1. business and industrial
2. company
3. merger and acquisition

For personal use only
DELECTA LIMITED
ACN 009 147 924
NOTICE OF GENERAL MEETING
TIME:
10 am
DATE:
28 January 2015
PLACE:
9 Foundry Street, Maylands, Perth, Western Australia
This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they
should vote, they should seek advice from their professional advisers prior to voting.
Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact the
Company Secretary on +61 3 9695 5858.
For personal use only
CONTENTS
Business of the Meeting (setting out the proposed Resolution 1)
3
Explanatory Statement (explaining the proposed Resolution 1)
4
Glossary
13
Annexure 1 – Financial services guide and Independent Expert’s Report
Attached
Proxy Form
Attached
IMPORTANT INFORMATION
Time and place of Meeting
Notice is given that the Meeting will be held at 10 am on 28 January 2015 at:
9 Foundry Street, Maylands, Perth, Western Australia.
Your vote is important
The business of the Meeting affects your shareholding and your vote is important.
Voting eligibility
The Directors have determined pursuant to Regulation 7.11.37 of the Corporations
Regulations 2001 (Cth) that the persons eligible to vote at the Meeting are those who are
registered Shareholders at 5 pm on 26 January 2015.
Voting in person
To vote in person, attend the Meeting at the time, date and place set out above.
Voting by proxy
To vote by proxy, please complete and sign the enclosed Proxy Form and return by the time
and in accordance with the instructions set out on the Proxy Form.
In accordance with section 249L of the Corporations Act, Shareholders are advised that:
•
each Shareholder has a right to appoint a proxy;
•
the proxy need not be a Shareholder of the Company; and
•
a Shareholder who is entitled to cast 2 or more votes may appoint 2 proxies and may
specify the proportion or number of votes each proxy is appointed to exercise. If the
member appoints 2 proxies and the appointment does not specify the proportion or
number of the member’s votes, then in accordance with section 249X(3) of the
Corporations Act, each proxy may exercise one-half of the votes.
Shareholders and their proxies should be aware that changes to the Corporations Act made
in 2011 mean that:
•
if proxy holders vote, they must cast all directed proxies as directed; and
Notice of Meeting (Canadian River transaction) - ASX excl proxy.docx
1
•
any directed proxies which are not voted will automatically default to the Chair, who
must vote the proxies as directed.
Further details on these changes are set out below.
For personal use only
Proxy vote if appointment specifies way to vote
Section 250BB(1) of the Corporations Act provides that an appointment of a proxy may
specify the way the proxy is to vote on a particular resolution and, if it does:
•
the proxy need not vote on a show of hands, but if the proxy does so, the proxy must
vote that way (i.e. as directed); and
•
if the proxy has 2 or more appointments that specify different ways to vote on the
resolution, the proxy must not vote on a show of hands; and
•
if the proxy is the chair of the meeting at which the resolution is voted on, the proxy
must vote on a poll, and must vote that way (ie as directed); and
•
if the proxy is not the chair, the proxy need not vote on the poll, but if the proxy does
so, the proxy must vote that way (ie as directed).
Transfer of non-chair proxy to chair in certain circumstances
Section 250BC of the Corporations Act provides that, if:
•
an appointment of a proxy specifies the way the proxy is to vote on a particular
resolution at a meeting of the Company's members; and
•
the appointed proxy is not the chair of the meeting; and
•
at the meeting, a poll is duly demanded on the resolution; and
•
either of the following applies:
the proxy is not recorded as attending the meeting; or
the proxy does not vote on the resolution,
the chair of the meeting is taken, before voting on the resolution closes, to have been
appointed as the proxy for the purposes of voting on the resolution at the meeting.
2
BUSINESS OF THE MEETING
AGENDA
For personal use only
1.
RESOLUTION 1 – GRANT OF CANADIAN RIVER OPTION
To consider and, if thought fit, to pass, with or without amendment, the following
resolution as an ordinary resolution:
“That, for the purposes of ASX Listing Rules 10.1 and 10.5 and for all other
purposes, approval is given for the Company to grant the Canadian River
Option and, subject to satisfaction of conditions set out in the PNE Option
Agreement, transfer the Canadian River Shares to PNE on the terms and
conditions set out in the Explanatory Statement.”
Voting Exclusion: The Company will disregard any votes cast on this Resolution by a party to
the transaction and any associates of those persons. However, the Company need not
disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in
accordance with the directions on the Proxy Form, or, it is cast by the person chairing the
meeting as proxy for a person who is entitled to vote, in accordance with a direction on the
Proxy Form to vote as the proxy decides.
Independent Expert’s Report: Shareholders should carefully consider the Independent
Expert’s Report prepared for the purpose of the Shareholder approval required under ASX
Listing Rule 10.1.
The Independent Expert’s Report comments on the fairness and
reasonableness of the transactions the subject of this Resolution to the non-associated
Shareholders. The Independent Expert has determined the grant of the Canadian River
Option and, subject to satisfaction of conditions set out in the PNE Option Agreement, the
transfer of the Canadian River Shares to PNE is fair and reasonable to un-associated
Shareholders.
Dated: 22 December 2014
By order of the Board
J Burness
Company Secretary
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EXPLANATORY STATEMENT
For personal use only
This Explanatory Statement has been prepared to provide information which the Directors
believe to be material to Shareholders in deciding whether or not to pass the Resolution.
1.
BACKGROUND
1.1
Acquisition of interest in Canadian River Project
On 25 September 2014, the Company announced it had entered into a binding
heads of agreement (through its wholly owned subsidiary, Canadian River Inc
(Canadian River)) with Inland Oil & Gas LLC (Inland) (Heads of Agreement) to
acquire from Inland certain rights and interests in and associated with oil and gas
leases, oil and gas wells, equipment and infrastructure forming the Canadian River
Field Development Project located in Okfuskee County, Oklahoma, in the United
States of America (Canadian River Project) currently owned by Inland (Acquisition).
The material terms of the Heads of Agreement are as follows:
Stage 1
(a)
(Acquisition of interest): Pursuant to the Heads of Agreement, Canadian
River will acquire an 80% working interest (a 58% net revenue interest) in the
first completed well within the Canadian River Project area, the Wise I-25
Well, together with associated rights and interests including access to the
required infrastructure to bring the First Well into production (First Well).
(b)
(Consideration): In consideration for the acquisition of the First Well,
Canadian River has paid the agreed amount of US$3,000,000 to Inland. The
consideration paid by Canadian River represents Canadian River’s total
costs for the drilling of the First Well to a total depth of 4,500 feet, after which
each party will fund their respective working interest proportionate share of
all costs and expenses related to the First Well.
(c)
(Operator): Inland and Canadian River have agreed that the operator of
the First Well, currently Inland Operating Company, LLC, an Oklahoma
corporation (Operator), will continue to be the Operator of the First Well,
which operation shall be governed by the terms of the Heads of Agreement
and an operating agreement (Operating Agreement).
(d)
(Security Deposit): Canadian River is required to provide a security deposit
in the amount of US$50,000 to be held in an account by the Operator and
used in the event Canadian River fails to pay its proportional share of
expenses or costs relating to the First Well under the Operating Agreement.
Stage 2
(a)
(Conditional option to acquire interest): If the acquisition of the First Well
under the Heads of Agreement completes, Inland will grant to Canadian
River an option to earn:
(i)
an 80% working interest (a 54% net revenue interest) in a further four
(4) wells, together with other associated rights and interests
(Remaining Wells); and
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(ii)
a 4% net revenue interest in all wells drilled on the land containing
the Remaining Wells (but not including the Remaining Wells)
together with other associated rights and interests,
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(Stage 2 Option).
(b)
(Conditions precedent): The Stage 2 Option is conditional upon:
(i)
completion of due diligence by Canadian River on the Remaining
Wells and associated rights and interests and completion of due
diligence by Inland on Canadian River’s business, assets and
operations to the satisfaction of Inland;
(ii)
the Company seeking and being granted approval for recomplying with Chapters 1 and 2 of the ASX Listing Rules; and
(iii)
the Company’s shareholders having given the appropriate
approval at a general meeting for the re-compliance with Chapters
1 and 2 of the ASX Listing Rules.
(c)
(Consideration): Pursuant to the Heads of Agreement, Canadian River has
until 28 February 2015 (unless extended by Inland) to exercise the Stage 2
Option by providing written notice to Inland, in which case, Canadian River
will be required to pay a further US$4,875,000 to Inland. The consideration
paid by Canadian River for the exercise of the Stage 2 Option represents
Canadian River’s total costs for the drilling of each Remaining Well to a
sufficient depth to test each Remaining Well’s formation and (among other
things) to fully equip each Remaining Well. Once this has occurred, each
party will fund their respective working interest proportionate share of all
costs and expenses related to the Remaining Wells.
(d)
(Termination): If completion of the exercise of the Stage 2 Option by
Canadian River has not occurred by 28 February 2015, Inland may terminate
the Heads of Agreement.
Further details in relation to the Canadian River Project are set out in Section 1.4
below.
1.2
Seismic Option Agreement
In addition to the Heads of Agreement, Canadian River has also entered into a
Seismic Option Agreement with John Leenerts (the principal owner of Inland and the
Operator) and James Holcomb (Seismic Vendors) pursuant to which Canadian River
has been granted an option to purchase Seismic Data owned by them covering a
total of 64 square miles inclusive of the Canadian River Project area (Seismic Option).
The seismic data included within the Seismic Option includes all seismic, geological,
or geophysical data owned by the Seismic Vendors over this area, and all
interpretations of seismic, geological, or geophysical data owned by them over this
area (Seismic Data). Securing exclusive access to this information will provide the
Company with additional prospects and drill targets beyond the initial Canadian
River Project area.
Exercise of the Seismic Option can occur any time on or before the date that is 3
months following the completion of the drilling of the Remaining Well the subject of
Stage 2 of the Heads of Agreement.
To exercise the Seismic Option, Canadian River will be required to:
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(a)
pay an option exercise price of US$250,000 to the Seismic Vendors;
(b)
grant the Seismic Vendors a 2% overriding royalty interest in any additional
well developed (excluding any of the 5 wells drilled and developed under
Stage 1 and 2 of the Heads of Agreement);
(c)
pay the Seismic Vendors US$25,000 for each well drilled for the first five wells
drilled using the Seismic Data (excluding the 5 wells to be drilled under Stage
1 and 2 of the Heads of Agreement);
(d)
issue to the Seismic Vendors 5,000,000 options (post-reconstruction) to
acquire fully paid shares in the capital of the ASX listed parent company
with an exercise price of $0.25 (post-reconstruction) and expiring 2 years
from the date of issue.
Completion of the Seismic Option Agreement is conditional upon all board and
shareholder resolutions or other required approvals authorising Canadian River’s
execution of that agreement and all other documents necessary to complete the
transactions contemplated by it.
In the event that the Company does not complete 5 additional wells within twelve
months of exercising the Seismic Option, the Seismic Vendors will be released to
develop wells within the 64 square mile area the subject of the Seismic Option
Agreement without obligation to the Company.
1.3
PNE Option Agreement
On or around 25 September 2014, the Company entered into an option agreement
with Payne Find Gold Limited (PNE), pursuant to which the Company has granted
PNE an exclusive option to acquire its rights and interests in all of the shares in the
capital of Canadian River (Canadian River Shares) (Canadian River Option). Upon
completion of the Heads of Agreement, Canadian River will hold the interests in the
Canadian River Project described in Section 1.1, and upon completion of the PNE
Option Agreement, PNE will hold all Canadian River Shares.
The material terms of the PNE Option Agreement are as follows:
(a)
(Conditions precedent): Exercise of the Canadian River Option is conditional
upon:
(i)
completion of due diligence by PNE on Canadian River’s business to
its absolute satisfaction;
(ii)
completion of a consolidation of capital by PNE on a ratio to be
mutually agreed between PNE and the Company, required for reinstatement to the official list of ASX;
(iii)
completion of capital raising by PNE of a minimum of AUD$4,000,000
at an issue price of not less than $0.10 per PNE Share, required for reinstatement to the official list of ASX. The Company understands as
at the date of this Notice that it is PNE’s intention to raise up to
$8,000,000 through its capital raising at $0.10 per PNE Shares so that
it can proceed with Stage 2 of the Heads of Agreement; and
(iv)
both the Company and PNE obtaining the appropriate shareholder
and regulatory approvals (including re-compliance with Chapters
1 and 2 of the ASX Listing Rules and approval for PNE’s re-admission
to quotation).
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(b)
(Consideration): The Canadian River Option may be exercised by PNE at
any time on or before 5.00pm, 28 February 2015. If the Canadian River
Option is exercised, the following consideration will be payable to the
Company by PNE:
(i)
the issue of 30,000,000 post reconstruction PNE Shares (being
AUD$3,000,000 worth at a deemed issue price of $0.002 prereconstruction of PNE’s issued capital as set out in 1.3(a) above);
(ii)
the issue of 6,000,000 post reconstruction PNE Options to acquire
fully paid PNE Shares within 5 years of their issue at an exercise price
of $0.125 (post-reconstruction of PNE’s issued capital as set out in
1.3(a) above); and
(iii)
the payment of AUD$1,000,000 from future oil & gas revenues
derived from the project.
Interests in PNE and Independent Expert’s Report
The Company currently holds 350,000,000 PNE Shares (being a shareholding of
approximately 48.9% of the total PNE Shares on issue at the time of entering the PNE
Option Agreement and approximately 38.4% as at the date of this Notice). Mr
Malcolm Day is also currently a common director of both the Company and PNE
(details of the interests of each Director in PNE Securities are set out in Section 1.5).
For this reason, and to satisfy ASX Listing Rule requirements, an Independent Expert’s
Report accompanies this Notice in Annexure 1. The independent Expert has
determined the grant of the Canadian River Option and, subject to satisfaction of
conditions set out in the PNE Option Agreement, the transfer of the Canadian River
Shares to PNE is fair and reasonable to un-associated Shareholders.
1.4
Details of the Canadian River Project
The Canadian River Project is located in the east-central portion of Oklahoma in the
southeast portion of Okfuskee County, Oklahoma. Positioned south of the town of
Weleetka, the project is easily accessible using the allweather access provided by
the state highway system and well-maintained gravel county roads. The local terrain
is slightly hilly with ground elevations ranging from 700 to 900 feet above sea level.
No known adverse environmental conditions exist on the surface or sub-surface.
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Okfuskee County, Oklahoma , USA, is a well known and highly prolific oil and gas
producing area with multi stacked producing horizons. The first well has been
completed for production in the Wilcox sand at a depth of 3,922 feet.
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Stage 1
The First Well within the Canadian River Project area has been completed for
production in the Wilcox sandstone horizon at a depth of 3,922 feet. With the
completion of the Salt Water Disposal Well (SWDW) to support this well, which is
planned for spudding in early October, with completion schedule for the end of that
month, the Canadian River Project provides the Company with the opportunity to
create immediate cash flow.
It is expected that the First Well will produce predominately oil, but also gas.
All infrastructure to commence production is included in the acquisition cost,
such as gas transmission lines, separation tanks, electricity cables to well head and
pumping equipment.
Existing cash reserves of the Company have been used to fund the completion of
Stage 1.
Stage 2
The second stage of the Acquisition relates to an option to drill the four (4) Remaining
Wells targeting the same producing horizon. Stage 2 also incorporates the acquisition
of all necessary infrastructure, including the SWDW and that accessed under Stage 1,
to bring each of the Remaining Wells into production.
1.5
Disclosure of Interests
As at the date of this Notice, the directors of the Company each have a relevant
interest in PNE Securities as set out in the table below.
Director
PNE Shares
PNE Options
Voting Power (%)
NIL
NIL
NIL
3,310,098
1,103,366
0.36%
Mr Hans-Rudolf Moser
Non Executive Director
NIL
NIL
NIL
Mr John Burness
Chief Financial Officer
and Company Secretary
NIL
NIL
NIL
3,310,098
1,103,366
0.36%
Mr Bradley Moore
Non Executive Chairman
Mr Malcolm Day
Managing Director
Total
1.6
Advantages of the Canadian River Option
The Directors are of the view that the following non-exhaustive list of advantages
may be relevant to a Shareholder’s decision on how to vote on the Resolution:
(a)
In the event Shareholder approval is obtained, the required funds by PNE
raised and the re-compliance with Chapters 1 and 2 of the ASX Listing Rules
completed by PNE, the Company will have the ability to recoup
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AUD$1,000,000 of its initial US$3,000,000 investment from future revenues
generated by the Canadian River Project.
1.7
(b)
The Company will continue to hold an interest in the Canadian River Project
without the need to recomply with Chapters 1 and 2 of the ASX Listing Rules.
(c)
PNE will provide the best opportunity for the funds required for exercise of the
Stage 2 Option of the Canadian River Project to be raised compared to DLC,
and accordingly for the Company to participate in the exploration and
development of the additional wells and land covered by the Seismic Data
surrounding the Wise #1-25 Well the subject of Stage 1, albeit indirectly
through its shareholding in PNE.
(d)
Shareholders of the Company will not face dilution through the Company
having to raise capital itself to fund the exercise of Stage 2 Option of the
Canadian River Project, with PNE responsible for raising the required capital.
(e)
Ongoing risks associated with the operation of the Canadian River Project,
including but not limited to financial, environmental, occupational health
and safety and regulatory risks pass to PNE in the event the PNE Option
Agreement is completed.
Disadvantages of the Canadian River Option
The Directors are of the view that the following non-exhaustive list of disadvantages
may be relevant to a Shareholder’s decision on how to vote on the Resolutions:
1.8
(a)
In the event Shareholder approval is obtained, the required funds by PNE
raised and the re-compliance with Chapters 1 and 2 of the ASX Listing Rules
completed by PNE, the Company will no longer hold a direct interest in the
Canadian River Project and will not retain control of the Canadian River
Project. Consequently, the Company will not be entitled to a revenue
interest from the Canadian River Project, with the exception of the $1 million
from initial revenues, but will be reliant on dividend distributions or capital
appreciation of its shareholding in PNE or both to register a return on its initial
investment.
(b)
The Company’s interest in the Canadian River Project will be diluted due to
the intrinsic value of PNE prior to entering into the PNE Option Agreement
and the completion of capital raising by PNE. Based on the Company’s
current shareholding in PNE and the consideration to be received under the
PNE Option Agreement it is expected that the Company will have a
shareholding interest in PNE on completion of the PNE Option Agreement of
approximately 41.9% if $4,000,000 is raised by PNE at 10 cents per PNE Share
or approximately 28.9% if $8,000,000 is raised by PNE at 10 cents per PNE
Share (each excluding any other issues of PNE Shares including by the
exercise of PNE Options).
Intentions if Acquisition is not approved
If the Resolutions are not passed and the Acquisition is not completed, the Company
will retain ownership of Canadian River, and therefore the Canadian River Project,
inclusive of the Stage 2 Option and the Seismic Option. In these circumstances the
Company would seek to negotiate with Inland for the Stage 2 Option period to be
extended to allow for re-compliance with Chapters 1 and 2 of the ASX Listing Rules.
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1.9
Director’s recommendation
The Directors (other than Malcolm Day who did not make a determination given his
position as a director of both the Company and PNE) unanimously recommend that
Shareholders vote in favour of the Resolution as they consider the grant of the
Canadian River Option to PNE to be in the best interests of Shareholders for the
following reasons:
(a)
after assessment of the advantages and disadvantages referred to in
Sections 1.6 and 1.7 the Directors are of the view that the advantages
outweigh the disadvantages; and
(b)
the Independent Expert has determined the grant of the Canadian River
Option to be fair and reasonable to the non-associated Shareholders.
2.
RESOLUTION 1 – GRANT OF CANADIAN RIVER OPTION
2.1
General
As noted in Section 1.3, the Company has granted PNE an exclusive option to
acquire its rights and interests in all of the shares in the capital of Canadian River.
Upon completion of the Heads of Agreement, Canadian River will hold the interests
in the Canadian River Project described in Section 1.1, and upon completion of the
PNE Option Agreement, PNE will own all Canadian River Shares.
Resolution 1 seeks Shareholder approval for the grant of the Canadian River Option
to and the acquisition of all Canadian River Shares by PNE.
2.2
Chapter 2E of the Corporations Act
For a public company, or an entity that the public company controls, to give a
financial benefit to a related party of the public company, the public company or
entity must:
(a)
obtain the approval of the public company’s members in the manner set
out in sections 217 to 227 of the Corporations Act; and
(b)
give the benefit within 15 months following such approval,
unless the giving of the financial benefit falls within an exception set out in sections
210 to 216 of the Corporations Act.
Resolution 1 will result in the grant of an exclusive option to PNE, and, if exercised, the
transfer of all Canadian River Shares to PNE, which constitutes the giving of a
financial benefit. Further, PNE is a related party of the Company as it is controlled by
the Company.
The Directors (other than Malcolm Day who did not make a determination given his
position as a director of both the Company and PNE) have determined that that
Shareholder approval pursuant to Chapter 2E of the Corporations Act is not required
in respect of Resolution 1 because the Canadian River Option and associated
acquisition of Canadian River Shares were negotiated at arm’s length.
2.3
ASX Listing Rule 10.1
ASX Listing Rule 10.1 provides that an entity must ensure that neither it, nor any of its
child entities, acquires a substantial asset from, or disposes of a substantial asset to,
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amongst other persons, a related party or child entity, without the prior approval of
holders of the entity’s ordinary shareholders.
For personal use only
Disposal by the Company
Subject to the successful exercise of the Canadian River Option by PNE, the
Company will be making a disposal of the shares it holds in Canadian River.
Substantial asset
For the purposes of ASX Listing Rule 10.1, an asset is substantial if its value, or the
value of the consideration for it is, or in ASX’s opinion is, 5% or more of the equity
interests of the entity as set out in the latest accounts given to ASX under the ASX
Listing Rules.
The Equity Interests of the Company as set out in the latest accounts given to ASX
under the ASX Listing Rules (being for the full year statutory accounts for financial
year 2014) were $10.914 million.
As the value of the consideration pursuant to the PNE Option Agreement is more
than 5% of the equity interests of the Company as set out in the latest accounts
given to ASX under the ASX Listing Rules, the completion of the Canadian River
Option will result in the disposal of a substantial asset.
Child entity and related party
As stated in Section 1.3, the Company currently holds 350,000,000 PNE Shares (being
a shareholding of approximately 48.9% of the total PNE Shares on issue at the time of
entering the PNE Option Agreement and approximately 38.4% as at the date of this
Notice). On this basis, the Directors (other than Mr Day who did not make a
determination given his position as a director of both the Company and PNE)
consider that the Company has capacity to determine the outcome of decisions
about PNE’s financial and operating policy such that PNE is considered to be a child
entity and also a related party of the Company for the purposes of ASX Listing Rule
10.1.
Requirement for shareholder approval
As a result of the above conclusions, the completion of the Canadian River Option
will result in the disposal of a substantial asset to a child entity and related party of
the Company and the Company is required to seek Shareholder approval under ASX
Listing Rule 10.1.
2.4
Independent Expert’s Report
ASX Listing Rule 10.10.2 requires a notice of meeting containing a resolution under
ASX Listing Rule 10.1 to include a report on the transaction from an independent
expert.
The Independent Expert's Report attached sets out a detailed independent
examination of the proposed transaction the subject of Resolution 1 to enable nonassociated Shareholders to assess the merits and decide whether to approve
Resolution 1.
To the extent that it is appropriate, the Independent Expert’s Report sets out further
information with respect to the completion of the Canadian River Option and
concludes that it is fair and reasonable to the non-associated Shareholders.
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Shareholders are urged to carefully read the Independent Expert’s Report to
understand its scope, the methodology of the valuation and the sources of
information and assumptions made.
The Independent Expert’s Report is also available on the Company’s ASX
announcement platform under ASX code ‘DLC’. The Company will provide a hard
copy of the Independent Expert’s Report free of charge if requested.
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GLOSSARY
$ means Australian dollars.
For personal use only
Acquisition means the acquisition by Canadian River of rights and interests in the Canadian River
Project pursuant to the Heads of Agreement, as described in Section 1.1.
ASIC means the Australian Securities & Investments Commission.
ASX means ASX Limited (ACN 008 624 691) or the financial market operated by ASX Limited, as
the context requires.
ASX Listing Rules means the Listing Rules of ASX.
Board means the current board of directors of the Company.
Business Day means Monday to Friday inclusive, except New Year’s Day, Good Friday, Easter
Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a business day.
Canadian River means Canadian River, Inc., a wholly owned subsidiary of the Company.
Canadian River Option means the exclusive option granted to PNE pursuant to the PNE Option
Agreement.
Canadian River Project means the Canadian River Field Development Project located in Okfuskee
County, Oklahoma, in the United States of America, which is the subject of the Heads of
Agreements and as described in Sections 1.1 and 1.4.
Canadian River Shares means all of the issued share capital in Canadian River.
Chair means the chair of the Meeting.
Company means Delecta Limited (ACN 009 147 924).
Constitution means the Company’s constitution.
Corporations Act means the Corporations Act 2001 (Cth).
Directors means the current directors of the Company.
Equity Interests means the sum of paid up capital, reserves, and accumulated profits or losses,
disregarding redeemable preference share capital and outside equity interests, as shown in the
consolidated financial accounts.
Explanatory Statement means the explanatory statement accompanying the Notice.
First Well means the Wise I-25 Well, being the first completed well within the Canadian River
Project.
General Meeting or Meeting means the meeting convened by the Notice.
Heads of Agreement means the Heads of Agreement between Canadian River and Inland in
relation to the Acquisition as described in Section 1.1.
Independent Expert means RSM Bird Cameron Corporate Pty Ltd.
Independent Expert’s Report means the report prepared by the Independent Expert and annexed
to this Notice as Annexure 1.
Inland means Inland Oil & Gas, LLC (a company incorporated in the United States of America).
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Notice or Notice of Meeting means this notice of meeting including the Explanatory Statement
and the Proxy Form.
Operator means Inland Operating Company, LLC, an Oklahoma corporation.
For personal use only
Operating Agreement means the operating agreement relating to the First Well, referred to in
Section 1.1.
Option means an option to acquire a Share.
Optionholder means a holder of an Option.
PNE means Paynes Find Gold Limited ACN 141 450 624 (ASX:PNE).
PNE Option means an option to acquire a PNE Share.
PNE Option Agreement means the option agreement between the Company and PNE pursuant
to which the Company has granted an exclusive option to PNE to acquire its rights and interests in
all of the shares in the capital of Canadian River, described in Section 1.3.
PNE Security or PNE Securities means a PNE Share or an PNE Option or both as the context
requires.
PNE Share means a fully paid ordinary share in the capital of PNE.
Proxy Form means the proxy form accompanying the Notice.
Remaining Wells means the remaining wells referred to in Section 1.1.
Resolution means the resolution set out in the Notice.
Section means a section of the Explanatory Statement.
Security or Securities means a Share or an Option or both as the context requires.
Securityholder means a holder of a Security.
Seismic Data means the seismic data referred to in Section 1.2.
Seismic Option means the option granted to Canadian River pursuant to the Seismic Option
Agreement, described in Section 1.2.
Seismic Option Agreement means the Seismic Option Agreement described in Section 1.2.
Seismic Vendors means Mr John Leenerts and Mr James Holcomb.
Share means a fully paid ordinary share in the capital of the Company.
Shareholder means a registered holder of a Share.
Stage 2 Option means the Canadian River’s option to acquire rights and interests in and
associated with the Remaining Wells pursuant to the Heads of Agreement.
SWDW means salt water disposal well.
WST means Western Standard Time as observed in Perth, Western Australia.
14
For personal use only
Delecta Limited
Financial Services Guide and
Independent Expert’s Report
December 2014
We have concluded that the Transaction is Fair and Reasonable to Shareholders of Delecta
Limited.
For personal use only
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T +61 8 9261 9100 F +61 8 9261 9102
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Independent Expert’s Report
TABLE OF CONTENTS
Page
1.
Introduction ..................................................................................................................... 6
2.
Summary and Conclusion .............................................................................................. 7
3.
Scope of the Report ........................................................................................................ 9
4.
Summary of Transaction .............................................................................................. 11
5.
Profile of the Project ..................................................................................................... 13
6.
Profile of Paynes Find Gold Limited ........................................................................... 14
7.
Valuation Approach ...................................................................................................... 21
8.
Valuation of the Project ............................................................................................... 25
9.
Valuation of Consideration .......................................................................................... 28
10.
Valuation of Consideration Options ............................................................................ 33
11.
Valuation of the Revenue Payment ............................................................................. 35
12.
Is the Proposed Transaction Fair to Shareholders? ................................................. 36
13.
Is the Proposed Transaction Reasonable .................................................................. 37
Appendix 1 – Declarations and Disclaimers
Appendix 2 – Sources of Information
Appendix 3 – Glossary of Terms
Appendix 4 – Profile of the International Oil and Gas Industry
Appendix 5 – Profile of the Australian Gold Industry
Appendix 6 – Fair Market Value Assessment, Canadian Valley Project, Okfuskee County, Oklahoma,
USA, Db LLC Petroleum Advisors
Appendix 7 – Technical Project Review- Independent Valuation Report Paynes Find Gold Project for
RSM Bird Cameron Corporate Pty Limited, Ravensgate
Appendix 8 – WACC Assessment - Delecta
For personal use only
Direct Line: (08) 9261 9447
Email: [email protected]
4 December 2014
The Shareholders
Delecta Limited
170-180 Buckhurst Street
South Melbourne VIC 3205
Dear Shareholders
Independent Expert’s Report (“Report”)
1. Introduction
1.1.
This Independent Expert’s Report (the “Report” or “IER”) has been prepared to accompany the Notice of
General Meeting and Explanatory Statement (“Notice”) to shareholders for an Extraordinary General
Meeting of Delecta Limited (“Delecta” or “the Company”) to be held on or around 31 December 2014, at
which, shareholder approval is required with respect to the granting of an option (“Option”) to Paynes Find
Gold Limited (“Paynes”) to acquire Delecta’s interest in the Canadian River Field Development Oil and Gas
Project (“Project”) (“Proposed Transaction”).
1.2.
Under the terms of the Proposed Transaction, Delecta will not receive any consideration for the Option,
however, to exercise the Option Paynes must:

Issue $3 million in fully paid ordinary shares in Paynes to Delecta (“Share Consideration”);

Issue 6 million options to Delecta to acquire fully paid ordinary shares in the capital of Paynes within
five years of the options issue at an exercise price of $0.125 (“Option Consideration”);

Pay $1 million from future oil and gas revenue from the Project (“Revenue Payment”), (these items
together defined as “Consideration”); and

All share issues noted above are post a planned consolidation of the share capital of 50:1.
1.3.
Delecta currently holds 350,000,000 Paynes Shares (being a shareholding of 38% of the total Paynes
shares on issue). For this reason the transaction is considered a related party transaction and to satisfy the
ASX Listing requirements, an independent Expert’s Report is required.
1.4.
The Independent Directors of Delecta have requested that RSM Bird Cameron Corporate Pty Ltd
(“RSMBCC”), being independent and qualified for the purpose, express an opinion as to whether the
Proposed Transaction is fair and reasonable to shareholders not associated with the Proposed Transaction
(“Shareholders”).
1.5.
The ultimate decision whether to approve the Proposed Transaction should be based on each
Shareholder’s assessment of their circumstances, including their risk profile, liquidity preference, tax
position and expectations as to value and future market conditions. If in doubt as to the action they should
take with regard to the Proposed Transaction, or the matters dealt with in this Report, Shareholders should
seek independent professional advice.
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2. Summary and Conclusion
Opinion
2.1.
In our opinion, and for the reasons set out in Sections 12 and 13 of this Report, the Proposed Transaction
is fair and reasonable to the Shareholders of Delecta.
Fairness
2.2.
2.3.
Our assessed values of the Assets and the Consideration are summarised in the table and figure below.
Ref:
Assessment of fairness
Low Value
High Value
$m
$m
Fair Value of the Project
8
3.4
10.2
Fair Value of the Consideration
9
3.9
5.4
Table 1: Assessment of fairness (Source: RSMBCC analysis)
Fair Value of the project
Fair Value of Consideration
0
2
4
6
8
10
12
$'millions Value
Figure 2: Summary of fairness assessment (Source: RSMBCC Analysis)
In the absence of any other relevant information, we consider the Proposed Transaction to be fair to the
Shareholders of Delecta, as the Fair Value of the Consideration falls within the Fair Value of the Project.
Furthermore, Delecta recently acquired the Project on an arm’s length basis for US$3 million ($3.6 million).
The Fair Value of the Consideration Delecta will receive is greater than the $3.6 million paid by Delecta.
Reasonableness
2.4.
2.5.
RG 111 establishes that an offer is reasonable if it is fair. It might also be reasonable if, despite not being
fair, there are sufficient reasons for security holders to accept the offer in the absence of any higher bid
before the offer closes. As such, we have also considered the following factors in relation to the
reasonableness aspects of the Proposed Transaction:

The future prospects of the Company if the Proposed Transaction does not proceed; and

Any other commercial advantages and disadvantages to the Shareholders as a consequence of the
Proposed Transaction proceeding.
If the Proposed Transaction does not proceed then Delecta will continue to hold an interest in Paynes and
the Project. In these circumstances, Delecta would seek to negotiate with the relevant vendors to extend
the period for the completion of Stage 2 of the Project, which is an option to extend its interest to a further
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4 wells, and the acquisition of additional seismic as Delecta would need the additional time due to the fact
it would need to re-comply with the listing rules of the ASX.
2.6.
2.7.
The key advantages of the Proposed Transaction are as follows:

The Proposed Transaction is fair;

Delecta will increase its interest in Paynes;

Delecta would continue to hold its interest in the Project without the need to re-comply with the listing
rules of the ASX; and

Delecta will receive $1 million from future Oil and Gas revenue from the project.
The key disadvantages of the Proposed Transaction are as follows:

There is a cost to Delecta to exercise the options;

There will be a loss of control in the project as Delecta will not have control in Paynes; and

There is no guarantee of the value of the Consideration as it is dependent on the future value of
Paynes’ shares.
2.8.
We are not aware of any alternative proposal at the current time which might offer the Shareholders of
Delecta a greater benefit than the Proposed Transaction.
2.9.
In our opinion, the position of the Shareholders if the Proposed Transaction is approved is more
advantageous than the position if it is not approved. Therefore, in the absence of any other relevant
information and/or a superior offer, we consider that the Proposed Transaction is reasonable for the
Shareholders of Delecta.
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3. Scope of the Report
ASX Listing Rules
3.1.
ASX Listing Rule 10.1 states that “An entity must ensure that neither it, nor any of its child entities, acquires
a substantial asset from, or disposes of a financial asset to, a related party or a subsidiary without the
approval of holders of the entity’s ordinary securities”.
3.2.
Paynes is an associated entity of Delecta as Delecta holds 350,000,000 shares or 38% of the share capital
in Paynes as at 12 November 2014.
3.3.
An asset is considered substantial “if its value; or the value of the consideration for it is, or in the ASX’s
opinion is, 5% or more of the equity interests of the entity as set out in the latest accounts given to the
ASX”.
3.4.
The equity balance of Delecta as at 30 June 2014 was $10.9 million, and the estimated low value of the
Project is estimated at US$2.9 million ($3.4 million), therefore the Proposed Transaction represents more
than 5% of the equity interests of the entity.
3.5.
Where Shareholder approval is sought, Shareholders must be presented with a report on the proposed
transaction from an independent expert. The report must state whether the proposed transaction is “fair
and reasonable” to shareholders.
3.6.
Delecta is to hold a meeting of its shareholders where it will seek approval for the Proposed Transaction
and the Company has engaged RSMBCC, to prepare a report which sets out our opinion as to whether the
Proposed Transaction is fair and reasonable to the Shareholders.
Basis of Evaluation
3.7.
In determining whether the Proposed Transaction is “fair and reasonable” we have given regard to the
views expressed by the Australian Securities and Investment Commission (“ASIC”) in Regulatory Guide
111 Contents of Expert’s Reports (“RG 111”).
3.8.
RG 111 provides ASIC’s views on how an expert can help security holders make informed decisions about
transactions. Specifically it gives guidance to experts on how to evaluate whether or not a proposed
transaction is fair and reasonable.
3.9.
RG 111 states that the expert’s report should focus on:

the issues facing the security holders for whom the report is being prepared; and

the substance of the transaction rather than the legal mechanism used to achieve it.
3.10.
Furthermore RG 111 states that in relation to related party transactions the expert’s assessment of fair and
reasonable should not be applied on a composite test – that is there should be a separate assessment of
whether the transaction is “fair and reasonable” as in a control transaction.
3.11.
Consistent with the guidelines in RG 111, in assessing whether the Proposed Transaction is fair and
reasonable to the Shareholders, the analysis undertaken is as follows:
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3.12.
3.13.

Whether the Consideration is greater than the value of the Project - fairness; RG 111 states that,
when considering fairness, an expert should consider all material terms of the transaction; and

A review of other significant factors which Shareholders might consider prior to approving the
Proposed Transaction - reasonableness.
The other significant factors to be considered include:

The future prospects of the Company if the Proposed Transaction does not proceed; and

Any other commercial advantages and disadvantages to the Shareholders as a consequence of the
Proposed Transaction proceeding.
Our assessment of the Proposed Transaction is based on economic, market and other conditions prevailing
at the date of this report.
10
4. Summary of Transaction
For personal use only
Overview of Delecta’s purchase of the Project
4.1.
Delecta acquired the Project through its wholly owned US incorporated subsidiary - Canadian River, Inc for
US$3 million.
4.2.
The Project is made up of two key elements:
Acquisition of Oil Fields
4.3.
4.4.
The acquisition is to be completed in two stages:

Stage 1 – Acquisition of an 80% working interest and 58% net revenue interest in a drilled and
completed well with access to all required infrastructure such as gas transmission lines,
separations tanks, electricity cables and pumping equipment to bring the well into production for a
consideration payment of US$3 million; and

Stage 2 – An Option to extend its interest to a further four wells and acquire an 80% working interest
and 54% net revenue interest in these wells and the required infrastructure accessed through the
first well through funding development costs of US$4.9 million (“Project Stage 2 Option”).
In order to complete Stage 2, Delecta would need to complete the following:

obtain Shareholder approval for the capital raising and re-compliance;

undertake a further capital raising under a prospectus; and

re-compliance with Chapter 1 and 2 of the ASX Listing Rules.
Access to Seismic Data (“Project Seismic Option”)
4.5.
Delecta through Canadian River, Inc has been granted an option by John Leenerts and James Holcomb to
have exclusive access to seismic data covering a total of 64 square miles inclusive of the Project Area
(‘Project Seismic Option’).
4.6.
The Project Seismic Option includes all seismic, geological or geophysical data owned by Messers,
Leenerts and Holcomb and their interpretations of such data over this area.
4.7.
In order to exercise the Project Seismic Option, Delecta would need to complete the following:

Pay an option exercise price of US$250,000;

Grant John Leenerts and James Holcomb a 2% overriding revenue interest in any well developed
(excluding those outlined in 4.3 above);

Pay US$25,000 per well drilled for the first 5 wells drilled using the Seismic Data (excluding those
outlined in 4.3 above); and
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
Issue 5,000,000 options (post reconstruction) to acquire fully paid shares in the capital of the ASX
listed parent company with an exercise price of $0.25 (post reconstruction) and expiring 2 years
from date of issue.
Overview of Transaction
4.8.
Delecta has entered into an agreement with Paynes where Delecta will grant the Option to Paynes to
acquire Delecta’s interest in the Project (described above).
4.9.
The Option may be exercisable by Paynes at any time on or before, 12 January 2015.
4.10.
If the Option is exercised, the following Consideration shall be payable:
4.11.

Consideration Shares;

Consideration Options; and

Revenue Payment.
Under the terms of the Proposed Transaction, Delecta will have divested its direct interest in the Project,
though will have increased the value of its ownership in Paynes, which in turn will hold 100% of the project,
and Delecta will also be entitled to the first $1 million from future revenues generated by the Project.
Key conditions of the Proposed Transaction
4.12.
The completion and exercise of the Option agreement is subject to and conditional upon the following by
Paynes:

Completion of due diligence;

Completion of a consolidation of capital – ratio at 1:50 subject to ASX approving submission to
recomply at 10 cents rather than 20 cents;

Completion of capital raising of a minimum of $4 million required for reinstatement to the official list
of ASX, however it should be noted that Paynes intends to raise a total of $8 million so that it can
proceed with Stage 2; and

Re-compliance with Chapters 1 and 2 of the ASX Listing Rules and approval for readmission.
Rationale for the Proposed Transaction
4.13.
The Proposed Transaction will allow Delecta to have an interest in an oil and gas asset without the need
for the company changing its business operations and as such re-comply with the ASX listing rules and
raise additional capital.
4.14.
It also provides Delecta an opportunity to improve potential returns from an existing investment.
12
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5. Profile of the Project
Overview of the Project
5.1.
The project consists of five wells in total.
5.2.
Stage 1 involves the first well, which has been drilled and successfully completed and is awaiting the drilling
of a salt water disposal well (SWDW) which was expected to be completed by the end of October 2014.
The well will produce predominantly oil.
5.3.
Stage 2 involves the 4 well drilling program with an agreed turnkey cost of US$4.9 million.
Project Location
5.4.
The Canadian River Project is located in the east-central portion of Oklahoma in the southeast portion of
Okfuskee County, Oklahoma. Positioned south of the town of Weleetka, the project is easily accessible
using the allweather access provided by the state highway system and well-maintained gravel county roads.
The local terrain is slightly hilly with ground elevations ranging from 700 to 900 feet above sea level. No
known adverse environmental conditions existed on the surface or sub‐surface.
Okalahoma Energy Profile (from US Energy Information Administration (EIA))
5.5.
Oklahoma is ranked 5th in crude oil production, excluding federal offshore areas in the US in 2013.
5.6.
As at 31 January 2013, Oklahoma had five operating petroleum refineries with a combined daily capacity
of over 500,000 barrels per day.
5.7.
Oklahoma is one of the top natural gas-producing states in the US, accounting for 7.1% of U.S. gross
production and 8.4% of marketed production in 2013.
5.8.
In 2013, Oklahoma ranked fourth in net electricity generation from wind, which provided almost 15% of the
state's net generation.
5.9.
Further details of the Project can be found in the dB report in Appendix 6.
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6. Profile of Paynes Find Gold Limited
History
6.1.
Paynes was named after Thomas Payne, who was the first prospector to register a lease for gold mining
with the Mines Department of Western Australia.
6.2.
Gold mining has been confined to underground mining. From 1911-1982, some 69,000t of ore produced
1,784kg (63,000 ounces) of gold at an average grade of 25 g/t Au.
6.3.
From 1932 – 2010, the Taylor family owned and mined the majority of the Paynes Find Gold leases.
6.4.
In December 2010, Paynes acquired all the Paynes Find tenements held by the Taylor family as well as
additional tenements in the Paynes Find area and was listed on the ASX.
Location
6.5.
Paynes is located approximately 420km Northeast of Perth, Western Australia and serviced by the sealed
Great Northern Highway.
6.6.
Located in historically significant gold producing region with the following basins:

Hill 50 4.85 Moz Au

Morning Star 2.0 Moz Au

Mt Gibson 1.1 Moz Au

Big Bell 3.5 Moz Au

Tuckabianna 1.0 Moz Au

Reedy 1.8 Moz Au

Bluebird 1.2 Moz Au

Youanmi 1.0 Moz Au
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Directors
A profile of the current board of Paynes is set out in the table below.
Name
Title
Experience
Mr Paul Lloyd
Chairman, Company
Secretary, CFO
Mr Lloyd is a Chartered Accountant with over 25 years of commercial experience. He
operates his own corporate consulting business, specialising in the area of corporate,
financial and management advisory services. After commencing his career with an
international accounting firm, he was employed for approximately 10 years as the
General Manager of Finance for a Western Australian based international drilling
contractor working extensively in Asia and Africa. Mr Lloyd has been responsible for
a number of ASX IPO's and is currently Non-executive Director and Company
Secretary of ASX listed Firestrike Resources Limited and unlisted Tropicana Gold
Limited
Mr Malcolm Day
Non-Executive
Director
Mr Day is Managing Director of Delecta Ltd (Paynes largest shareholder). Mr Day
was the founder and inaugural Managing Director of Adultshop.com which listed on
ASX in June 1999. In October 2010, Adultshop.com was privatised. Prior to founding
Adultshop.com in 1996, Mr Day worked in the civil construction industry for ten years,
6 of which were spent in senior management as a Licensed Surveyor and then later
as a Civil Engineer. Whilst working as a Surveyor, Mr Day spent 3 years in mining
and exploration surveys in Western Australia. Mr Day is a Member of the Australian
Institute of Company Directors.
Mr David Holden
Non-Executive
Director
Mr David Holden holds a Bachelor of Science degree in geology from Otago
University, New Zealand. His career spans over twenty five years in the minerals
industry from the coal mines in New Zealand to deep underground gold mines in
South Africa. Over his career, David has held a number of senior management roles
including Prosperity Resources Limited (ASX listed), Quadrant Australia (ASX listed),
Avonlea Minerals Limited (ASX listed) and IGC Resources Inc (TSX listed). Mr
Holden was intimately involved in the multimillion ounce discoveries of gold at the Mt
Todd in the Northern Territory and the Nimary Mine in Western Australia.
In 1997, Mr Holden founded a geological consulting service company, Ravensgate,
which specialises in experts’ reports, resource estimations, valuations and
exploration management. In 2005 he started Shackleton Capital Pty Ltd, advising
listed companies on both corporate and technical matters relating to project
acquisition or initial public offering. In 2007 he founded Atomic Resources Limited
(ASX listed) a solid energy company that is currently developing major coal assets in
Tanzania. Mr Holden also holds a Masters in Business Administration and a Masters
in Management. He is a member of the Australian Institute of Mining and Metallurgy
and the Canadian Institute of Mining.
Figure 4: Profile of Paynes’ Directors (Source: paynesfindgold.com)
Project
6.7.
Since listing on the ASX the Company has:

Completed geological and structural mapping at scales of 1:5000 and 1:2000. This identified 41
gold mineralised quartz reefs over a width of 600m across the main northern section of the Paynes
Find Goldfield;
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
Identified additional mineralisation over a total distance of at least 3,000m;

Conducted a preliminary MMI geochemical survey; and

Completed a Stage 1 drilling programme consisting of 3,800 metres within its 100% owned Paynes
Find Gold project.
Business Activities
6.8.
Paynes is engaged in the exploration for gold and investment in minerals exploration and development
sector.
6.9.
Paynes is currently undertaking an assessment of work completed to date. This is expected to conclude at
the end of 2014. It centres on strategy for exploration and environmental rehabilitation and detailed
economic modelling being completed before any further drilling costs are incurred.
6.10.
Paynes has also been engaged in assessing other project opportunities.
Significant Recent Events
6.11.
Paynes had the following key events in the last 12 months:
Date
Key Event
23 April 2014
Agreed to sell 7 Mining Tenements to the West of the main Paynes Find Gold Project for $0.35 million.
15 May 2014
Announced that it expects to receive $0.25 million in funding from Delecta Limited.
30 June 2014
Filed a Follow-on Equity Offering in the amount of $1.01 million. The company intends to use $250,000 of
the proceeds raised for the exploration program at the Paynes Find Gold Project, $260,000 for the payment
of Delecta loans, $200,000 for the payment of trade and other payables, $276,894 for additional working
capital and $20,983 for offer expenses.
04 Aug 2014
0.643, Rights Issue
28 Aug 2014
Completed a Follow-on Equity Offering in the amount of $0.31 million representing a 31% take up.
01 Sept 2014
Completed the sale of 7 Mining Tenements to the West of the main Paynes Find Gold Project for $0.35
million. Paynes received a non-refundable $0.05 million deposit on signing the deed and received the
remaining $0.3 million on September 1, 2014.
29 Oct 2014
6.12.
Announced that it has received $0.20 million in funding. Paynes intends to use the proceeds for due
diligence on the Project, meeting the commitments in respect to its existing exploration project, and working
capital requirements.
Figure 5: Key Developments (Source: Capital IQ)
Following the sale of the 7 Mining Tenements at 23 April 2014 and the current depressed market for gold
assets, Paynes is essentially a shell company with immaterial net assets.
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Financial Performance
6.13.
The table below sets out a summary of the financial performance of Paynes for the years ended 30 June
2012 (“FY12”), 30 June 2013 (“FY13”) and 30 June 2014 (“FY14”) sourced from the company’s audited
financial statements.
Paynes Find Gold Limited
Year ended
Financial Performance
Revenue
Cost Of Goods Sold
Gross Profit
30-Jun-14
AUD '000
5
5
30-Jun-13
AUD '000
53
53
30-Jun-12
AUD '000
5
5
6.15
(610)
(170)
(13)
(1,064)
(1,969)
(4)
(32)
(1,419)
(529)
(726)
(253)
6.19
(4,489)
-
-
Total Operating Expenses
(5,282)
(3,069)
(2,927)
Operating Income
(5,277)
(3,016)
(2,921)
(6)
(6)
(7)
(7)
(150)
(150)
5
(5,278)
(3,023)
(3,071)
350
(4,928)
(3,023)
(604)
(3,675)
(4,928)
(3,023)
(3,675)
Operating Expenses
Selling General & Admin Expenses
Exploration/Drilling Costs
Stock-Based Compensation
Depreciation & Amort.
Impair. of Oil, Gas & Mineral Properties
REF
6.14
Interest Expense
Net Interest Expense
Other Non-Operating Income (Expenses)
EBT Excl. Unusual Items
Gain (Loss) On Sale Of Assets
EBT Incl. Unusual Items
6.16
Income Tax Expense
Net Income
Table 2: Paynes Financial Performance (Source: Paynes Financial Statements)
6.14.
The accounts are audited by BDO. While the audit report is not modified, an ‘emphasis of matter’ paragraph
has been included with the audit report stating Paynes incurred a net loss of $4.9 million and net operating
outflows of $554,000 during the year ended 30 June 2014 which indicate the existence of a material
uncertainty which may cast doubt on the company’s ability to continue as a going concern and may be able
to realise its assets and discharge its liabilities in the normal course of business.
6.15.
Revenue mainly relates to interest revenue.
6.16.
Included within selling and administration expenses are employee benefit expenses (mainly directors
remuneration and consulting in the region of $196,000 - $250,000), rent and administration expenses.
6.17.
The gain on the sale of assets in 2014 relates to the sale of tenements in April 2014 for $350,000. The loss
on the sale of assets in 2012 relates to the sale of Plant and Equipment for $73,000 recognising a loss of
$604,000.
17
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Financial Position
6.18.
The table below sets out a summary of the financial position of Paynes as at 30 June 2013 (“FY13”) and
30 June 2014 (“FY14”) sourced from the company’s audited financial statements.
Paynes Find Gold Limited
Year ended
Financial Performance
ASSETS
Current Assets
Cash And Equivalents
Accounts Receivable
Prepaid Expenses
Total Current Assets
Non Current Assets
Property, Plant & Equipment
Other Long-Term Assets
Total Non Current Assets
REF
6.19
Net Assets
30-Jun-13
AUD '000
178
337
5
520
417
61
12
490
-
4,542
229
4,771
520
5,261
121
264
-
65
14
24
24
409
125
228
111
5,034
15,074
(16,992)
2,029
15,074
(12,069)
2,029
111
5,034
6.20
Total Assets
LIABILITIES
Current Liabilities
Accounts Payable
Short-term Borrowings
Current Portion of Capital
Leases
Other Current Liabilities
Total Current Liabilities
30-Jun-14
AUD '000
6.21
Equity
Common Stock
Retained Earnings
Comprehensive Income and
Other
Total Equity
Table 3: Financial Position of Paynes (Source: Paynes Financial Statements)
6.19.
As at 30 June 2014, Paynes disclosed net assets of $111,000.
6.20.
Included within Receivables is the amount due of $350,000 with respect to the sale of the tenements on 23
April 2014. This amount was received in cash on 1 September 2014.
6.21.
The non-current assets of Paynes is currently $nil. This has resulted from the following:

Paynes sold part of the Paynes Project during the year for $350,000 as noted in paragraph 6.19
above.

The Directors decided to impair the carried forward exploration expenditure of approximately $4.5
million associated with the Paynes Find gold project in the half yearly report to 31 December 2013.
This impairment was made due to the results of the previous exploration program, the failure of the
18
For personal use only
trial mining project, the reduction in the gold price, the difficulty raising funds for further exploration
due to the state of the capital markets and the inability to joint venture the project.
6.22.
Paynes disclosed short term borrowings of $264,000 as at 30 June 2014. This relates mainly to a loan from
Delecta of $250,000. The interest rate on the loan is 10% and with an establishment fee of 2%. It was
intended that repayment will be on Conversion to equity pursuant to the rights issue announced on 30 July
2014. No security has been provided by the Company. On 28 August $310,000 was raised in the rights
issue. The up-take was approximately 31%.
Share price and performance
6.24.
A summary of Paynes’ share price and volume before the announcement of the Transaction is set out in
the figure below:
Price Volume Graph with Key Events
0.005
12
4 Oct 2013:Announce
Management Changes
25 September 2014: Filed
a Follow-on Equity
Of f ering in the amount of
AUD 8.00 million.
10
0.004
15 May 2014: Announced that
it expects to receiv e AUD 0.25
million in f unding f rom Delecta
Limited.
0.003
30 July 2014: Filed a Followon Equity Of f ering in the
amount of AUD 1.01 million
6
4
Volume (in millions)
8
Price
6.23.
0.002
2
0.001
0
9/13
12/13
3/14
Volume
Price
6/14
Key Event
Figure 6: Paynes Daily Closing Share Price and Traded Volumes Pre Announcement (Source: Capital IQ)
We make the following comments with regard to Paynes’ recent share price performance:

In the 12 months prior to the Proposed Transaction, Paynes’ shares have traded between a low of
$0.001 on various dates and a high of $0.004;

There were two significant trading days over the period of the price chart above. The first was the
trading of 9.26 million shares on 26 June 2014 with no explanation. The second was the trading of
the 22 September 2014. The announcement of the transaction occurred on the 25 September 2014
and as such the market may have been aware of the transaction before the official announcement;
and

Further analysis on the recent volume and price at which Paynes’ shares have traded is set out at
paragraph 9.7.
19
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Capital Structure (pre consolidation)
6.25.
At 29 October 2014, Paynes had 911,027,100 shares on issue. In addition, the company had 264,448,677
options on issue as summarised in the table below.
Date of Expiry
Listed/Unlisted
Exercise Price
unlisted
25 cents
56,000,000
30/06/2015
listed
3 cents
150,808,677
30/06/2015
unlisted
3 cents
33,640,000
01/05/2016
unlisted
01/05/2015
6.26.
35 cents
Total
Number under Option
24,000,000
264,448,677
Figure 7: Unissued ordinary shares of Paynes (Source: Capital IQ)
There are 728 shareholders in total as at 12 November 2014 of which, 96% are Australian and 4% are
overseas. Approximately, 58.7% of the company’s ordinary shares are held by the top 10 Shareholders as
summarised in the table below.
Shareholder
Total Units
% Issue Capital
350,000,000
38.4%
Paranoid Enterprises Pty Ltd
25,000,000
2.7%
Mr Michael Charles Mann & Mr Ross Gregory
25,000,000
2.7%
Adelco Inc
25,000,000
2.7%
Yardie (WA) Pty Limited
20,000,000
2.2%
Ms Rebecca Thompson
20,000,000
2.2%
Mr Carl Coward
20,000,000
2.2%
Mr Andrew William Spencer
20,000,000
2.2%
Mr Matthew Blumberg
15,226,220
1.7%
Ghan Resources Pty Limited
15,100,618
1.7%
Total Top 10
535,326,838
58.7%
Other Shareholders
375,700,262
41.3%
Total ordinary shares on issue
911,027,100
100.0%
Delecta Limited
Figure 8: Top 10 Shareholders as at 12 November 2014 (Source: Paynes)
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7. Valuation Approach
Valuation methodologies
7.1.
7.2.
In assessing the Fair Value of the Assets, we have considered a range of valuation methodologies. RG
111 proposes that it is generally appropriate for an expert to consider using the following methodologies:

the discounted cash flow (“DCF”) method and the estimated realisable value of any surplus assets;

the application of earnings multiples to the estimated future maintainable earnings or cash flows
added to the estimated realisable value of any surplus assets;

the amount which would be available for distribution on an orderly realisation of assets;

the quoted price for listed securities; and

any recent genuine offers received.
We consider that the valuation methodologies proposed by RG 111 can be split into three valuation
methodology categories, as follows.
Market based methods
7.3.
Market based methods estimate the Fair Value by considering the market value of an entity or asset’s
securities or the market value of comparable entities or assets. Market based methods include;

The quoted price for listed securities; and

Industry specific methods.
7.4.
The recent quoted price for listed securities method provides evidence of the Fair Value of an entity’s
securities where they are publicly traded in an informed and liquid market.
7.5.
Industry specific methods usually involve the use of industry rules of thumb to estimate the Fair value of a
company and its securities or an asset. Generally rules of thumb provide less persuasive evidence of the
Fair Value of a company or asset than other market based valuation methods because they may not
account for specific risks and factors.
Income based
7.6.
7.7.
Income based methods estimate value by calculating the present value of a company or asset’s estimated
future stream of earnings or cash flows. Income based methods include:

Capitalisation of maintainable earnings; and

Discounted cash flow methods.
The capitalisation of earnings methodology is generally considered a short form DCF, where an estimation
of the Future Maintainable Earnings (“FME”) of the business, rather than a stream of cash flows is
capitalised based on an appropriate capitalisation multiple. Multiples are derived from the analysis of
transactions involving comparable companies or assets and the trading multiples of comparable companies
or assets.
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7.8.
The DCF technique has a strong theoretical basis, valuing a business or asset on the net present value of
its future cash flows. It requires an analysis of future cash flows, the capital structure and costs of capital
and an assessment of the residual value or the terminal value of the company or asset’s cash flows at the
end of the forecast period. This method of valuation is appropriate when valuing companies or assets where
future cash flow projections can be made with a reasonable degree of confidence.
Asset based methods
7.9.
Asset based methodologies estimate the Fair Value of a company’s securities based on the realisable value
of its identifiable net assets. Asset based methods include:

orderly realisation of assets method;

liquidation of assets method; and

net assets on a going concern basis.
7.10.
The value achievable in an orderly realisation of assets is estimated by determining the net realisable value
of the assets of a company which would be distributed to security holders after payment of all liabilities,
including realisation costs and taxation charges that arise, assuming the company is wound up in an orderly
manner. This technique is particularly appropriate for businesses with relatively high asset values compared
to earnings and cash flows.
7.11.
The liquidation of assets method is similar to the orderly realisation of assets method except the liquidation
method assumes that the assets are sold in a shorter time frame.
7.12.
The net assets on a going concern method estimates the market values of the net assets of a company but
unlike the orderly realisation of assets method it does not take into account realisation costs. Asset based
methods are appropriate when companies are not profitable, a significant proportion of the company’s
assets are liquid, or for asset holding companies.
Selection of valuation methodologies
Valuation of the Project
7.13.
In assessing the value of the Project, we have engaged an Independent specialist, dB LLC Petroleum
Advisors (“dB”) to undertake a valuation.
Use of specialist
7.14.
7.15.
dB was instructed by RSMBCC to provide a report (“dB Report”) detailing its independent valuation of the
Project to be used in the preparation of this IER. In particular, the Project includes:

Stage 1 - 80% working interest (58% net revenue interest) in the initial phase of the project;

Stage 2 - An 80% working interest in four additional wells and infrastructure, with a 54% net revenue
interest. The four well drilling program has an agreed turnkey cost of US$4.9 million.

Option to access 64 square miles of Seismic Data, surrounding the 425 acre Project Area Lease.
The dB Report was provided to us on 15 November 2014 and dB has consented to RSMBCC relying on
the dB Report for the purposes this IER. The dB Report is included as Appendix 6 of this IER.
22
For personal use only
7.16.
7.17.
dB has determined a value for the Canadian Valley Project by using the DCF method. In order to assess
the reasonableness of the DCF valuation, dB has compared the result of its DCF to comparable project
metrics.
We consider the valuation method used by dB to be appropriate.
Valuation of Consideration
7.18.
7.19.
If the Option is exercised, consideration is payable in the form of:

Consideration Shares;

Consideration Options; and

A Revenue Payment.
We have considered the value of each component of the Consideration separately and then combined them
to assess the total value of the Consideration.
Valuation of the Consideration Shares
7.20.
7.21.
In assessing the Fair Value of a Paynes share we have selected the net assets on a going concern
methodology for the following reasons:

Paynes is effectively a shell company with immaterial assets and net liabilities. In our experience,
the most appropriate method for determining the value of companies such as Paynes is on the basis
of the Fair Value of their underlying net assets;

Paynes does not generate profits and, therefore, there are no historical profits from which future
earnings could be inferred. This means that the capitalisation of FME approach is not appropriate;
and

Paynes has no immediately foreseeable future net cash inflows and is yet to complete a feasibility
study and therefore we do not consider the application of the DCF methodology to be appropriate in
these circumstances.
As a cross-check to our primary valuation methodology, we have also considered the value of a Paynes
share based on recent trading prices for portfolio shareholding parcels of Paynes shares on the ASX.
Use of Specialist
7.22.
Ravensgate was instructed by RSMBCC to provide a report (“Ravensgate Report”) detailing its independent
valuation all of the exploration assets held by Paynes to be used in the preparation of this IER. The
Ravensgate Report was provided to us on 20 October 2014 and Ravensgate has consented to RSMBCC
relying on the Ravensgate Report for the purposes this IER. The Ravensgate Report is included as
Appendix 7 of this IER.
7.23.
Ravensgate has determined a value for the Paynes Project by reviewing market transactions involving gold
projects at the exploration stage in Western Australia.
7.24.
We consider the valuation method used by Ravengate to be appropriate.
23
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Valuation of the Consideration Options
7.25.
The basis of the indicative valuation we have undertaken is the binomial option pricing model.
7.26.
Binomial option pricing models consist of three components:
7.27.

Plots the possible future value of the underlying stock by using a model with many binomial steps.
Each step represents a movement upward or downward, the magnitude of which is based on the
assessed price volatility of Paynes shares;

At each step the underlying stock values are translated to option values; and

These future option values are discounted back to determine a single present value of the option as
at the grant date.
The Options will vest on the grant date therefore we have used a vanilla binomial option pricing model.
Valuation of the Revenue Payment
7.28.
An amount $1,000,000 is payable to Delecta from revenues generated from the Project.
7.29.
We have discounted this amount using what we consider an appropriate discount rate.
7.30.
The discount rate we have selected allows for both the time value of money and the risks attached to future
cash flows.
7.31.
We have utilised the weighted average cost of capital (“WACC”) as our discount rate. We have assessed
the pre-tax WACC to be in the range of 11% to 13% with a mid-point of 12%. Details of how we have
calculated our preferred range of WACCs is included in Appendix 8.
24
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8. Valuation of the Project
8.1.
In accordance with RG111, we have relied on the services of a specialist engaged by us to assess the
value of the Project. On 15 November 2014, dB prepared a report titled ‘Fair Market Value Assessment,
Canadian Valley Project, Okfuskee County, Oklahoma, USA’. The dB report is attached as Appendix 6.
8.2.
We note that dB states in its report that the valuation of the Project has been prepared in accordance with
the VALMIN Code. We have satisfied ourselves as to dB’s qualifications and independence from Paynes
and have placed reliance on their report.
8.3.
The report notes that Fair Value of a Petroleum Asset or Security is comprised of two components: technical
value of the Mineral or Petroleum Asset or Security and a premium or discount relating to market, strategic
or other considerations.
8.4.
dB has valued the Project including the Stage 2 Option between US$2.9 million and US$8.8 million with
the most likely value to be US$4.8 million (between A$3.4 million and A$10.2 million, with a preferred value
of A$5.6 million).
Assumptions used by dB
8.5.
The technical value of the Project involves the preparation of estimates of net reserves, future annual
production and future net income attributable to the anticipated leasehold interest of Delecta Limited. These
values are calculated using a 10% discount factor.
8.6.
dB modelled Stage 1 and Stage 2 of the Project separately, using the DCF methodology for each stage.
The DCF was defined by a decline curve which is presented in the dB report. The decline curve was based
on a number of key assumptions and economic parameters, some of which are detailed below:
Decline Curve
Assumptions:
Initial Rate Oil
100 bopd
Initial Rate Gas
120 mcfpd
Initial GOR
Abandonment Oil Rate
1,200 cu. Ft/bbl
10 bopd
Recoverable Oil Volume
100,000 bbls
Recoverable Gas Volume
165,000 mcf
Calculated Result:
Exponential decline rate
Producing life
27%/year
7 years
Figure 9: Decline Curve Assumptions and Calculated Result (source: dB Technical Assessment & Valuation)
25
For personal use only
8.7.
The DCF prepared by dB included the following key assumptions:
Cash flow Model:
Economic Parameters:
Delecta Net Revenue Interest
58% (Stage 1) / 54% (Stage 2)
Monthly Operating Cost
$5,000/well
Oklahoma Severance Taxes
7.1% both Oil and Gas
US Federal Corporate Tax
30%
Discount Factor (real)
10%
Figure 10: Cash Flow Model Assumptions (source: dB Technical Assessment & Valuation)
Gas and Oil Prices (5 –Year NYMEX Strip pricing)
US $
Year
Gas
Oil
2014
4.06
90.24
2015
3.93
87.55
2016
4.04
85.90
2017
4.18
84.80
2018
4.30
84.53
4.30
84.53
2019 +
Figure 11: Gas and Oil Assumptions (source: dB Technical Assessment & Valuation)
Technical value range
8.8.
dB used three scenarios of estimated ultimate recovery (“EUR”) to assess the sensitivity of the Project. The
results are shown in the table below :
EUR
Case
PV10
(bbls)
(US $’000)
P10
75,000
$1,589
P50
100,000
$2,234
P90
200,000
$3,169
Figure 12: Fair Value of Stage 1 (source: dB Technical Assessment & Valuation)
8.9.
The P10 case carries a confidence factor of 90% that the well production will exceed 75,000 barrels of oil.
The P50 case indicates a most likely case of 100,000 barrels with a confidence factor of 50%. The P 90 case
carries a confidence factor of 10% that the production will exceed 200,000 barrels of oil.
8.10.
Furthermore, dB also undertook an economic assessment in the event that Delecta exercises the Stage 2
option to participate in the five well full – field development. The results are shown in the table below :
Case
EUR
PV10
IRR
ROI
Payout
Fair Value
(bbls)
(US $’000)
(%)
(%)
(yrs)
(US $’000)
P10
75,000
$3,900
133
2.06
1.27
$2,925
P50
100,000
$6,381
189
2.77
1.15
$4,786
P90
200,000
$11,658
179
5.37
1.15
$8,744
Figure 13: Fair Value of Project including Stage 2 Option (source: dB Technical Assessment & Valuation)
26
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Premium or discount relating to market, strategic or other considerations
8.11.
For the Project, as there is no PDP Production rate currently available to be valued on basis of $/flowing
barrel, dB has assessed the Fair Value by taking the P50 project NPV10 and applying a Proved
Undeveloped (“PUD’) discount factor of 25%.
Value of the Project Seismic Option
8.12.
In our opinion, there is not sufficient information to estimate with a reasonable basis the value of the
information included in the Project Seismic Option. As such, we consider the value of the opinion to be $nil,
due to uncertainties in the potential results from the project. This is supported by Delecta’s acquisition, in
which the Project Seismic Option was acquired for $nil consideration.
Conclusion
8.13.
Paynes intends to raise up to $8 million through its capital raising at $0.20 in order to exercise the Stage 2
Option. As such, we have relied on the Project value including the Stage 2 Option, which is set out in the
table above for the basis of our valuation. For comparison purposes, we have converted the US$ into AUD$
using MoneyConverter.com US$1: $1.1644 at 18 November 2014 throughout the report as follows:
Case
FV
FV
(US $’000)
(AUD $’000)
P10
$2,925
$3,406
P50
$4,786
$5,573
P90
$8,744
$10,182
Figure 14: Project Value including Stage 2 Option (source: RSMBCC Analysis)
27
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9. Valuation of Consideration
9.1.
A summary of the value of consideration is presented in the table below:
Low Value
High Value
Ref
$m
$m
Consideration Shares
9.22
2.5
4.0
Consideration Options
Section 10
0.4
0.4
Revenue Payment
Section 11
0.9
0.9
3.9
5.4
Summary of Value of Consideration
Table 4: Summary of Value of Consideration (Source: RSMBCC Analysis)
Valuation of Consideration Shares
9.2.
We have performed our analysis of the value of a Paynes share on a pre-consolidation basis.
9.3.
We have valued a Paynes share using the net assets on a going concern methodology based on the net
book value of the assets and liabilities of Paynes as set out in the statement of financial position of Paynes
as at 30 September 2014 as adjusted for items set out in the table below.
Proposed Transaction
Low
Value
High
Value
$m
$m
9.4
0.6
0.6
Fair Value of Paynes existing projects
9.5
0.8
1.2
Capital Raise
9.10
8.0
8.0
8
3.4
10.2
11
(0.9)
(0.9)
11.9
19.0
Ref:
Net assets of Paynes as at 30 September 2014
Plus:
Value of Project (including Stage 2)
Less:
Revenue Payable
Value of Paynes
Number of Shares (pre- consolidation)
Number of shares on issue at 29 October 2014
6.25
911
911
Issued to DLC
9.11
1,500
1,500
Capital Raise
9.10
4,000
4,000
6,411
6,411
0.002
0.003
10%
10%
0.002
0.003
1,500
1,500
2.5
4.0
Value of Shares (Control)
Minority Interest Discount
9.13
Value of DLC Shares
Shares issued to DLC
Value of Consideration
9.11
Table 5: Assessed Value of Paynes on Net Assets Basis (Source: RSMBCC Analysis)
28
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Net assets as at 30 September 2014
9.4.
RSMBC obtained the quarterly results of Paynes as at 30 September 2014 and disclosed net assets of
Paynes are $589,000. The movement between 30 June 2014 and 30 September 2014 from $111,000 to
$589,000 is mainly due to the equity offering of $310,000 on 28 Aug 2014 and the conversion of the Delecta
Loan of $200,000 into equity. We have considered whether any adjustments are required to reflect the true
position of the Company and determined no adjustments are necessary.
Fair Value of Paynes Projects
9.5.
The Fair Value of the various exploration projects of the Company are shown in the table below.
Paynes Projects
Paynes Find Gold Project
The Canadian Valley Project (the Project)
Total
Ref
Low Value
$m
High Value
$m
Appendix 7
0.8
1.2
8
3.4
10.2
4.2
11.4
Table 6: Fair Value of Paynes Projects (Source: Ravensgate Report, dB Report and ASX Announcement)
9.6.
In accordance with RG111, we have relied on the services of the specialists engaged by us to assess the
value of Paynes’ exploration projects. On 20 October 2014, Ravensgate prepared a report titled
‘Independent Technical Assessment and Valuation, Paynes, Valuation of Mineral Assets Western Australia’
for Paynes. Ravensgate calculated a high, low and preferred value for each of Paynes’ exploration
interests. The total preferred value for Paynes’ exploration interests was $1.022 million. In selecting its
preferred value, Ravensgate has used its professional expertise and, as such, the preferred value may not
be the midpoint of its range of values.
9.7.
For the Paynes Project, Ravensgate used the comparable transaction method to calculate a value of
between of $0.8 million to $1.2 million with a preferred value of $1.0 million.
9.8.
We note that Ravensgate states in this report that the valuation of Paynes exploration interests has been
prepared in accordance with the VALMIN Code 2005, which is binding upon Members of the Australian
Institute of Mining and Metallurgy and the Australian Institute of Geoscientists. We have satisfied ourselves
as to Ravensgate’s qualifications and independence from Paynes and have placed reliance on their report.
A copy of Ravensgate’s report is attached at Appendix 7.
9.9.
We have also included the value of the Project, as following the Proposed Transaction, the Project will be
owned by Paynes.
Fair Value of Capital Raise
9.10.
In order to complete Stage 2, Paynes must complete a capital raise of $8 million at $0.10 equating to 80
million shares post consolidation (the equivalent of 4 billion shares at $0.002 pre consolidation).
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Shares Issued to DLC
9.11.
Under the Option, Paynes must issue $3 million in fully paid ordinary shares at a deemed issue price of
$0.002, which equates to 1.5 billion shares.
Discount to controlling interest
9.12.
Based on the minimum capital raising required as part of the Proposed Transaction. Delecta will receive a
44% interest in Paynes. Typically a premium for control would be included when valuing a parcel of shares
of this size. However, in our opinion, the market value of a 44% interest in Paynes is likely to include a
discount because there is limited liquidity in Paynes and selling a large portion of shares would likely require
a discount. As such, we have applied a minority interest discount to our NTA value.
9.13.
In selecting a minority interest discount we have given consideration to the RSM Bird Cameron 2013 Control
Premium Study. The study performed an analysis of control premiums paid over a 7-year period to 31
December 2012 in 345 successful takeovers and schemes of arrangements of companies listed on the
ASX. Our study concluded that, on average, control premiums in takeovers and schemes of arrangements
involving Australian companies was in the range of 20% to 35%. In valuing an ordinary Paynes Share we
have reflected a minority interest discount of 10% as Delecta holds approximately 44% of the shares.
Quoted Price of Listed Securities – Post announcement
9.14.
In order to provide a cross-check to the valuation of a Paynes share under the net assets on a going concern
basis, we have also assessed the Fair Value based on the quoted market price.
9.15.
The assessment reflects trading following the announcement of the Proposed Transaction in order to
include the influence of any movement in price that occurred as a result of the announcement (therefore
reflecting possible market value).
9.16.
The Proposed Transaction was announced to the Australian Securities Exchange on 25 September 2014.
Figure 3 shows the daily closing price and traded volumes of Paynes post the announcement.
Price Volume Graph with Key Events
0.004
12
25 September 2014: Transaction
Announced
10
30 July 2014: Filed a Follow on Equity offering of AUD
1.01 million
8
Price
15 May 2014: Announced it
expects to receive AUD 0.25
million in funding from
Delecta Limited
6
0.002
4
Volume (in millions)
0.003
2
0.001
11/13
0
2/14
5/14
Volume
Price
8/14
Key Event
Figure 15: Paynes Daily Closing Share Price and Traded Volumes Post Announcement (Source: Capital IQ)
30
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9.17.
9.18.
9.19.
We make the following comments with regard to Paynes’ recent share price performance:

In the months before the Proposed transaction, Paynes shares have traded between a low of $0.001
to a high of $0.003;

We note that before the announcement of the transaction, Paynes shares had traded mostly at
$0.002, with occasional trades at $0.001. Trading volumes were also very low;

Following the announcement of the Proposed Transaction on 25 September 2014, the Company’s
share price has traded between a low of $0.002 to a high of $0.003. However, Paynes shares have
not traded since the 03 October 2014 and we note at this date traded at $0.002 and as such the
transaction has had very little impact on the share price; and

There were two significant trading days over the period of the price chart above. The first was the
trading of 9.26 million shares on 26 June 2014 with no explanation. The second was the trading of
the 22 September 2014. The announcement of the transaction occurred on the 25 September 2014
and as such the market may have been aware of the transaction before the official announcement.
In order to provide further analysis of the market prices for Paynes shares, we have considered the volume
weighted average market price (“VWAP”) for 10 day, 30 day, 60 day and 90 trading day periods for the last
trading date at 11 November 2014 which was 03 October 2014 :
$
10 Days
30 Days
60 Days
90 Days
0.003
0.002
0.002
0.002
VWAP
Table 7: Volume Weighted Average Price of Paynes (Source: Capital IQ)
An analysis of the volume in trading in Paynes shares for the past 90 days from 03 October 2014 is set out
in the table below:
Low
High
$
$
Cumulative
Volume
(‘000)
% of Total
1 trading day
0.002
10 trading days
0.002
0.002
650
0.1%
0.003
22,740.16
3.2%
30 trading days
0.001
0.003
25,905.19
3.6%
60 trading days
0.001
0.003
28,655.19
4.0%
90 trading days
0.001
0.003
29,582.25
4.1%
Capital
Table 8: Traded Volumes of Paynes to 03 October 2014 (Source: Capital IQ)
9.20.
The table shows that only 4.1% of Paynes’ shares have been traded in the 90 trading days from 03 October
2014.
9.21.
The table indicates very limited volume and liquidity in Paynes shares.
9.22.
Our assessment of the Fair Value of a Paynes share is based on the quoted market price, and is $0.002
based on the volume weighted average prices for 10 days, 30 days, 60 days and 90 days respectively.
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Valuation Summary
9.23.
9.24.
A summary of our assessed values of a Paynes share is shown below.
Low
$
High
$
Net assets on a going concern basis
0.002
0.003
Quoted market price value
0.002
0.002
Preferred valuation
0.002
0.003
Valuation Methodology
Table 9: Paynes Valuation Summary (Source: RSMBCC Analysis)
In our opinion we consider that the net asset valuation methodology provides a better indicator of the Fair
Value of a Paynes Share as we consider our analysis of the trading of Paynes’ shares post the
announcement of the Proposed Transaction indicates that the market for Paynes’ shares is not deep
enough to provide an assessment of their Fair Value.
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10. Valuation of Consideration Options
10.1.
We have used a vanilla binomial option pricing model, to value the Options.
10.2.
In order to ensure our assumptions are reflective of those included in the Notice of Meeting, we have
performed our valuation of the Consideration Options on a post-consolidation basis.
10.3.
We have calculated a value of $0.4 million for the Consideration Options, based on a value of $0.067 per
option, as set out in the table below.
Valuation Summary
$0.067
Value per option
Number of options to be issued Delecta
6,000,000
Total value of Consideration Options
$402,000
Option Valuation Model Assumptions
10.4.
We set out the assumptions we have used in the binomial model below, in assessing the indicative Fair
Value of the Options.
Assumption
Ref
Options
Grant date
10.5
27 November 2014
Spot price
10.6
$0.10
Exercise price
10.7
$0.125
Expiry period
10.8
5 years
Expected future volatility
10.9
90%
Risk free rate
10.10
2.82%
Dividend yield
10.11
0%
Table 10: Assumptions (Source: RSMBCC Analysis)
10.5.
Grant date – For the purposes of this indicative valuation, we have assumed that the grant date is the date
of this Report.
10.6.
Spot price – Based on our assessment of Paynes shares in Section 9.22 we consider the underlying value
of a Paynes’ share to be $0.002. A consolidation of capital ratio of 1:50 is assumed, which results in a price
of $0.10. However, this is subject to ASX approving submission to recomply at 10 cents.
10.7.
Exercise price – The exercise price will be $0.125.
10.8.
Expiry date – We understand that the expiry date of the Options is to be 5 years after the date of issue.
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10.9.
Expected future volatility – Due to a low level of trading activity in Paynes’ shares and a lack of historical
price data related to its future operations as an oil and gas producer, we have assessed the expected future
volatility on the historical volatility of comparable oil and gas producers over 5 years. Our results are set
out in the table below:
Company
Company Description
Volatility
AusTex Oil Limited (ASX:AOK)
AusTex Oil Limited, a junior oil and gas company, is engaged in the exploration,
development, and production of hydrocarbons in Oklahoma and Kansas, the
United States.
71.63%
Target Energy Limited (ASX:TEX)
Target Energy Limited explores, develops, and produces oil and gas in the
United States.
109.84%
Sun Resources NL (ASX:SUR)
Sun Resources NL engages in the exploration, development, and production of
oil and gas projects in Australasia and the United States.
91.64%
Empire Energy Group Limited
(ASX:EEG)
Empire Energy Group Limited, through its subsidiaries, is engaged in the
acquisition, exploration, development, and production of oil and natural gas
primarily in Appalachia and the Central Kansas Uplift, the United States.
92.01%
Lonestar Resources Limited
(ASX:LNR)
Lonestar Resources Limited, an independent oil and gas company, acquires,
explores for, develops, and produces oil and gas properties in the United States.
63.67%
Median
92%
Average
86%
Figure 16: Comparable Companies (Source: Capital IQ)
10.9.1. We have selected an expected volatility factor which we believe to be representative of the future
volatility of the company.
10.9.2. Based on our analysis we have concluded that a volatility figure of 90% is reflective of the future
volatility of Paynes shares over the life of the options.
10.10. Risk free rate - We have determined this based on the yield of a Commonwealth Government 5 year bond,
being the period which most closely corresponds to the estimated option life, which at 11 November 2014
yielded 2.82%.
10.11. Dividend yield – Dividend yield of 0% has been assumed as we cannot predict with certainty if or when
Paynes may pay a dividend.
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11. Valuation of the Revenue Payment
11.1.
A consideration amount of $1 million is payable from the future oil & gas revenues derived from the project.
We have calculated the net present value of the deferred consideration using a discount rate of 12% and
have assumed that the cash will be received within approximately six months based on the cash flow profile
prepared by dB.
11.2.
We have utilised the weighted average cost of capital (“WACC”) of Delecta as our discount rate. We have
assessed the pre-tax WACC to be in the range of 11% to 13%. Accordingly, given that we have assumed
that the revenue payment will be made six months after the Proposed Transaction has completed we have
applied a discount rate of between 5.4% and 6.3% to the $1 million payment representing six months
discounting. Details of how we have calculated our preferred range of WACCs is included in Appendix 8.
11.3.
Deferred Consideration amount
Discount rate
Present value of Deferred Consideration
Low Value
$m
High Value
$m
1.0
1.0
6.3%
5.4%
0.9
0.9
Table 12: Value of Consideration (Source: RSMBCC analysis)
We consider the value of the Consideration to be approximately $0.9 million.
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12. Is the Proposed Transaction Fair to Shareholders?
12.1.
12.2.
Our assessed values of the Project and Consideration are summarised in the table and figure below.
Ref:
Assessment of fairness
Low Value
High Value
$m
$m
Fair Value of the Project
8
3.4
10.2
Fair Value of the Consideration
9
3.9
5.4
Table 13: Assessment of fairness (Source: RSMBCC analysis)
Fair Value of the project
Fair Value of Consideration
0
2
4
6
8
10
12
$'millions Value
Figure 17: Summary of fairness assessment (Source: RSMBCC Analysis)
In the absence of any other relevant information, we consider the Proposed Transaction to be fair to the
Shareholders of Delecta, as the Fair Value of the Consideration falls within the Fair Value of the Project.
Furthermore, Delecta recently acquired the Project on an arm’s length basis for US$3 million ($3.6 million).
The Fair Value of the Consideration Delecta will receive is greater than $3.6 million.
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13. Is the Proposed Transaction Reasonable
13.1.
RG111 establishes that an offer is reasonable if it is fair. If an offer is not fair it may still be reasonable after
considering the specific circumstances applicable to the offer. In our assessment of the reasonableness of
the Proposed Transaction, we have given consideration to:

The future prospects of Delecta if the Proposed Transaction does not proceed; and

Other commercial advantages and disadvantages to the Shareholders as a consequence of the
Proposed Transaction proceeding.
What happens if the Proposed Transaction does not proceed?
13.2.
If the Proposed Transaction does not proceed then Delecta will continue to hold an interest in the Project.
However, Delecta will need to raise capital to exercise the Stage 2 Option and will need to recomply with
the ASX Listing Rules as Delecta’s business operations will have moved into oil and gas production.
Advantages and disadvantages
13.3.
In assessing whether the Shareholders are likely to be better off if the Proposed Transaction proceed than
if it does not, we have also considered various advantages and disadvantages that are likely to accrue to
the Shareholders.
Advantages of approving the Proposed Transaction
Advantage 1 – The Proposed Transaction is fair
13.4.
RG 111 states that a transaction is reasonable if it is fair.
Advantage 2 – Influence over Paynes
13.5.
While Delecta will have divested its direct interest in the Project, it will have increased the value of its
ownership in Paynes through the establishment of an indirect interest in the Project and will have the ability
to recoup $1 million of its initial investment from future revenues generated by the Project.
Advantage 3 – No requirement to re-comply
13.6.
Delecta will have an interest in oil and gas without the need to recomply with Chapters 1 and 2 of the ASX
Listing Rules, including consolidation of capital as a result of a shift in business operations.
Advantage 4 – No dilution in shareholders
13.7.
The Proposed Transaction will not result in a dilution in Shareholders interest even though the Project
needs to be funded. Delecta understands that it is Paynes intention to raise $8 million which will enable it
to proceed with the Stage 2 Option.
Advantage 5 – Corporate Structure
13.8.
Delecta’s corporate structure can remain unchanged through changing its direct interest in the Project to
an indirect interest while ensuring significant influence over the asset through increased its control over
Paynes.
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Advantage 6 – Transfer of Risk
13.9.
Ongoing risk associated with the Project including financial, environmental, safety and regulatory pass to
Paynes.
Disadvantages of approving the Proposed Transaction
Disadvantage 1 – Cost to exercise options
13.10. Delecta will have to pay to exercise their options in Paynes. However, it is unlikely Delecta would exercise
its Paynes Options unless it was financially beneficial to do so.
Disadvantage 2 – Loss of Interest in the Project
13.11. Delecta currently owns 100% of the Project (including options to purchase each stage). Delecta will only
hold an indirect interest in the project following the proposed transaction and as such there will be a loss of
some control. However, we note that Delecta will hold 44% of Paynes and will be able to exercise control
over Paynes via its shareholding. Delecta will also be required to share the returns from the Project with
other Paynes shareholders.
Disadvantage 3 – No guarantee of the Value of Consideration
13.12. There is no guarantee in the value of Consideration, with the exception of the $1 million from initial
revenues, Delecta will be dependent on the future share price of Paynes or on dividend distributions for a
return on its initial investment.
Alternative Proposal
13.13. We are not aware of any alternative proposal at the current time which might offer the Shareholders of
Delecta a greater benefit than the Proposed Transaction.
Conclusion on Reasonableness
13.14. In our opinion, the position of the Shareholders if the Proposed Transaction is approved is more
advantageous than the position if it is not approved. Therefore, in the absence of any other relevant
information and/or a superior offer, we consider that the Proposed Transaction is reasonable for the
Shareholders of Delecta.
13.15. An individual shareholder’s decision in relation to the Proposed Transaction may be influenced by his or
her individual circumstances. If in doubt, shareholders should consult an independent advisor.
Yours faithfully
RSM BIRD CAMERON CORPORATE PTY LTD
A GILMOUR
G YATES
Director
Director
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APPENDIX 1
Declarations and Disclosures
RSM Bird Cameron Corporate Pty Ltd holds Australian Financial Services Licence 255847 issued by ASIC pursuant
to which they are licensed to prepare reports for the purpose of advising clients in relation to proposed or actual
mergers, acquisitions, takeovers, corporate reconstructions or share issues.
Qualifications
Our report has been prepared in accordance with professional standard APES 225 “Valuation Services” issued by
the Accounting Professional & Ethical Standards Board.
RSM Bird Cameron Corporate Pty Ltd is beneficially owned by the partners of RSM Bird Cameron (RSMBC) a large
national firm of chartered accountants and business advisors.
Mr. Andrew Gilmour and Mr Glyn Yates are directors of RSM Bird Cameron Corporate Pty Ltd. Both Mr Gilmour
and Mr Yates are Chartered Accountants with extensive experience in the field of corporate valuations and the
provision of independent expert’s reports for transactions involving publicly listed and unlisted companies in
Australia.
Reliance on this Report
This report has been prepared solely for the purpose of assisting Delecta Shareholders in considering the Proposed
Transaction. We do not assume any responsibility or liability to any party as a result of reliance on this report for
any other purpose.
Reliance on Information
Statements and opinions contained in this report are given in good faith. In the preparation of this report, we have
relied upon information provided by the Directors and management of Delecta and we have no reason to believe
that this information was inaccurate, misleading or incomplete. However, we have not endeavoured to seek any
independent confirmation in relation to its accuracy, reliability or completeness. RSM Bird Cameron Corporate Pty
Ltd does not imply, nor should it be construed that it has carried out any form of audit or verification on the
information and records supplied to us.
The opinion of RSM Bird Cameron Corporate Pty Ltd is based on economic, market and other conditions prevailing
at the date of this report. Such conditions can change significantly over relatively short periods of time.
In addition, we have considered publicly available information which we believe to be reliable. We have not,
however, sought to independently verify any of the publicly available information which we have utilised for the
purposes of this report.
We assume no responsibility or liability for any loss suffered by any party as a result of our reliance on information
supplied to us.
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Disclosure of Interest
At the date of this report, none of RSM Bird Cameron Corporate Pty Ltd, RSMBC, Andrew Gilmour, Glyn Yates,
nor any other member, director, partner or employee of RSM Bird Cameron Corporate Pty Ltd and RSMBC has
any interest in the outcome of the Proposed Transaction, except that RSM Bird Cameron Corporate Pty Ltd are
expected to receive a fee in the region of $17,500 based on time occupied at normal professional rates for the
preparation of this report. The fees are payable regardless of whether Delecta receives Shareholder approval for
the Proposed Transaction, or otherwise.
Consents
RSM Bird Cameron Corporate Pty Ltd consents to the inclusion of this report in the form and context in which it is
included with the Notice of General Meeting and Explanatory Memorandum to be issued to Shareholders. Other
than this report, none of RSM Bird Cameron Corporate Pty Ltd or RSM Bird Cameron Partners or has been involved
in the preparation of the Notice of General Meeting and Explanatory Memorandum. Accordingly, we take no
responsibility for the content of the Notice of General Meeting and Explanatory Statement.
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APPENDIX 2
Sources of Information
In preparing this Report we have relied upon the following principal sources of information:

Financial statements for three years ended 30 June 2014 for Paynes and Delecta;

Profit and Loss Statement for period ended 30 September 2014 and Balance Sheet as at 30
September 2014 for Paynes;

Independent specialist report on the value of the Project Fair Market Value Assessment, Canadian
Valley Project, Okfuskee County, Oklahoma, USA, dB LLC Petroleum Advisors

Independent specialist report on the value of exploration assets held by Paynes – Technical Project
Review- Draft and Independent Valuation Report Paynes Find Gold Project for RSM Bird Cameron
Corporate Pty Limited, Ravensgate

Directors rationale for the Proposed Transaction and details of other alternative transactions
considered by the Board;

Copies of any recent offers received for the Project or for the exploration assets held by Paynes;

Details of the directors plans if the Proposed Transaction is not successful;

ASX announcements of Transaction;

Website: http://www.goldpriceoz.com;

Website: www.paynesfindgold.com;

Website: www.eia.gov/state;

Website: www.rba.gov.au;

BP Statistical Review of World Energy 2014;

OPEX World Energy Review 2013;

IBISWorld;

S&P Capital IQ database; and

Discussions with Directors, Management and staff of Delecta.
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APPENDIX 3
Glossary of Terms and Abbreviations
Term or Abbreviation
Definition
$
Australian Dollar
Act
Corporations Act 2001 (Cth)
APES
Accounting Professional & Ethical Standards Board
ASIC
Australian Securities & Investments Commission
ASX
Australian Securities Exchange
Consideration
Includes the Consideration Shares, Consideration Options, and Revenue
Payment.
Consideration Options
Issue of 3,000,000 post reconstruction options to acquire a fully paid ordinary
share in the capital of Paynes within 5 years of their issue at an exercise price
of $0.125 (post reconstruction)
Consideration Shares
Issue of $3,000,000 in fully paid ordinary shares in the capital of PNE at a
deemed issue price of $0.002 (pre - reconstruction of Payne’s issued capital)
Control basis
As assessment of the Fair Value on an equity interest, which assumes the
holder or holders have control of entity in which the equity is held
Delecta
Delecta Limited
Directors
Directors of Delecta
Discounted Cash Flow Method
(DCF)
A method within the income approach whereby the present value of future
expected net cash flows is calculated using a discount rate
EBIT
Earnings, Before, Interest and Tax
EBITDA
Earnings, Before, Interest, Tax, Depreciation and Amortisation
Equity
The owner's interest in property after deduction of all liabilities
EV
Enterprise Value, meaning, the total value of the equity in a business plus the
value of its debt or debt-related liabilities, minus any cash or cash equivalents
available to meet those liabilities
Fair Value
the amount at which an asset could be exchanged between a knowledgeable
and willing but not anxious seller and a knowledgeable and willing but not
anxious buyer, both acting at arm’s length
FME
Future Maintainable Earnings
FOS
Financial Ombudsman Service
42
Definition
FSG
Financial Services Guide
FY##
Financial year ended 30 June
GFC
Global financial crisis
IBIS
IBIS World, producer of industry reports
IER
This Independent Expert Report
Non control basis
As assessment of the Fair Value on an equity interest, which assumes the
holder or holders do not have control of entity in which the equity is held
Notice
The notice of meeting to vote on the Proposed Transaction
NPBT
Net Profit Before Tax
NPAT
Net Profit After Tax
Paynes
Paynes Find Gold Limited
Paynes Option
Agreement between Delecta and Paynes where Delecta will grant Paynes an
Option to acquire its( Delecta’s) interest in the Project inclusive of the Project
Stage 2 Option to complete Stage 2 of the Project and the Project Seismic
Option over the additional 64 square miles of Seismic Data, subject to certain
conditions being satisfied.
Project
Acquisition of the Canadian River Field Development oil and gas project in
Oklahoma
For personal use only
Term or Abbreviation
Project Seismic Option
Delecta’s option to have exclusive access to Seismic Data covering a total of
64 square miles inclusive of the Project Area
Proposed Transaction
Sale of interest in Canadian River Field Development Oil and Gas Project to
Paynes Find Gold Project
Regulations
Corporations Act Regulations 2001 (Cth)
Report
This Independent Experts Report prepared by RSMBCC dated 4 December
2014
Revenue Payment
The payment of $1,000,000 from future oil & gas revenues derived from the
project
RG 111
ASIC Regulatory Guide 111 Contents of Expert's Reports
RSMBCC
RSM Bird Cameron Corporate Pty Ltd
S&P Capital IQ
An entity of Standard and Poors which is a third party provider of company
and other financial information
VWAP
Volume weighted average share price
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APPENDIX 4
Profile of the International Oil and Gas Industry
The International Oil and Gas industry consist of two segments, being the upstream and downstream segments. The
upstream segment explores, produces and processes crude oil and natural gas. The downstream segment refines
these outputs into fuels, lubricants and petroleum products and then markets them for sale.
The Canadian River Field Development Oil and Gas Project’s operations are focused on the exploration for and
production of oil and gas in Oklahoma, therefore in this section of the Report we set out an overview of the following;

The international oil exploration and production industry; and

The international natural gas exploration and production industry.
International oil exploration and production industry
The oil industry supplies product to a number of downstream markets, but the biggest is petroleum refining, which
according to producer of industry reports IBIS World Inc (“IBIS”) accounted for 68% of the industry’s output. Crude
oil is used to manufacture petroleum products, primarily gasoline and automotive distillate (“diesel”).
There are many grades of crude oil produced worldwide, ranging from the highest quality light sweet crude oil to poor
quality heavy, sour crude oil.
In 2013 the world consumed approximately 91.3 million barrels of oil per day (“MMBLS/day”). The biggest consumers
of oil in the world based on 2013 consumption are the USA (18.9 MMBLS/day), China (10.6 MMBLS/day), Japan
(4.5 MMBLS/day) and India (3.7 MMBLS/day)1.
Combined, the global oil and gas exploration and production industries generate total revenues of approximately
$4.6 trillion in 2014, up from $2.6 trillion in 2009.
Crude Oil Demand
The level of demand for petroleum products and as such crude oil is heavily influenced by global economic growth,
and underlying levels of economic activity.
Global primary energy consumption accelerated in 2013 despite stagnant global economic growth. Global oil
consumption grew by 1.4 million barrels per day (b/d), or 1.4% – this is just above the historical average. Countries
outside the OECD now account for the majority (51%) of global oil consumption and they once again accounted for
all of the net growth in global consumption. OECD consumption declined by 0.4%, the seventh decrease in the past
eight years.
Oil Supply
The world’s crude oil is effectively supplied by two suppliers as follows:
1

State owned producers located in countries which are members of the Organisation of Petroleum
Exporting Countries (“OPEC”); and

Privately owned producers located in non OPEC countries.
BP Statistical Review of World Energy 2014
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In 2013 the world had proven oil reserves of 1,687.9 billion of which OPEC accounted for 42.1%. Global oil production
did not keep pace with the growth in global consumption, rising by just 550,000 b/d or 0.6%. The US (1.1 million b/d)
recorded the largest growth in the world and the largest annual increment in the country’s history for a second
consecutive year. The US accounted for nearly all (97%) of the non-OPEC output increase of 1.1 million b/d (the
strongest since 2002) to reach a record 49.9 million b/d. The table below sets out a breakdown of the world’s proven
oil reserves by region as at 31 December 2013.
Region
Proven Reserve
(Billion Barrels)
% share
808.5
329.1
229.5
148.5
130.0
42.20
1,687.9
47.9%
19.5%
13.6%
8.8%
7.7%
2.5%
100.0%
Middle East
South & Central America
North America
Europe & Eurasia
Africa
Asia Pacific
Total
Table 14: Worlds’ Proven Oil reserves (Source: BP Statistical Review of World Energy 2014)
Global oil production in 2013 was the highest of the last 24 years with a production of 86.7 million barrels per day.
Oil Price
Crude oil is one of the most actively traded commodities in the world, and over 50% of annual world production is
traded internationally. There are a number of different types of traded crude oil products and today there are over
150 different types of crude oil (known as markers), traded internationally.
As the project is located in the US we have set out the historical daily closing price for WTI over the period 2000 to
2013.
Crude Oil Prices (2000-2013)
100.06
66.02
95.04
94.13
97.99
2011
2012
2013
79.45
72.20
61.92
56.59
41.49
30.37
25.93
26.16
2000
2001
2002
31.07
2003
2004
2005
2006
2007
2008
2009
2010
$/bbl ‡
Figure 18: Historical WTI crude oil price 2000 – 2013 (Source: BP Statistical Review of World Energy 2014)
Short-term spikes in the price of oil and gas have largely driven the industry's expansion over the period. However,
the industry experienced significant pitfalls during the global recession, when revenue dropped 39.5% in 2009.
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Outlook
Oil is expected to be the slowest growing of the major fuels to 2035, with demand growing at an average of just 0.8%
a year. Nonetheless, this will still result in demand for oil and other liquid fuels being nearly 19 million barrels a day
higher in 2035 than 2012. All the net demand growth is expected to come from outside the OECD – demand growth
from China, India and the Middle East will together account for almost all of net demand growth.
Global oil consumption is expected to grow from around 88.9 MMBLS/day in 2012 to 108.5 MMBLS/day by 2035.2
100% of this growth is expected to come from non OECD Asian countries primarily China and India. Most of the
growth in demand is expected to come from the transportation industries.
China is the key component behind long term oil consumption growth. Their consumption is forecast to increase by
45% over the next 20 years from 9.7 MMBLS/day to 17.5 MMBLS/day by 2035 at which point they will have overtaken
the USA as the world’s largest oil consumer.
With regard to future oil prices we note that the Energy Information Administration expects the price of crude oil to
rise in the period from 2012 to 2035. OPEC in their World Energy Model have assumed in their Reference Case a
nominal price that remains at an average of $110 per barrel over the period to 2020, and rises thereafter to US$160
by 20352.
International gas industry
Natural gas is gas formed primarily of methane and is an important source of fuel and as feedstock for fertilisers.
There are two main sources of natural gas, conventional natural gas is found in underground reservoirs often
associated with oil reserves, and coal seam gas located within coal deposits and is formed as a by-product during
the natural process of coalification where organic matter turns into coal.
Natural gas share of overall energy consumption has grown significantly over the last twenty years. The shift towards
gas reflects; the greater availability of gas compared to oil (gas reserves are more dispersed than those of oil),
increased use of gas in stationery applications such as power generation, greater investment in gas infrastructure
such as pipelines and LNG facilities, and the use of gas as an energy source is more environmentally friendly than
other fossil fuels.
Natural Gas Demand
Long term demand for natural gas is driven by the following:
2

New technologies and users – New technologies are expected to allow natural gas-fired stations to
generate electricity from natural gas as cheap as, if not cheaper than coal fired generation. Demand
for gas is also expected to be boosted through increasing industrial use, particularly in chemical and
mineral processing, petrochemical operations and mining.

Environmental issues – Natural gas is a more environmentally friendly source of energy than oil and
coal. Governments around the world continue to implement policies that aim to produce energy from
more environmentally friendly sources, which is expected to increase the demand for natural gas.

Relative price of substitutes – The demand for gas is heavily reliant on the price of its major
substitutes which in terms of being a source of fuel is oil and coal.
OPEC World Energy Review 2013
46
For personal use only

Availability of gas supply infrastructure – Gas usage tends to rise rapidly when supply infrastructure
become available, before settling down to a more sustainable rate of expansion.
World natural gas consumption grew by 1.4% in 2013, below the historical average of 2.6%.
Natural Gas Supply
In 2013, the world had total proven natural gas reserves of approximately 6,558 trillion cubic feet. The table below
sets out the location of the worlds proven gas reserves.
Region
Proven Reserve (Trillion
cubic feet)
% share
2,833
2,000
538
498
413
269
6,558
43.2%
30.5%
8.2%
7.6%
6.3%
4.1%
100.0%
Middle East
Europe & Eurasia
Asia Pacific
Africa
North America
South & Central America
Total
Table 15: Worlds Proven natural gas reserves (Source: BP Statistical Review of World Energy 2014)
The largest producers of natural gas in 2013 were the USA and Russia with average production of 66.5 and 58.5
BCF/day respectively.
Natural Gas Price
The price of natural gas is affected by a number of factors including, overall economic conditions, and the weather,
prices of alternative fuels such as oil and coal and storage capacity. The pricing point for natural gas is Henry Hub,
natural gas is traded on a spot and futures basis on the NYMEX. The figure below sets out the historical Henry Hub
natural gas price in millions of British thermal units (“MMBtu”) for the period 2000 to 2013.
HENRY HUB GAS PRICES (2000-2013)
US$/MM Btu
8.85
8.79
6.76
5.63
4.23
2000
4.07
2001
6.95
5.85
3.89
3.33
2002
4.39
4.01
3.71
2.76
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Figure 19: Historical Henry Hub natural gas price (Source: BP Statistical Review of World Energy 2014)
47
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Natural Gas Outlook
Global demand for natural gas will grow by 1.9% p.a. over the outlook period, reaching 497 Bcf/d by 2035, with nonOECD growth (2.7% p.a.) outpacing the OECD (1% p.a.).
In the OECD, gas will overtake oil as the dominant fuel by 2031, reaching a share of 31% in primary energy by 2035.
But in the non-OECD, gas remains in third place, behind coal and oil, with a 24% share of primary energy by 2035.
The fastest growing sector is transport (7.3% p.a.), but this is from a small base. In volume terms the largest growth
comes from industry (71 Bcf/d, 1.9% p.a.) and power (63 Bcf/d, 1.9% p.a.).
The pattern of growth by sector differs between the OECD and non OECD. OECD volume growth comes primarily
from the power sector (17 Bcf/d, 1.2% p.a.) followed by industry (10 Bcf/d, 0.8% p.a.), while industry remains the
largest source of non-OECD growth (61 Bcf/d, 2.6% p.a).
48
For personal use only
APPENDIX 5
Profile of the Australian Gold Industry
Gold ore mining is a well-established industry in Australia, dating back the mid- to late 1800s. The industry
experienced a strong period of growth over the past decade. This growth stems from gold's status as a countercyclical commodity. As such, the global financial crisis and the recessionary environment provided a massive boost
for the industry. As a result, in the five years through to 2014-15, industry revenue increased at an annualised 3.2%.
The sudden increase in demand during the recession caused global gold prices to increase which resulted in
increases in industry revenue and profit. These conditions prompted gold producers to expand production, as higher
prices more than offset the higher cost of developing lower grade ores. However, the gold price declined in 2012-13
and 2013-14 as the global economy strengthened and inflationary fears eased. Despite gold prices expected to rise
in 2014-15, industry revenue is expected to decline by 2.4% to $12.2 billion in 2014-15 on lower volumes.
Over the five years through 2019-20, the industry's fortunes will be largely tied to the rise and fall of world gold prices.
Gold prices are expected to vary annually at a moderate rate, which will expose the industry to some revenue
volatility. However, prices are expected to remain largely stagnant compared with 2014-15. As a result, the expected
slight increase in gold production will largely drive industry performance. Overall, industry revenue is forecast to
increase at an annualised 0.9% over the five years through 2019-20, to $12.7 billion. The small overall changes in
gold prices and rising production and transportation costs are expected to limit profit growth in the next five years.
Price
Gold Price per Ounce 1999-2014
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1999
Gold Price
Gold prices are denominated in US dollars, as such, fluctuations in the value of the Australian dollar against the US
dollar add to revenue volatility. Volatility has been at a medium level in the past five years due to strong gold pricing
growth in the years through late 2012, followed by a large decline in 2012-13 and further falls in subsequent years.
The recent gold price declines have coincided with a weaker Australian dollar, which has helped to limit industry
declines.
Years
Gold Price Annual End of Period
Figure 20: Gold Price per Ounce 1999-2014 (Source: Goldprice OZ)
49
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World gold prices have a direct effect on revenue generated by Australian gold mining operations. When the value
of gold is high, industry products generate positive returns. In addition, firms are likely to commit to projects with
lower gold grades and higher costs. The rapid increase in gold prices over the four years through 2011-12 provided
the industry with an opportunity to expand, before declining in the following two years. IBISWorld expects the world
gold price to again increase in 2014-15.
50
For personal use only
APPENDIX 6
Fair Market Value Assessment, Canadian Valley Project, Okfuskee County,
Oklahoma, USA, Db LLC Petroleum Advisors
51
dB, LLC
Petroleum Advisory Services
www.dbgeo.com
For personal use only
Richard G. Boyce
Partner
Mr. Peter Gray
RSM Bird Cameron
8 St. Georges Terrace
Perth 6000
Western Australia
November 15, 2014
Subject:
Fair Market Value Assessment
Canadian Valley Project
Okfuskee County, Oklahoma, USA
Dear Mr. Gray:
FAIR MARKET VALUE ASSESSMENT
This opinion has been prepared following the guidance provided by the Australian Institute of Mining and
Metallurgy’s Code and Guidelines for Technical Assessment and/or Valuation of Mineral and Petroleum
Assets and Mineral and Petroleum Securities for Independent Expert Reports (the VALMIN Code).
The definition of Value or Fair Market Value of a Petroleum Asset or Security is the amount of money (or
the cash equivalent of some other consideration) determined by the Expert in accordance with the
provisions of the VALMIN Code for which the Petroleum Asset or Security should change hands on the
Valuation Date in an open and unrestricted market between a willing buyer and a willing seller in an
“arms-length” transaction, with each party acting knowledgeably, prudently and without compulsion.
Value is usually comprised of two components, the underlying or “Technical Value” of the Mineral or
Petroleum Asset or Security and a premium or discount relating to market, strategic or other
considerations. Value should be selected as the most likely figure from within a range after taking
account of risk and the possible variation in recovery, capital and operating costs, commodity prices,
exchange rates and the like.
We have prepared estimates of the net reserves, future annual production and future net income
attributable to the anticipated leasehold interest of DELECTA LIMITED (“DELECTA”) in the Canadian
Valley Project as of October 31, 2014. The properties evaluated in this review are located in Okfuskee
County, Oklahoma. The discounted net present values (NPV10) presented in the table below should
be considered as the “Technical Value” of the petroleum asset with respect to the VALMIN
standard quoted above.
These proved reserve classifications were assigned following the Society of Petroleum Engineers (SPE)
guidelines. Economics were run utilizing future oil and gas prices from the 5-Year NYMEX Strip pricing
as of October 1, 2014 held flat (no additional escalation or de-escalation) and operating cost parameters
held constant for the life of the production.
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Richard G. Boyce
Partner
The summary of Net Future Estimated Reserves and Discounted Net Present Value are presented in the
Reserve Table shown below. These values are calculated using a 10% discount factor, calculated at the
middle of each year and an “AS OF” Date on October 31, 2014. All values summarized in the table
below are net to the interest of DELECTA and include Oklahoma State Severance Tax (7.1%) and
estimated US Federal Corporate Taxes (30%).
PROVED RESERVES SUMMARY
(ALL VALUES ARE NET TO DELECTA INTERESTS)
(values are in US Dollars)
PROVED
PRODUCING
BEHIND PIPE
UNDEVELOPED
TOTAL
0
0
5
267,430
436,400
5
267,430
436,400
$22,998,460
$1,804,990
$24,803,450
$22,998,460
$1,804,990
$24,803,450
Expenses
Taxes (State and Federal)
$2,110,030
$9,200,840
$2,110,030
$9,200,840
Investments
$4,875,000
$4,875,000
Future Net Income – zero discount
$8,617,580
$8,617,580
Future Net Inc-10% discount
Fair Market Value – 25% discount
$6,381,500
$4,786,125
$6,381,500
$4,786,125
Gross Wells
Net Oil, STB
Net Gas, MCF
Net Revenue
Oil – USD ($)
Gas – USD ($)
Total
DISCUSSION OF PREMIUM OR DISCOUNT RELATED TO MARKET OR STRATEGIC
CONSIDERATIONS
The second component of Fair Market Value is much more subjective as a result of the wide variety of oil
and gas properties currently available in the USA markets. In recent years, billions of dollars have
changed hands over very large transactions in the USA that have occurred in pursuit of the highly
successful and popular horizontal shale plays. In this arena, transactions occur with the sale of large
undeveloped acreage positions (10,000 to 100,000 acres) that have been de-risked through the drilling of
numerous horizontal wells that have established a large component of Proved Developed Production
(PDP) that also provides a large number of Proved Un-Developed (PUD) drilling locations. In this case, a
useful metric for transaction value ranges between $60,000 to $100,000 USD per flowing PDP barrel of
oil. This metric can be used to establish fair market value estimates for large horizontal shale play
projects.
Low rate vertical production similar to the Canadian Valley Project carries a similar but much reduced
metric for fair market value which ranges between $20,000 and $35,000 per flowing barrel. These
metrics are typically derived by a potential buyer by paying 100% of the PDP value discounted at 10%
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
2
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Richard G. Boyce
Partner
(NPV10). In the event that PUD locations are included in the transactions, those values are typically
discounted by paying 75% of the indicated PUD values. These reduced rates reflect the reality of the
limited upside represented in developing a smaller conventional project area and the current market
preference to invest in the much larger upside represented by the horizontal shale projects now popular in
the USA.
In the case of the Canadian Valley Project, the Operator has drilled an initial well which has been tested
successfully in the Wilcox, but operations are still ongoing as of the date of this report to build the
infrastructure necessary to establish stabilized production for this well. As such, no specific production
history exists for the well on this lease. However, using analogous production from other recently
completed wells in the region, we have based our technical evaluation on the production rates shown to be
reasonable as compared to these analogous wells. We have also presented a range of possible economic
outcomes which we have represented in the report as P10 (90% confidence in outcome), P50 (50%
confidence in outcome) and P90 (10% confidence in outcome) for the project ultimate recoveries and
discounted present values.
For the Canadian Valley Project, as no PDP production rate is currently available to be valued on
the basis of $/flowing barrel as discussed above, we have chosen to set the Fair Market Value
(“FMV”) by taking the P50 project NPV10 of $8,617,580 USD and applying the standard PUD
discount factor of .75 which results in the FMV of $6,463,185 USD.
It is the opinion of this evaluator that this value of $6,463,185 USD represents a fair price should
the property change hands on the Valuation Date in an open an unrestricted market between a
willing buyer and a willing seller in an “arms-length” transaction, with each party acting
knowledgeably, prudently and without compulsion.
Three classes of Proved Reserves have been considered in this report, Proved Developed Producing
(PDP), Proved Behind Pipe (PBP) and Proved Undeveloped (PUD). The estimated Proved Developed
Producing Reserve (PDP) is typically calculated by decline curve forecasting of historical production data
using historical production data from the daily pumper reports supplied by the operator Inland Oil & Gas,
LLC. The estimated reserve values for Proved Behind Pipe (PBP) and Proved Undeveloped (PUD)
classifications were calculated using decline curve forecasting through extrapolation of historical
production observed in analogous producing fields that exhibit geological and reservoir conditions similar
to those in the Canadian Valley Project for the various reservoirs evaluated. The estimated future
reserves should not be considered exact quantities because these values are projected based on an
estimated decline curve derived from actual production history. The actual recovered reserves may vary
from the projections in this report due to a wide range of circumstances. Future prices for hydrocarbons
and operating costs are two major factors that will determine if future reserves can be economically
produced.
Oil and Condensate volumes have been expressed in the standard 42 gallons per barrel. The gas volumes
are expressed in thousands of cubic feet (MCF), at the official pressure and temperature base for the State
of Oklahoma, USA.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
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[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
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Richard G. Boyce
Partner
For personal use only
EVALUATION PRICE/COST ASSUMPTIONS
Forecast of Prices and Costs
The oil and gas prices used in the economic forecast are derived from publically available sources as
published by the New York Mercantile Exchange (NYMEX) using the 5-Year NYMEX Strip pricing as
of October 1, 2014. The prices were then held flat for the duration of each year as shown in the table
below with no additional escalation or de-escalation applied.
Year
2014
2015
2016
2017
2018
2019+
Gas
$4.06
$3.93
$4.04
$4.18
$4.30
$4.30
Oil
$90.24
$87.55
$85.90
$84.80
$84.53
$84.53
During the most recent 30 days preceding this report, world oil markets have experienced extraordinary
volatility with prices dropping nearly 20% almost overnight, and markets testing new lows below
$75/bbl. At this time, it is unknown if these lower prices will stabilize at these levels or if this should be
considered as a short term condition in the market place. As such we have relied on what is generally
accepted as a credible source for the price decks used in this evaluation.
Cost Parameters
The Operating Costs for the vertical Wilcox wells operating with Electrical Submersible Pumps (ESP) of
$5,000/well/month was supplied by Inland Oil & Gas, LLC which we reviewed and considered as normal
for the area of operations.
The operating costs used in the economic calculations include the direct operating charges applicable to
each well and allocated general and administrative overhead charges from the Operator. The economics
also include Oklahoma oil and gas production taxes and ad valorem taxes (7.1% for both oil and gas) as
well as US Federal Corporate Tax which was estimated to be 30%. The future Operating Costs were held
constant for the economic life of each property.
Well cost estimates based on actual vertical drilling experiences on the project area have been reviewed
and accepted as normal for the area and depth of drilling. Well cost estimates used in the economic
model are $1,218,750 per completed vertical well. This turnkey fixed cost includes the completion and
equipment cost (electric submersible pump) necessary to produce the well.
Estimated Future Remaining Reserves contained in this report are based upon our extensive subsurface
review of well logs, core information, pressure test information, 3D seismic data, historical oil and gas
production. No on site field examination of the subject properties has been undertaken. No existing
environmental liabilities are currently identified with regard to the daily operations of Inland Oil & Gas,
LLC. No environmental impact report has been provided for this property by the Operator.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
4
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
Petroleum Advisory Services
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For personal use only
Richard G. Boyce
Partner
The values for working interest and net revenue interest, furnished in connection with this report were
accepted as given and without further verification by dB, LLC. Future estimates in this report are based
on available data through October 2014.
Tax Considerations
The Proforma economics and Net Present Values shown are net of Oklahoma Oil and Gas severance
taxes. Currently these tax rates are 7.10% for both Oil and Gas Production. In Oklahoma, these taxes are
paid upon sale of the various hydrocarbons at the well head and are deducted from the Net Present Value
calculations. The economics also include U.S. Federal Income Tax which was estimated to be 30%.
DISCLOSURE STATEMENT
Independence and Conflict of Interest - This report has been prepared by dB, LLC based on a brief
directed by RSM Bird Cameron (“RSM”) dB, LLC (“dB”) is an independent oil and gas advisory firm
headquartered in Dallas, Texas. Mr. Richard G. Boyce, the primary evaluator, holds no economic interest
in the Canadian Valley Project, Inland Oil & Gas, LLC or in PAYNES FIND GOLD LIMITED (“PNE)
or in DELECTA LIMITED (“SELLER”). This report is produced under a “fee for services rendered”
engagement for the amount of $5,000 USD and in compliance with the ASIC Regulatory Guide 112 in
relation to Independence of Experts.
Purpose, Scope and Use of this Report - This report was commissioned by RSM Bird Cameron for
inclusion in a Notice for General Meeting in relation to Australian Securities Exchange Listing Rule 10.1
relating to the disposal of a substantial asset to a related party. The scope of this report includes economic
evaluation and an assessment of future present worth based on stated economic considerations.
Recommendations for future development plans are outlined in the report and have been included in the
economic forecasts.
This report was prepared exclusively for RSM and should not be duplicated or distributed to any third
parties without the express written consent of RSM and dB LLC, except as required by law.
Available Data - This study was based on data supplied by the project Operator- Inland Oil & Gas, LLC
and on public domain information acquired from the Oklahoma Corporation Commission, IHS Energy,
Inc. and DrillingInfo.com. The supplied data was reviewed for reasonableness from a technical
perspective. As is common in oil field situations, basic physical measurements taken over time cannot be
verified independently in retrospect. As such, beyond the application of normal professional judgment,
such data must be accepted as representative. While we are not aware of any falsification of records or
data pertinent to the result of this study, dB does not warrant the accuracy of the data and accepts no
liability for any losses from actions based upon reliance on data which is subsequently shown to be
falsified or erroneous.
Professional Qualifications - dB personnel who prepared this report are degreed professionals with the
appropriate qualifications and experience to complete the project brief. dB and its staff do not claim
expertise in accounting, legal and environmental matters, and do not offer legally binding opinions and
such matters do not form part of this report. Mr. Richard G. Boyce is not a registered petroleum engineer.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
5
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
Petroleum Advisory Services
www.dbgeo.com
For personal use only
Richard G. Boyce
Partner
Reserves Estimates - Reserves estimates were made using industry-accepted methodology including
extrapolation of performance trends, volumetric calculations, material balance and statistical analysis of
analogs. The evaluators’ professional judgment and experience was used to select the most appropriate
method and to determine the reasonableness of the results. The estimates were made in accordance with
the rules established by the Society of Petroleum Engineers (SPE). The reserves definitions allow for
changes in category as information is gathered and as producing history is accumulated. As such, the
volume and class of reserves is expected to change and be revised over time.
Net oil and gas reserves are those estimated quantities of crude oil, natural gas and natural gas liquids
attributed to the evaluated interests (after deduction of applicable royalties and overriding royalties) that
are considered to be economically recoverable under the economic conditions modeled. It is implicit that
good oil field practices are maintained in order to cause recovery of the estimated reserves.
Future Cash Flow Estimates - Future cash flow estimates to the evaluated interests are based upon the
estimated future production profile and future prices for oil and gas adjusted for capital expenditure,
operating costs, interest reversions and severance and ad valorem taxes, but without consideration of any
federal income tax liability or any other types of encumbrance that might exist against the evaluated
interests. The estimates do not include the salvage value for the leases or the cost of abandonment and
site restoration. The present worth of future cash flow reflects the application of certain discount
factors and does not represent an estimate of fair market value for the properties on a standalone
basis. Please refer to the section entitled DISCUSSION OF PREMIUM OR DISCOUNT
RELATED TO MARKET OR STRATEGIC CONSIDERATIONS for additional discussion
relating to this subject.
The future cash flow and present worth of future cash flow estimates presented herein, are representative
of the pricing and development/recompletion scenarios that have been modeled. Such estimates should
not be construed as exact quantities. Future production rates, product prices, development costs and
revenues from the sale of petroleum products could differ from the estimates presented. Modification of
drilling schedules, availability of capital, and many other factors outside the realm of an engineering
estimate could result in significant variances from the estimates present herein.
Exclusions - dB cannot attest to the validity or correctness of the ownership information provided by
Inland Oil & Gas, LLC and such an opinion does not form part of this report. Operating cost data was
provided by Inland Oil & Gas, LLC who is currently operating the properties evaluated. This report is
restricted to our independent estimate of reserves. It is not the intention or purpose of this report to
comment on title, ownership or legal encumbrances, any commercial or business relationships or sunk
costs involved in acquiring the properties.
Field Visit and Inspection – No field visit was undertaken in support of this report.
Liability Waiver - This report has been prepared on a best efforts basis to address the requirement of the
brief specified by RSM Bird Cameron. The results and conclusions represent informed professional
judgments based on the data available. No warranty is implied or expressed that actual results will
conform to these estimates. dB, LLC accepts no liability for actions or losses derived from reliance on
this report or the data on which it was based.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
6
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
Petroleum Advisory Services
www.dbgeo.com
Richard G. Boyce
Partner
For personal use only
EVALUATOR
This evaluation was conducted by Mr. Richard G. Boyce. He has practiced professional
geological, geophysical and reserve evaluations for 35 years. He began oil and gas consulting in 1996
and founded dB, LLC in 2002.
Mr. Boyce began his career as a geophysicist for The Superior Oil Company with early training at their
Geoscience Laboratory in Houston, Texas. In 1980, Mr. Boyce transferred to Midland, Texas to continue
working for Superior Oil Company until 1983. During his ten year career in the Permian Basin, Mr.
Boyce also worked for both Conquest Exploration Inc. and Hunt Oil Company. In 1991, Mr. Boyce
transferred to Dallas, Texas where he served as the Chief Geophysicist for Hunt Oil Company and in
1992 was appointed the Exploration Manager for the Yemen Hunt Oil Company and the Exploration Vice
President of the Hunt Oil subsidiaries, Ethiopia Hunt Oil and Jannah Hunt Oil.
Boyce’s education was at Colorado School of Mines where he received a Bachelor of Science
Degree in Geophysical Engineering, graduating in 1978. He is a registered Professional Geoscientist in
Texas, license number 2179. Memberships in professional associations at the local, state and national
levels are the Society of Exploration Geophysicists, American Association of Petroleum Geologists,
Society of Professional Earth Scientists (SIPES # 3245) and Association of International Petroleum
Negotiators.
EVALUATOR QUALIFICATIONS
I, Richard G. Boyce, a consulting geoscientist, maintaining offices at 4849 Greenville Avenue, Suite
1360, Dallas, Texas 75206, hereby certify:
1.
That I am a founding member of dB, LLC and I did prepare this internal evaluation and
development plan with corresponding economic values net to the interests of DELECTA
LIMITED for properties located at in Okfuskee County, Oklahoma.
2.
That I graduated in Geophysical Engineering in 1978 with a Bachelor of Science degree from
Colorado School of Mines, Golden, Colorado.
3.
That I am a registered Professional Geoscientist in Texas #2179. That I have thirty-five years
experience in exploration and production, reservoir studies and evaluations of Canadian, Middle
Eastern, African, Australian, Central Asian, Russian, South American, and United States oil and
gas fields, both onshore and offshore.
4.
That I maintain memberships in the following professional associations: the American
Association of Petroleum Geologists; the Society of Exploration Geophysicists; the Society of
Professional Earth Scientists (SIPES #3245); and the Association of International Petroleum
Negotiators.
5.
That I have no financial interests (past, present or future) in any of the parties involved in this
business transaction.
6.
That I have read the ASIC Regulatory Guide 112 in relation to Independence of Experts and
consider myself qualified as an independent third party evaluator under those guidelines.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
7
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
Petroleum Advisory Services
www.dbgeo.com
For personal use only
Richard G. Boyce
Partner
Sincerely,
Richard G. Boyce
Texas Board of Professional Geoscientists, License No. 2179
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
8
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
Petroleum Advisory Services
www.dbgeo.com
For personal use only
Richard G. Boyce
Partner
EXECUTIVE SUMMARY
The Canadian Valley Prospect is a field development project located in Okfuskee County, Oklahoma.
The project Operator will be Inland Oil & Gas, LLC (“Inland”) headed by Mr. Jeffrey Leenerts. Inland
has recently drilled the Wise #1-25 well in section 25 of T10N R11E and is currently completing the well
in the Wilcox sand at a depth of 3,922 feet. Initial test results indicate production from the Wilcox at
rates of 100-150 barrels of oil per day (bopd). In order to produce the well, Inland is in the final stages of
building necessary production infrastructure including installation of an electric submersible pump
(“ESP”) salt water disposal facilities (“SWDS”), tank batteries, gas sales line, meter run and three phase
electrical lines.
Partners in the project will be Inland Oil & Gas, LLC (Operator), and DELECTA LIMITED
(“DELECTA”) The base lease royalty is 20% to the mineral owners while ESA and Focus are both
reserving a 5% overriding royalty (ORRI) each on the property. These various Working Interests and Net
Revenue Interests are detailed in the table below.
Participant
Mineral Owners
Inland O&G, LLC
DELECTA, LTD
ESA (ORRI)
Focus (ORRI)
Totals
Revenue Distribution
Royalty
Working
Interest %
20.0%
0.00%
0.0%
20.00%
0.0%
80.00%
5.0%
0.00%
5.0%
0.00%
30.0%
100.00%
Net Revenue
Interest %
0.0%
16.0%
58.0% / 54.0%
0.0%
0.0%
70.0%
DELECTA has agreed to acquire an 80% working interest (58% net revenue interest) in the initial phase
of the project. Additionally DELECTA has the option to earn an interest in the drilling of an additional
three (3) new wells to fully develop the Wilcox pay sands and one (1) new well to test the potential of the
Woodford Shale formation. Should this option be exercised, DELECTA would have an 80% working
interest in each of the four wells and infrastructure, with a 54% net revenue interest. The four well
drilling program has an agreed turnkey cost of $4,875,000 USD.
The economics of the initial project have been modeled using three scenarios of estimated ultimate
recovery (EUR) to assess the sensitivity of the project to this variable. In the opinion of the evaluator, the
P10 case carries a confidence factor of 90% that the well production will exceed 75,000 barrels of oil,
while the P90 case carries a confidence factor of 10% that the well production will exceed 200,000 barrels
of oil. The P50 case indicates a most likely case of 100,000 barrels with a confidence factor of 50%.
Geological and Engineering review of the initial one (1) well investment indicates the following
economic summary using NYMEX Five Year Strip Price as of 10/01/2014 held flat for the life of the
production. All present values shown are net to DELECTA’s 80% working interest and 58% net revenue
interest in this initial well.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
9
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
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Case
P10
P50
P90
EUR
(bbls)
75,000
100,000
200,000
Richard G. Boyce
Partner
PV10
(USD 000)
$1,589
$2,234
$3,169
IRR
(%)
ROI
(%)
Payout
(yrs)
In the event that DELECTA exercises the option to participate in the optional four additional well fullfield development, preliminary economic evaluation indicates the project upside could approach:
Case
P10
P50
P90
EUR/well
(bbls)
75,000
100,000
200,000
PV10
(USD 000)
$3,900
$6,381
$11,658
IRR
(%)
133
189
179
ROI
(%)
2.06
2.77
5.37
Payout
(yrs)
1.27
1.15
1.15
As above all discounted present values and economic indicators shown are net to DELECTA’s 80%
working interest and 58% net revenue interest in the initial well and 54% net revenue interest in all
subsequent wells.
4849 Greenville Ave.
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Richard G. Boyce
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PROJECT ASSESSMENT OVERVIEW
dB, LLC Petroleum Advisors have been engaged to conduct independent geological and geophysical
technical due diligence on the Canadian Valley Project. Additionally dB has been asked to provide an
independent engineering opinion regarding the economic viability of the project as well as to outline and
discuss the various risk elements regarding drilling and completion along with a preliminary view of the
overall potential of the project.
The project Operator, Inland Oil & Gas, LLC have already drilled and are in the final stages of
completing the #1-25 Wise well to establish oil and gas production from the Wilcox sands at a depth of
3,922 feet. Inland has provided an extensive database of information regarding their pre-drill
interpretation of both 3D seismic data and subsurface well control. Additionally, the results of well
testing completed on the #1-25 well have been made available to dB for evaluation.
Independently, dB has compiled a digital geological database including well logs, well completion
histories, monthly production data, scout cards and various well test results which has been placed into
the Petra mapping system to conduct independent confirmation of the geological picks, completion
intervals and structural mapping presented by Inland. Additionally, the large 3D seismic data volume
utilized by Inland to position the first well has been loaded on the seismic workstation and reviewed by
dB geophysical staff.
PROJECT LOCATION
The Canadian Valley Project is located in the east-central portion of Oklahoma in the southeast portion of
Okfuskee County, Oklahoma. Positioned south of the town of Weleetka, the project is easily accessible
using the all-weather access
provided by the state highway
system and well-maintained
gravel county roads. The
local terrain is slightly hilly
with
ground
elevations
ranging from 700 to 900 feet
above sea level. No known
adverse
environmental
conditions exist on the
surface or sub-surface.
4849 Greenville Ave.
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11
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Fax: 214-447-9523
dB, LLC
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Richard G. Boyce
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OKLAHOMA ENERGY PROFILE – from U.S. Energy Information Administration
 Excluding federal offshore areas, Oklahoma ranked fifth in crude oil production in the nation
in 2013.
 Oklahoma is an “oil industry friendly” state. Private mineral ownership is wide spread in the
state and individuals reap the benefits of an active development of oil and gas resources
directly.
 Oil and Gas activity is regulated by the State of Oklahoma Corporation Commission which is
well organized, efficient and reasonable in protecting the environment while encouraging the
development of oil and gas resources to the benefits of the tax base enjoyed by the citizens of
Oklahoma. Severance taxes for both oil and gas are 7.1%.
 As of January 2013, Oklahoma had five operating petroleum refineries with a combined daily
capacity of over 500,000 barrels per day (3% of the total U.S. operating distillation capacity).
 Oklahoma is one of the top natural gas-producing states in the nation, accounting for 7.1% of
U.S. gross production and 8.4% of marketed production in 2013.
 Cushing, Oklahoma is where West Texas Intermediate crude oil futures prices are settled for
the New York Mercantile Exchange (NYMEX).
 In 2013, Oklahoma ranked fourth in net electricity generation from wind, which provided
almost 15% of the state's net generation.
GEOLOGY
The project is located within the very prolific oil and
gas producing region of east-central Oklahoma at the
convergence of the Arkoma Basin, the Cherokee
Platform and the Arbuckle Uplift tectonic provinces
of Oklahoma. There is a general north-northwest
regional strike and an average west-southwesterly dip
of approximately 80 to 100 feet per mile across the
project area. The normal inclination of strata is
interrupted in places by basement involved faulting
that subsequently forms doubling plunging anticlines
and numerous closed structural features. Many times these parallel, en-echelon fault systems create
highly prospective horst blocks upon which major oil and gas production occurs.
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Stratigraphy
The stratigraphy of the Cherokee
Platform contains at least 15 stacked pay
horizons beginning in the Pennsylvanian
at depths of 1,200 feet that persist
throughout the Paleozoic at maximum
depths of 5,000 feet. The stratigraphic
column at right illustrates these pay
zones which are comprised of both
sandstone reservoirs and limestone
sequences.
The main pay sands already proven
productive in the Canadian Valley
Project are the First and Second Wilcox
sands found within the Simpson Group at
a depth of 3,920 feet and 3,960 feet
respectively. Typically Wilcox sands in
this area range in thickness from 3’ to
10’ with porosity ranging from 12% to
18% which exhibit typical ultimate
recovery in the range of 50,000 barrels of
oil per zone. In addition to the Wilcox sands other pay zones recognized in the Simpson Group include
the Viola Limestone, the Tulip Creek Sand and the Oil Creek Sand.
In addition to the already perforated and producing Wilcox Sands, petrophysical analysis of the #1-25
Wise well logs indicates potential pay zones are present in the Viola limestone at a depth of 3,880’ and in
the shallower Cromwell Sandstone at a depth of 3,200’ as well as in the Union Valley Limestone at a
depth between 3,030-3,122’.
Within a three mile radius of the Canadian Valley Project most of the 15 pay zones shown on the
stratigraphic column above have been produced in the numerous wells surrounding the area since the first
wells were drilled in the 1930’s.
Structural Setting
The Canadian Valley Project is positioned on an up-thrown horst feature which is bounded by faults to
the west and to the east. The positions of these faults have been mapped using a large 50 square mile 3D
seismic survey that clearly demonstrates a regional up-thrown basement block trending NE – SW upon
4849 Greenville Ave.
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which a four way anticlinal closure at the Wilcox Sand level is mapped covering sections 25 and 36 of
T10N R11E. The #1-25 Wise well is optimally positioned on the crest of this structure.
The map below is a seismic time structure map on the Viola horizon which is an excellent seismic
reflector. The Wilcox sands are located immediately below this level and as such, this map provides
excellent control on the overall hydrocarbon trap size.
Please note that only wells that penetrate
the Simpson interval are shown on the
map. For purposes of clarity, shallower
well penetrations have been removed.
Our technical review of all deep wells on
this feature reveals that within the
indicated structural closure, all wells that
penetrated the Wilcox sands had
indications of oil while none have yet
been produced. Several of the wells were
drilled in the 1930’s so wireline well logs
and test information on these vintage
wells is sparse, but Inland has recovered
scout ticket information that supports the
oil shows indicated on the map. Having
reviewed all available information we
believe that the hydrocarbon saturation on
this feature is now fully documented and
any pre-drill risk of hydrocarbons trapped
on this structure have now been virtually eliminated.
RESERVOIR ENGINEERING
Original Oil In Place (OOIP) - #1-25 Wise
Oil wells drilled in Oklahoma have been determined by the state oil conservation commission to drain a
maximum of 40 acres. This drainage area is known as a proration unit. Full field development of the
Canadian Valley Project will occur on 40 acre spacing at the Wilcox sand level.
Review of the well logs from the #1-25 Wise well reveals specific intervals that indicate potential oil and
gas production. Based on the rock properties of each pay zone, reservoir engineering can determine the
Original Oil in Place (OOIP) across each 40 acre unit using a standardized volumetric equation. Once
OOIP is known, a recovery factor appropriate to the rock properties is applied to determine the estimated
recoverable barrels of oil from each zone.
4849 Greenville Ave.
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Richard G. Boyce
Partner
For personal use only
The table below outlines each of these potential pay zones within the #1-25 Wise well.
Formation
1st Wilcox Sd
2nd Wilcox Sd
Viola Limestone
Cromwell Sd
Union Valley Lm
Pay Interval
3921
3925
3930
3957
3960
3964
3867
3878
3888
3200
3205
3030
3034
3042
3045
3067
3070
3072
3076
3102
3112
3925
3930
3933
3960
3964
3968
3875
3886
3892
3205
3212
3034
3037
3045
3049
3070
3072
3074
3080
3112
3122
Totals/Avg.
Where:
Sw is water saturation
So is oil saturation
H
Feet
Ф
%
Sw
%
So
%
4
4
3
3
4
4
8
8
4
5
7
4
3
3
4
3
2
2
4
9
10
Net
Acre
s
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
13
12
12
12
14
16
4
3
3
14
12
4
3
3
3
3
3
3
3
3
3
33
30
27
40
33
35
50
60
58
21
23
50
60
58
58
58
58
58
58
58
58
67
70
73
60
67
65
50
40
42
79
77
50
40
42
42
42
42
42
42
42
42
99
40
7%
47%
53%
Ф is porosity in percent
H is net pay in feet
OOIP
Bbls
Recovery Factor
%
Estimated
Recoverable Oil
65,392
84,087
87,630
72,074
117,371
78,081
40,041
24,025
12,613
138,393
161,867
20,021
9,009
9,460
12,613
9,460
6,307
6,307
12,613
28,379
31,533
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
13,078
16,817
17,538
14,415
23,474
15,616
8,008
4,805
2,523
27,679
32,373
4,004
1,802
1,892
2,523
1,892
1,261
1,261
2,523
5,676
6,307
1,027,336
20
205,467
Formation
Total BO
47,433
53,505
15,336
60,052
29,141
7758 bbls per acre-foot
1.24 = oil formation volume factor (Bo)
It is anticipated that the 1st and 2nd Wilcox sands will be produced together during the initial production
phase in this well. The estimated recoverable reserve for these two sands totals 100,938 barrels of oil.
Additional revenue will be derived from the associated high BTU gas that will be produced and sold
along with the oil. Inland has provided a gas assay from the produced gas that indicates 1,500 BTU
natural gas will be produced from the Wilcox interval. This high BTU content will bring a premium price
from the gas gatherer. Based on analogy to other recently competed Wilcox wells that have been
completed and produced in a fashion similar to the #1-25 well, it is anticipated that an initial stabilized
gas/oil ratio (GOR) will be 1,200 cu. ft/bbl of oil produced. Utilizing this GOR the pro-forma decline
curve predicts that approximately 165 million cubic feet of gas (mmcf) will be produced from the Wilcox
interval.
Producing Wilcox wells provide engineering analogy
Since the Wise #1-25 well is still being completed and the necessary production facilities and salt water
disposal capacity is still under construction, there is no long term production history from this well to
provide the basis for an actual production forecast in support of a cash flow model. As such we have
identified two new Wilcox wells that have been recently drilled and completed with Electrical
Submersible Pumps (ESP) and that represent geologically similar conditions to the Wise #1-25 well. In
4849 Greenville Ave.
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support to the project, Inland has provided production data and well logs from the Wildhorse #2-31 well
located in section 31-T17N-R5E, Lincoln County, Oklahoma. The figure shown below illustrates the
producing Wilcox Sand interval and is included with permission from the Operator’s well file.
For comparison, the #1-25 Wise well is shown below.
4849 Greenville Ave.
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Richard G. Boyce
Partner
Review of the Operator’s daily completion notes indicates that a total of two Wildhorse wells have been
completed in the Wilcox sands beginning in February 2014. The Wildhorse #2-31 well was perforated,
acidized and swab tested the lower section of the Wilcox Sandstone. The result was a very strong oil and
natural gas show with formation water. A bridge plug (RBP) was set to isolate the lower Wilcox and the
upper section of the Wilcox was also perforated, acidized and swab tested again yielding very strong oil
and natural gas shows with formation water. Subsequently the RBP was pulled and the two Wilcox zones
were commingled for production. The well was equipped with an electrical submersible pump (ESP).
Essentially the same operations have occurred on the Wildhorse #1-31.
Review of Inland’s daily completion notes indicates very similar swab and test results from the #1-25
Wise well. Given the geological similarities, the same depth and completion techniques, the production
results from the Wildhorse project have been deemed as useful analogs for setting up the production proforma decline curve.
4849 Greenville Ave.
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Richard G. Boyce
Partner
The Operator of the Wildhorse project has provided some detailed daily production records that are
included herein with their permission. It is important to note that this level of data not available without
access to the Operator’s internal well records. The initial daily production from the Wildhorse #1-31 well
stabilized at 90-95 bopd and 100 mcfgpd within 1 week of completion. The initial daily production from
the Wildhorse #2-31 well stabilized at 150-155 bopd and 300 mcfgpd in approximately the same time
period. The daily production graph included below illustrates the combined well performance over time.
Decline Curve Analysis provides basis for economic model
A proforma decline curve was constructed using the following assumptions:
Assumptions:
 Initial Rate Oil
 Initial Rate Gas
 Initial GOR
 Abandonment Oil Rate
 Recoverable Oil Volume
4849 Greenville Ave.
Suite 1360
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100 bopd
120 mcfpd
1,200 cu. ft/bbl
10 bopd
100,000 bbls
18
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
Richard G. Boyce
Partner
165,000 mcf
Recoverable Gas Volume
Calculated Result:
 Exponential decline rate
 Producing Life
27%/year
7 years
These assumptions were inserted into the PHDWin production decline modeling software which produced
the pro-forma decline curves for oil and natural gas production (shown below). Based on the production
forecasts, a fully discounted cash flow model was constructed to determine net present value, discounted
cash flow, return on investment and other economic parameters reported.
Economic Assumptions and Pro forma Model
Forecast of Prices and Costs
The oil and gas prices used in the economic forecast are derived from publically available sources as
published by the New York Mercantile Exchange (NYMEX) using the 5-Year NYMEX Strip pricing as
4849 Greenville Ave.
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Richard G. Boyce
Partner
of October 1, 2014. The prices were then held flat for the duration of each year as shown in the table
below with no additional escalation or de-escalation applied.
Year
2014
2015
2016
2017
2018
2019+
Gas
$4.06
$3.93
$4.04
$4.18
$4.30
$4.30
Oil
$90.24
$87.55
$85.90
$84.80
$84.53
$84.53
During the most recent 30 days preceding this report, world oil markets have experienced extraordinary
volatility with prices dropping nearly 20% almost overnight, and markets testing new lows below
$75/bbl. At this time, it is unknown if these lower prices will stabilize at these levels or if this should be
considered as a short term condition in the market place. As such we have relied on what is generally
accepted as a credible source for the price decks used in this evaluation.
Cost Parameters
The Operating Costs for the vertical Wilcox wells operating with Electrical Submersible Pumps (ESP) of
$5,000/well/month was supplied by Inland Oil & Gas, LLC which we reviewed and considered as normal
for the area of operations.
The operating costs used in the economic calculations include the direct operating charges applicable to
each well and allocated general and administrative overhead charges from the Operator. The economics
also include Oklahoma oil and gas production taxes and ad valorem taxes (7.1% for both oil and gas) as
well as US Federal Corporate Tax which was estimated to be 30%. The future Operating Costs were held
constant for the economic life of each property.
Well cost estimates based on actual vertical drilling experiences on the project area have been reviewed
and accepted as normal for the area and depth of drilling. Well cost estimates used in the economic
model are $1,218,750 per completed vertical well. This turnkey fixed cost includes the completion and
equipment cost (electric submersible pump) necessary to produce the well.
Estimated Future Remaining Reserves contained in this report are based upon our extensive subsurface
review of well logs, core information, pressure test information, 3D seismic data, historical oil and gas
production. No on site field examination of the subject properties has been undertaken. No existing
environmental liabilities are currently identified with regard to the daily operations of Inland Oil & Gas,
LLC. No environmental impact report has been provided for this property by the Operator.
The values for working interest and net revenue interest, furnished in connection with this report were
accepted as given and without further verification by dB, LLC. Future estimates in this report are based
on available data through October 2014.
4849 Greenville Ave.
Suite 1360
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20
[email protected]
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Fax: 214-447-9523
dB, LLC
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Richard G. Boyce
Partner
For personal use only
Tax Considerations
The Proforma economics and Net Present Values shown are net of Oklahoma Oil and Gas severance
taxes. Currently these tax rates are 7.10% for both Oil and Gas Production. In Oklahoma, these taxes are
paid upon sale of the various hydrocarbons at the well head and are deducted from the Net Present Value
calculations. The economics also include U.S. Federal Income Tax which was estimated to be 30%.
Using these assumptions the single well economics model for the P50 assumption of producing 100,000
barrels of oil and 165 mmcf of natural gas during a seven year production life is presented below.
This economics run includes a drilling cost investment of $1,218,750 yields a PV10 value of $990,570
after the project has paid out in 1.49 years. This represents a 81% internal rate of return (IRR) and an
undiscounted return on investment (ROI) of 2.17. The Present Worth (PW) Profile shown in the bottom
right hand corner computes PW at various other discount rates.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
21
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
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Richard G. Boyce
Partner
All numbers shown are quoted in USD and include both State and Federal Taxes and are computed net to
the DELECTA 54% net revenue interest.
Economic Sensitivity Modeling
As in any risked investment in the oil business, uncertainties in the actual volumes of oil and gas to be
produced in the future determines in large part project economics. While no one can accurately predict
the exact future performance of a given well, informed geologic and engineering estimates can place
reasonable boundary conditions with regard to future expectations. Based on this approach we have
modeled a series of potential economic outcomes by varying the total volume of oil produced while
applying the same investment and pricing scenarios.
Based on the volumetric calculations performed on the #1-25 well and the overall results of numerous
wells drilled in this area historically along with comparison to the recent production results of the
Wildhorse project we have chosen three scenarios of estimated ultimate recovery (EUR) which are
summarized in the table below.
In the opinion of the evaluator, the P10 case carries a confidence factor of 90% that the well production
will exceed 75,000 barrels of oil, while the P90 case carries a confidence factor of 10% that the well
production will exceed 200,000 barrels of oil. The P50 case indicates a most likely case of 100,000 barrels
with a confidence factor of 50%.
Geological and Engineering review of the initial one (1) well investment indicates the following
economic summary using NYMEX Five Year Strip Price as of 10/01/2014 held flat for the life of the
production. All present values shown are net to DELECTA’s 80% working interest and 58% net revenue
interest in this initial well.
Case
P10
P50
P90
EUR
(bbls)
75,000
100,000
200,000
PV10
(USD 000)
$1,589
$2,234
$3,169
IRR
(%)
ROI
(%)
Payout
(yrs)
In the event that DELECTA exercises the option to participate in the optional four additional well fullfield development, preliminary economic evaluation indicates the project upside could approach:
Case
P10
P50
P90
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
EUR/well
(bbls)
75,000
100,000
200,000
PV10
(USD 000)
$3,900
$6,381
$11,658
22
IRR
(%)
133
189
179
ROI
(%)
2.06
2.77
5.37
Payout
(yrs)
1.27
1.15
1.15
[email protected]
Tel: 214-987-1779
Fax: 214-447-9523
dB, LLC
Petroleum Advisory Services
www.dbgeo.com
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Richard G. Boyce
Partner
As above all discounted present values and economic indicators shown are net to DELECTA’s 80%
working interest and 58% net revenue interest in the initial well and 54% net revenue interest in all
subsequent wells.
4849 Greenville Ave.
Suite 1360
Dallas, Texas 75206 USA
23
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Tel: 214-987-1779
Fax: 214-447-9523
For personal use only
APPENDIX 7
Technical Project Review- Independent Valuation Report Paynes Find Gold Project for
RSM Bird Cameron Corporate Pty Limited, Ravensgate
52
For personal use only
TECHNICAL PROJECT REVIEW
and
INDEPENDENT VALUATION REPORT
PAYNES FIND GOLD PROJECT
for
RSM BIRD CAMERON CORPORATE PTY LTD
For personal use only
TECHNICAL PROJECT REVIEW
and
INDEPENDENT VALUATION REPORT
PAYNES FIND GOLD PROJECT
for
RSM BIRD CAMERON CORPORATE PTY LTD
20 October 2014
For personal use only
TECHNICAL PROJECT REVIEW
and
INDEPENDENT TECHNICAL VALUATION
Prepared by RAVENSGATE on behalf of:
RSM Bird Cameron Corporate Pty Ltd
Author(s):
Sam Ulrich
Principal Consultant
BSc (Hons) Geology, MAusIMM, MAIG,
GDipAppFin, FFin
Alan Hawkins
Principal Consultant
BSc (Hons) Geology, MSc Ore Deposit
Geology, MAIG, FSEG
H. Kate Holdsworth
Senior GIS Geologist
BSc (Hons) Geology, MAusIMM
Reviewer:
Neal Leggo
Principal Consultant
BSc (Hons) Geology, MAIG, MSEG
Date:
20 October 2014
Copies:
Delecta Limited
(2)
Ravensgate
(1)
Project No:
PAY002
Document Ref: PAY002_VAL_03_NOV_2014_FINAL_DELECTA_RSM
_______________________
Sam Ulrich
For and on behalf of:
_______________________
Alan Hawkins
For and on behalf of:
RAVENSGATE
RAVENSGATE
This report has been commissioned from and prepared by Ravensgate for the exclusive use of RSM Bird Cameron Corporate Pty.
Each statement or opinion in this report is provided in response to a specific request from RSM Bird Cameron Corporate Pty to
provide that statement or opinion. Each such statement or opinion is made by Ravensgate in good faith and in the belief that it is
not false or misleading. Each statement or opinion contained within this report is based on information and data supplied by
Paynes Find Gold Limited to Ravensgate, or otherwise obtained from public searches conducted by Ravensgate for the purposes
of this report.
Page 3 of 62
For personal use only
TABLE OF CONTENTS
1.
EXECUTIVE SUMMARY ............................................................................................8
1.1
1.2
1.3
2.
INTRODUCTION .................................................................................................. 10
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.
Terms of Reference .................................................................................. 10
Tenement Status Verification ...................................................................... 10
Site Investigation ..................................................................................... 10
Qualifications, Experience and Independence .................................................. 11
Disclaimer ............................................................................................. 12
Consent ................................................................................................ 13
Principal Sources of Information .................................................................. 13
Competent Persons Statement .................................................................... 13
Background Information ............................................................................ 13
PAYNES FIND GOLD PROJECT ................................................................................. 15
3.1
3.2
3.3
3.4
3.5
4.
Background .............................................................................................. 8
Project Review ......................................................................................... 8
Technical Valuation.................................................................................... 8
Introduction ........................................................................................... 15
3.1.1 Project Location ............................................................................ 15
3.1.2 Access ........................................................................................ 16
3.1.3 Supporting Infrastructure ................................................................ 17
3.1.4 Geopolitical Environment ................................................................ 17
Ownership and Tenure .............................................................................. 17
3.2.1 Project Ownership and Relevant Interests ............................................ 19
3.2.2 Agreements ................................................................................. 19
3.2.3 Royalties and Taxes........................................................................ 20
History ................................................................................................. 21
3.3.1 Ownership History ......................................................................... 21
3.3.2 Exploration History ........................................................................ 21
3.3.3 Previous Mineral Resource Estimates .................................................. 24
3.3.4 Previous Production ....................................................................... 24
Geological Setting ................................................................................... 26
3.4.1 Regional Geology and Mineralisation ................................................... 26
3.4.2 Project Geology ............................................................................ 26
3.4.3 Controls on Mineralisation ............................................................... 28
Exploration Results and Potential ................................................................. 31
3.5.1 Recent Exploration Activities ............................................................ 31
3.5.2 Exploration Potential ..................................................................... 43
3.5.3 Constraints to Further Exploration Success ........................................... 46
VALUATION ....................................................................................................... 47
4.1
4.2
4.3
4.4
Introduction ........................................................................................... 47
Previous Mineral Asset Valuations ................................................................. 49
Material Agreements ................................................................................ 49
Comparable Transactions ........................................................................... 50
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4.5
4.6
4.4.1 Reported Market Transactions ........................................................... 50
4.4.2 Commodity Prices .......................................................................... 53
Mineral Asset Valuations ............................................................................ 54
4.5.1 Paynes Find Gold Project, Western Australia ......................................... 54
Valuation Summary .................................................................................. 58
5.
REFERENCES ...................................................................................................... 59
6.
LIST OF ABBREVIATIONS ....................................................................................... 60
7.
GLOSSARY ......................................................................................................... 61
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LIST OF TABLES
Table
Table
Table
Table
Table
Table
Table
Table
Table
1
2
3
4
5
6
7
8
9
Table
Table
Table
Table
10
11
12
13
Summary Project Technical Valuation in 100% Equity Terms ...................................... 9
Paynes Find Gold Project Tenement Details ........................................................ 17
Paynes Find Gold Project: Exploration History ..................................................... 21
Significant Results from historical drilling ......................................................... 22
Production Records from Historical Gold Mines (after, Paynes Find Gold Limited, 2011) . 25
Paynes Find Gold Limited Stage 1 drilling Program Significant results >1g/t Au ............ 34
Assay Results – 2012 Stage 2 Drilling Program ...................................................... 38
Stage 2 drill holes with no significant result ....................................................... 40
Market Transactions Involving Gold Projects at the Exploration Stage in Western
Australia ................................................................................................... 51
Summary Statistics of Comparative Transactions by Tenement Type ......................... 54
Tenement Type Value Ranges Breakdown ........................................................... 55
Comparable Transaction Valuation of PFGL’s Exploration Tenure ............................. 57
Summary Project Technical Valuation in Ownership Equity Percentage Terms ............. 58
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LIST OF FIGURES
Figure
Figure
Figure
Figure
1
2
3
4
Figure
Figure
Figure
Figure
Figure
5
6
7
8
9
Figure 10
Figure 11
Figure 12
Figure 13
Figure 14
Figure 15
Figure
Figure
Figure
Figure
16
17
18
19
Location of the Paynes Find Gold Project ........................................................... 14
Location of the Paynes Find Gold Project (after Paynes Find Gold Ltd, 2014) ............... 15
Great Northern Highway Route from Perth to Paynes Find ...................................... 16
Paynes Find Granted Tenements (after Paynes Find Gold Limited, 2014 edited by
Ravensgate) ............................................................................................... 18
Tenements Divested as of 1 September 2014 ....................................................... 20
Significant Historic Drilling Results (after Paynes Find Gold Limited, 2011) ................. 24
Yilgarn Craton and Murchison Province .............................................................. 26
Paynes Find Gold Project Simplified Geology ...................................................... 27
Fine, Visible Gold in Laminated, Sheared (S2) Vein (PFGDD003, 1m @ 26.79g/t Au, from
210-211m) ................................................................................................. 29
Schematic Representation of Conceptual Gold Target ........................................... 30
Paynes Find Tenement Holding (2013) Overlain on Magnetics and Soil Geochemistry;
Interpreted Shears and Drilling Areas, with New Zones of Interest in Yellow ............... 31
MMI Results and Historical RC Drilling Within the Planned Stage 2 Area Prior to Drilling . 32
Significant Results from the Stage 1 Drilling Programme (after Paynes Find Gold
Limited, 2011) ............................................................................................ 33
Composite Cross-Section 6763915N, as Shown on Figure 12 and Figure 13 ................... 33
Historical and Stage 1 Drill Holes (A) and Planned (2012) Stage 2 RC and Diamond Drill
Holes (B) ................................................................................................... 37
Stage 2 Drill Hole Locations and Significant Intersections ....................................... 42
Cross-Section Through Stage 2 Drilling .............................................................. 43
CSA Priority Targets ..................................................................................... 44
Gold Five Year Monthly Average Price Chart to September 2014 .............................. 53
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1.
EXECUTIVE SUMMARY
1.1
Background
Corvidae Pty Ltd ATF Ravensgate Unit Trust T/As Ravensgate (Ravensgate) was commissioned
by RSM Bird Cameron Corporate Pty Ltd (RSM) and Delecta Limited (Delecta) to provide a
Technical Project Review on the Paynes Find Gold Project and an Independent Technical
Valuation over this project. This Technical Project Review and Independent Valuation Report
were prepared by Ravensgate for inclusion in the Independent Expert’s Report (IER) prepared
by RSM. The effective date of this Technical Project Review and Independent Valuation
Report prepared by Ravensgate is the 20 October 2014.
The project included in this report and its ownership is listed below.
Mineral Asset
Paynes Find Gold Project, Western Australia
1.2
PFGL Ownership %
100%
Project Review
The Paynes Find Gold Project area is located approximately 420km northeast of Perth in the
Murchison Province of the Mid-West region of Western Australia. The Paynes Find area has
undergone historic mining since the early 1900s. Gold was first discovered in the area in 1911
with an estimated 36 historic gold mines reporting production grades that ranged from 15g/t
Au to 150g/t Au.
Paynes Find Gold Limited (PFGL) acquired the Paynes Find Gold Project in June 2010 and
carried out geological mapping and geochemical surveys, before commencing two drilling
campaigns in 2011 and 2013, centred around the main area of previous historic workings. The
drill programs returned encouraging results, both confirming historic areas of high grade
mineralisation and identifying new areas of mineralisation, which led to a structural study
being carried out identifying four phases of deformation throughout the area and three styles
of mineralisation. This study was refined to identify 11 targets for (Stage 3) follow-up drilling
over the tenement package, however due to the decline in the gold price over the last two
years this program was not carried out.
PFGL has also trialed alluvial mining through a small, on site, gravity processing plant, signing
various agreements with local contractors; however these activities ceased in late 2013.
The depressed gold price led PFGL to review all aspects the Paynes Find Gold Project which
led to a Deed of Sale for seven tenements in the northwest of the project in April 2014, with
the divestment being finalised in September 2014.
1.3
Technical Valuation
The valuation presented in this report was completed on behalf of PFGL. The valuation has
been completed with information provided by and with the full support of PFGL. The
applicable valuation date is 20 October 2014. The project can be classified as an Advanced
Exploration Area Mineral Asset. No Mineral Resources as defined by the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves – 2012 Edition (JORC
Code 2012) have been reported for the project.
Ravensgate did not carry out a site visit to the Paynes Find Gold Project. Ravensgate is
satisfied that there is sufficient current information available to allow an informed appraisal
to be made. Both Mr Alan Hawkins and Mr Sam Ulrich of Ravensgate have had extensive
Western Australian gold experience and have visited the Paynes Find area in the past.
Ravensgate is of the opinion that no significant additional benefit would have been gained
through a site visit to the project area at this stage.
To derive appropriate values for the various exploration tenements Ravensgate reviewed the
exploration data and prospectivity for the various licences. The preferred value for each
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range was based upon a review of the prospectivity of each licence and the number and
quality of exploration targets on each licence as described in Section 3.5. To derive the
values for the mineral resources, Ravensgate reviewed the resources and the values assigned
reflected the confidence and grade of the mineral resources.
Ravensgate has concluded that the Paynes Find Gold Project is of merit (although at varying
stages of exploration and subsequent Mineral Asset classification), and worthy of further
exploration. A summary of the Paynes Find Gold Project valuation in 100% equity terms is
provided in Table 1. The applicable valuation date is 20 October 2014 and is derived from
using the Comparable Transactions valuation method. The value of the Paynes Find Gold
Project is considered to lie in a range from $0.835M to $1.208M; within this range Ravensgate
has selected a preferred value of $1.022M. As the technical valuation is based on comparable
market transactions it can be considered to also be the market value. The definition of
market value that Ravensgate adopts is that used in the VALMIN code, which is the market
value definition as defined by the International Valuation Standards Committee (IVSC).
Table 1
Summary Project Technical Valuation in 100% Equity Terms
Valuation
Project
Mineral Asset
Paynes Find Gold
Project
Advanced
Exploration Area
Equity
%
Area
km2
Low
$M
Preferred
$M
High
$M
100
7.007
0.835
1.022
1.208
Note: The valuation has been compiled to an appropriate level of precision and minor rounding errors
may occur.
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2.
INTRODUCTION
The objective of this report is to firstly provide a Technical Project Review of Paynes Find
Gold Limited’s (PFGL) Paynes Find Gold Project in Western Australia. The second objective of
this report is to provide a market valuation and technical assessment of this project prepared
in accordance with the guidelines of the VALMIN Code. The work has been commissioned by
RSM Bird Cameron Corporate Pty Ltd (RSM) and Delecta Limited (Delecta). RSM has been
engaged by the Directors of Delecta to prepare an Independent Expert’s Report (IER) in
relation to the issue of an option to PFGL to acquire assets held by Delecta. Part of the
consideration payable by PFGL to exercise the option is the issue of ordinary shares and
options in PFGL to Delecta.
This report does not provide a valuation of PFGL as a whole, but only of the Paynes Find Gold
Project mineral assets. This report does not make any comment on the fairness and
reasonableness of any transaction between any two companies. The conclusions expressed in
this Independent Technical Project Review and Independent Technical Valuation are valid as
at the valuation date (20 October 2014). The review and valuation is therefore only valid for
this date and may change with time in response to changes in economic, market, legal or
political factors, in addition to ongoing exploration results. All monetary values included in
this report are expressed in Australian dollars (A$) unless otherwise stated.
This report has been prepared in accordance with the Code for the Technical Assessment and
Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (The
VALMIN Code) as adopted by the Australasian Institute of Mining and Metallurgy (AusIMM) in
April 2005. The report has also been prepared in accordance with ASIC Regulatory Guides 111
(Contents of Expert Reports) and 112 (Independence of Experts). The Technical Project
Review and Independent Technical Valuation report has been compiled based on information
available up to and including the valuation date of this report for the valuation of exploration
tenure and two years of data post the transaction date has been used for the valuation of
mineral resources to provide a larger dataset for comparison.
2.1
Terms of Reference
Corvidae Pty Ltd as trustee for the Ravensgate Unit Trust trading as Ravensgate (Ravensgate)
has been commissioned by RSM and Delecta to provide an Independent Technical Project
Review and Independent Technical Valuation on the Paynes Find Gold Project in Western
Australia.
This report has been prepared in accordance with the Code and Guidelines for Assessment
and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports (The
VALMIN Code) and the Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves - 2012 Edition (JORC Code 2012).
2.2
Tenement Status Verification
Ravensgate has not independently verified the status of all the tenements that are referred
to in this report as set out in Section 3.2 of this report. This is a matter for independent legal
or tenement experts. PFGL commissioned an independent review of PFGL’s tenement status.
Tenement specialist McMahon Mining Title Services Pty Ltd (McMahon), of Perth, Australia
completed this review and did not identify any material issues that would impact on
Ravensgate’s valuation.
Ravensgate is satisfied, based on McMahon’s review, that the tenements are in good standing
and the values assigned to the tenements correctly reflect PFGL’s ownership.
2.3
Site Investigation
Ravensgate did not carry out a site visit to the Paynes Find Gold Project. Ravensgate is
satisfied that there is sufficient current information available to allow an informed appraisal
to be made. Both Mr Alan Hawkins and Mr Sam Ulrich of Ravensgate have had extensive
Western Australian gold experience and have visited the Paynes Find area in the past.
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Ravensgate is of the opinion that no significant additional benefit would have been gained
through a site visit to the project area at this stage. Ravensgate has concluded that the
project is of technical merit and is worthy of conducting further review and exploration.
2.4
Qualifications, Experience and Independence
Ravensgate is an internationally recognised and respected minerals industry consultancy that
has been serving the industry with excellence since 1997. Ravensgate provides world class
technical expertise to the mining and resource sector globally. The company has worked for
major clients globally, such as Freeport at Grasberg Mine, Ok Tedi Gold Mine in Papua New
Guinea, Goldfields and Newmont in Ghana and many junior resource companies which are ASX
(Australian Stock Exchange), TSX (Toronto Stock Exchange) or AIM (London Stock Exchange)
listed. Ravensgate has focused upon providing resource estimations, valuations, independent
technical documentation and has been involved in the preparation of Independent Reports for
Canadian, Australian and United Kingdom companies.
Author: Sam Ulrich, Principal Consultant, BSc (Hons) Geology, GDipAppFin, MAusIMM,
MAIG, FFin.
Sam Ulrich is a geologist with over 19 years’ experience in near mine and regional mineral
exploration, resource development and the management of exploration programs. He has
worked in a variety of geological environments in Australia, Indonesia, Laos and China
primarily in gold, base metals and uranium. Prior to joining Ravensgate Sam worked for
Manhattan Corporation Ltd a uranium exploration and resource development company in a
senior management position. Mr Ulrich holds the relevant qualifications and experience as
well as professional associations required by the ASX, JORC and VALMIN Codes in Australia to
qualify as a Competent Person as defined in the JORC Code. He is a Qualified Person under
the rules and requirements of the Canadian Reporting Instrument NI43-101.
Co-Author: Alan Hawkins, Principal Consultant, BSc (Hons) Geology, MSc Ore Deposit
Geology, MAIG, FSEG.
Alan Hawkins is a geologist with over 18 years’ experience in near mine and regional mineral
exploration, resource development and the management of exploration programs. He has
worked in a variety of geological environments in Australia and Indonesia, primarily in gold
and copper. Prior to joining Ravensgate, Alan worked for Newmont Mining Corporation as a
Principal Geologist in their exploration, corporate and business development divisions,
providing technical support, due diligence and rapid first-filter geological and economic
analysis to M&A teams in the Asia Pacific region as well as US and African EBD teams. This
role also included project and non-core asset divestments including commercial negotiations
with junior exploration companies, stakeholders and land & legal teams.
Previous to this, Alan held various principal and senior regional exploration management roles
in WA and NT. In the 1990’s Alan worked as a near mine exploration geologist for Eagle Mining
Corporation NL, Great Central Mines Ltd and Normandy Mining Ltd at the Jundee-Nimary Gold
Mine and was part of the team that discovered the +2Moz Au Westside deposit, where he also
worked as a resource modelling geologist before joining Newmont’s regional exploration
team. Alan holds the relevant qualifications and professional associations required by the
ASX, JORC and VALMIN Codes in Australia to qualify as a Competent Person as defined in the
JORC Code. He is a Qualified Person under the rules and requirements of the Canadian
Reporting Instrument NI43-101.
Co-Author: H. Kate Holdsworth, BSc (Hons) Geology, MAusIMM.
Kate Holdsworth is a senior GIS geologist with over 17 years GIS experience who joined the
Ravensgate team in September 2006. During her tenure at Ravensgate, she has contributed to
the compilation of numerous Independent Geologists Reports, Valuation Reports, GIS projects
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as well as having assisted clients with their exploration reporting requirements and QA/QC
investigations into client’s data quality. Prior to joining Ravensgate, she worked for Giscoe
Pty Ltd, a GIS company in Johannesburg, for ten years, where she was involved in diverse GIS
projects, including database creation, database population and data validation. Kate has four
years’ experience in GIS with the Geological Survey of South Africa, where she was a member
of their GIS database design team.
Peer Reviewer: Neal Leggo, Principal Consultant, BSc (Hons) Geology, MAIG, MSEG
Neal Leggo has over 28 years’ experience in minerals geology including senior management,
consulting, exploration, development, underground mining and open pit mining. He has
extensive experience with a wide variety of commodities including gold, copper, iron ore,
silver, lead and zinc, uranium and manganese across numerous geological terrains within the
Asia-Pacific region.
Prior to joining Ravensgate, Neal worked for FMG leading a large field team undertaking fasttrack exploration, delineation and feasibility study of a major new iron ore discovery in the
Pilbara of WA. Previous to this Neal was Exploration Manager at Crescent Gold were he led a
successful exploration team and also managed feasibility study and development work on
seven gold deposits in preparation for mining. At Hatch he undertook numerous geological
consulting assignments included scoping, prefeasibility and review studies, geological audit
and due diligence. At BHP he modelled mineral resources including the Cannington, Mt
Whaleback and Yandi world-class deposits. Previous to this Neal worked 8 years in Mt Isa for
MIM where roles included chief geologist for the Hilton underground lead zinc mine and
exploration manager for Isa District. During the 1980s he worked as a field geologist across
northern Australia on a wide variety of exploration projects and mines.
Neal offers extensive knowledge of available geological, geophysical, geochemical and
exploration techniques and methodologies, combined with strong experience in feasibility
study, development and mining of mineral deposits. Neal completed an Honours degree in
Geology at the University of Queensland in 1980 and holds the relevant qualifications,
experience and professional associations required by the ASX, JORC and VALMIN Codes in
Australia. He is a Qualified Person under the rules and requirements of the Canadian
Reporting Instrument NI43-101.
2.5
Disclaimer
The authors of this report, and Ravensgate, have had a prior association with PFGL in regard
to the mineral assets, but have no interest in the outcome of this technical assessment.
Ravensgate completed an independent review of the project in 2011.
Ravensgate is independent of PFGL, its directors, senior management and advisors and has no
economic or beneficial interest (present or contingent) in any of the mineral assets being
reported on. Ravensgate is remunerated for this report by way of a professional fee
determined in accordance with a standard schedule of commercial rates, which is calculated
based on time charges for review work carried out, and is not contingent on the outcome of
this report. Fees arising from the preparation of this report are in the order of $18,000 to
$20,000.
The relationship with PFGL is solely one of professional association between client and
independent consultant. None of the individuals employed or contracted by Ravensgate are
officers, employees or proposed officers of PFGL or any group, holding or associated
companies of PFGL.
The report has been prepared in compliance with the Corporations Act and ASIC Regulatory
Guides 111 and 112 with respect to Ravensgate’s independence as experts. Ravensgate
regards RG112.31 to be in compliance whereby there are no business or professional
relationships or interests which would affect the expert’s ability to present an unbiased
opinion within this report.
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This report has been compiled based on information available up to and including the
valuation date. The statements and opinions are based on the reference date of 20 October
2014 and could alter over time depending on exploration results, mineral prices and other
relevant market factors.
2.6
Consent
Ravensgate consents to this report being distributed, in full, in the form and context in which
the technical assessment in provided, for the purpose for which this report was
commissioned. Ravensgate provides its consent on the understanding that the assessment
expressed in the individual sections of this report will be considered with, and not
independently of, the information set out in full in this report.
2.7
Principal Sources of Information
The principal sources of information used to compile this report comprise technical reports
and data variously compiled by PFGL and their partners or consultants, publically available
information such as ASX releases, government reports and discussions with PFGL’s technical
and corporate management personnel. With the consent of PFGL, the report sections
describing the geology, historical exploration and current exploration have been reproduced
from their reports. A listing of the principal sources of information is included in the
references attached to this report.
Ravensgate has endeavoured, by making all reasonable enquiries, to confirm the authenticity,
accuracy and completeness of the technical data upon which this report is based. A final draft
of this report was also provided to PFGL prior to finalisation by Ravensgate, requesting that
PFGL identify any material errors or omissions prior to its final submission. Ravensgate does
not accept responsibility for any errors or omissions in the data and information upon which
the opinions and conclusions in this report are based, and does not accept any consequential
liability arising from commercial decisions or actions resulting from errors or omissions in that
data or information.
2.8
Competent Persons Statement
The information in this report to which this statement is attached that relates to Exploration
Results (Section 3.5) is based on information compiled by Mr David Holden, a Competent
Person who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Holden is a
full-time employee of Paynes Find Gold Limited. Mr Holden has sufficient experience that is
relevant to the style of mineralisation and type of deposit under consideration and to the
activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of
the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore
Reserves’. Mr Holden consents to the inclusion in the report of the matters based on his
information in the form and context in which it appears.
2.9
Background Information
The project discussed in this report is located in Western Australia. A locality map of the
projects is presented in Figure 1 below. A summary of the Paynes Find tenement details are
listed in Section 3.2. Report file references and a glossary of terms are also included at the
end of this report. Ravensgate understands that the tenements held by PFGL are held in good
standing. A brief overview of the project is outlined in Section 3. The Independent Valuation
of the projects is outlined in Section 4.
Section 3.2.2 refers to a recent Deed of Sale for seven tenements which was finalised on 1
September 2014. Various figures in this report will show tenement outlines which include
these divested tenements, as they were current at the time of the work that is being
reported on at the time. Figure 4 shows the current tenement package controlled by PFGL,
with Figure 5 showing the tenements that were divested.
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Location of the Paynes Find Gold Project
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Figure 1
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3.
PAYNES FIND GOLD PROJECT
3.1
Introduction
The Paynes Find area has undergone historic mining since the early 1900s (refer to Section
3.3.4 and Table 5). Gold was first discovered in the area in 1911. An estimated 36 historic
gold mines within the Paynes Find Goldfield have reported production grades that ranged
from 15g/t Au to 150g/t Au. From 1911-1982, approximately 69,000t of ore produced 1,784kg
(63,000 ounces) of gold at an average grade of 25g/t Au, (Paynes Find Gold Limited, 2011).
3.1.1
Project Location
The project area is located approximately 420km northeast of Perth in the Mid-West region of
Western Australia (Figure 2).
Figure 2
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Location of the Paynes Find Gold Project (after Paynes Find Gold Ltd, 2014)
For personal use only
The area experiences a semi-desert Mediterranean climate, which is defined as nine to eleven
months of dry weather, mild wet winters and hot dry summers. The mean maximum
temperature is 27.7oC whilst the mean minimum temperature is 12.8oC, with an annual
rainfall of 281.9mm.
3.1.2
Access
The area can be accessed via the Great Northern Highway, a sealed highway originating in
Perth which passes through the project area (Figure 3) and then continues north to Mt
Magnet, Cue and Meekatharra (Figure 1). The area is also serviced by an airstrip located at
Paynes Find (refer Figure 4).
Figure 3
Great Northern Highway Route from Perth to Paynes Find
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3.1.3
Supporting Infrastructure
There is a roadhouse and tavern at Paynes Find Town, which also serves as a fuel stop, has a
dining room and offers accommodation (refer Figure 3 and Figure 4). The airstrip is located
~1km to the west of the Paynes Find Tavern and Roadhouse (refer Figure 4).
3.1.4
Geopolitical Environment
Australia is a politically stable, liberal democracy. According to Control Risks Group Limited
on the Intierra / SNL Metals and Mining website, Political risk, Security risk and Terrorism risk
ratings are all categorised as low risk, with Operational risk rating categorised as insignificant
risk.
3.2
Ownership and Tenure
The tenements are all held by PFGL, the details of which are listed in Table 2 and a map of
the tenements are shown in Figure 4.
Table 2
Exploration
Licence
Area
(km2)
Paynes Find Gold Project Tenement Details
Grant Date
Expiry Date
Owner and Equity
M59/0002*
0.05
31-Aug-83
30-Aug-25
100% PFGL
M59/0010*
0.25
23-Oct-84
22-Oct-26
100% PFGL, First Tech Energy Caveat
M59/0235*
0.07
04-Nov-91
03-Nov-33
100% PFGL, First Tech Energy Caveat
M59/0244*
0.92
24-Jan-92
23-Jan-34
100% PFGL, First Tech Energy Caveat
M59/0396#
0.05
23-Jul-96
22-Jul-17
100% PFGL
M59/0662#
0.39
27-Oct-09
26-Oct-30
100% PFGL, First Tech Energy Caveat
M59/0663#
0.14
27-Oct-09
26-Oct-30
100% PFGL, First Tech Energy Caveat
P59/1907#
0.08
18-Nov-09
17-Nov-17
100% PFGL
P59/1908#
0.01
18-Nov-09
17-Nov-17
100% PFGL
P59/1909#
0.01
18-Nov-09
17-Nov-17
100% PFGL
P59/1924# ^
0.44
30-Sep-10
29-Sep-14
100% PFGL
P59/1941**
1.75
02-May-12
01-May-16
100% PFGL
P59/1942#
0.85
22-Feb-12
21-Feb-16
100% PFGL
P59/1956#
0.05
16-Dec-11
15-Dec-15
100% PFGL
P59/1957#
0.05
16-Dec-11
15-Dec-15
100% PFGL
P59/1958#
0.52
16-Dec-11
15-Dec-15
100% PFGL
P59/1959#
1.48
16-Dec-11
15-Dec-15
100% PFGL
*Condition of tenement, compliance with the provisions of the Aboriginal Heritage Act, 1972 to ensure
that no action is taken which is likely to interfere with or damage any Aboriginal Site (eMiTs, 2014).
** Expedited Procedure: Native Title Cleared - Expedited Applies (eMiTs, 2014).
#
Native Title cleared (eMiTs, 2014).
^ Four year extension of term applied for on 25 September 2014.
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Figure 4
Paynes Find Granted Tenements (after Paynes Find Gold Limited, 2014
edited by Ravensgate)
Page 18 of 62
3.2.1
Project Ownership and Relevant Interests
For personal use only
The tenements are all held 100% by PFGL, as listed in Table 2.
3.2.2
Agreements
The Taylor Agreement and the Cable Agreement are agreements entered into by First Tech
Energy to acquire the tenements from D. and E. Taylor and from D. Cable. By a Deed of
Assignment made 15 July 2010, First Tech Energy Limited assigned its rights and obligations
under the Taylor Agreement to Paynes Find Gold Limited. By a Deed of Assignment made
15 July 2010, First Tech Energy Limited assigned its rights and obligations under the Cable
Agreement to Paynes Find Gold Limited. First Tech Energy Limited has thus reserved the right
to enter the tenements and explore for and extract the minerals of nickel, cobalt and other
base metals (Paynes Find Gold Limited, 2010).
In 2013, PFGL entered into a toll processing agreement with a local contractor, which allowed
mining and processing of eluvial and alluvial gold utilising PFGL’s existing alluvial gravity
circuit plant with mill and knudsen concentrator which is capable of processing at a rate of 50
tonnes/hour. All expenditure was borne by the contractor on a return for the Company
totalling 25% of off the top revenue.
On 4 June 2013, PFGL announced that it had entered into an agreement with MJF Mining
Contractors (MJF) to upgrade mining and processing operations at Paynes Find. The contractor
was to install a three stage track-mounted crushing and screening circuit to exploit a
selective open pit development plan previously designed by PFGL. Under the agreement PFGL
was entitled to 50% of the recovered gold after taking into account refining costs. PFGL
advised the ASX on 1 October 2013, that it had not been able to conclude a revised Mining
Services Agreement with MJF and had formally terminated the agreement. Further trial
mining would not be considered until results of a re-evaluation of the Paynes Find Project was
determined and communicated to shareholders.
PFGL announced to the ASX on 23 April 2014, that a conditional Deed of Sale for seven mining
tenements to the west of the main Paynes Find Gold Project had been signed. PFGL received
a non-refundable $50,000 deposit on signing the deed. The sale of the tenements for a total
consideration of $350,000 was conditional upon the purchaser raising funds to pay the balance
of the consideration within 90 days from signing of the deed.
The tenements subject to the conditional Deed of Sale made up an area of 247 hectares
which was approximately 25% of PFGL’s total land holding at the Paynes Find Gold Project
and are considered grass roots exploration ground which had not been the subject of the
PFGL’s previous exploration efforts and drilling programs. Settlement of the tenement sale
was announced to the ASX on 1 September 2014. The seven divested tenements that were
part of this Deed of Sale can be seen in Figure 5.
The operations and proposed activities on the tenements of the Paynes Find Gold Project are
subject to State and Federal laws and regulations concerning the environment. As with most
exploration projects and mining operations, PFGLs activities have had an impact on the
environment, particularly with regard to M59/0010, M59/0224 and M59/0662 where the Stage
1 and 2 drilling campaigns have been carried out. A recent Department of Mines and
Petroleum (DMP) inspection identified that PFGL had not met its environmental obligations
with respect to the Stage 1 and 2 drill programs and identified additional environmental and
occupational health and safety (OHS) concerns.
Although it is the intention of PFGL to conduct its activities to the highest standard of
environmental obligation, including compliance with all environmental laws, at the time of
this report no rehabilitation has been conducted. Tracks need to be vegetated, drill collars
are to be removed and plugged and sumps need to be filled in. In addition, the alluvial plant
would need to be removed (or scrapped) and the tails storage facility rehabilitated to meet
environmental and OHS requirements, should a decision be made to cease further work at the
project.
Page 19 of 62
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Figure 5
Tenements Divested as of 1 September 2014
(Modified from PFGL, Q3 Report, 2014)
3.2.3
Royalties and Taxes
First Tech Energy Limited is to receive a royalty equal to 2% of the gross revenue derived
from the tenements which are the subject of the Taylor Agreement and the Cable Agreement
where gross revenue is described as the amount received from the sale of gold derived from
the tenements (Paynes Find Gold Limited, 2010).
Page 20 of 62
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3.3
History
3.3.1
Ownership History
Refer to Table 3 for ownership history.
3.3.2
Exploration History
The project has been explored by a number of explorers in the past, their programs are
summarised in Table 3, with significant results in Figure 6 and Table 4. Drill hole locations are
displayed in Figure 15 (A), in Section 3.5.1.2.
Table 3
Date
Paynes Find Gold Project: Exploration History
Company
Findings
1983
West
Australian
Geological
Survey
Geological mapping.
1985
G R Dale and
Associates
Undertook both surface and underground exploration.
1987
Falcon
Australia
Limited
Carried out exploration of the Carnation Gold Mine as well as
sampling other old mine workings including Blue Heaven,
Leschenaultia, Romes, Carnation, Daphne, Scadden (extensions),
Daisy, Primrose, Sweet William, Kowhai, Horseshoe, Wattle,
Marigold, Orchid. It was determined that gold mineralisation at the
Carnation Mine is structurally controlled, high grade mineralisation
shoots within narrow, tight shear zones having variable, generally
limited, wall rock alteration. They also undertook a drilling program
(refer Figure 6).
1986-1987
Forsayth NL
Carried out a field inspection, photograph interpretation and a
drilling programme (refer Figure 6).
1996-1998
Kirkwood
Gold NL
Two holes were drilled on M59/10, one diamond with an RC collar
(57.6m RC and 125.6m diamond, total depth 183.20m) and one RC
for 46m (PFRCDD1, PFRC5). For PFRCDD1 seven samples were
analysed from the diamond core, two returning results less than
0.01g/t Au, the rest of the results are listed in Table 4. For PFRC5
from the 18 samples analysed the results greater than 0.5g/t Au are
listed in Table 4.
Three RC drill holes (PFRC2-4) were drilled on M59/244 for a total
of 85m. A hundred samples were assayed with the results ranging
from below the detection limit to 23.9g/t, the median result was
0.03g/t Au. The most significant result being one metre at 23.9g/t
Au from 55m in PFRC4 (refer Figure 6).
2002-2003
Page 21 of 62
Hallmark
Mining
Limited
Undertook drilling with the aim of testing high-grade gold shoots
below old workings for depth extensions. During 2002 11 RC holes
were drilled for 1,272m. Results >0.50g/t Au are listed in Table 4.
Hallmark drilled two RC holes in 2003 for 164m. Results >0.50g/t
Au are listed in Table 4 (refer Figure 6).
For personal use only
Table 4
Drill hole
Significant Results from historical drilling
From (m)
To (m)
Length (m)
Grade Au (g/t)
Kirkwood 1996 – 1998 Drilling Intersections
PFRCDD1
74.18
74.42
0.24
0.16
PFRCDD1
74.54
74.82
0.28
PFRCDD1
91.73
92.27
0.54
0.12
PFRCDD1
94.02
94.42
0.40
2.8
PFRCDD1
134.61
135.05
0.44
83.7
13.7
PFRC5
12
16
4
4.6
PFRC5
32
34
2
3.7
PFRC5
34
38
4
0.6
PFRC5
32
33
1
0.83
PFRC5
34
35
1
0.9
PFRC5
30
31
1
0.12
Hallmark Mining Limited 2002 and 2003 Drilling Results
HPFRC18
63
64
1
4.16
HPFRC18
64
65
1
3.9
HPFRC18
112
113
1
0.62
HPFRC20
20
21
1
0.51
HPFRC20
23
24
1
0.72
HPFRC20
27
28
1
1.53
HPFRC20
29
30
1
4.32
HPFRC20
30
31
1
0.69
HPFRC20
33
34
1
1.19
HPFRC20
34
35
1
0.75
HPFRC19
20
21
1
0.93
HPFRC19
21
22
1
12.2
HPFRC19
22
23
1
17.2
HPFRC19
23
24
1
3.52
HPFRC19
30
31
1
0.93
HPFRC19
34
35
1
1.07
HPFRC19
39
40
1
0.87
HPFRC19
55
56
1
0.73
HPFRC19
106
107
1
0.71
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Table 4
Drill hole
Significant Results from historical drilling
From (m)
To (m)
Length (m)
Grade Au (g/t)
HPFRC21
33
34
1
5.23
HPFRC21
34
35
1
0.84
HPFRC21
38
39
1
0.96
HPFRC21
60
61
1
1.09
HPFRC21
63
64
1
0.53
HPFRC21
64
65
1
0.73
HPFRC21
66
67
1
2.9
HPFRC21
67
68
1
2.5
HPFRC21
69
70
1
0.8
HPFRC21
70
71
1
4.66
HPFRC21
71
72
1
1.77
HPFRC21
72
73
1
1.52
HPFRC21
110
111
1
1.07
HPFRC21
111
112
1
0.96
HPFRC21
131
132
1
1.02
HPFRC22
88
89
1
2.37
HPFRC22
91
92
1
0.54
HPFRC22
103
104
1
2.86
HPFRC22
112
113
1
8.86
HPFRC22
140
141
1
4.82
HPFRC30
41
42
1
0.67
HPFRC30
42
43
1
0.94
HPFRC30
44
45
1
0.78
HPFRC33
35
36
1
5.47
HPFRC33
77
78
1
2.35
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Figure 6
Significant Historic Drilling Results (after Paynes Find Gold Limited, 2011)
(Refer to Figure 14 for cross-section 6763915N)
3.3.3
Previous Mineral Resource Estimates
There have been no previous mineral resource estimates in accordance with the JORC Code
(2004 or 2012) at the project.
3.3.4
Previous Production
The Paynes Find area has undergone historic mining since the early 1900s. Gold was first
discovered in the area in 1911 when prospector Thomas Payne, registered a lease for gold
mining with the Mines Department of Western Australia. An estimated 36 historic gold mines
within the Paynes Find Goldfield have reported production grades that ranged from 15g/t Au
to 150g/t Au. From 1911-1982, approximately 69,000t of ore produced 1,784kg (63,000
ounces) of gold at an average grade of 25g/t Au, (Paynes Find Gold Limited, 2011). Table 5
below shows the production records from historical gold mines (after, Paynes Find Gold
Limited, 2011).
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Table 5
Mine
Name
Production Records from Historical Gold Mines
(after, Paynes Find Gold Limited, 2011)
Production
Period
Max. Inclined
depth (m)
Ounces
Produced
Grams/Tonne
Gold
Current Lease
Ark
1933-1982
240
5,258
23
M59/244
Aster
1935-1951
180
3,281
18
M51/244
Aster Cons
1913-1919
180
1,092
23
M59/244
Big 5
1940-1954
190
N/A
45
M59/10
Blue
Heaven
1939-1945
105
*
93
M59/10
Bob's
1943-1945
108
*
150
M59/10
Carnation
1912-1951
280
*
31
M59/10
Centre
1980-1985
69
300+
31
M59/10
Cracker
194-N/A
105
*
62
M59/10
Daphne
1915-1917
90
376
33
M59/10
Goat
1943-N/A
45
80
31
M59/10
Green
Heaven
1940-1949
36
200
31
M59/10
Horseshoe
1943-1956
270
*
32
M59/10
Lake View
1912-1925
210
10,559
31
M59/244
Lake View
1926-1937
210
5,222
28
M59/244
League
1930-N/A
108
*
50
M59/10
Marigold
1940-N/A
150
1,780
15
M59/10
Mariposa
1912-1940
140
968
26
M59/244
Orchid
1911-1942
210
13,839
31
M59/244
Oversight
I912-N/A
120
2,700
15
M59/244
Princess
Mary
1916-1931
118
528
28
M59/244
Rolands
11964-N/A
50
300
23.00
M59/10
Scadden
1951-N/A
51
*
18
M59/10
Sweet
William
1911-1981
210
4,600
35
M59/235
Blue Bell
1912-1981
75
392
34
M57/663
* Shafts grouped under Carnation 21,450ozs
Production details source from Paynes Find Gold Battery records
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3.4
Geological Setting
The project is located in the Yilgarn Craton (Block) of Western Australia (Figure 7). The
craton is primarily composed of approximately 2.8 billion year old (~2.8 Ga) granite-gneiss
metamorphic terrains (the Southwest Gneiss Terrane and Northwest Gneiss Terrane), and
three granite-greenstone terrains - the Eastern Goldfields Province (which contains the
Norseman-Wiluna Belt), the Southern Cross Province and Murchison Province (Figure 7 and
Figure 2).
Figure 7
Yilgarn Craton and Murchison Province
The Murchison Province is exposed in the western and northern third of the Yilgarn Craton.
The Province is bounded by major transcrustal structures which separate it from the
surrounding tectonic provinces of the craton and the Northwest Gneiss Terrane. The
structural framework in the northeastern Yilgarn craton was largely shaped by transpression
that led to the development of folds, reverse faults, sinistral strike-slip movement on northnorthwest trending regional shears, followed by regional folding and shortening. The latter
occurred in overlapping tectonic processes. The first deformation event is poorly understood
but appears to have involved north-south thrusting.
3.4.1
Regional Geology and Mineralisation
The regional area is comprised of Archaean folded mafic volcanics which have been intruded
by granitoids and covered by alluvium and laterite. Rock types within the region consist of
interlayered basaltic and dacitic, meta-volcanics, subordinate banded iron formations and
ultramafic schists. Within the project area, rock types include granite, gneiss, ultramafic and
mafic schist and felsic porphyries. The Paynes Find Gneiss hosts most of the quartz vein
mineralisation, The Paynes Find Gneiss is strongly deformed and metamorphosed to
amphibolites grade. Gold mineralisation has also been noted in places within the felsic
intrusive rocks (Maynard, 2010 and Fitton, 2011).
3.4.2
Project Geology
Most of the gold mineralisation at Paynes Find is hosted by a rock type that has been
informally named the Paynes Find Gneiss. This is a 3,000m long by up to 800m wide lozenge
shaped unit striking northwesterly from P59/1942 in the north, to the Pansy deposit in the
south and is bounded by the Daffodil and Primrose Faults (Figure 8). The gneiss is a variably
deformed and metamorphosed quartz diorite / tonalite / gabbro intrusive, varying in colour
from blue-grey to black and is commonly porphyritic. The foliation is very regular and has a
strike direction of 330º to 360º (along the principal axis of the unit) and a dip of 60ºW to the
vertical. It contains numerous (sometimes very large) xenoliths of black amphibolite and hosts
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numerous gold-bearing quartz veins and stringers. This unit is in fault contact to the east with
large younger batholitic granite (the Eastern Granite).
Figure 8
Paynes Find Gold Project Simplified Geology
(NB: Tenement package outline shown as at 2011)
To the west of the Paynes Find Gneiss and in fault contact with it is a sequence of mafic and
ultramafic rocks striking north-south to north-northwest. The ultramafic rocks form what has
been termed the Paynes Find Intrusion which aeromagnetic data shows to be a 10km long by
up to 2.5km wide body of strongly magnetic rock. Where this rock type outcrops it varies from
a strongly magnetic massive grey/blue - green serpentinite to a less magnetic talc-tremolitechlorite (carbonate) schist. The age relationship between these ultramafic rocks and the
Paynes Find Gneiss is as yet unclear. Several small bodies of younger felsic porphyry intrude
both the ultramafic rocks and the Paynes Find Gneiss. A larger, poorly exposed granitoid body
(the Western Granite) occurs to the west of the Paynes Find Intrusion but again its age
relationship with the ultramafic rocks is unclear.
Evidence for the ultramafic rocks being intrusive is as follows:

The aeromagnetic signature which suggests a discrete deformed lopolith.

The presence of a titaniferous magnetite unit. These rocks are only found in
differentiated intrusive igneous complexes which are usually layered.

The predominance of serpentinite after original dunitic or magnesium-rich, peridotitic
cumulate rocks.
Gold mineralisation within the Paynes Find Gneiss exhibits weak to strong foliation striking
300-340° and dipping steeply westwards at 60-80°. The auriferous quartz veins strike
approximately north-south, have a consistent plunge direction at 206°- 249° and dip at 55°77°W. The plunge of the lodes is the dominant structural control which helps to predict the
location of down-dip mineralisation. The mineralised shears are tight, measuring up to two
metres wide with minor wallrock alteration. The auriferous quartz veins occasionally split and
tend to be boudinaged with high grade shoots having a strike length of up to 10m. Late-stage
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pegmatites, known locally as bars, intrude the shear zones and have displaced some of the
quartz lodes.
3.4.3
Controls on Mineralisation
A structural review was carried out by CSA Global (CSA) in late 2012 / early 2013 following
the completion of the Stage 2 drilling program. Four major structural episodes can be
recognised over the Paynes Find Gold Project area, which originally comprised an Archaean
sequence of mafic and ultramafic volcanics interlayered with sedimentary units.

D1 deformation is characterised by a regional metamorphic event, leading to regional
amphibolite-facies metamorphism and development of compositional layering within
gneissic units (shearing S1).

During early D2, a pervasive ductile northwest-southeast foliation (S2) developed, partly
exploiting the existing S1 fabric. Shearing was accompanied by fluid-flow along the
shears, accompanied by quartz veining during late D2. High grade gold occurs within
these quartz veins and is mostly restricted to them. D2 veins are intensely boudinaged,
pinching and swelling significantly along the strike of the veins, which usually dip at 45⁰
in the eastern parts to very steeply west, towards the western contact.

D3 is characterised by intense pegmatitic dyke/sill and stock intrusion. Pegmatites occur
throughout the gneissic parts of the study area, are shallow-dipping (usually <50⁰) and
display a northwest trending domal structure. D3 is accompanied by a non-pervasive S3
fabric, overprinting all earlier foliations. Anecdotal association of the pegmatite with
gold requires further investigation.

A late-stage brittle overprint (D 4) is evident in the form of brittle fractures and faults
accompanied by strong epidote alteration.
Two separate mineralising events were initially identified by CSA over the exploration area,
with further study identifying a third:
1. Shear-related quartz veining indicated by high-grade gold within segmented and
boudinaged quartz veins within the gneissic units, associated with a late D 2 fabric (Type
1).
2. Consistent gold mineralisation along the sheared contact between mafic amphibolite and
gneiss (Type 2).
3. Quartz veining containing gold mineralisation in the western mafic / ultramafic sequence
(Type 3).
Type 1 mineralisation is generally of a very high-grade gold tenor. Where these veins were
successfully intersected in PFGL’s drilling campaigns, this was reflected in drill sample assays
(Figure 9). The gold-bearing veins pinch and swell due to their boudinaged shape, generally
extending from 5-20m in length, 1-5m in width and pinching to sub-metre widths away from
the boudin development. These veins were the target of historical mining activities within the
gneiss and the focus for most of PFGL’s Stage 1 and Stage 2 drilling programs. Most historic
workings follow individual lenses along a prominent steep south-westerly plunge (~75°), often
to 100’s of metres depth. This shoot geometry shows good continuity and a large lateral
extent for the gold mineralising system.
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Figure 9
Fine, Visible Gold in Laminated, Sheared (S2) Vein (PFGDD003, 1m @ 26.79g/t
Au, from 210-211m)
(Source: PFGL, 2013)
Compared with the somewhat discontinuous surface expression of gold veins within the
gneiss, the contact area between the mafic amphibolite and gneiss is strongly sheared along
its length (and mappable in excess of 6km strike in the project area, refer Figure 11, Zone 1)
with significant gold values over good thicknesses apparent within the sheared contact,
accompanied by chlorite-epidote-carbonate alteration. This contact is considered to be
poorly explored and warrants further targeting, particularly in light of the results from the
Stage 2 drilling program and especially at depth where veins and contact-shears potentially
coalesce, as seen conceptually in Figure 10.
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Figure 10
Schematic Representation of Conceptual Gold Target
High grade veins, distal to the mafic amphibolite/gneiss contact, tend to dip at a flatter
angle, while veins more proximal to the sheared contact dip more steeply. The intersection of
converging, boudinaged quartz veins with the main shear at depth could present a further
valuable target within Zone 1 (Figure 11) that remains largely untested to date.
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Figure 11 Paynes Find Tenement Holding (2013) Overlain on Magnetics and Soil
Geochemistry; Interpreted Shears and Drilling Areas, with New Zones of Interest in
Yellow
(Source: PFGL, 2013)
Additional review of the larger area highlighted that a gold geochemical anomaly on very
wide-spaced reconnaissance sampling is coincident with an interpreted parallel contact zone
on the western side of the mafic amphibolite, which may possibly be sheared (refer Figure 11,
Zone 2). A third area (Zone 3) was also interpreted along a possibly sheared felsic schist
contact, which converges with Zone 2 (refer Figure 11).
3.5
Exploration Results and Potential
PFGL is the first company to bring all the tenements of the Paynes Find area under the one
company control, providing security in tenure and access to the project area. Historically
many of the tenements have been owned by private companies or individuals, who have not
explored them to the extent an exploration company normally would.
3.5.1
Recent Exploration Activities
During the period 2010-2011 PFGL undertook geological mapping at scales of 1:5000 and
1:2000. As a result of the mapping, 41 gold mineralised quartz reefs were identified over an
extent of 600m. The mapping program outlined the following:

Quartz lode separation was on average 15m.

Lower grade link structures were identified between the main high-grade gold lodes.

The quartz vein mineralisation within the strongly deformed quartz diorite outcrops over
a strike length of approximately 2,000m before dipping beneath laterite cover.

Further mineralisation was observed over approximately 3,000m within varying rock
types adjoining the main goldfield.
PFGL also completed a Mobile Metal Ion (MMI) geochemical survey (Figure 12) and concluded
that the results from the survey indicated that gold mineralisation was more widespread than
initially thought, especially in areas of shallow soil and laterite cover. Ravensgate advises
that caution should be exercised when reviewing this data however, since the Paynes Find
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area has been extensively worked historically and the potential for gold mineralisation
‘contamination’ from many sources is significant.
Figure 12 MMI Results and Historical RC Drilling Within the Planned Stage 2 Area Prior
to Drilling
3.5.1.1
Stage 1 Drilling -2011
On 4 April 2011, PFGL announced that the company had commenced its Stage 1 drilling
program centred on the Carnation/Blue Heaven line of old workings. The drilling targeted an
area 500m long north-south and 400m wide east - west to a depth of 50 to 80m. A program
comprising 69 RC drill holes for 3,800m were completed in the area shown on Figure 8.
Significant results from the Stage 1 drilling program are indicated on Figure 13 and listed in
Table 6.
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Figure 13 Significant Results from the Stage 1 Drilling Programme (after Paynes Find
Gold Limited, 2011)
Figure 14
Page 33 of 62
Composite Cross-Section 6763915N, as Shown on Figure 12 and Figure 13
For personal use only
Table 6
Hole
ID
Paynes Find Gold Limited Stage 1 drilling Program Significant results >1g/t
Au
From
(m)
To
(m)
Width
(m)
Grade
Au (g/t)
Comments
PFRC003
29
30
1
2.38
PFRC004
42
43
1
2.36
72
73
1
1.54
28
34
6
1.5
55
57
2
2.9
85
92
7
1.1
16
18
2
3.4
24
29
5
1.0
35
36
1
1.00
62
63
1
1.92
23
28
5
1.5
56
57
1
6.2
68
70
2
1.7
25
27
2
1.1
31
32
1
15.20
19
22
3
1.8
incl. 1m at 4.57 g/t from 21m
25
34
9
1.1
incl. 1m at 2.20 g/t from 26m
18
28
10
1.8
incl. 2m at 4.16 g/t from 18m
45
46
1
3.93
34
35
1
1.01
39
41
2
19.0
50
51
1
1.10
44
46
2
2.4
51
52
1
1.19
PFRC015
51
52
1
5.2
PFRC017
35
36
1
1.68
PFRC018
20
26
6
1.9
30
33
3
1.9
PFRC019
42
45
3
1.0
PFRC021
31
32
1
1.14
PFRC024
17
18
1
1.53
PFRC005
PFRC006
PFRC007
PFRC008
PFRC009
PFRC010
PFRC012
PFRC013
incl. 1m at 4.81 g/t from 29m
incl. 1m at 5.26 g/t from 27m
incl. 1m at 36.0 g/t from 39m
incl. 2m at 2.78 g/t from 22m
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Table 6
Hole
ID
Paynes Find Gold Limited Stage 1 drilling Program Significant results >1g/t
Au
From
(m)
To
(m)
Width
(m)
Grade
Au (g/t)
PFRC026
41
42
1
1.06
PFRC034
17
20
3
1.3
29
30
1
1.03
25
27
2
1.3
32
33
1
3.41
37
38
1
2.14
PFRC039
50
53
3
8.6
PFRC043
46
49
3
1.1
PFRC046
22
24
2
2.4
PFRC047
40
41
1
6.99
50
51
1
1.52
PFRC048
37
38
1
0.66
PFRC049
22
24
2
50.5
PFRC051
52
53
1
1.11
39
40
1
1.70
PFRC053
55
56
1
4.41
PFRC056
13
16
3
2.6
PFRC058
58
61
3
4.2
PFRC059
9
12
3
1.0
39
45
6
2.4
PFRC061
2
3
1
7.52
PFRC062
2
3
1
1.22
15
16
1
2.05
25
26
1
3.12
PFRC063
18
20
2
2.0
PFRC065
32
35
3
16.0
PFRC066
25
27
2
1.6
34
36
2
2.6
PFRC068
31
32
1
2.67
PFRC069
26
31
5
1.6
PFRC070
5
8
3
1.6
PFRC037
Page 35 of 62
Comments
incl. 1m at 2.73 g/t from 19m
incl. 1m at 1.80 g/t from 25m
incl. 2m at 12.56 g/t from 50m
incl. 1m at >100 g/t from 22m
incl. 2m at 5.84 g/t from 39m
incl. 1m at 46.4 g/t from 32m
incl. 1m at 4.9 g/t from 26m
For personal use only
3.5.1.2
Stage 2 Drilling - 2012
The Stage 2 drilling program was designed as a northwestern extension to the Stage 1 drill
program (Figure 15) consisting of six diamond drill holes and approximately 64 RC drill holes,
for 2,000 and 5,000m respectively, to test open ended known extensions of gold
mineralisation.
The Stage 2 program was commenced in July 2012 with drilling of the initial area of interest
completed by early September, with 54 RC holes totaling 5,326m (to a maximum depth of
250m) and six diamond drill holes totaling 1,540m (to a maximum depth of 480m). A total of
7,145 samples (including duplicates) were assayed for gold, silver and copper, significant
results are presented below in Table 7 and Figure 16. Drill holes that returned no significant
results are shown in Table 8. A geological cross-section of the deposit is shown in Figure 17,
with the location of this cross-section depicted in the accompanying map Figure 16.
Page 36 of 62
For personal use only
Figure 15 Historical and Stage 1 Drill Holes (A) and Planned (2012) Stage 2 RC and
Diamond Drill Holes (B)
Page 37 of 62
For personal use only
Table 7
Assay Results – 2012 Stage 2 Drilling Program
Hole
ID
Easting
(m)
Northing
(m)
PFRC102
566800
6764080
80
-60
90
16
19
3
0.84
PFRC110
566760
6764160
108
-60
90
96
98
2
3.82
PFRC112
566672
6764148
192
-60
90
13
15
2
0.63
57
59
2
0.71
114
117
3
4.94
170
172
2
1.11
16
20
4
1.91
26
33
7
2.43
44
47
3
0.6
71
73
2
1.85
PFRC115
566608
6764206
Max Depth
(m)
102
Dip
(°)
-60
Azi
(°)
90
From
(m)
To
(m)
Int.
(m)
Au
(g/t)
PFRC116
566643
6764196
80
-60
90
10
22
12
6.61
PFRC117
566596
6764181
144
-60
90
49
51
2
0.6
92
95
3
2.07
40
45
5
1.24
49
51
2
1.45
41
44
3
92.0
8
58
61
3
0.8
69
71
2
2.56
82
85
3
1.45
9
12
3
0.63
40
43
3
1.2
53
56
3
1.82
91
96
5
1.24
PFRC118
PFRC120
PFRC121
566640
566587
566565
6764133
6764185
6764205
120
186
144
-60
-60
-60
90
90
90
PFRC123-1
566686
6764231
18
-60
90
8
10
2
2.56
PFRC124
566651
6764233
120
-60
90
7
9
2
1.11
PFRC127
566745
6764265
120
-60
90
6
8
2
0.88
59
61
2
2.45
67
69
2
1.85
90
93
3
1.27
69
71
2
1.45
122
124
2
1.02
PFRC128
PFRC131
566788
566830
6764194
6764126
100
131
-60
-60
90
90
Page 38 of 62
For personal use only
Table 7
Assay Results – 2012 Stage 2 Drilling Program
Hole
ID
Easting
(m)
Northing
(m)
PFRC133
566764
6764123
PFRC134
PFRC135
PFRC136
566733
566740
566787
6764121
6764002
6764103
Max Depth
(m)
108
198
102
90
Dip
(°)
-60
-60
-60
-60
Azi
(°)
90
90
90
90
From
(m)
To
(m)
Int.
(m)
Au
(g/t)
50
52
2
1.61
99
103
4
2.64
45
48
3
8.04
140
143
3
5.21
25
28
3
0.69
48
50
2
3.59
77
84
7
4.83
93
97
4
0.89
23
27
4
1.13
42
47
5
1.66
PFRC137
566759
6764080
84
-60
90
60
62
2
1.43
PFRC140
566827
6764050
90
-60
90
15
18
3
0.87
22
24
2
1.15
PFRC142
566763
6764047
120
-60
90
30
33
3
3.21
PFRC143
566730
6764045
198
-60
90
91
93
2
0.94
155
157
2
2.29
44
46
2
3.33
50
56
6
1.37
60
62
2
0.6
82
85
3
0.67
PFRC145
566797
6763983
96
-60
90
PFRC146
566820
6763984
115
-60
90
29
34
5
0.99
PFRC147
566772
6763982
80
-60
90
22
24
2
0.95
27
31
4
1.16
76
79
3
3.15
PFRC148
566978
6763742
234
-60
90
128
130
2
3.94
PFRC149
566832
6764025
84
-60
90
41
44
3
4.64
46
50
4
1.21
51
56
5
0.99
79
83
4
6.28
109
111
2
0.81
120
126
6
3.56
PFRC150
Page 39 of 62
566768
6764015
155
-60
90
For personal use only
Table 7
Assay Results – 2012 Stage 2 Drilling Program
Hole
ID
Easting
(m)
Northing
(m)
PFGDD01
566640
6764024
483
-60
60
294
297
3
0.5
PFGDD02
566777
6764100
327.2
-62
58.7
36
37
1
3.95
PFGDD03
566784
6763974
402
80
70
74
4
0.73
80
92
12
1.33
219
221
2
0.88
214
216
2
2.07
222
225
3
1.28
PFGDD06
566625
Table 8
Max Depth
(m)
6763993
385
Azi
(°)
Dip
(°)
62.3
-70
70
From
(m)
To
(m)
Int.
(m)
Au
(g/t)
Stage 2 drill holes with no significant result
Hole
ID
Easting
(m)
Northing
(m)
Max Depth
(m)
Dip
(°)
Azi
(°)
From
(m)
To
(m)
Int.
(m)
PFRC100
566880
6764080
80
-60
90
NRI
PFRC101
566840
6764080
80
-60
90
NRI
PFRC103
566880
6764200
80
-60
90
NRI
PFRC104
566840
6764200
80
-60
90
NRI
PFRC105
566760
6764200
78
-60
90
NRI
PFRC106
566720
6764200
80
-60
90
NRI
PFRC107
566680
6764200
80
-60
90
NRI
PFRC108
566880
6764160
80
-60
90
NRI
PFRC109
566800
6764160
79
-60
90
NRI
PFRC111
566720
6764148
120
-60
90
NRI
PFRC113
566639
6764164
120
-60
90
NRI
PFRC114
566643
6764189
54
-60
90
NRI
PFRC119
566608
6764131
138
-60
90
NRI
PFRC122
566722
6764232
174
-60
90
NRI
PFRC125
566624
6764235
90
-60
90
NRI
PFRC126
566588
6764238
90
-60
90
NRI
PFRC129
566840
6764169
108
-60
90
NRI
PFRC130
566871
6764127
100
-60
90
NRI
PFRC132
566796
6764124
92
-60
90
NRI
Au
(g/t)
Page 40 of 62
For personal use only
Table 8
Stage 2 drill holes with no significant result
Hole
ID
Easting
(m)
Northing
(m)
Max Depth
(m)
Dip
(°)
Azi
(°)
From
(m)
To
(m)
Int.
(m)
PFRC138
566721
6764079
90
-60
90
NRI
PFRC139
566876
6764057
60
-60
90
NRI
PFRC141
566794
6764052
80
-60
90
NRI
PFRC144
566625
6763993
150
-60
90
NRI
PFGDD04
566598
6764162
378
-60
80
NRI
PFGDD05
566740
6764002
142.4
-60
80
NRI
Au
(g/t)
Notes:
•
All coordinates are Zone 50, MGA94 based on single GPS averages.
•
PFGDD prefixes are for holes drilled with NQ diamond core.
•
PFRC prefixes are for holes drilled by 51/2” RC percussion.
•
Half NQ core was sampled in 1m intervals following geological logging.
•
RC percussion samples were split on site using a riffle splitter.
•
All holes were geologically logged by industry standard approaches.
•
Sample recoveries from both drilling techniques were good.
•
Sample analysis was by Nagrom laboratory in Perth, WA.
•
40g of sample is digested in aqua regia (HCL and HNO3) and the solution analysed by ICP. Ag and
Au are analysed by ICP-MS and Cu by ICP-OES.
•
Intersections were calculated using minimum criteria of 2m at 0.5 g/t Au and with a maximum
internal waste interval of 1m.
•
Field standards and duplicates together with laboratory QC replicates and standards were used
to monitor the reliability of the analysis. Inspection of QA reports showed no issues with the
analysis.
•
The extreme high grade samples were verified by repeat sampling of the original bulk reject RC
percussion chips from the drill hole, together with laboratory repeats, by the Company’s
personnel.
•
All intersections are downhole lengths and it is not known whether these are true widths.
•
NRI - No reportable intersection - note that the holes are potentially part of further planned
drilling at different azimuths and angles taking into account the 'snaking' mineralised nature of
the reefs encountered.
Page 41 of 62
Stage 2 Drill Hole Locations and Significant Intersections
For personal use only
Figure 16
The results of the Stage 2 drill program led to the structural study carried out by CSA and
ioGlobal, as described in Section 3.4.3. PFGL were confident that the key point to derive from
the Stage 2 results was that it now provided the economic and geological rationale to
continue further drilling to assess the real potential of the tenements at large.
Page 42 of 62
For personal use only
Figure 17
3.5.1.3
Cross-Section Through Stage 2 Drilling
Stage 3 Program
PFGL began planning a short interim program of shallow RC holes (15 holes for ~500m) into
regional targets, and reviewed requirements for a third phase of drilling based on outcomes
from Stage 2 and the associated structural studies. The third round of drilling was planned for
Q1 2013, however due to the declining gold price (refer to Figure 19) that was experienced
during this time (which has continued to the present) the Stage 3 program has been
postponed.
3.5.2
Exploration Potential
Potential remains at the Paynes Find Project due to the following reasons:

Multiple high-grade intersections have been returned from PFGL’s Stage 1 and 2 drilling
programs, confirming multiple lodes and target geometries.

Shallow high-grade gold results have enhanced the open pit potential of the area.

Stage 1 and 2 assay results confirm that gold mineralisation is not limited to the
predominantly explored gneiss (as previously thought), with significant intersections
occurring in the adjacent greenstone schist.
Page 43 of 62
For personal use only

Considerable potential remains for small to medium scale development of the higher
grade shoots and to potentially link high grade zones along strike; and for the discovery
of additional blind high grade zones along strike during future exploration or mining
activity.
In addition, CSA reviewed and re-ranked targets outlined by ioGlobal (in mid-2013) in the
context of resource potential (refer Figure 18). Several targets (A, B, F, H) represent high
grade gold targets, and are identified for RC drill testing. Targets C, D, E, G, I, J and K are
targets for RAB or possibly aircore testing on 100m line spacing with 50m drill centres and
nominal 60m drill depth, though this may not be achievable in some areas with limited
weathering.
Figure 18
CSA Priority Targets
NB: PFGL tenure* (red), CSA ranked targets (pink), and selected drill intersection highlights underlain
by combined Au geochemistry, structural control, and other prioritised anomalies (yellow, mostly
obscured).
*Note that the tenement package shown includes the recently divested tenements that contain targets
G, H, I, and J.
Page 44 of 62
For personal use only
On an individual basis, Ravensgate provides the following comments on the tenements of the
Paynes Find Gold Project:

M59/0002: The licence is located immediately to the south from M59/396 and is largely
underlain by the Paynes Find Gneiss, containing historic workings in its northern area.
Minor granite occurs in the south. The prospectivity of the licence is rated as medium to
high.

M59/0010: The licence mostly contains the Paynes Find Gneiss and contains a line of
historic workings on the northwest – southeast trending Primrose Fault and sheared
contact with the mafic schist, which was the focus of PFGL’s Stage 2 drilling program.
The licence contains CSA’s target ‘A’ which is proximal to the high grade result from
PFRC120 which returned 3m at approximately three ounces of gold (Figure 17 and Figure
18). Therefore, the prospectivity of the licence is rated as high.

M59/0235: The licence is on the Paynes Find Gneiss with historic workings, immediately
to the northeast of the Stage 2 drill program. The southern area was previously drilled by
Forsayth in 1987 (Figure 15). The prospectivity of the licence is rated as medium to high.

M59/0244: The licence mostly contains the Paynes Find Gneiss and contains a line of
historic workings on the northwest – southeast trending Primrose Fault and sheared
contact with the mafic schist, which was the focus of PFGL’s Stage 1 drilling program.
The areas potential has been highlighted by CSA, which also contains target ‘F’ (Figure
18). Therefore, the prospectivity of the licence is viewed as high.

M59/0396: The licence is located immediately to the east of CSA target ‘F’ on the Paynes
Find Gneiss, containing historic workings. The prospectivity of the licence is rated as
medium to high.

M59/0662: South of the historic Daffodil open pit and containing the historic workings of
Pansy (south) and Shamrock, the area has been identified by CSA with the western area
of the licence viewed as prospective, containing target ‘B’ (Figure 18). As it is not on the
main Paynes Find Gneiss package, the licence is viewed as medium to high prospectivity.

M59/0663: The licence contains the historic Bluebell workings on the Paynes Find Gneiss
which is at the northern end of the main strike of historic workings (Figure 8) and
favourable structural trend, containing CSA target ‘E’ (Figure 18). The licence is viewed
as having medium to high prospectivty, with also alluvial potential on the licence.

P59/1907: On the Eastern side of the Daffodil Fault, on the Eastern Granite, the area has
not been covered by geochemical surveys. The area is underlain by the Eastern
Ultramafic and therefore maybe more prospective for nickel. The area is proximal to the
Daffodil tailings – refer to comments for P59/1956. The prospectivity of the licence is
rated as low.

P59/1908: A small, strategic, gap-fill prospecting licence in proximity to CSA’s target ‘A’.
The licence is on the mafic schist and Paynes Find Gneiss contact at the Primrose Fault,
within close proximity to historic workings. Therefore, although a small area, the
prospectivity of the licence is viewed as high.

P59/1909: A small, strategic, gap-fill prospecting licence on Paynes Find Gneiss,
immediately to the northwest of the historic Adeline workings. Therefore, although a
small area, the prospectivity of the licence is viewed as high.

P59/1924: The licence is split approximately north to south by the Daffodil Fault with the
eastern half of the licence on the Eastern Granite and the western half on the Paynes
Find Gneiss, which contains historic workings. The licence does not contain any targets
identified by CSA, and is viewed as having medium prospectivity.

P59/1941: CSA has defined a structural corridor at the north-south border between this
licence and P59/1959 to the west, containing target ‘C’ on P59/1941 and target ‘D’ on
P59/1959 (Figure 18). The licences are viewed as having medium prospectivity. They are
traversed by the Great Northern Highway in their northern area, with P59/1941 also
containing the Paynes Find Tavern and Roadhouse.
Page 45 of 62
For personal use only

P59/1942: The tenement is mostly underlain by the Eastern Granite, with a sheared area
of the Paynes Find Gneiss in the southwest corner, which is the only area of the
tenement that was covered by geochemical soil sampling. The tenement does not
contain any historic workings or drill holes, is not proximal to any of the CSA targets and
is therefore viewed as having low prospectivity.

P59/1956: A small licence on the eastern side of the Daffodil Fault on the Eastern
Granite, at the southern pinch-out of the Paynes Find Gneiss. The southern area of the
licence has been used as a tailings dump from the historic Daffodil open pit which is
~400m to the southwest (refer to Figure 4). In Ravensgate’s opinion, an area that has
been used as a waste / tailings site is viewed as having low prospectivity.

P59/1957: A strategically placed tenement at the southern pinch out of the Paynes Find
Gneiss, the licence covers the southern strike extent of a line of historic workings (Figure
4), which is viewed as having medium prospectivity.

P59/1958: The licence covers the east-west extension of licences P59/1941 and
P59/1959, which includes the southern extension of CSA identified north – south
structural corridor, however the licence does not contain a target and is viewed as
having medium prospectivity.

P59/1959: Refer to P59/1941.
In addition to the gold potential at the project, according to Fitton (n.d.), detailed geological
mapping has shown the rocks of the Paynes Find intrusion are believed to form a discrete
intrusive lopolithic complex. By analogy with other such bodies around the world, these types
of rocks are known to host significant economic deposits of nickel sulphides, often
accompanied by copper, cobalt and PGEs.
The size of the Paynes Find intrusion (10km x 3km) is fairly typical of other world examples
that host very large nickel sulphide deposits e.g. Voisey’s Bay in Labrador, Canada
(141Mt @1.6% Ni) and Jinchuan in China (this deposit is 10km long up to 500m wide and
extends to at least 1.5km vertical depth). Athena Resources are currently exploring similar
ultramafic intrusions in the Byro district (Milly Milly) ~200km north-northwest of Paynes Find.
3.5.3
Constraints to Further Exploration Success
Geologically, intersecting the boudinaged high-grade zones (Type 1 veins) effectively with
conventionally orientated drilling is considered difficult unless vein density is demonstrably
high, however as described above, the prospectivity and potential of the project remains
high.
Ravensgate views the current depressed gold price and market sentiment towards exploration
projects, as the most problem constraint to further exploration success at the Paynes Find
Project, as highlighted in PFGL’s 2013 December quarterly report, announced to the ASX on
29 January 2014, stating that the project would be subject to re-evaluation, in relation to
administrative holding costs, which ultimately led to the conditional Deed of Sale announced
to the ASX on 23 April 2014 and finalised on 1 September 2014.
Page 46 of 62
For personal use only
4.
VALUATION
4.1
Introduction
There are a number of recognised methods used in valuing mineral assets. The most
appropriate application of these various methods depends on several factors, including the
level of maturity of the mineral asset, and the quantity and type of information available in
relation to the asset. All monetary values included in this report are expressed in Australian
dollars (A$) unless otherwise stated.
The VALMIN Code, which is binding upon Experts and Specialists involved in the valuation of
mineral assets and mineral securities, classifies mineral assets in the following categories:

Exploration Areas refer to properties where mineralisation may or may not have been
identified, but where specifically a Mineral Resource has not been identified.

Advanced Exploration Areas refer to properties where considerable exploration has been
undertaken and specific targets have been identified that warrant further detailed
evaluation, usually by some form of detailed geological sampling. A Mineral Resource
may or may not have been estimated but sufficient work will have been undertaken that
provides a good understanding of mineralisation and that further work will elevate a
prospect to the resource category. Ravensgate considers any identified Mineral Resources
in this category would tend to be of relatively lower geological confidence.

Pre-Development Projects are those where Mineral Resources have been identified and
their extent estimated, but where a positive development decision has not been made.
This includes projects at an early assessment stage, on care and maintenance or where a
decision has been made not to proceed with immediate development.

Development Projects refers to properties which have been committed to production,
but which have not been commissioned or are not operating at design levels.

Operating Mines are those mineral properties, which have been fully commissioned and
are in production.
Various recognised valuation methods are designed to provide the most accurate estimate of
the asset value in each of these categories of project maturity. In some instances, a
particular mineral property or project may include assets that comprise one or more of these
categories. When valuing Exploration Areas and therefore by default where the potential is
inherently more speculative than more advanced projects, the valuation is largely dependent
on the informed, professional opinion of the valuer. There are a number of methods available
to the valuer when appraising Exploration Areas.
The Multiple of Exploration Expenditure (MEE) method can be used to derive project value,
when recent exploration expenditure is known or can be reasonably estimated. This method
involves applying a premium or discount to the exploration expenditure or Expenditure Base
(EB) through application of a Prospectivity Enhancement Multiplier (PEM). This factor directly
relates to the success or failure of exploration completed to date, and to an assessment of the
future potential of the asset. The method is based on the premise that a grass roots project
commences with a nominal value that increases with positive exploration results from
increasing exploration expenditure. Conversely, where exploration results are consistently
negative, exploration expenditure will decrease along with the value. The following guidelines
are presented on selection of the PEM:

PEM = 1. Exploration activities and evaluation of mineralisation potential justifies
continuing exploration.

PEM = 2. Exploration activities and evaluation of mineralisation potential has identified
encouraging drill intersections or anomalies, with targets of noteworthy
interest generated.

PEM = 3. Exploration activities and evaluation of mineralisation potential has identified
significant grade intersections and mineralisation continuity.
Page 47 of 62
For personal use only
Where transactions including sales and joint ventures relating to mineral assets that are
comparable in terms of location, timing, mineralisation style and commodity, and where the
terms of the sale are suitably “arm’s length” in accordance with the VALMIN Code, such
transactions may be used as a guide to, or a means of, valuation. This method (termed
Comparable Transactions) is considered highly appropriate in a volatile financial environment
where other cost based methods may tend to overstate value.
The Joint Venture Terms valuation method may be used to determine value where a Joint
Venture Agreement has been negotiated at “arm’s length” between two parties. When
calculating the value of an agreement that includes future expenditure, cash and/or shares
payments, it is considered appropriate to discount expenditure or future payments by
applying a discount rate to the mid-point of the term of the earn-in phase. Discount factors
are also applied to each earn-in stage to reflect the degree of confidence that the full
expenditure specified to completion of any stage will occur. The value assigned to the
second and any subsequent earn-in stages always involves increased risk that each subsequent
stage of the agreement will not be completed, from technical, economic and market factors.
Therefore, when deriving a technical value using the Joint Venture Terms method,
Ravensgate considers it appropriate to only value the first stage of an earn-in Joint Venture
Agreement. Ravensgate have applied a discount rate of 10.0% per annum to reflect an
average company’s cost of capital and the effect of inflation on required exploration spends
over the timeframe required.
The total project value of the initial earn-in period can be estimated by assigning a 100%
value, based on the deemed equity of the farminor, as follows:
V1 0 0 



100 
1
CP

 CE *
t
D 


(1  I ) 2


 

 
1

* P
   EE *
t


 
2


1

I

 

where:
V100
=
Value of 100% equity in the project ($)
D
=
Deemed equity of the farminor (%)
CP
=
Cash equivalent of initial payments of cash and/or stock ($)
CE
=
Cash equivalent of committed, but future, exploration expenditure and payments of cash and/or stock
($)
EE
=
Uncommitted, notional exploration expenditure proposed in the agreement and/or uncommitted future
cash payments ($)
I
=
Discount rate (% per annum)
t
=
Term of the Stage (years)
P
=
Probability factor between 0 and 1, assigned by the valuer, and reflecting the likelihood that the Stage
will proceed to completion.
Where Mineral Resources remain in the Inferred category, reflecting a lower level of technical
confidence, the application of mining parameters using the more conventional DCF/NPV
approach may be problematic or inappropriate and technical development studies may be at
scoping study level. In these instances it is considered appropriate to use the ‘in-situ’
Resource method of valuation for these assets. This technique involves application of a
heavily discounted valuation of the total in-situ metal or commodity contained within the
resource. The level of discount applied will vary based on a range of factors including
physiography and proximity to infrastructure or processing facilities. Typically and as a
guideline, the discounted value is between 1% and 5% of the in-ground value of the metal in
the Mineral Resource.
Page 48 of 62
For personal use only
In the case of Pre-development, Development and Mining Projects, where Measured and
Indicated Mineral Resources have been estimated and mining and processing considerations
are known or can be reasonably determined, valuations can be derived with a reasonable
degree of confidence by compiling a discounted cash flow (DCF) and determining the net
present value (NPV).
The Australasian Code of Reporting of Exploration Results, Mineral Resources and Ore
Reserves (JORC Code 2012) sets out minimum standards, recommendations and guidelines. A
Mineral Resource defines a mineral deposit with reasonable prospects of economic extraction.
Mineral Resources are sub-divided into Inferred, Indicated and Measured to represent
increasing geological confidence from known, estimated or interpreted specific geological
evidence and knowledge. An Ore Reserve is the economically minable part of a Measured or
Indicated Resource after appropriate studies. An Inferred Resource reflecting insufficient
geological knowledge, cannot translate into an Ore Reserve. Measured Resources may become
Proved (highest confidence) or Probable Reserves. Indicated Resources may only become
Probable Reserves.
4.2
Previous Mineral Asset Valuations
Ravensgate is not aware, nor have we been made aware, of any valuations over the Paynes
Find Gold Project. Exploration tenements have not been included in the valuation where
tenure or permits have not been granted to the relevant company and the company does not
therefore have any ownership over tenement mineral assets or any exploration value within
the tenements. Whilst ground is under application, there are uncertainties as to whether the
tenement will be granted in its entirety or only part due to specific exclusions or if at all, due
to environmental or Native Title considerations. There could be competing applications for
the same ground with no guarantee that PFGL would be successful in its application.
4.3
Material Agreements
Ravensgate has been commissioned by RSM to provide an Independent Technical Project
Review and Valuation Report. The Technical Project Review and Valuation report
encompasses the Paynes Find Gold Project. The Technical Valuation report provides an
assessment of the Australian “Advanced Exploration Area” mineral assets listed below in
which the tenements are owned 100% by PFGL.
Mineral Asset
Paynes Find Gold Project, Western Australia
PFGL Ownership %
100%
Ravensgate understands all active mining and exploration tenements are granted at this point
in time and are in good standing. Refer to Section 3.2.3 for information relating to royalties
and taxes.
Ravensgate is not aware, nor have been made aware, of any other agreements that have a
material effect on the provisional valuations of the mineral assets, and on this basis have
made no adjustments on this account.
Page 49 of 62
For personal use only
4.4
Comparable Transactions
Ravensgate has completed a search for publicly available market transactions involving gold
projects, without resources within Western Australia primarily on Prospecting and Mining
Licences. Transactions reflect comparable tenement holdings in geological provinces that are
considered prospective for similar commodities, and that are of similar prospectivity to the
mineral assets being valued. In Ravensgate’s opinion and experience, it is understood that
individual market transactions are rarely completely identical to the relevant project area or
may not necessarily contain all the required information for compilation. In practice, a range
of implied values on a dollar per metal unit or dollar per square kilometre of tenement
holding will be defined as suitable for use. The transactions identified along with the implied
cash-equivalent values are summarised in Section 4 by commodity and region. Based on the
limited information available Ravensgate have done their best to only use transactions
between willing buyers and sellers in arms length transactions.
Publically available market transactions have been separated to reflect transactions on a
dollar per square kilometre of tenement holding or on a dollar per metal unit for a more
advanced Exploration Target or Mineral Resource. This was undertaken to reflect the varying
levels of geological exploration carried out within the various project tenements. In general
terms, exploration projects may start with a relatively large tenement holding where a lack
of detailed geological sampling and knowledge renders the use of the “in-situ” yardstick
valuation method inappropriate (i.e. an Exploration Area Mineral Asset). For these
particularly early-stage exploration areas comparable transactions on a dollar per square
kilometre basis are more relevant. As the project advances and as geological sampling and
knowledge increase, tenement areas tend to decrease to match a narrowing focus on more
prospective areas. For these areas where specific, drill sample supported Exploration Targets
have been identified that warrant further detailed evaluation or Mineral Resources require
estimation, comparable transactions on a dollar per metal unit basis may be more appropriate
(i.e. an “Advanced Exploration Area Mineral Asset or Pre-Development Project at early
assessment”).
4.4.1
Reported Market Transactions
4.4.1.1
Reported Market Transactions for Exploration Area Gold Projects in Western Australia
Ravensgate’s analysis of Western Australian market transactions for exploration gold projects
(Table 9) on Prospecting and Mining Licences indicates an implied value between $3,497 and
$1,586,207 per km2 for Exploration and Advanced Exploration Area Mineral Assets, with no
estimated Mineral Resources in accordance with the JORC Code 2012. The implied value per
km2 is dependent on the type of licence, whether it is an Exploration Licence, Prospecting
Licence or Mining Licence. With lower implied values per km 2 for Exploration Licences
compared to Prospecting Licences and lower implied values per km 2 for Prospecting Licences
compared to Mining Licences. The implied value was also affected by the strategic
importance of the licences and the presence of known gold mineralisation upon them and the
grade of the gold mineralisation.
Page 50 of 62
For personal use only
Table 9
Date
Market Transactions Involving Gold Projects at the Exploration Stage in Western Australia
Vendor
Value2
$M
Purchaser/Farminee
Transaction
Type
Prospective
Commodities1
Area
km2
Cost per
km2 A$
Acquisition
Au
0.450
9.30
48,387
15-Sep-14
Meteoric Resources NL
Resourceful Mining Group Pty Ltd
7-Mar-14
Mount Magnet South NL
Australian Mines Limited
Joint Venture
Au-Cu
1.515
129.00
11,745
20-Dec-13
Doray Minerals Limited
Mithril Resources Limited
Joint Venture
Au-BM
1.033
160.00
6,457
17-Oct-13
Cazaly Resources Limited
Excelsior Gold Limited
Acquisition
Au
0.230
18.00
12,778
12-Aug-13
Panoramic Resources Limited
Gateway Mining Limited
Joint Venture
Au
1.522
6.51
233,755
9-Aug-13
Private Vendors
Stratum Metals Limited
Acquisition
Au
0.110
3.77
29,201
1-Jul-13
Ramelius Resources Limited
Eros Mining Limited
Acquisition
Au-Ni
0.400
114.40
3,497
19-Jun-13
Private Vendor
Phoenix Gold Limited
Acquisition
Au
0.030
1.70
17,647
27-May-13
Private Vendors
Bligh Resources Ltd
Acquisition
Au
0.080
0.37
216,216
7-May-13
Trafford Resources Limited
Alloy Resources Limited
Joint Venture
Au
1.131
27.64
40,913
3-Apr-13
Resources and Investment NL
Naracoota Resources Limited
Acquisition
Au
0.300
45.50
6,593
7-Sep-12
Breakaway Resources Limited
Mithril Resources Limited
Acquisition
Au
0.200
10.45
19,139
20-Aug-12
Private Vendors
Resource & Investment NL
Joint Venture
Au-Cu
1.518
5.93
255,984
13-Jun-12
Clive Humberston
General Mining Corporation Ltd
Acquisition
Au
0.920
0.58
1,586,207
29-May-12
Wakeford Holdings Pty Ltd
Millennium Minerals Limited
Acquisition
Au
0.350
1.20
291,181
14-May-12
Birimian Gold Limited
Peel Mining Limited
Acquisition
Au
0.060
0.24
247,219
28-Mar-12
Carrick Gold Limited
Phoenix Gold Limited
Acquisition
Au
0.706
85.00
8,311
08-Feb-12
Breakaway Resources Limited
Ramelius Resources Limited
Acquisition
Au
0.300
20.81
14,419
27-Jan-12
Galaxy Resources Limited
Phillips River Mining Limited
Acquisition
Au
0.250
3.10
80,645
Page 51 of 62
For personal use only
Table 9
Date
Market Transactions Involving Gold Projects at the Exploration Stage in Western Australia
Vendor
Purchaser/Farminee
Transaction
Type
Prospective
Commodities1
Value2
$M
Area
km2
Cost per
km2 A$
25-Jan-12
Private Vendor
GGG Resources Plc
Acquisition
Au
3.129
10.00
312,936
12-Dec-11
Northern Mining Limited
Macphersons Reward Gold Limited
Acquisition
Au-Zn-Ag
0.500
1.08
465,116
12-Dec-11
Cazaly Resources Limited
Macphersons Reward Gold Limited
Acquisition
Au-Zn-Ag
0.826
30.10
27,439
12-Dec-11
Private Vendor
Macphersons Reward Gold Limited
Acquisition
Au-Zn-Ag
0.100
8.06
12,405
12-Dec-11
Private person
Macphersons Reward Gold Limited
Acquisition
Au-Zn-Ag
0.005
0.76
6,595
22-Sep-11
Private Vendor
Exterra Resources Limited
Acquisition
Au
0.050
1.75
28,571
13-Sep-11
Private Vendor
Power Resources Limited
Acquisition
Au
0.022
3.42
6,498
18-Aug-11
Millennium Minerals Limited
Novo Resources Corp
Joint Venture
Au
2.013
8.36
240,730
05-Apr-11
Millennium Minerals Limited
Galliard Resources Corp
Joint Venture
Au
1.299
8.36
155,310
24-Feb-11
Private Vendor
Vector Resources Limited
Acquisition
Au
0.250
17.72
14,108
31-Jan-11
Australian Gold Investments Limited
Phoenix Gold Limited
Acquisition
Au
2.500
24.28
102,965
19-Jan-11
Provider Express Pty Ltd
Paynes Find Gold Limited
Acquisition
Au
0.060
0.43
139,535
30-Dec-10
Private Vendor
Saracen Mineral Holdings Limited
Acquisition
Au
0.538
1.53
351,307
1 Commodities: Au = Gold, Ni = Nickel, BM = Base Metals, Cu = Copper, Zn = Zn, Ag = Silver.
2 Value is on a 100% equity basis.
Page 52 of 62
Commodity Prices
Ravensgate has examined the historical commodity chart for gold Figure 19 for general trends
over time. A general analysis of the five year price chart for gold in Figure 19 shows a
continuous steady rise culminating in a significant rise in late 2011 interpreted to be partly a
response to the European Debt Crisis. The gold price remained relatively steady until October
2012, from where it was in decline until July 2013, from where it has traded in a range from
US$1,200 to US$1,350. In the last few months the gold price has been declining. Ravensgate
has taken into consideration the general commodity trend as an influence on deriving a final
project valuation.
Figure 19
Gold Five Year Monthly Average Price Chart to September 2014
$2,000
US$ Per Troy Ounce
$1,500
$1,000
$500
Source: Perth Mint Commodity Prices (Monthly Average London PM Fix Gold Price in US$)
Page 53 of 62
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
$0
Sep-09
For personal use only
4.4.2
For personal use only
4.5
Mineral Asset Valuations
4.5.1
Paynes Find Gold Project, Western Australia
To value the Paynes Find Gold Project Ravensgate has broken it up into its individual
tenements and valued it based on the results and prospectivity of each tenement.
4.5.1.1
Selection of Valuation Method
The Paynes Find Gold Project, in which PFGL has a 100% interest in can be classified as a
“Advanced Exploration Area” mineral asset as defined in Section 4.1 and the surrounding
exploration tenure purchase can be classified as an Exploration Area mineral asset as defined
in Section 4.1.
A mineral resource as defined in the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves - 2012 Edition (JORC Code 2012) has not been reported
for the Paynes Find project. In valuing the mineral asset of the Paynes Find project,
Ravensgate considers the DCF/NPV method inappropriate, due to the early stage of the
project.
Ravensgate has elected to apply the Comparable Transaction method to value the project
after consideration of the various valuation methods outlined in Section 4.1 and the
geological / exploration information outlined in Section 3.5. Multiples of Exploration (MEE)
and other cost based methods were not thought to be appropriate to apply in this case due to
the very mature stage of exploration at the project and the substantial historic expenditures.
4.5.1.2
Project Analysis – Comparable Transactions Method
Ravensgate’s analysis of Western Australian market transactions for exploration mineral
assets (Table 9) suggests an implied value between $3,497 and $1,586,207 per km2 for
exploration mineral assets, with no estimated mineral resources in accordance of the JORC
Code 2012. Analysing the transactions in Table 9 in more detail and sub-setting transactions
into just prospecting licences, mining licences, a mixture of prospecting and mining licences
and a mixture of exploration with either prospecting and/or mining licences, the following
statistics were determined (Table 10). It can be seen that the average values are all skewed
upwards due to a few highly valued strategic transactions, with the median values being more
representative of a normal price for a type of tenement.
Table 10
Summary Statistics of Comparative Transactions by Tenement Type
Tenure Combinations
Low $
High $
Mean $
Median $
Exploration + Prospecting and/or Mining
3,497
48,387
16,313
8,311
Prospecting
6,595
465,116
96,803
28,571
Prospecting + Mining
12,778
351,307
114,710
47,377
Mining
155,310
1,586,207
415,415
251,602
The value ranges differ between the different licence types, where generally mining
tenements are worth more than prospecting, which are worth more than exploration
tenements on a cost per km2 basis. A breakdown of ranges for Prospecting and Mining
Licences based on their prospectivity and strategic value are shown in Table 11 below.
Page 54 of 62
For personal use only
Table 11
Cost per km2 Range
Tenement Type Value Ranges Breakdown
Comments
Prospecting Licences
$6,000 - $15,000
Grass roots early stage exploration, with limited work or limited exploration
potential.
$15,000 - $30,000
Average exploration stage, some defined gold targets for follow up. Mature
exploration ground that has been well explored
$30,000 - $150,000
Advanced stage exploration with good potential, defined gold targets ready
for resource drilling
$150,000+
Advanced stage exploration with good potential and/or strategic to the
purchaser.
Mining Licences
$150,000 - $500,000
Value varies due to quality of gold mineralisation and how strategic it is to
the purchaser.
$500,000+
Good quality gold targets with good potential to be converted to a mineral
resource and/or highly strategic to the purchaser.
Ravensgate has derived implied ranges and preferred values varying on the tenements
prospectivity per km2 to apply to the area of the granted Prospecting and Mining licences
(Table 12), which have a total combined area of 7.007km2. These values relate to
approximately $0.835M to $1.208M. From this range a preferred value of $1.022M has been
selected, which reflects the outcome of successful exploration to date and the quality of the
exploration ground.
To derive appropriate values for the various tenements Ravensgate reviewed the exploration
data and prospectivity for the various licences and selected an appropriate range based on
Table 11. The values attributed to each tenement were based upon a review of the
prospectivity and quality of exploration targets on each tenement as described in Section 3.5.
A brief description of the factors that have been taken into account in determining the value
range and preferred value for the tenements are as follows:

M59/0002: The licence is located immediately to the south from M59/396 and is largely
underlain by the Paynes Find Gneiss, containing historic workings in its northern area.
Minor granite occurs in the south. The prospectivity of the licence is rated as medium to
high.

M59/0010: The licence mostly contains the Paynes Find Gneiss and contains a line of
historic workings on the northwest – southeast trending Primrose Fault and sheared
contact with the mafic schist, which was the focus of PFGL’s Stage 2 drilling program.
The licence contains CSA’s target ‘A’ which is proximal to the high grade result from
PFRC120 which returned 3m at approximately three ounces of gold (Figure 17 and Figure
18). Therefore, the prospectivity of the licence is rated as high. The value of this licence
was discounted by 25% due to ongoing environmental and OHS concerns as detailed in
Section 3.2.2.

M59/0235: The licence is on the Paynes Find Gneiss with historic workings, immediately
to the northeast of the Stage 2 drill program. The southern area was previously drilled by
Forsayth in 1987 (Figure 15). The prospectivity of the licence is rated as medium to high.

M59/0244: The licence mostly contains the Paynes Find Gneiss and contains a line of
historic workings on the northwest – southeast trending Primrose Fault and sheared
contact with the mafic schist, which was the focus of PFGL’s Stage 1 drilling program.
Page 55 of 62
For personal use only
The areas potential has been highlighted by CSA, which also contains target ‘F’ (Figure
18). Therefore, the prospectivity of the licence is viewed as high. The value of this
licence was discounted by 25% due to ongoing environmental and OHS concerns as
detailed in Section 3.2.2.

M59/0396: The licence is located immediately to the east of CSA target ‘F’ on the Paynes
Find Gneiss, containing historic workings. The prospectivity of the licence is rated as
medium to high.

M59/0662: South of the historic Daffodil open pit and containing the historic workings of
Pansy (south) and Shamrock, the area has been identified by CSA with the western area
of the licence viewed as prospective, containing target ‘B’ (Figure 18). As it is not on the
main Paynes Find Gneiss package, the licence is viewed as medium to high prospectivity.
The value of this licence was discounted by 25% due to ongoing environmental and OHS
concerns as detailed in Section 3.2.2.

M59/0663: The licence contains the historic Bluebell workings on the Paynes Find Gneiss
which is at the northern end of the main strike of historic workings (Figure 8) and
favourable structural trend, containing CSA target ‘E’ (Figure 18). The licence is viewed
as having medium to high prospectivty, with also alluvial potential on the licence.

P59/1907: On the Eastern side of the Daffodil Fault, on the Eastern Granite, the area has
not been covered by geochemical surveys. The area is underlain by the Eastern
Ultramafic and therefore maybe more prospective for nickel. The area is proximal to the
Daffodil tailings – refer to comments for P59/1956. The prospectivity of the licence is
rated as low.

P59/1908: A small, strategic, gap-fill prospecting licence in proximity to CSA’s target ‘A’.
The licence is on the mafic schist and Paynes Find Gneiss contact at the Primrose Fault,
within close proximity to historic workings. Therefore, although a small area, the
prospectivity of the licence is viewed as high.

P59/1909: A small, strategic, gap-fill prospecting licence on Paynes Find Gneiss,
immediately to the northwest of the historic Adeline workings. Therefore, although a
small area, the prospectivity of the licence is viewed as high.

P59/1924: The licence is split approximately north to south by the Daffodil Fault with the
eastern half of the licence on the Eastern Granite and the western half on the Paynes
Find Gneiss, which contains historic workings. The licence does not contain ant targets
identified by CSA, and is viewed as having medium prospectivity.

P59/1941: CSA has defined a structural corridor at the north-south border between this
licence and P59/1959 to the west, containing target ‘C’ on P59/1941 and target ‘D’ on
P59/1959 (Figure 18). The licences are viewed as having medium prospectivity. They are
traversed by the Great Northern Highway in their northern area, with P59/1941 also
containing the Paynes Find Tavern and Roadhouse.

P59/1942: The tenement is mostly underlain by the Eastern Granite, with a sheared area
of the Paynes Find Gneiss in the southwest corner, which is the only area of the
tenement that was covered by geochemical soil sampling. The tenement does not
contain any historic workings or drill holes, is not proximal to any of the CSA targets and
is therefore viewed as having low prospectivity.

P59/1956: A small licence on the eastern side of the Daffodil Fault on the Eastern
Granite, at the southern pinch-out of the Paynes Find Gneiss. The southern area of the
licence has been used as a tailings dump from the historic Daffodil open pit which is
~400m to the southwest (refer to Figure 4). In Ravensgate’s opinion, an area that has
been used as a waste / tailings site is viewed as having low prospectivity.

P59/1957: A strategically placed tenement at the southern pinch out of the Paynes Find
Gneiss, the licence covers the southern strike extent of a line of historic workings (Figure
4), which is viewed as having medium prospectivity.
Page 56 of 62
For personal use only

P59/1958: The licence covers the east-west extension of licences P59/1941 and
P59/1959, which includes the southern extension of CSA identified north – south
structural corridor, however the licence does not contain a target and is viewed as
having medium prospectivity.

P59/1959: Refer to P59/1941.
Table 12
Tenement
Comparable Transaction Valuation of PFGL’s Exploration Tenure
Area
km2
Equity
%
Values Per km2
Low
$
Preferred
$
Valuation
High
$
Low
$K
Preferred
$K
High
$K
M59/0002
0.050
100
300,000
400,000
500,000
14.9
19.8
24.8
M59/0010*
0.243
100
700,000
800,000
900,000
127.4
145.7
163.9
M59/0235
0.060
100
300,000
400,000
500,000
18.0
24.0
30.0
M59/0244*
0.911
100
700,000
800,000
900,000
478.3
546.7
615.1
M59/0396
0.040
100
400,000
500,000
600,000
16.2
20.2
24.3
M59/0662*
0.390
100
300,000
400,000
500,000
87.6
116.9
146.1
M59/0663
0.136
100
150,000
250,000
350,000
20.5
34.1
47.7
P59/1907
0.080
100
6,000
10,500
15,000
0.5
0.8
1.2
P59/1908
0.006
100
150,000
175,000
200,000
0.9
1.1
1.2
P59/1909
0.002
100
110,000
130,000
150,000
0.2
0.2
0.2
P59/1924
0.431
100
20,000
40,000
60,000
8.6
17.2
25.8
P59/1941
1.741
100
15,000
22,500
30,000
26.1
39.2
52.2
P59/1942
0.841
100
6,000
10,500
15,000
5.0
8.8
12.6
P59/1956
0.047
100
6,000
10,500
15,000
0.3
0.5
0.7
P59/1957
0.047
100
20,000
40,000
60,000
0.9
1.9
2.8
P59/1958
0.511
100
15,000
22,500
30,000
7.7
11.5
15.3
P59/1959
1.472
100
15,000
22,500
30,000
22.1
33.1
44.2
TOTAL
7.007
100
NA
NA
NA
835.2
1,021.7
1,208.1
The valuation has been compiled to an appropriate level of precision and minor rounding errors may
occur.
*Licences M59/0010, M59/0244 and M59/0662 were discounted by a further 25% due to environmental
and OHS concerns.
Page 57 of 62
For personal use only
4.6
Valuation Summary
Ravensgate has concluded that the Paynes Find Gold Project is of merit and worthy of further
exploration. A summary of the Paynes Find Gold Project valuation in ownership equity
percentage terms is provided in Table 13. The applicable valuation date is 20 October 2014
and is derived from using the Comparable Transactions valuation method. The value of the
Paynes Find Gold Project is considered to lie in a range from $0.835M to $1.208M; within this
range Ravensgate has selected a preferred value of $1.022M. As the technical valuation is
based on comparable transactions it can be considered to also be the market value. The
definition of market value that Ravensgate adopts is that used in the VALMIN code, which is
the market value definition as defined by the International Valuation Standards Committee
(IVSC).
Table 13
Summary Project Technical Valuation in Ownership
Equity Percentage Terms
Valuation
Project
Mineral Asset
Paynes Find
Advanced
Exploration Area
Equity
%
Area
km2
Low
$M
Preferred
$M
High
$M
100
7.007
0.835
1.022
1.208
The valuation has been compiled to an appropriate level of precision and minor rounding errors may occur.
Page 58 of 62
For personal use only
5.
REFERENCES
Downie, A., 2002. Hallmark Mining Limited, Annual Technical Report, Paynes Find Project,
M59/10, for reporting period 23/10/2001 to 22/10/2002, Wamex a65721.
Fitton, F., 2011. Comparison of the Paynes Find Goldfield with the Boddington Gold Deposit,
West Australia.
JORC, 2004. Australasian Code for Reporting of Mineral Resources and Ore Reserves (The
JORC Code) prepared and jointly published by: The Joint Ore Reserve Committee of the
Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the
Minerals Council of Australia (JORC) Published December 2004.
JORC, 2012. Australasian Code for Reporting of Mineral Resources and Ore Reserves (The
JORC Code) prepared and jointly published by: The Joint Ore Reserve Committee of the
Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the
Minerals Council of Australia (JORC) The JORC Code 2012 Edition - Effective 20 December
2012 and mandatory from 1 December 2013 (Published December 2012).
Libby, J., 2003. Batavia Mining Limited Annual Technical Report, Paynes Find Project,
M59/10, October 2003, Wamex a67824.
Maynard, A., 2010. Independent Geologist’s Report on Mineral Exploration Projects in Western
Australia for Paynes Find Gold Limited.
Paynes Find Gold Limited, 2010. Prospectus, Section 9.4 pp78.
Paynes Find Gold Limited, 2011. Exploration update, ASX Release, 21st February 2011.
Paynes Find Gold Limited, 2013. Structural Review of Paynes Find Gold Field. ASX
Announcement 24 January 2013.
Paynes Find Gold Limited, 2013. Positive Results from Structural Survey Confirms Greater
Gold Potential. ASX Announcement 7 March 2013.
Paynes Find Gold Limited, 2013. Gold Production Commences. ASX Announcement 7 March
2013.
Paynes Find Gold Limited, 2013. Milestone Mining Agreement. ASX Announcement 4 June
2013.
Paynes Find Gold Limited, 2013. Geochem Results Confirm New Gold Targets at Paynes Find.
ASX Announcement 12 June 2013.
Paynes Find Gold Limited, 2013. Quarterly Activities Report and Appendix 5B. For the Quarter
ending 30 September 2013.
Paynes Find Gold Limited, 2013. Operations Update. ASX Announcement 1 October 2013.
Paynes Find Gold Limited, 2014. http://www.paynesfindgold.com
Paynes Find Gold Limited, 2014. Quarterly Activities Report and Appendix 5B. For the Quarter
ending 31 March 2014.
Paynes Find Gold Limited, 2014. Quarterly Activities Report and Appendix 5B. For the Quarter
ending 30 June 2014.
VALMIN, 2005. Code for the Technical Assessment and Valuation of Mineral and Petroleum
Assets and Securities for Independent Expert Reports – The VALMIN Code, 2005 Edition.
Wolstencroft, A., 1997. Annual Report for Mining Lease M59/10, Paynes Find for the period 23
October 1996 to 22 October 1997. Kirkwood Gold NL, Wamex a52954.
Wolstencroft, A., 1998. Annual Report for Mining Lease M59/10, Paynes Find for the period 24
January 1997 to 23 October 1998. Kirkwood Gold NL, Wamex a52955.
www.intierra.com
Page 59 of 62
For personal use only
6.
LIST OF ABBREVIATIONS
A$
AC
Ag
ASX
Au
Azi
Cu
DCF
FAusIMM
g/t
JORC Code
K
km
km2
m
M
MAIG
MAusIMM
mm
MMI
Mt
NPV
oz
Pb
PGE
ppb
ppm
QA/QC
RAB
RC
t
US$
Zn
Australian dollar(s)
Aircore (drill hole)
Silver
Australian Securities Exchange
Gold
Azimuth
Copper
Discounted cash flow
Fellow of the Australasian Institute of Mining and Metallurgy
Grams per tonne
2012 Edition of the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves
Thousand(s)
kilometre(s)
Square kilometre(s)
Metre(s)
Million(s)
Member of the Australian Institute of Geoscientists
Member of the Australasian Institute of Mining and Metallurgy
Millimetre(s)
Mobile Metal Ion
Million Tonnes.
Net present value
Ounce (Troy ounce measure of weight)
Lead
Platinum Group Element
Parts per billion; a measure of concentration
Parts per million; a measure of concentration
Quality Assurance / Quality Control
Rotary Air Blast (drill hole)
Reverse circulation (drill hole)
Tonne(s)
United States Dollar(s)
Zinc
Page 60 of 62
7.
GLOSSARY
For personal use only
aircore drilling
aeromagnetic
anomalies
amphibolite
Archaean
assayed
bedrock
boudin / boudinage
craton
diamond drilling
dolerite
domain
dykes
fault
geochemical
geophysical
geosyncline
gneiss
graben
granite
greenschist
greenstone belt
magnetite
mesothermal
metamorphic
mobile metal ion
Page 61 of 62
Air Core Drilling. A relatively inexpensive drilling technique similar to
RC drilling, in that the drill cuttings are returned to surface inside the
rods.
A survey undertaken by helicopter or fixed-wing aircraft for the
purpose of recording magnetic characteristics of rocks by measuring
deviations of the Earth’s magnetic field.
An area where exploration has revealed results higher than the local
background level.
A metamorphic rock consisting mainly of amphibole, especially the
species hornblende and actinolite
The oldest rocks of the Precambrian era, older than about 2,500
million years.
The testing and quantification metals of interest within a sample.
Any solid rock underlying unconsolidated material.
Structures formed by extension, where a rigid tabular body such as
Hornfels, is stretched and deformed amidst less competent
surroundings. The competent bed begins to break up, forming
sausage-shaped boudins.
An old and stable part of the continental lithosphere
Drilling method employing a (industrial) diamond encrusted drill bit
for retrieving a cylindrical core of rock.
A medium grained mafic intrusive rock composed mostly of pyroxenes
and sodium-calcium feldspar.
Geological zone of rock with similar geostatistical properties; typically
a zone of mineralisation
A tabular body of intrusive igneous rock, crosscutting the host strata
at a high angle.
A wide zone of structural dislocation and faulting.
Pertains to the concentration of an element.
Pertains to the physical properties of a rock mass.
A subsiding linear trough that was caused by the accumulation of
sedimentary rock strata deposited in a basin and subsequently
compressed.
A common and widely distributed type of rock formed by high-grade
regional metamorphic processes from pre-existing formations that
were originally either igneous or sedimentary rocks.
A depressed block of land bordered by parallel faults.
A coarse-grained igneous rock containing mainly quartz and feldspar
minerals and subordinate micas.
A metamorphosed basic igneous rock which owes its colour and
schistosity to abundant chlorite.
A broad term used to describe an elongate belt of rocks that have
undergone regional metamorphism to greenschist facies.
A mineral comprising iron and oxygen which commonly exhibits
magnetic properties.
A hydrothermal ore deposit formed at intermediate temperatures
(200-300°C) and depths.
A rock that has been altered by physical and chemical processes
involving heat, pressure and derived fluids
MMI is a highly sensitive proven geochemical exploration method
For personal use only
NQ
orogeny
outcrop
Precambrian
Proterozoic
RAB drilling
RC drilling
regolith
resource
rock chip sampling
sedimentary
soil sampling
strata
stratigraphic
strike
unconformity
volcanics
whereby Mobile Metal Ions, adsorbed onto the surface of screened soil
particles, are dissolved using patented chemical extractants and
analysed at ppb levels. This method is more sensitive than
conventional geochemical methods.
Diamond Drilling. A core diameter of 47.6mm.
The process of mountain formation, especially by a folding and
faulting of the earth's crust.
Surface expression of underlying rocks.
A period of geological time older than 570 million years before
present.
An eon of geological time spanning the period from 2,500 million years
to 570 million years before present
Rotary Air Blast. A relatively inexpensive and less accurate drilling
technique involving the collection of sample returned by compressed
air from outside the drill rods.
Reverse Circulation. A drilling method in which the fragmented
sample is brought to the surface inside the drill rods, thereby reducing
contamination.
The layer of unconsolidated material which overlies or covers in situ
basement rock
In situ mineral occurrence from which valuable or useful minerals may
be recovered.
The collection of rock specimens for mineral analysis.
A term describing a rock formed from sediment.
The collection of soil specimens for mineral analysis.
Sedimentary rock layers.
Composition, sequence and correlation of stratified rocks.
Horizontal direction or trend of a geological structure.
An erosional or non-depositional surface separating two rock masses or
strata of different ages, indicating that sediment deposition was not
continuous.
Rocks formed or derived from volcanic activity.
Page 62 of 62
For personal use only
APPENDIX 8
WACC Assessment – Delecta
When assessing an appropriate discount rate to use in a discounted cash flow valuation, due regard must be given
to the rates of return available in the marketplace, the degree of risk attached to the business, shares or project and
the required rate of return.
Businesses are normally funded by a mix of debt and equity. The Weighted Average Cost of Capital (“WACC”) is a
widely used and accepted basis to calculate the “representative” rate of returns required by debt and equity investors.
We have applied the WACC methodology to determine an appropriate discount rate to be used in assessing the Fair
Value of the Consideration.
The Capital Asset Pricing Model (“CAPM”) is the most frequently used model in determining the cost of equity of an
investment or project and the required rate of return for debt funding is determined having regard to current borrowing
costs and prevailing credit ratings. The cost of equity and cost of debt are weighted by the respective proportions of
equity and debt funding to arrive at the WACC.
WACC
The generally accepted WACC formula is the post-tax WACC as shown below:
WACC =
[Re * E/V] + [Rd (1 - t) * D/V]
Re
=
Expected equity investment return or cost of equity
Rd
=
Interest rate on debt (pre-tax)
t
=
Corporate tax rate
E
=
Market value of equity
D
=
Market value of debt
V
=
Market value of debt plus equity
Where:
CAPM
The CAPM is based on the theory that the prudent investor will price investments so that the expected return is equal
to the risk free rate of return plus a premium for risk. CAPM assumes that there is a positive relationship between
risk and return; that is, investors are risk averse and therefore demand higher returns for accepting higher levels of
risk.
The CAPM calculates the cost of equity through the following formula:
Re
= Rf + β[E(Rm) – Rf]
Re
=
Cost of equity capital or expected return on the investment.
Rf
=
Risk free rate of return.
E(Rm)
=
Expected return on the market.
E(Rm) - Rf
=
Market risk premium
β
=
Beta
Where:
53
We have considered each component of the CAPM below.
For personal use only
Risk free rate - Rf
We have assumed a risk free rate of 2.53% being the average yield on the 2-year Australian Government Bond for
the last 2 years, as published by the RBA. We have used the 2-year bond rate as the revenue payment is due from
the first revenue earned from the project.
Market Risk Premium – E(Rm) - Rf
Market risk premium represents the level of return investors require over and above the risk free rate in order to
compensate them for the non-diversifiable risks associated with an investment in a market portfolio. Strictly speaking,
the market risk premium is equal to the expected return from holding shares over and above the return from holding
risk-free government securities.
Various empirical studies undertaken in Australia and overseas show that historical market risk premiums vary across
markets; the Australian market is generally in line with the overall range of other developed countries but is slightly
higher than the world average. A paper published in the Journal of Law and Financial Management in 2003 estimated
that the long-term market risk premium in Australia was 6.7%. This is in line with an earlier study carried out by the
Australian Graduate School of Management (“AGSM”) using data from 1974 to 1995. The 10 year average return of
the ASX300 index is 10.4% (excluding 2008 and 2009 where there was a significant amount of volatility).
Having regard to this information, we have assumed a market risk premium to be 7% in our determination of the
discount rate.
Beta - β
The beta coefficient measures the systematic risk of the company compared to the market as a whole. A beta of 1
indicates that the company’s risk is comparable to that of the market.
The choice of a beta requires judgement and necessarily involves subjective assessment as observations of beta in
comparable companies may be subject measurement issues and other variations. Accordingly, depending upon
circumstance, a sector average, or a basket of comparable companies may present a more reliable beta, rather than
relying on a single comparable company.
Beta can be expressed as an equity beta (which includes the effect of gearing on equity returns) or as an asset beta
(where the impact of gearing is removed). The asset beta will be lower than the equity beta for any given investments,
with the difference dependent upon the level of gearing in the capital structure.
The selection of an appropriate beta involves a degree of professional judgement, particularly where the performance
drivers of the company being valued are not directly aligned with the most comparable listed companies.
Delecta is listed on the Australian Stock Exchange and as such we have used Delecta’s ungeared beta, as presented
in the table below:
Company
Delecta Limited
Levered
beta
1.330
Total debt/
equity
0.0%
Unlevered
beta
1.330
Table 16: Beta of Delecta (Source: Capital IQ)
54
Calculation of WACC
For personal use only
We set out the detailed calculation of the WACC in the table below.
WACC
Market Risk Premium (Rm - Rf)
Multiplied by: Levered Beta
Adjusted Market Risk Premium
Add: Risk-Free Rate of Return (Rf)(1)
Add: Size Premium
Cost of Equity
Multiplied by: E/(D+P+E)
Cost of Equity Portion
7%
1.330
9.3%
2.5%
0%
11.8%
100.0%
11.8%
ASX:VIE Cost of Debt (Rd)
ASX:VIE Tax Rate
After-Tax Cost of Debt
0.0%
30.0%
0.0%
Multiplied by: D/(D+P+E)
0.0%
Cost of Debt Portion
0.0%
WACC
11.8%
Table 17: WACC Calculation (Source: Capital IQ)
Based on the assumptions set out above, we have assessed the post-tax WACC to be 12%.
55
PROXY FORM
For personal use only
DELECTA LIMITED
ACN 009 147 924
GENERAL MEETING
I/We
of:
being a Shareholder entitled to attend and vote at the Meeting, hereby appoint:
Name:
OR:
the Chair of the Meeting as my/our proxy.
or failing the person so named or, if no person is named, the Chair, or the Chair’s nominee, to vote in
accordance with the following directions, or, if no directions have been given, and subject to the
relevant laws as the proxy sees fit, at the Meeting to be held at 9 Foundry Street, Maylands, Perth,
Western Australia, on 28 January 2015 at 10 am, and at any adjournment thereof.
The Chair intends to vote undirected proxies in favour of all Resolutions in which the Chair is entitled to
vote. In exceptional circumstances the Chair may change his/her voting intention on any Resolution.
In the event this occurs an ASX announcement will be made immediately disclosing the reasons for the
change.
FOR
Voting on business of the Meeting
Resolution 1
AGAINST
ABSTAIN
Approval of grant of Canadian River Option
Please note: If you mark the abstain box for a particular Resolution, you are directing your proxy not to vote on that
Resolution on a show of hands or on a poll and your votes will not be counted in computing the required majority on
a poll.
%
If two proxies are being appointed, the proportion of voting rights this proxy represents is:
Signature of Shareholder(s):
Individual or Shareholder 1
Shareholder 2
Shareholder 3
Sole Director/Company Secretary
Director
Director/Company Secretary
Date:
Contact name:
Contact ph (daytime):
E-mail address:
Consent for contact by e-mail
in relation to this form:
YES
NO
For personal use only
Instructions for completing Proxy Form
1.
(Appointing a proxy): A Shareholder entitled to attend and cast a vote at the Meeting is
entitled to appoint a proxy to attend and vote on their behalf at the Meeting. If a
Shareholder is entitled to cast 2 or more votes at the Meeting, the Shareholder may appoint a
second proxy to attend and vote on their behalf at the Meeting. However, where both
proxies attend the Meeting, voting may only be exercised on a poll. The appointment of a
second proxy must be done on a separate copy of the Proxy Form. A Shareholder who
appoints 2 proxies may specify the proportion or number of votes each proxy is appointed to
exercise. If a Shareholder appoints 2 proxies and the appointments do not specify the
proportion or number of the Shareholder’s votes each proxy is appointed to exercise, each
proxy may exercise one-half of the votes. Any fractions of votes resulting from the application
of these principles will be disregarded. A duly appointed proxy need not be a Shareholder.
2.
(Direction to vote): A Shareholder may direct a proxy how to vote by marking one of the
boxes opposite each item of business. The direction may specify the proportion or number of
votes that the proxy may exercise by writing the percentage or number of Shares next to the
box marked for the relevant item of business. Where a box is not marked the proxy may vote
as they choose subject to the relevant laws. Where more than one box is marked on an item
the vote will be invalid on that item.
3.
(Signing instructions):
•
(Individual): Where the holding is in one name, the Shareholder must sign.
•
(Joint holding): Where the holding is in more than one name, all of the Shareholders
should sign.
•
(Power of attorney): If you have not already provided the power of attorney with
the registry, please attach a certified photocopy of the power of attorney to this
Proxy Form when you return it.
•
(Companies): Where the company has a sole director who is also the sole
company secretary, that person must sign. Where the company (pursuant to
Section 204A of the Corporations Act) does not have a company secretary, a sole
director can also sign alone. Otherwise, a director jointly with either another
director or a company secretary must sign. Please sign in the appropriate place to
indicate the office held. In addition, if a representative of a company is appointed
pursuant to Section 250D of the Corporations Act to attend the Meeting, the
documentation evidencing such appointment should be produced prior to
admission to the Meeting. A form of a certificate evidencing the appointment may
be obtained from the Company.
4.
(Attending the Meeting): Completion of a Proxy Form will not prevent individual Shareholders
from attending the Meeting in person if they wish. Where a Shareholder completes and
lodges a valid Proxy Form and attends the Meeting in person, then the proxy’s authority to
speak and vote for that Shareholder is suspended while the Shareholder is present at the
Meeting.
5.
(Return of Proxy Form): To vote by proxy, please complete and sign the enclosed Proxy Form
and return by:
(a)
post to Delecta Limited, Level 1, 170-180 Buckhurst Street, SOUTH MELBOURNE, VIC,
AUSTRALIA, 3205; or
(b)
facsimile to the Company on facsimile number +61 3 9686 0644,
so that it is received not less than 48 hours prior to commencement of the Meeting.
Proxy Forms received later than this time will be invalid.