drawdown. Whilst strategic stockpiling and infrastructure spending are likely to support Chinese demand in H2 2020 the

rest of world outlook is less positive and we expect some near term weakness in H2 2020 with a recovery thereafter.

The blowout in Central Bank balance sheets does, however, significantly strengthen the outlook for precious metals.

VSA Commodity Price Forecasts, USD/t

2018A 2019A 2020F 2021F 2022F 2023F LT

Lead Price USD/t 2,170 2,010 1,735 1,850 1,950 2,050 2,100

Zinc Price USD/t 2,819 2,514 1,980 2,050 2,300 2,500 2,500

Gold Price USD/oz 1,268 1,393 1,688 1,800 1,950 1,80 1,500

Silver Price USD/oz 15.71 16.19 18.00 22.50 32.50 30.00 21.43

SOURCE: Bloomberg, VSA Capital Research.

- 23 -

Key Macro Assumptions

NQMI’s asset base is located in Tasmania and therefore the major macroeconomic drivers are the AUDUSD, Australian

mining related inflation which is partly influenced by the oil price. Although mining inflation is likely to benefit from the

collapse in the oil price during 2020 we expect only a modest recovery to a long term US$45/bbl which should ease

inflationary pressure going forward. As the commodity market recovery gains hold, the AUD is likely to strengthen having

depreciated sharply at the onset of the crisis. Our assumptions in this regard are primarily driven by IMF assumptions.

Key macro assumptions

2018A 2019A 2020F 2021F 2022F LT

CPI,% (Aus) 2% 2% 1% 2% 2% 2%

USD/AUD 1.30 1.34 1.38 1.54 1.43 1.43

SOURCE: IMF, VSA Capital Research.

Taxes & Royalties

NQMI is subject to the Australian corporate taxation rate of 30%. The company is also subject to a 5% royalty on net

revenue. However, operational losses indicate that NMQI has around US$30m in tax losses to offset against future

profits; these are reflected in our model.

NQMI is subject to a streaming agreement on gold and silver sales. The first 1,200ozpa of gold are sold at US$400/oz to

the streaming owner with a reducing proportion of the gold to be sold based on increasing gold output. In respect to

silver, until 8mnoz has been produced NQMI must sell the first 30% of silver production to the royalty holder for US$6/oz,

once 8mnoz has been produced this drops down to 10% of production.

Operational Model Snapshot

We expect stable operational performance at NQMI’s key operation with incremental improvements in terms of

throughput and recoveries. Our current estimates suggest an eight year life. Given the operational track record that has

been established we believe it is reasonable to assume that performance can be maintained at current levels which

indicates ongoing strong output and product quality. There has been no production disruption due to coronavirus as yet.

Given the nature of the operation we anticipate that costs are likely to remain low. The major cost drivers are reagents

for the plant which are expected to remain stable and logistics costs which are contracted. Currency translation into GBP

represents a more volatile driver than underlying operational performance, in our view. We do however, note the impact

of treatment charges which increased sharply in the zinc industry between 2018-2020 although these have begun to fall.

The lead market is more important to NQMI and the impact here has been less severe with perhaps an increase of US$25-

75/t over the same period.

- 24 -

Operational Model Snapshot

2018A 2019F 2020F 2021F 2022F

Lead Concentrate Output, kt 3,252 24,980 40,181 49,297 49,297

Lead Grade, % 2.91 2.78 3.04 3.04 3.04

Lead Recovery, % 22 37 50 50 50

Zinc Concentrate Output, kt 2,064 15,646 23,717 29,760 29,760

Zinc Grade, % 2.12 2.42 2.48 2.48 2.48

Zinc Recovery, % 21 37 44 45 45

Contained Gold, oz 642 5,173 8,213 10,126 10,126

Contained Silver, koz 93 711 1,134 1,396 1,396

Pyrite Concentrate, kt n/a 79,734 220,068 558,000 558,000

Revenue, £'000 3,247 30,406 43,439 67,912 83,788

EBITDA, £'000 (13,266) (10,330) 10,049 28,966 39,563

Capex, £'000 (11,939) (1,498) (7,050) (3,525) (1,958)


In terms of capital spending we believe that sustaining capital is likely to be around US$2mpa with limited other capital

requirements. These other requirements relate largely to providing additional tailings capacity for the plant residue

produced as a waste product from production. We believe this is likely to result in additional spending between 2021-

2024F.

- 25 -

Commodity Markets Outlook

Lead and zinc prices are down 10% and 11% YTD although they have modestly recovered from March 2020 lows. With

China first to close down its economy, it has since been the first to bounce back and the recovery in industrial output

has been robust. However, with the rest of world emerging from lockdown RoW economic performance is only starting

to recover. The recovery from China’s perspective appears encouraging with the CCP determined to reduce

unemployment, most likely through significant infrastructure spending. The biggest risk for our outlook remains the

possibility of a rebound in cases and renewed shutdown of regional economies and we retain our conservative outlook

on base metals. However, the unprecedented spending by governments has dramatically changed the outlook for

precious metals.

We highlighted earlier this year that China’s economy is relatively well placed to withstand a shock given high savings

rates with household bank deposits equal to over 80% of GDP combined with a low household debt to GDP ratio of 54%.

The bounce back in auto sales for example underpins this; down 79.1% YoY in March but bouncing back strongly to be

up YoY by 4.4% in April. Furthermore, house sales in April were down just 1.5% YoY and these indicators highlight the

resilience of the Chinese middle class. For an overall recovery the bounce back in consumption will be key as this

contributed to 60% of economic growth in China in 2019.With discretionary spending on commodity intensive goods

such as vehicles etc recovering we believe that this is encouraging for commodity demand, however, the overall recovery

may take longer given our anecdotal evidence that consumers are cautious of returning to restaurants etc.

Furthermore, we have highlighted previously that although China’s corporate debt ratio of 300% to GDP is high it is

largely an extension of government debt and held in the SOES. Consequently, the government is ultimately responsible

for the repayment terms and the additional spending required to stimulate the economy after this crisis is likely to be

manageable even if figures appear high. Indeed, the world’s Central Banks have sanctioned unprecedented peace time

borrowing to respond to this crisis.

Despite the lockdowns impacting both demand and supply industrial commodity prices have not been overly impacted,

falling from a relatively high base as 2019 ended with promise following a provisional US China trade deal. Close of major

mines around the world has prevented the run up in inventory that might have been expected to cause a collapse in

global pricing. This has allowed China to work through inventories as its economy reopened while RoW mines shut down.

That said, with mines reopening now it is not clear whether RoW demand will be able to prevent surpluses in the latter

part of the year despite China’s commitments to significant infrastructure spending.

China once again appears to be providing a floor for global demand and infrastructure project spending will be crucial

to reducing the headline 6% unemployment rate from April (in reality the figure is probably significantly higher). The

Official Budget deficit has been raised 80bps to 3.6% of GDP enabling further borrowing. The quota for Special local

government bond issuance has been increased 74% YoY to RMB3.74trn (US$534bn) with proceeds transferred directly

to city and local level governments to enable public spending on new infrastructure projects including h igh speed rail,

5G and other public facilities. This will likely result in strong demand for industrial commodities, however, rest of world

demand in H2 2020 may not be strong enough to prevent weaker prices. We therefore continue to anticipate some near

term weakness in industrial metal pricing.

China Indicators

Performance of the Shenzhen index has been strong, up 5.7% YTD, which, in our view is primarily a reflection of domestic

investors’ confidence that the CCP would provide the necessary stimulus to support a recovery after lockdown. The

monthly economic indicators unsurprisingly demonstrated a strong monthly improvement in April ; however, it is worth

highlighting that despite these significant bounces in percentage terms confidence is well below pre-COVID-19 levels.

That said, we are encouraged by the return of spending on physical goods and the implications for commodity demand

combined with the impact of stimulus later in the year.

- 26 -

China Stocks Relatively Strong Pullback in Industry and Retail


Industrial production is bouncing back with the reopening in late March sufficient to offset much of the fall resulting in

just a 1% YoY decline in March followed by a 3.9% increase YoY in April. This is some way below trend, however, which

is between 4-6% although with government stimulus set to impact in H2 we expect on going stronger prints. Retail sales

are recovering less rapidly with April sales growth of just 0.3%, although not indebted Chinese consumers are

predisposed to saving and consumer confidence to recover to late 2019 figures of around 8% may take some time.

China Manufacturing PMI China Non-Manufacturing PMI


Sentiment according to PMI recovered fastest amongst the larger companies and SOEs as represented by the NBC figures

rather than the Caixin estimates which represent SMEs and private enterprise. Given the CCP stimulus packages primarily

support state businesses this is unsurprising and POEs are unlikely to be given as much support by the Government,

however, the latest readings suggest that confidence within the private sector is now returning. The unofficial Caixin

manufacturing increased 1.3 points in May after a modest pullback in April to 49.4 while the official NBS survey which

covers SOEs has stabilised around 50.6 after a March bounce to 52 which was a recovery from an all-time low in February

of 35.7. Service sector POEs showed the most promise with the Caixin index up sharply from 44.4 to 55 in May while the

NBS reading was up 0.4 points to 53.2.

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- 27 -

Zinc Update

Zinc prices have fallen 11.1% during 2020 to US$1,882/t, in response to coronavirus, having averaged US$2,514/t in

2019. However, prices have recovered 6% from March lows. Data from the ILZSG showed that the refined zinc market

was in surplus during Q1 2020 of around 240kt. China’s lockdown caused demand to fall sharply by 4% YoY in Q1 2020

which was the key reason for the creation of a surplus.

We have highlighted rising TCRCs in the zinc market over the past 18 months and although it now appears we are past

the peak with a decline to around US$250/t from well above US$300/t in the spot market smelter capacity has been

incentivised to come online. This resulted in a 3.2% YoY increase in refined metal output, despite the lockdown.

Combined with China’s lockdown this caused a 200% increase in zinc inventories between early 2020 and March.

Subsequently, the impact of mine closures in Mexico and Peru has forced end users in China to work down these refined

metal stockpiles by 17% from the peak. RoW inventories as demonstrated by the LME rose during this period slowing

the overall drawdown although have also begun to be drawndown. It is estimated that around 25% of production was

offline during April and so we expect the mine supply figures to drop in April, whereas the ILZSG data shows just a 0.5%

YoY drop in Q1 2020. On an annualised basis the production cuts are obviously less significant but we note that the fall

in prices prompted closures at Trevali’s Caribou mine in addition to Coeur Mining’s Silvertip mine. The Caribou closure

was, however, perhaps a knock on impact from lockdown related closures elsewhere in Trevali’s portfolio. Glencore also

announced a 105kt reduction in zinc output guidance for the year.

Zinc Price, LME US$/t Zinc Inventories, kt


Although there has been a modest recovery in pricing since March lows, with social distancing measures being eased

and mines being brought back from temporary shutdown production is expected to rebound. Despite the rapid recovery

of industrial output in China, the rebound in RoW demand is unlikely to be as quick given the more fragmented global

industry which does not have the CCP driving both demand and supply. Consequently, we maintain our base case that a

sustained recovery in pricing for zinc is unlikely until later in the year when a combination of a more stable global

recovery combined with China’s stimulus package starts to have an impact.

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- 28 -

Zinc TCRC Performance to Early 2020

SOURCE: Teck Resources, VSA Capital Research.

Lead Update

The lead price is down 10.7% YTD to US$1,657/t having averaged US$2,010/t in 2019, although is up 3% from March

lows due to reduced scrap availability in China. ILZSG data shows that the lead market remained broadly balanced; a

2019 deficit of 14kt was converted into a 19kt surplus in Q1 2020. Mine production declined 3.4% YoY, while refined

output and demand both declined 7% YoY. Further production impacts are expected to come through in the Q2 2020

data although demand will similarly have been impacted by RoW lockdown. Our outlook for lead pricing is more stable

than for zinc with the long term demand outlook impacted by the rise of electric vehicles. We do, however, highlight

that even EVs which use lithium ion batteries do require traditional lead zinc batteries due to the stability of the charge

which is important for the starter motor.

Lead Price, LME US$/t Refined Lead Market Balance, kt

SOURCE: Bloomberg, VSA Capital Research. SOURCE: Bloomberg, VSA Capital Research.

Whilst the rise of lithium batteries have gained great traction in the past few years, and the rate of growth is set to

remain strong, it is important to put this into a broader context, particularly in relation to the near term market

fundamentals. Despite the pace of sales of electric vehicles more than doubling in the past few years they still make up

around 1% of the global automobile market meaning lead-zinc continues to be the dominant technology. Over the

medium to long term this position is likely to be eroded due to the improving technology which underpins new battery

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- 29 -

types, however, with the lead market at around 11mnpta and lithium at a few hundred thousand tonnes per annum

there is still a gulf of difference between the two markets and challenges to increasing lithium supply is a risk to the pace

of EV adoption.

There is, however, a supply side risk to the lead market which may impact the market balance over time and therefore

pricing. Indeed, one of the drivers behind the demand growth for EVs in China is improving air quality and more stringent

environmental regulation. The environmental crackdown is likely to result in mine closures across China, particularly

smaller scale operations. Indeed, in August 2017 the authorities temporarily closed around 60% of mines in Sichuan

province. Given that China contributes around 50% of global mined lead production we believe that the impact of these

rising environmental standards could have a significant impact on the market fundamentals providing potential support

for prices.

Gold Market Update

New Era for Gold

The range bound trading of gold of 2013-2019 is over and the price is up 11% YTD and the vaunted US$2,000/oz appear

on the cards. As a safe haven, gold has done its job given the decline in the S&P 500 of -9% over the same period. This

performance is despite a period of volatility during March 2020 where margin calls prompted fund selling; the liquidity

in the gold market and narrow spreads make gold an attractive asset to liquidate for near term cash needs given the

rapidly widening bid ask spreads for stocks and bonds at the start of a crisis.

Gold Against Global Asset Classes YTD 2020 Expected Changes to Government Deficits

SOURCE: Refinitiv, VSA Capital Research. SOURCE: IMF, VSA Capital Research

This is typical of major market crashes and it is after the initial selling that gold really comes into its own as investors

rotate into safe havens. The YTD performance highlights this clearly in conjunction with the fact that implied volatility

which measures the correlation of asset classes to each other is reverting to mean while equity prices and stocks remain

11% off recent highs despite the recent recovery rally.

Although there is significant uncertainty about the year ahead we do not believe that the recent overall equities rally is

a fair reflection of the underlying economy and a likely recovery. With companies withholding dividends and suspending

guidance, for stocks to have bottomed prior to results of FY 2019 let alone Q1 2020 seems overly optimistic. The

challenges of normalising the recovery post lockdown remain significant in terms of restarting supply chains and

rebuilding confidence while the nature of the relaxation of social distancing measures is likely to result in a more

measured recovery of consumption than currently implied by the market.

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- 30 -

The safe-haven aspect of gold is a clear driver arising from the uncertainty surrounding the economic recovery and

longevity of the current measures. However, the major driver for the gold price for the next five years at least is likely

to be the reaction of Central Banks to this unprecedented crisis which has prompted an unorthodox response to a unique

and government sanctioned economic crisis. The IMF has indicated that global borrowing as a percentage of GDP is likely

to rise from 69.4% in 2019 to 85.3% in 2020 owing to the combination of contracting economies and rising public debt.

This is higher than the levels reached in the GFC, and likely understates the final outcome. Further borrowing is likely to

be necessary to support economies through the recovery given the scale of furlough schemes and small business lending

as well as the fall in tax receipts. With central bank balance sheets rising, fiat currency debasement is once again at the

forefront of the precious metals investment case.

Investment Demand

Although there has been great attention on the recent gold price performance particularly breaking through

US$1,700/oz the rally started in June 2019 with the gold price breaking through US$1,400/oz. Demand data shows that

this was driven by a major reversal in ETF inflows after Q3 2018 when there was an outflow of 101t.

In 2019 401t were added to ETFs which was up fourfold YoY. However, investment via bar and coin was in fact down YoY

by 20% to 871t. In Q1 2020 this trend continued with 298t alone added; the highest quarterly addition ever in absolute

US dollar terms when the measure is broadened to include similar products to ETFs. Worsening econom ic data through

the year and the prospect of rate cuts in H2 2019 prompted this uptick in gold buying during 2019 although clearly these

trends have been overtaken by more recent events. We therefore expect investment and ETF demand to be the major

driver of physical gold purchases over the short to medium term.

US$ Gold price, US$/oz Gold ETF Flows

SOURCE: Refinitiv, VSA Capital Research.

Jewellery Demand Robust but Likely to Weaken

Annual jewellery demand fell 6% YoY to 2,107t as consumers felt the impact of rising prices, however, in dollar terms

the value purchased increased 3% YoY. Indeed, Q4 2019 jewellery demand of 584.5t was the lowest since 2011. This was

primarily driven by weakness in China and India. With prices having continued to rise into 2020 and the impact of the

economic shock also likely to feed through to jewellery demand we expect that both volume and value are likely to fall

in 2020.

Central Banks Net Purchases Remain Strong

Central bank net purchases have been significantly higher over the past two years with 2019 purchases at 651t. Although

this was 2% lower YoY than 2018 at 656t, this was itself up 75% YoY and the highest level since 2013. In early 2020

Central Banks bought a net 64.5t in the first two months, 44% down YoY, although the Uzbekistan government was the

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Gold ETF Holdings, Moz

- 31 -

only significant seller during this period (3.1t). The same CBs have been consistently buying over the past few years

including Russia, Turkey and Kazakhstan. However, in light of the oil price crash, Russia announced that its CB would

stop purchases of gold on April 1 2020 having accumulated over 2.2kt (70mnoz) in total reserves.

Central Bank Purchases Global Quarterly Jewellery Consumption

SOURCE: World Gold Council, VSA Capital Research.

Supply

The unique nature of the impact of the coronavirus has for the first time in over 100 years disrupted the supply of refined

gold on a widescale. Due to the shutdown of businesses across Europe, Switzerland was forced to close its refineries for

the first time in over one hundred years. Furthermore, the significant reduction in flying and therefore air freight has

meant that although the global gold market as a whole does not face shortages there has been shortage of physical

metal as suppliers have been unable to deliver to consumers. This prompted some distortion in pricing with physical

premiums reaching up to US$70/oz between Comex and the London price. This does appear to have been a short te rm

impact unique to the impact of the coronavirus and with European governments starting to relax social distancing

measures we expect the gold market to normalise in this respect which is important given the volatility caused raised

some questions about the asset class’ ability to perform as a safe haven.

Gold versus Gold Equities 18 months perf. Gold versus Gold Equities since 2015

SOURCE: Refinitiv, VSA Capital Research. SOURCE: Refinitiv, VSA Capital Research

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- 32 -

Gold Equities

YTD the Van Eck Gold Miners Index is up 11%, however, this recently only just broken the 2016 highs when the gold price

rallied from cUS$1,050/oz to cUS$1,370/oz. With the gold price now substantially higher than the 2016 high, equities

appear undervalued, in our view. The QTD performance is 35% suggesting that gold miners are now strongly catching up

and that a larger momentum rally may be on the cards. We highlight that as a leveraged play on the gold price gold

equities are expected to outperform against pure gold price exposure. Although gold equities derated heavily between

2011 and 2014 erasing the premium, indeed multiple, P/NAV ratios that gold equities traded on, the chart demonstrates

that the gold price to equities ratio has changed little in the last five years. A sustained breakout in the gold price should,

in our view, lead to a stronger rally in gold equities with the potential for those premiums to be regained in the medium

to long term. What is perhaps surprising, is that although senior and mid tier gold producers have rallied in line with

gold price performance as indicated by the Van Eck index, juniors remain deeply discounted which indicates a further

significant opportunity given the rise in the value of the underlying asset class.

Gold Equities Juniors v Seniors YTD


Silver Outlook

Silver has had a challenging start to 2020 with prices dropping initially although now up 3% YTD to US$17.6/oz, having

averaged US$16/oz in 2019. Silver has faced selling pressure in line with pro-cyclical assets exacerbated by precious

metal selling for liquidity during Q1 2020 as equity markets collapsed. Since then gold prices have recovered and gone

on to make multi-year highs, however, silver remains depressed. Indeed, the gold silver ratio reached a record level of

127. At the current gold price, a reversion in the gold;silver ratio to the 2011 average of 44.9 would imply a silver price

of US$38/oz, assuming gold spot pricing.

In previous major downturns silver has underperformed gold in the initial liquidation phase owing to the large industrial

component of demand which gives silver its higher cyclical gearing than gold. However, as a precious metal silver then

tends to outperform in the later part of the downturn and recovery as industrial demand resumes combined with

stronger safe haven demand. Given the blow out in central bank intervention and government borrowing following the

outbreak of COVID-19 and the lockdown measures put in place, the expectation for inflation along with the prospect of

fiat currency debasement is rising. With silver typically outperforming gold in periods of strong precious metals demand

the outlook for the metal which has underperformed YTD is strong, in our view.

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- 33 -

Silver Price and Gold Silver Ratio


Demand

Global industrial demand totalled 511mnoz in 2019, which was broadly unchanged YoY. Demand from the electronics

industry was supported by a recovery in the photovoltaics sector, up 7% YoY to 99mnoz, despite increasingly silver

efficient solar cell designs. The trend in relation to PVs is expected to continue on a per unit basis with the silver

requirement expected to fall as low as 68mg per cell compared to 130mg today. However, over the medium to long term

this is likely to be offset by rising numbers of units manufactured; PVs now account for 19% of annual industrial demand.

In the near term, the manufacturing shutdown across the world is likely to cause a near term demand shock whilst the

trajectory of the industrial recovery is highly uncertain, however, this is likely to be offset at least in part by stronger

investment related demand. Indeed, with a strong outlook for the green technology sector as a whole we expect

industrial silver demand to experience strong positive tailwinds on normalisation of the global economy.

Global Silver Demand, mnoz

SOURCE: World Silver Institute, VSA Capital Research.

In 2019 net physical investment demand increased 12% YoY to 186mnoz, having risen 12% YoY in the prior year. This is

still some 40% lower than the 2015 record high. The surge was in part driven by a change in German regulation which

reduced the limit for anonymous precious metals purchases. As in the gold market, coronavirus has disrupted the

delivery of physical metal with significant premiums on physical metal over electronic market prices. A muted market

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Silverware Jewellery Photography Net Physical Investment Industrial

- 34 -

over the past three years for US Silver Eagle sales (coins) has seen a sharp rise indicating that retail demand is picking up

strongly. Furthermore exchange traded buying has been strong in the early part of 2020 and we expect this to continue

with inflows surpassing the 2019 peak to record highs of above 770mnoz.

The fact that industry accounts for 51% of annual silver demand is the main factor behind the recent price weakness,

however, this typical of prior downturns and paves the way for a levered recovery in silver pricing. Demand will benefit

in two ways; firstly after the initial shock industrial demand will begin to recover and secondly as a less expensive safe

haven exposure the investment demand side will benefit which would likely more than offset any industrial weakness

over the balance of 2019, in our view.

Supply

During 2019 total supply of 1,023mnoz was up 1% YoY as a decrease in mined supply was offset by an increase in recycling

and scrap supply which accounted for 17% of the annual total. Total output from mines has fallen gradually from a high

in 2015 of 893mnoz to 837mnoz last year as weak exploration and development stage spending has halted the discovery

and commissioning of new projects to replace this natural decline.

The onset of coronavirus presents a new challenge to mine supply national governments responding with the forced

closure of mines due to operations being classed as non-essential. Peru and Mexico were early adopters of this policy

although are responsible for over a third of global silver mining production at 16% and 23% respectively.

Pan American Silver temporarily shut four mines in Peru including Huaron and Morococha which last year produced

3.8mnoz of silver and 2.5mnoz silver. In addition, Hochschild Mining temporarily stopped operations at its Inmaculada

and Pallancata mines in Peru, which produced 5.7mnoz and 7.5mnoz of silver respectively in 2018. Operations had

initially been postponed for 14 days but this was extended for a further two-week period. In Mexico it was announced

that mines would close for the month of April as a minimum. The decision has impacted Pan American Silver’s La

Colorada Mine in the Zacatecas region in addition to Newmont Mining Corporation with the company ceasing

operations at the Penasquito Mine which is Mexico’s second largest silver producing mine. With the expected hit to

industrial demand arising from lockdown, the supplyside disruption will prevent an increase in above ground stocks of

silver helping to prevent significant market surpluses and providing support for prices.

Silver Mine Supply by Country and Scrap Recycling

SOURCE: World Silver Institute, VSA Capital Research.

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Appendix 3: Key Personnel

David Lenigas, Chairman

A qualified Mining Engineer with a Western Australian First Class Mine Managers Certificate. He has ov er 25 years of

corporate experience across many sectors and has extensive experience at Chairman and CEO level on many of the

world’s leading stock exchanges.

Walter Doyle, Director, Chief Executive Officer & Founder

Venture Capitalist and specialist in public equity markets worldwide with over 40 years of experience in mining and

resources in Australia. Proven ability in team building and empowerment of individuals in the advancement of

shareholder value.

Roger Jackson, Executive Director

Over 25 years’ experience gained on underground and surface operations. Founding Director of numerous public and

private entities in Australia including Hillgrove Gold Mines, Ark Mines Ltd, Every Day Mine Services Ltd, Augur Resources

and Georgetown Gold Mine. Roger has significant concentrate marketing experience. BSc. (Geology, Geophysics) Dip.

Fin. Man. Dip. Ed. MAus.IMM AICD.

Colin Sutherland, Chief Financial Officer & Director

A CPA with over 20 years of financial and operational experience. Most recently, he served as President of McEwen

Mining (NYSE:MUX) (TSX:MUX). Prior to this he served as Chief Executive Officer and Managing Director of Archipelago

Resources Plc and held senior financial and executive roles with Timmins Gold, Capital Gold, Nayarit Gold and Auri co

Gold.

Alan Ambrose, Non-Executive Director

30 years in the Mining industry with extensive experience in exploration, Project evaluation and project management,

and has worked as a geological consultant in the US, Venezuela and Argentina. Currently a Di rector of Minera Andes

(McEwen Mining).

Kevin Puil, Non-Executive Director

A Canadian national, Mr. Puil currently serves as the founder and Managing Partner of RIVI Capital LLC which is a private

equity fund focused on precious metals Kevin is a financier and has a wealth of experience in the mining sector. He has

previously worked as an investment analyst and portfolio manager in both Canada and the US and is a CFA charter

holder.

Greg Lane, Non-Executive Director

Over 30 years experience in operations, engineering, design, study and Project management, with industry leading

knowledge of concentrator design, particularly comminution and flotation circuit design. Currently Chief Technical

Officer at Ausenco. Started his career as a senior Metallurgist at Hellyer Gold Mines.

Mike Barden, CDO

Over 35 years experience in the Mining sector including operational management, strategic consulting and business

turnaround across all major mining jurisdictions and mined commodities. Mike was previously a Partner at Monitor

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Company, CEO of CRU and founder of Commodity and Mining Insight. Mike has an engineering degree from Cambridge

and an MBA with finance specialisation.

Suresh Advani, Chief Investment Officer

Over 30 years experience as an executive and non executive in regulated financial services including banking, fund

management, financial technology and insurance. Responsible for liability management /lender relationships. Formerly

JPMorgan Chase and Dresdner Kleinwort Wasserstein, International Chamber of Commerce, Wyelands Bank Plc and

Demica. Attended Oxford University.

Steve White, Director, Hellyer Gold Mines and Ivy Resources

Steve White is an investment banker specialising in start-up and growth phase enterprise. Over the last three decades,

he has wide experience in mining exploration & project development, including gold and base metals, uranium, potash,

phosphate, coal, and oil & gas. He is a highly experienced Director of over 30 companies in recent decades. He is currently

a Director of Intergroup Mining and Australian General Manager for UK based Arq - a specialist international mine tailings

reprocessing company.

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Appendix 3: Financial Statements

Profit and Loss (£’000), December Year End

2018A 2019F 2020F 2021F 2022F 2023F

Revenue 3,247 30,406 43,439 67,912 83,788 84,244

Cost of sales (5,214) (26,437) (29,978) (41,491) (46,655) (46,016)

Gross Profit (1,967) 3,968 13,461 26,421 37,133 38,229

Distribution and selling costs (381) - - - - -

Administrative Expenses (11,196) (16,723) (8,688) (4,075) (4,189) (4,212)

Other (expense)/income 135 - - - - -

Foreign exchange gain / (loss) - - - - - -

Other (expense)/income - - - - - -

EBIT (13,409) (12,755) 4,773 22,346 32,944 34,016

Finance Income 31 - - - - -

Finance costs (12,223) (14,359) (9,910) (10,997) (3,592) (3,192)

Net finance costs (12,192) (14,359) (9,910) (10,997) (3,592) (3,192)

Profit before taxation (25,601) (27,114) (5,137) 11,349 29,351 30,824

Mining and income tax 153 600 - - (8,805) (9,247)

Profit for the year (25,448) (26,514) (5,137) 11,349 20,546 21,577


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Balance Sheet (£’000), December Year End

2018A 2019F 2020F 2021F 2022F 2023F

Property, plant and equipment 19,492 19,778 25,639 25,854 24,503 28,243

Inventory 19,344 19,344 19,344 19,344 19,344 19,344

Intangible Assets 1,218 1,218 1,218 1,218 1,218 1,218

Financial Assets 1,068 1,068 1,068 1,068 1,068 1,068

Deferred Tax Assets 986 986 986 986 986 986

Total non-current assets 42,108 42,394 48,255 48,470 47,119 50,859

Inventories 3,467 2,916 2,975 4,652 5,739 5,770

Trade and Other Receivables 1,736 4,332 3,808 5,954 7,346 7,386

Cash and bank balances 513 1,307 1,107 8,454 18,584 28,087

Total current assets 5,716 8,555 7,891 19,059 31,668 41,243

Total assets 47,824 50,949 56,146 67,530 78,787 92,102

Ordinary shares 322 322 322 322 322 322

Share Premium 15,487 16,207 17,101 17,101 17,101 17,101

Unissued Capital Reserve 3,879 3,879 3,879 3,879 3,879 3,879

Share Option Reserve 7,124 7,124 7,124 7,124 7,124 7,124

Other Reserve 105 105 105 105 105 105

Group Reorganisation Reserve (6,983) (6,983) (6,983) (6,983) (6,983) (6,983)

Translation Reserve (412) (412) (412) (412) (412) (412)

Merger Relief Reserve 7,171 7,171 7,171 7,171 7,171 7,171

Retained Earnings (45,581) (72,095) (77,231) (65,883) (45,337) (23,760)

Total equity (18,888) (44,682) (48,924) (37,576) (17,030) 4,547

Borrowings 35,928 50,178 57,678 53,678 45,678 37,678

Provision for Rehabilitation 4,100 4,100 4,100 4,100 4,100 4,100

Deferred Tax Liabilities 6,955 6,955 6,955 6,955 6,955 6,955

Total non-current liabilities 46,983 61,233 68,733 64,733 56,733 48,733

Borrowings 11,934 18,166 18,166 18,166 18,166 18,166

Convertible Notes 1,457 1,745 1,745 1,745 1,745 1,745

Trade and other payables 6,338 14,486 16,427 20,461 19,173 18,911

Total current liabilities 19,729 34,397 36,338 40,372 39,084 38,822

Total liabilities 66,712 95,630 105,071 105,105 95,817 87,555

Total equity and liabilities 47,824 50,949 56,146 67,530 78,787 92,102


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Statement of Cash Flows (£’000), December Year End

2018F 2019F 2020F 2021F 2022F 2023F

Cash Flows From Operating Activities

Net Income (25,448) (26,514) (5,137) 11,349 20,546 21,577

Adjustments for:

Depreciation & Amortisation - 1,212 2,638 3,310 3,310 3,310

Change in working capital - 6,104 2,404 213 (3,768) (334)

Other - - - - - -

Interest received - - - - - -

Interest paid - (14,359) (9,910) (10,997) (3,592) (3,192)

Net cash generated by operating activities (13,484) (19,197) (95) 14,872 20,088 24,553

Cash flows from investing activities

Acquisition of property, plant and equipment (11,939) (1,498) (7,050) (3,525) (1,958) (7,050)

Payment for exploration (271) - - - - -

Payment for share purchase acquisition - - (1,449) - - -

Other - - - - - -

Net cash from investing activities (12,210) (1,498) (8,499) (3,525) (1,958) (7,050)

Cash flows from financing activities

Proceeds from Issue of Share Capital 413 720 894 - - -

Interest Income 28 - - - - -

Proceeds from borrowings 35,130 20,770 7,500 - - -

Repayment of borrowings (11,486) - - (4,000) (8,000) (8,000)

Dividends Paid - - - - - -

Other - - - - - -

Net cash used in financing activities 24,085 21,490 8,394 (4,000) (8,000) (8,000)

Net increase in cash and cash equivalents (2,797) 1,049 (200) 7,347 10,130 9,503

Impact of FX (1,188) - - - - -

Cash at the beginning of the year 3,310 513 1,307 1,107 8,454 18,584

Cash at the end of the year 513 1,562 1,107 8,454 18,584 28,087


- 40 -

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Recommendation and Target Price History

Valuation basis

Our valuation for NQ Minerals is based on DCF analysis and EV/Resource peer based multiples.

Risks to that valuation

Commodity prices, political risk, execution risk.

This recommendation was first published on 8 June 2020.

SOURCE: FactSet data, VSA Capital Research.

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